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.
Brice Luetkemeyer is president and CEO the Bank of St. Elizabeth in Missouri, where he has served in various leadership roles for the past three decades. During his 41 years in banking, Luetkemeyer was also a bank examiner with the Missouri Division of Finance from 1978 to 1988.
Samuel Dibble is a partner at Baker Botts.
Gabrielle M. Luoma, CPA, CGMA, founder and visionary of MOD Ventures, began building her business in 2004 in the living room of her own home. The MOD Ventures firm is unique in that it was built upon the aspiration to not only help businesses grow, but to change the way they see accounting, taxes, day-to-day business operations, and their big-picture vision. Luoma is currently working on her third book, this time for CPAs who are also passionate about innovation. When Luoma isn’t innovating, she can be found rooting on her youngest daughter in her cheer competitions, dreaming, drinking coffee, or watching Game of Thrones. Luoma graduated from New Mexico State University with a bachelor of accountancy and is an advisor for the accounting department at Pima Community College and an executive committee member of the PCPS section of the AICPA.
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.