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.
Colleen Blake is SVP of people at GuideSpark. Colleen leads culture change at the intersection of HR and marketing, with a passion for developing solutions that cultivates an enhanced employee experience and boosts organizational productivity. She has been the recipient of the Silicon Valley Women of Influence Award Winner and the Journal’s Top 40 Under 40 Award. Colleen is also an advocate and mentor for girls and women in technology, speaking on panels to amplify their voices in STEM. Before joining GuideSpark, Colleen held leadership positions as the VP of Marketing at ServiceRocket and Senior Director of Global People Operations at Brocade Communications.
Eric Dynowski is the chief technology officer at ServerCentral Turing Group (SCTG), which offers cloud-native software development, AWS consulting, cloud infrastructure and global data center services.
Matthew Miller is a partner at law firm Foley Hoag LLP. His practice focuses on complex business and commercial litigation with an emphasis on securities litigation, auditor liability matters and business crimes and government investigations.
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.