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.
John Dugan led the OCC as U.S. comptroller of the currency from 2005 to 2010. He is currently the lead independent director of Citigroup Inc. He is a former chair of the bank regulatory practice at the law firm Covington & Burling.
Charles Noski has served since 2016 as chairman of the Financial Accounting Foundation, the nonprofit body that appoints, funds and oversees the Financial Accounting Standards Board, and formerly chaired the FASB’s Financial Accounting Standards Advisory Council. Earlier in his career, he was chief financial officer of Bank of America and a member of the board of directors of Morgan Stanley.
Stephanie Donahole is a business analyst at Tatvasoft Australia, a web development company in Australia. Her aim is to sharpen her analytical skills, deepening her data understanding and broaden her business knowledge in these years of her career. She loves to write about technology innovation and emergence. Follow Her on Twitter at @SDonahole.
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.