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.
Roland Cloutier is senior vice president and chief security officer at ADP. He is responsible for cyber, information protection, risk, workforce protection, crisis management, and investigative security operations for ADP. With over 25 years of experience in the military, law enforcement, and commercial sector, he is an expert in corporate and enterprise security, cyber-defense programs, and business operations protection. Prior to ADP, he served as CSO of EMC, was a U.S. Air Force combat security specialist, and an aerospace protection and anti-terrorism Specialist for the Department of Defense. Roland has been honored with numerous industry recognitions, most recently the 2018 ISE Luminary Leadership Award. He is also the author of, “Becoming a Global Chief Security Executive Officer” where he shares his expertise on how to effectively plan for the future demands of leadership in global security.
Mike Hileman is sr. business development manager at Auto Insurance Specialists (AIS Insurance), a Mercury Casualty subsidiary.
Katie Piazza is an associate at Baker & McKenzie LLP. She focuses on state and local income tax, sales and use tax, property tax, payroll tax, personal income tax and unclaimed property. She represents clients in all aspects of state and local tax, including controversy, litigation, planning and restructuring matters.
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.