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.
Peter Rasmussen, MD, is Chief Clinical Officer, The Clinic by Cleveland Clinic, and Professor of Neurosurgery, Department of Neurosurgery, Cleveland Clinic and Cleveland Clinic Lerner College of Medicine, Case Western Reserve University. Dr. Rasmussen received his bachelor of science in biochemistry from the University of Wisconsin, Madison, in 1987. He earned his medical degree from the University of Wisconsin Medical School in 1991. Dr. Rasmussen is a past-President of the Society of Neurointerventional Surgery where he played a leading role on the national stage in continuing society initiatives to resource, train and support veteran and new practitioners in an area of medicine that is transforming treatment approaches to neurovascular conditions.
Christoph Dankert is the senior vice president of Provider Partnerships at Carrum Health.
Scott Madenburg is a market advisor at AuditBoard, where he works with various internal audit and compliance teams to help automate the administrative tasks of audit, risk and compliance activities. He is an internal audit leader with over 15 years of global business experience in financial, information system, operational, and compliance auditing; Sarbanes-Oxley; business process evaluation and design; ERP system implementation and administration; mergers and acquisitions; cyber-security; and fraud investigation. He began his career at Arthur Andersen before transitioning into internal audit with Fox Entertainment & News Corporation and Gemstar-TV Guide/Rovi Corporation. Prior to joining AuditBoard, he was the head of audit at Mobilitie LLC, where he built the internal audit function from the ground up to an eight-person department focusing on agile audits, cyber and IT security, and FCC compliance.
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.