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.
Scott Reddel is Accenture’s North America Wealth Management lead.
Alok Ajmera is president and CEO of Prophix Software, a global leader in corporate performance management software.
Sophia Yen is a Senior Principal at EY and the Strategy & Innovation Leader in the Insurance Consulting practice, focused on working with clients to drive profitable growth through strategic ventures, market trends & insights, innovation, and digitization and emerging technologies. She also serves on the EY Americas Insurance Leadership team.
Sophia has over 20 years of experience in the insurance industry with deep experience in reinsurance, insurance, banking, disruptive technologies and digital transformation. She has led global initiatives focusing on growth, M&A integrations and separations, integrated business and financial strategy planning, and streamlining target operating models.
Sophia has a unique combination of industry and consulting experiences as she started in consulting and then spent half of her career in the insurance and banking industry before returning to consulting. Some of her notable accomplishments included driving the transformation at UBS Investment Bank where she achieved more than 30 million in cost savings. Prior to UBS, she was at Swiss Re and held several senior leadership roles, including running their Americas Client Solutions team, SVP of Financial Services Origination, Chief of Staff to the CEO and COO and Head of Operations and Reporting, where she was responsible for the strategic financial planning, reporting, and operations of a $2.5+ billion portfolio and was a member of the Americas Executive Committee.
She holds an MBA from Columbia Business School and a Bachelor of Science (dual major: Finance & Computer Science) from Boston College and graduated both with high honors. She is a sought-after speaker at industry conferences throughout the Americas, EMEIA, and Asia on such topics as strategic transformation, digital transformation, enabling innovation, culture change, and diversity & inclusion. Sophia lives in Chappaqua, NY with her husband and daughter.
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.