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.
Saniye Burcu Alaybeyi is a senior research director for Gartner's Application Innovation Team. In college she studied AI and did her master's thesis in AI. At Gartner, she specializes in AI and IoT. She gives advice to technology and service providers and end users on topics such as explainable AI (XAI), general AI trends, use cases and business opportunities, key business issues and best practices to overcome AI barriers.
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Anne-Lise Dorry is the senior director of corporate finance products at the Tax and Accounting business of Thomson Reuters. She is a CPA in the State of New York and holds the equivalent certification in France. She has over 23 years of accounting and auditing experience. Dorry started her career at one of the Big Four accounting firms, first in France, then in New York. She has served clients that prepared financial statements in accordance with US GAAP, IFRS, French GAAP, and statutory accounting principles. Her main areas of expertise include IFRS conversions, business combinations and financing transactions, foreign exchange, international accounting, fair value measurements, and investments. In 2018, she received industry recognition when winning a Gold Award for Female Employee of the Year at the 15th Annual Stevie Awards for Women in Business. Dorry is a graduate from HEC, School of Management (in France).
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.