Small businesses that manage to get their Paycheck Protection Program loans forgiven may find themselves losing valuable tax breaks, according to new guidance from the Internal Revenue Service.
Companies that qualify for loan forgiveness under legislation Congress approved won’t be able to deduct the wages or other businesses expenses they paid for using the loan, according to an IRS notice published Thursday.
“This treatment prevents a double tax benefit,” the agency said in the notice. “This conclusion is consistent with prior guidance of the IRS.”
The guidance clarifies a point of confusion in the $670 billion small business loan program to help businesses struggling as the coronavirus has brought the economy to a standstill. The law states that the forgiven loan won’t be taxed, but didn’t specify whether companies could still write off the expenses they covered with that money.
Ofir Nir is the chief financial officer at Flatworld Solutions, where he leads global finance operations across accounting, FP&A and financial systems. With over 20 years of experience, including senior finance roles at GE and SUEZ and earlier in audit at KPMG, his work focuses on building scalable, audit-ready finance functions in private equity-backed environments. He has led ERP implementations, process standardization efforts, and control enhancements, with a focus on ensuring finance organizations can support automation and growth through disciplined operations and reliable data.
Tom Vladeck is co-founder of Recast and holds a master's degree from LSE and an MBA from Wharton. Prior to co-founding Recast, he built a quantitative market research firm.
The tax code permits companies to write off businesses expenses, such as wages, rent and transportation expenses, but generally doesn’t allow write-offs for tax-exempt income.
The ruling adds to the list of stumbling blocks facing businesses as they try to qualify for the Paycheck Protection Program loans.
Small businesses have reported technical issues in trying to apply for the funds, which restarted Monday after the first round of funding ran out after just 13 days.
The program, run by the Small Business Administration, provides funds to cover eight weeks of payroll costs and the loans are forgiven if the employers keep workers on the job or quickly rehire laid-off workers.