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.
Jason Yakencheck is senior managing consultant, IBM Public Service - Cybersecurity & Biometrics, and president of the ISACA Greater Washington D.C. Chapter.
Lev Kurts is the chief technology officer at ServiceChannel, ensuring that the company has an innovative and credible technology strategy and plan that supports its business goals. Lev has nearly a decade of experience in managing highly distributed teams responsible for the design and development of business-to-business software solutions. Before joining ServiceChannel, Lev served as director of product management at Workspeed Management where he led the product line strategy and roadmap and was fully responsible for the design and market delivery of multiple product versions and dozens of customer-driven features.
Steve Ozonian is president and CEO of Williston Financial Group.
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.