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.
Richard Bloch is principal at Digital Healthcare I/O. He has more than 30 years of systems and software engineering experience. While at Microsoft, Bloch led feature development and earned numerous awards for applications. Through his engineering companies, Business Learning Incorporated, and Digital Healthcare I/O, Mr. Bloch’s systems and software expertise includes human-computer interaction (HCI) design and development, modeling, simulation and visualization (MS&V), and ISO and agile management practices across Government (various DoD agencies and the FAA), aerospace, satellite engineering, and healthcare technology domains.
Drew Tyler is a senior benefits consultant at employee benefits firm Corporate Synergies.
Paco Nathan is known as a "player/coach," with core expertise in data science, natural language processing, machine learning, cloud computing; 35-plus years tech industry experience, ranging from Bell Labs to early-stage start-ups. He is so-chair Rev. Advisor for Amplify Partners, Deep Learning Analytics, Recognai, Data Spartan, Primer. Recent roles include director, Learning Group at O'Reilly Media; director of community evangelism at Databricks and Apache Spark. He was cited in 2015 as one of the Top 30 People in Big Data and Analytics by Innovation Enterprise.
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.