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.
Erwann is a leader of McKinsey's North American Insurance Practice. He brings 20 years of experience defining and executing value creation strategies and at-scale impact to his clients on topics of transformation, resilience, risk management, organizational effectiveness, risk culture, behavioral economics and decision making. He is passionate about developing and applying (digital) innovations to improve business competitiveness and public sector service.
Award-winning author of seven books, he has been recognized by the World Economic Forum as one of the most extra-ordinary leaders of the world under 40. Before joining McKinsey, Erwann held senior positions at leading corporations, non-for-profits, international organizations, and academic institutions on several continents.
Steven J. Eller is a partner at Top 100 Firm PKF O’Connor Davies and is co-head of the state and local tax practice. He has over 30 years of professional experience assisting individuals, businesses, and estates and trusts in planning and complying with tax rules and regulations.
American Express began adopting cloud computing a couple of years ago and has leaned hard on the technology to help front-line and corporate employees work at home during the coronavirus crisis, its global head of infrastructure says.
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.