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.
Nishaad Ruparel is the president of Ascend, a Top 50 Firm formed in 2023 with capital from Alpine Investors, a private equity firm based in San Francisco. Prior to joining Ascend, he was recruited by Alpine Investors to help launch a new investment strategy; prior to joining Alpine, he spent time at AEA, an upper middle market PE firm based in New York, and at JP Morgan, where he serviced private equity clients out of the firm's investment banking division. He holds an MBA from Stanford University and a BS in Finance from New York University's Stern School of Business.
Eileen Connor is the president and executive director of the Project on Predatory Student Lending.
Reyes Florez is the CEO of Platform Accounting Group, a collective of more than 40 local accounting firms across the United States.
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.