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.
James Roedding is vice president, product and data at Rewards Network.
James Ward is the managing partner of Ward PLLC, a privacy and data strategy law firm located in Miami, Florida. He is the co-author, with Christian Ward, of “Data Leverage: Unlocking the Surprising Growth Potential of Data Partnerships,” which outlines strategies for building partnerships and maximizing the value of data. James is a thought leader in data privacy and privacy law, and has been quoted in publications such as Forbes, the International Business Times, and the Miami Herald.
Christian Ward is chief data officer of SourceMedia and responsible for data strategy across the organization. He is the co-author, with James Ward, of “Data Leverage: Unlocking the Surprising Growth Potential of Data Partnerships,” which outlines strategies for building partnerships and maximizing the value of data. Prior to SourceMedia, Christian was EVP, data partnerships for Yext, the digital knowledge management platform. Prior to Yext, he was chief data officer at Infogroup as well as global head of content innovation at Thomson Reuters. He has also served as managing director and director of research for Bank of New York and founded two data companies, one in financial research and the other in media analytics.
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.