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.
Jim Marous is an internationally recognized financial industry strategist, speaker, author and the publisher of both the Retail Banking Strategies section of The Financial Brand and the Digital Banking Report. He works with financial institutions worldwide on using customer insight and data to drive results. This includes developing innovative, multichannel solutions for acquisition, engagement, expanding share of wallet and retention. He has helped to successfully launch new products and services as well as build and reinforce existing products and brands. Jim has presented at several SourceMedia conferences in the past, has recently spoken in London, Sydney and Slovakia on innovation in banking and is a regular contributor and recent guest host for the Breaking Banks�broadcast hosted by Brett King.He can be followed on Twitter and LinkedIn.
U.K. supermarkets which have been experimenting with mobile scan-pay-go may see more consumers adopting the technology due to social distancing requirements in stores.
The agency has relaxed some reporting requirements and joined other regulators in encouraging banks to help borrowers, but pressure is building on the bureau to do more to aid consumers suffering financial hardship.
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.