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.
Jennifer Briggs, CAE, is president and CEO of the Indiana CPA Society. She joined the society staff in 2002 and served as the special projects manager, marketing manager, marketing director, director of member services, vice president of member services, senior vice president and chief operating officer. Before joining the society, Briggs spent three years at KWK Management Group as executive director of five state-wide associations overseeing all activities of the organizations, including education programs, marketing, membership recruitment, and various government relations activities. Prior to that, she worked for the Indiana Apartment Association and for five years at the National Association of Mutual Insurance Companies. Briggs earned a degree in marketing from Marian College and an MBA from Butler University, and is a member of the American Society of Association Executives and the Indiana Society of Association Executives. In 2009, she was awarded the Association Professional of the Year award from ISAE. She has served on the American Society of Association Executives CAE Exam Committee, the AICPA’s Future of Learning Committee and various community boards of directors.
Elizabeth Mitchell is President and CEO of the Pacific Business Group on Health (PBGH), an action-oriented 501c(3) non-profit organization focused on improving health outcomes, experience and affordability for consumers and purchasers across the United States. Mitchell is a transformational healthcare leader whose career has focused on improving health outcomes and affordability.
Matthew Doyle is the chief operating officer and head of investor relations at Chicago Pacific Founders.
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.