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.
Ed Boyle is the CEO of Medici Bank. A payments and digital banking expert, Boyle has more than 15 years' experience in varied product and marketing roles at American Express. After serving as U.S. managing director of Fidor Bank in Germany, Boyle brings a deep customer orientation and knowledge of banking technology, and partnership development to create more open and efficient solutions.
Robin I. Frank is a partner with Shapiro, Blasi, Wasserman & Hermann PA, a litigation and transactional law firm in South Florida. She focuses on labor and employment law and has extensive experience both prosecuting and defending against nationwide “collective action” claims for unpaid overtime or minimum wages under the Fair Labor Standards Act. Reach her at (561) 477-7800 or rfrank@sbwh.law.
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.