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.
Sean Heide is a cloud security research analyst with the Cloud Security Alliance.
Ryan Rugg is spearheading North American business development in asset management and insurance for R3. She works closely with R3’s network of members and partners, helping drive global commercialization and integration of R3’s Corda platform. In 2017, she launched the Center of Excellence for Insurers and Reinsurers at R3 which is redefining the foundations of insurance by harnessing the power of collaborative networks through the deployment of blockchain technology. Prior to R3 Ryan worked for Morgan Stanley and JPMorgan where she gained extensive experience in financial services covering a broad range of institutions including; insurance, hedge funds, banks and asset managers.
Brad Stockman is head of product management for Ascender.
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.