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.
Peter Rehm is a CPA who has spent the past three years developing an in-depth knowledge of blockchain technologies and cryptocurrencies while working as the founder and board member of a number of blockchain education and consulting entities in Atlanta. He has prepared and presented blockchain seminars and podcasts for the AICPA, at local CPA firms, and he interacts with local and nationally known blockchain professionals. His career business background has been as a financial and systems consultant to large banking companies.
Gale Crosley, CPA, CGMA, one of the leading growth consultants to accountants, is the president of Crosley & Co. Kacee Johnson, MBA, is a strategic advisor at CPA.com.
Matt Jackson is the vice president of client solutions at Thomsons Online Benefits.
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.