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.
Bob Bastian is Vice President and Chief Information Officer of Prudential Individual Life Insurance and Annuities businesses. Bastian leads industry experts in creating modern digital and technology solutions, crucial for serving customer needs in a rapidly evolving financial technology landscape. Bastian drives comprehensive changes across multiple dimensions including culture, talent, organization, process and architecture which have dramatically improved time-to-market, reduced cost and established sustainability for future growth. Bastian joined Prudential in 1999 and has spent the majority of his time as part of the Life business. In this role he was instrumental in the successful onboarding of the Hartford business, leading over 25 cross functional teams toward a seamless integration.
Amaresh Tripathy is global business leader, analytics, at Genpact, a global professional services firm focused on delivering digital transformation.
Malik Azeez is director of product information management at Paradigm Technology.
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.