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 Internal Revenue Service and the Treasury Department released proposed regulations and temporary regulations to offer guidance for consolidated groups on net operating losses in the wake of changes under both the Tax Cuts and Jobs Act of 2017 and the CARES Act.
George Friedlander is widely recognized as a leader in the municipal bond marketplace. He is frequently quoted in the financial press on his ideas related to trends and investment patterns in the municipal bond market. Prior to joining Court Street Group, he was employed by� Citigroup and its predecessor firms for 41 years.� He has a BS in Math from the State University at Stony Brook and an MBA with Distinction in Finance from Pace University. Mr. Friedlander� has perennially been ranked within the top three� in municipal strategy in various investor surveys. More recently, he has adjusted his focus to policy analysis within the muni market, as well as the implications of accelerating technological change for state and local governments. Mr. Friedlander has further been recognized with awards from SIFMA and its predecessor firms, the Bond Market Association and the Public Securities Association, and from the National Federation of Municipal Analysts. He was voted the National Federation’s Analyst of the Year in 1989, and received the Chairman’s Contribution Award of the Bond Market Association in 1997. In 2011 Mr. Friedlander received the Lifetime Achievement Award in a poll of institutional investors by Smith's Research and Gradings. �He is currently actively working with state and local public interest groups on ways to respond to potential threats to the tax-exempt status of municipal bonds.
Bobbi Kloss is the director of human capital management services for the Benefit Advisors Network
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.