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.
CEO, CyberCecurity
CEO, Cybersecurity Risk
Nicola Askham is a leading data governance training provider in the UK. She holds a unique level of experience in the data ggovernance field, and has experience in training and coaching major organisations to help them implement full data governance frameworks.Nicola has developed a powerful methodology for implementing data governance based on over 13 years of experience and research into best practices. Her methodology breaks down the data governance initiative into logical steps, which ensures that businesses design and implement a data governance framework that is right for them.Nicola initially worked for a leading UK Bank, and moved into consultancy in 2009. Nicola has worked with clients in a number of different industries including financial services, defense, utilities and retail.Nicola is a director and committee member of DAMA UK, and regularly writes and presents internationally on data governance best practices.
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.