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.
Acacia Parks, Ph.D., is chief scientist at Happify, a digital wellness company. Park’s research focuses on self-help methods for increasing happiness via books and digital technology, with an emphasis on objective and observable outcomes such as physical health indicators. She received her Ph.D. in psychology from the University of Pennsylvania, where her graduate research helped build the foundation for research on bringing happiness interventions to the general public. She regularly publishes articles in scientific journals, has edited three books and is also associate editor at the Journal of Positive Psychology. When she isn't doing research with Happify, she is an associate professor of psychology at Hiram College.
Deepen Desai is the vice president of security research and operations at Zscaler. He has more than 15 years of experience in security research and the analysis of advanced threats.
Amit Unde, CTO, Insurance, LTI, leads LTI’s Insurance Solutions Office and Enterprise Architecture Practice in North America. He has almost 20 years of experience working with insurance companies across the globe. He has a blend of technology and insurance domain expertise, and has helped leading carriers, brokers and reinsurance firms in defining their Enterprise Architecture and IT Strategy Roadmap. Amit specializes in Commercial Underwriting and Risk Management Solutions, and has been at forefront of leveraging modern technologies such as Location Intelligence and Big Data Analytics, for better risk selection and pricing.
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.