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.
Kristen Keats is the founder and CEO of Breakaway Bookkeeping and Advising.
George Hosfield is Senior Director, Home Insurance, for LexisNexis Risk Solutions. He is responsible for establishing the strategic direction of the home insurance business, as well as working with customers, prospects and the product development team to create the solutions that meet insurers’ needs.
Hosfield has been with RELX Group since 1999 working in various operational and strategy roles within the Legal & Professional business of LexisNexis and LexisNexis Risk Solutions. Most recently, he supported the insurance business as part of the strategy and business development team, advancing company expansion through the acquisitions of Wunelli, Coplogic, iyeTek, policereports.com and Mapflow.
Hosfield earned a bachelor’s in English from the University of Virginia and a master’s in business administration from the University of Richmond.
U.S. Senator Bernie Sanders said he will introduce legislation to tax what he called the “obscene wealth gains” from billionaires during the coronavirus crisis.
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.