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.
Frank Buytendijk is a Gartner Fellow in Gartner's Data and Analytics group, pioneering the topic of "digital ethics" and "digital society" helping organizations to do the "right thing" with technology and avoid "messing up." Mr. Buytendijk further covers data and analytics.In addition to his responsibilities at Gartner, Mr. Buytendijk is a visiting Fellow at Cranfield University School of Management, and a regular guest lecturer at Warwick Business School. Mr. Buytendijk has a solid history of his work being right on time or becoming relevant one to two years after publication.Examples include ethics/privacy in analytics (2012), embracing complexity (2011), management excellence (2009), behavioral performance management (2008), high-performance organizations (2005), collaborative decision making (2003), enterprise performance management (2002), business activity monitoring (2001) and BI/ERP (1998).
Don Korn is a freelance financial writer with expertise in taxes, tax shelters, investments, real estate, financial planning, retirement planning, estate planning, life and health insurance.
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.