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.
Christopher Peterson is the John J. Flynn Professor of Law at the University of Utah and the financial services director of the Consumer Federation of America.
Rohit Manajan is chief technology officer at Io-Tahoe.
Dominic Frederico is President and Chief Executive Officer of Assured Guaranty Ltd., a position he has held since December 2003. During his tenure, Assured Guaranty became the leading provider of municipal bond insurance and financial guarantees. Assured Guaranty completed its initial public offering in 2004 under his leadership, and, in 2009, acquired the financial guaranty insurance company now named Assured Guaranty Municipal, thereby merging the only two monoline insurers to continue writing policies before, during and after the Great Recession.Mr. Frederico has supervised the operations of Assured Guaranty since its acquisition in 1999 by ACE Limited, where he was Vice Chairman, and also served as Chairman of ACE Financial Services, ACE INA and ACE USA. He worked at ACE for nine years prior to his post at Assured Guaranty, progressing to increasingly senior positions, including: President & CEO, ACE Bermuda; Chairman, President & CEO, ACE INA Holdings; and President & Chief Operating Officer, ACE Limited. He oversaw the successful acquisition and integration of the domestic and international property casualty operations acquired by ACE from CIGNA Corporation in July 1999 and the acquisition of Capital Re Corp., the predecessor company to Assured Guaranty, in December 1999.Prior to joining ACE, Mr. Frederico spent 13 years working for various subsidiaries of the American International Group.Mr. Frederico holds an M.B.A. in Finance and a B.S. from Drexel University, as well as a Certified Public Accountant�s designation in the State of Pennsylvania. In addition to his professional responsibilities, he is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants.�
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.