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.
Ben Goodman is vice president at ForgeRock.
Jay Budzik is chief technology officer at ZestFinance.
Bryson Koehler is the chief technology officer at Equifax. He was previously CTO for IBM Watson and Cloud Platform, where he led a global team of cloud engineers, architects, security professionals, product and offering managers, technical communications specialists, research and development activities and operational systems reliability engineers.
With Koehler’s support, IBM reset its core strategic direction to be cloud-native and has radically advanced its cloud capabilities. By driving technical and cultural change and the way the company designed, built, and operated its core technology assets, Koehler helped accelerate IBM’s transformation. With security being a central priority for IBM, he brought all of the security teams together to ensure IBM had the world’s most compliant cloud, strengthening the company’s technical credibility.
Prior to his role at IBM Watson and Cloud Platform, Koehler was chief technology and information officer at The Weather Channel Companies (TWCC), before it was acquired in 2015 by IBM. In this position, he was responsible for setting the strategic vision, development, technical operations, financial planning and execution of all technology initiatives for TWCC. Under his leadership, the company launched its largest public, cloud-based API platform and migrated from 13 legacy data centers into a fully cloud-based company. Additionally, Koehler established leading partnerships with global technology companies such as Google, Apple, and Microsoft, as well as an independent developer network.
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.