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.
Paulina Gonzalez-Brito is the CEO of Rise Economy, formerly the California Reinvestment Coalition, a member-led alliance focused on creating a more equitable society for Black, Indigenous and people of color. She is recognized as a leader in organizing economic justice campaigns to expand worker rights, immigrant rights and the rights of low-income and underrepresented communities of color.
Chaitanya Ejner, senior associate – tax, KPMG LLP, has considerable experience in the R&D credit space across industries such as financial services and IT engineering working directly with client engineers to qualify and support R&D credit claims. He also works closely with a team of engineers and business experts in developing and automating credit claims processes.
Gregory A. Bocchino, partner – tax at KPMG LLP, is the national leader of KPMG's Accounting Methods and Credits practice and has more than 20 years of federal income tax accounting methods and credits experience.
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.