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.
Chris Cioffi is a senior congressional reporter at Bloomberg News.
Rajeev Khanna is the chief information officer at Trucordia. He is a seasoned executive leader with over three decades of experience in insurance and other industries, directing global technological operations, product development, and infrastructure management. He balances strategic thinking with innovation and hands-on execution, leveraging his deep understanding of how technology can unlock value in the insurance industry. His expertise spans e-commerce, banking, technology, and professional services. With a passion for building effective and sustainable teams, Khanna has fostered collaborative environments while managing globally dispersed operations through his leadership and top talent mentorship.
Mark Rems is a principal and national leader of the KPMG Indirect Tax Technology practice. Based in Philadelphia, he has roughly 25 years of tax and technology experience helping clients improve their indirect tax function. He has led large global tax engine implementation projects for a variety of ERP systems including SAP, Oracle, and MS Dynamics. He also has extensive experience in programming and application development which includes developing custom integrations and standalone programs to assist clients with their indirect tax calculation and reporting processes. He has deep sales and use tax compliance experience and has helped clients centralize and automate their monthly compliance function. He has direct experience working in a number of niche tax technical areas such as motor fuels, excise taxes, telecom taxes and lease taxes.
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.