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.
Mike Gerhard is chief data and AI officer at BDO USA, where he is responsible for integrating AI into BDO's operations. He has led numerous technology initiatives, including the enterprise digital transformation and innovation program. Additionally, he leads the research and AI development team.
Patrick Armstrong leads the revenue function at ReSource Pro, guiding the company's go-to-market strategy across the retail, MGA/wholesale, and carrier segments. With more than 30 years of sales and insurance leadership, including 17 years as an agency principal, he brings deep industry expertise to helping organizations improve performance and drive profitable growth.
Chandan Lodha is the co-founder and president of CoinTracker, the leading portfolio tracking and tax compliance software for cryptocurrency. Since co-founding CoinTracker with Jon Lerner in 2017, the company has helped users file over a million tax forms. Before founding CoinTracker, he was a product manager at Alphabet, working on Project Loon (internet for rural parts of the world via stratospheric balloons), Google Now and Knowledge Graph. He received his BA degree with high honors in chemistry and physics from Harvard University.
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.