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.
Joanna Nicholas is counsel in Mayer Brown’s New York office and a member of the Banking & Finance practice. She focuses on securitization and structured finance transactions with an emphasis on CLO transactions and mortgage related facilities of residential mortgage loans.
Kevin Robertson is the executive managing director and chief growth officer at HSA Bank, a leading provider of health savings accounts. Kevin serves as chairman of the American Bankers Association HSA Council. Kevin has 30 years of experience in banking, insurance and financial services, covering a diverse spectrum of employee benefits and insurance products and services.
In addition to his years of experience in leading business groups and managing growth organizations, he has a diverse background in operations, as well as legislative and regulatory affairs. As a frequently published author and sought-after speaker, Kevin is a recognized expert and well-known figure in the consumer-directed healthcare industry.
Sue Steel is the executive vice president of people and culture at Nearmap, a data and technology company.
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.