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 D. Maher is the chairman and CEO of OceanFirst Bank in Toms River, New Jersey.
Ian Cohen as CEO & Founder of LOKKER, provider of data privacy and compliance solutions for the enterprise, Ian is dedicated to providing solutions that empower companies to take control of their privacy obligations.
Before founding LOKKER in 2021, Cohen formerly served as CEO for Credit.com, and CPO for Experian, where he focused on consumer-permissioned data.
Brian Portnoy is the co-founder of Shaping Wealth, a Chicago-based firm that educates and trains financial advisors, companies and investors on behavioral finance concepts. He has held senior investment and education roles in the hedge fund and mutual fund industries and earned a Ph.D. in International Political Economy at the University of Chicago. An expert on the psychology of money, he is the author of The Geometry of Wealth.
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.