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.
IRS Commissioner Chuck Rettig expressed his appreciation to tax professionals Tuesday for their cooperation during the extended tax season that was prolonged by the novel coronavirus pandemic and pledged to deliver any future stimulus payments approved by Congress.
The Dallas bank set aside less in the second quarter for credit losses than analysts expected. Executives cited action in Texas and California to reverse reopenings and said they're still committed to the oil and gas business.
Ian Jeffrey is CEO and Co-Founder of Breathe Life, a software-as-a-service technology company whose platform helps insurance carriers digitize their offerings and reach, engage, and service clients more effectively across distribution channels. He is also an entrepreneur with 20 years' experience in Silicon Valley and Montreal and has served as an Advisor and Angel Investor to many early-stage startups.
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.