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.
Jack Freund is director, cyber risk management, for TIAA, a member of the CRISC Certification Working Group, coauthor of Measuring and Managing Information Risk, a 2016 inductee into the Cybersecurity Canon, a IAPP Fellow of Information Privacy, and ISACA’s 2018 John W. Lainhart IV Common Body of Knowledge Award recipient.
Yair Holtzman, CPA, leads the Research and Development Tax Credits and Incentives Group at Top 100 Firm Anchin Block and Anchin. He also lead’s the firms Chemicals and Energy and Life Sciences Industry Groups.
Steven Schwartz is regional vice president for employee benefits firm Corporate Synergies. As the leader of the New York region, he manages a large team of talented benefit consultants and support staff.
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.