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.
The performance of about $3 billion in hotel and other loans flagged by the Dallas company as high-risk has been a "a pleasant surprise," its chief credit officer said at an industry conference.
Mandated by the COVID-19 pandemic, remote work can also bring serious tax consequences.
Brad Coleman is the vice president controller of Marqeta. In this role, Brad is responsible for overseeing accounting, financial reporting and tax. He has over 25 years of experience in accounting policy, financial and regulatory reporting and internal controls. Before joining Marqeta, he served as principal accounting officer and Controller at LendingClub, vice president, finance at the Charles Schwab Corporation where he was responsible for technical accounting policy and financial reporting, and served as the Controller of the Charles Schwab Bank. Prior to Charles Schwab, Brad worked as a manager in the audit practice for KPMG, LLP in San Francisco, California and Sydney, Australia. Brad is a certified public accountant and holds a BS in business administration with a concentration in accounting from the University of San Francisco.
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.