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.
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John Gronen is the chief financial officer of Yooz, a leader in the accounts payable automation space. With a strong background in finance and technology, he has played a pivotal role in driving Yooz's financial strategy and growth. He brings over two decades of experience in financial leadership, strategic planning and operational efficiency. Prior to joining Yooz, he worked in various executive roles, helping organizations scale through sound financial management and innovation. Passionate about the intersection of finance and technology, he is committed to enhancing business performance through automation and digital transformation. Outside of work, he is a strong advocate for fostering a culture of collaboration and continuous improvement.
Ronnee Ades is assistant professor of professional practice in the finance and economics department at Rutgers Business School. She teaches Portfolio Management: Active vs. Passive and Ethics in Finance to undergraduates and MBA candidates. Prior to Rutgers, she worked for market leaders such as Dow Jones, Bloomberg, FTSE and Markit.
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.