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.
Last month's COVID-19 relief bill has accountants recommending some deductions to clients, and wondering about the applicability of others.
Mark McElroy is EVP and head of TransUnion's insurance business, leveraging advanced analytics and modeling to help the industry underwrite more effectively, target qualified prospects, improve acquisition and retention efforts, and identify and prevent fraudulent activity. He also contributes to the expansion of the practice through tactical development and implementation of insurance solutions in regions across the globe. Prior to joining TransUnion in 2012, McElroy was CEO and president of Balboa Insurance Group, a Bank of America company. He received a bachelor’s degree in economics from the University of Nebraska–Lincoln.
The U.S. Small Business Administration plans to reopen the Paycheck Protection Program to small lenders on Friday and to all lenders next Tuesday.
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.