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.
Amanda Kerley is the Head of HR Strategy and Culture at Dynasty Financial Partners. She has over 15 years of experience in the wealth management industry, starting her career at US Trust/Bank of America before becoming a founding member of Dynasty Financial Partners. Throughout her tenure at Dynasty, she has designed multiple Human Resource programs, helped build the community pillar as well as the internal RIA, and curated various client experiences.
Laurence Sotsky is the CEO of Incentify, a Los Angeles-based AI technology company specializing in the discovery and management of tax credits and incentives. Before Incentify, he was the CEO and founder of Hopscotch, a venture-backed SaaS platform specializing in mobile application development for the sports and entertainment industry. Prior to his entrepreneurial ventures, he spent seven years in management consulting at Deloitte Consulting and Accenture.
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.