NTU5M2RhOWQwZTM1ZWU5NWE0YmI3YmJjZjMyYWI4M2IxYzcyNDVkMjY1MDc0 If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. See how. A diversity, equity and inclusion video series. In addition to these measures, the agreement provides tax relief for businesses, commits additional resources for critical child care services and funds emergency financial aid for community college students. ITIN taxpayers who also qualify for the California EITC would receive a total of $1,200. We are now into the second year of the requirement for most partnerships to file Schedules K-2 and K-3, and the compliance challenges continue. We are excited to finally have clarity on California's PPP loan forgiveness stance. 61; CAL. For tax yearsbeginning in2019,qualifyingtaxpayers cannowexclude PPP loanforgivenessorEIDL grants fromCalifornia gross incomeanddeductallowablecoveredexpenses paid withPPP loan or EIDL grant proceeds. 80 generally allows for the deductibility of such expenses in years beginning on or after Jan. 1, 2019, provided the taxpayer is not an ineligible entity.9 The legislation defines an ineligible entity as any publicly-traded company, or any entity that does not meet the 25% reduction in gross receipts requirements of 15 U.S.C. The owner of this site is using Wordfence to manage access to their site. AB 80 applies retroactively to taxable years beginning on or after January 1, 2019. The measure awaits the governor's signature. California taxpayers that have received PPP loans or EIDL advance grants will likely want to consider the new law when filing their 2020 California corporate and individual income tax returns. (CAL. NDQyOTJlYTVmOTZkMzNjMTFiNDZlY2VjNjdlMmViOTViNWVlZmRkMzIyZWNl 1577 may consider the need to amend their California return and/or recompute their claimed deductions for expenses paid with PPP loan proceeds that were forgiven. 80, deductions for expenses paid using PPP loan proceeds are allowed even when the loan is forgiven provided the taxpayer is not an ineligible entity. Under the legislation, an ineligible entity is a taxpayer that either: (i) is a publicly-traded company; or (ii) does not experience a 25% reduction in gross receipts in an applicable quarter of 2020 as compared to the same quarter in 2019.2, The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides forgivable business loans when the recipient meets certain eligibility criteria.3 Under the PPP, qualifying borrowers can apply to have some (or all) of their loan forgiven to the extent it was used for certain expenses such as rent, utilities, mortgage payments, and employee payroll. Those processing fees gave BofA an incentive to increase the size of PPP loans, according to the small businesses that are suing the $3.05 trillion-asset bank. 2 A.B. 1577, and provides some taxpayer considerations. 1577. Your ERM needs to cover new gaps and drive new value. According to the legislative analysis, this date was changed to ensure that all fiscal year filers are captured. 80. It is unclearhowbusinesses that changed entity types during 2020will apply2019 gross receiptstoqualify for the PPPexpense deduction. However, AB 1577 did not allow taxpayers to deduct PPP covered expenses. From child care, relief for small business owners, direct cash support to individuals, financial aid for community college students and more, these actions are critical for millions of Californians who embody the resilience of the California spirit., Were nearly a year into this pandemic, and millions of Californians continue to feel the impact on their wallets and bottom lines. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. 1577), Laws 2020. 1577) into law.1 A.B. This will bring conformity to the federal treatment of PPP loan forgiveness and EIDL grants, with one important exception relating to reduction in gross receipts in the 2019-2020 taxable year. endstream endobj startxref On Sept. 9, 2020, which was after the IRS released Notice 2020-32 but before the CAA was signed, California enacted legislation, A.B. This material may not be applicable to, or suitable for, the readers specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Access from your area has been temporarily limited for security reasons. The fourth quarter of 2020 and 2019 only becomes a measure in this test if taxpayers submit their PPP loan application on or after January 1, 2021. Who should lead the charge? OTQyYWYwNjA5N2Y5ZTg1YTcwMGMzNTUyNjE3NjcyYWIzNzk2NzI3OGM4MzM1 California law does not conform to this expansion of PPP eligibility. Wordfence is a security plugin installed on over 4 million WordPress sites. 6 P.L. If your forgiven loan relates to an EIDL Grant or Targeted EIDL Advance, you are not required to meet these qualifications to deduct expenses. By showing up as I am, Im elevating my career. Any differences created in the translation are not binding on the FTB and have no legal effect for compliance or enforcement purposes. ZDE5MjljNTlmOGNmNzlmYTg5MGFiZWU3MjM1M2I1Yjg2OTA3NzZmYmU3NmFi ZmU1YzEwNzA1MTAyYzc0ODZiODFlZjZkNTUzYmQ2YzFmNmVlOTA2M2JlM2Y3 5 INCOME TAXES: FEDERAL CARES ACT: GROSS INCOME: LOAN FORGIVENESS, JULY 8, 2020 (available here). ZmE2MjY1MzQ2MjA0N2IxZDNmNTlhNjdhMDU1ZmY2NjQwYjZiMDRlZDRkZTBm Furthermore, to the extent a taxpayer is an ineligible entity, it may be faced with difficult questions regarding how to treat deductions for expenses paid in 2020 that later become disallowed upon loan forgiveness occurring in a different tax year (e.g., the expense occurs in 2020 but becomes disallowed upon PPP loan forgiveness occurring in 2021). REV. In addition, the following provision is included in the agreement: The agreement restores previously enacted reductions, effective July 1st, for the University of California, California State University, the Judicial Branch, Child Support Services and for moderate-income housing. In particular, Californias definition of an ineligible entity borrows its 25% diminution in gross receipts test from the qualification (i.e. of research and economic analysis. The PPPEA was enacted on March 30, 2021 and extended the covered period of the PPP from March 31, 2021, through June 30, 2021. The Multistate Tax alert archive includes external tax alerts issued byDeloitte Tax LLP's Multistate Tax practiceduring the last three years. 116-142, the Flexibility Act) to, among other things, modify certain restrictions imposed in regulations issued by the Small Business Administration (SBA) relating to qualifications for forgiveness of PPP loans.9 Administered by the SBA and overseen by the US Treasury Department, the PPP is designed to provide short-term relief to millions of Americas businesses to ensure they can sustain operations and keep their workers employed as the economy recovers.10, The PPP allows qualifying businesses to apply for a loan to maintain their payroll and some overhead expenses through the period of emergency.11 If a business takes a loan under the PPP, it may apply to have some or all of the loan forgiven (the Forgiven Loan Amount)specifically that portion of the PPP loan used to cover payroll costs, interest on mortgage obligations, rent obligations, and utility payments, subject to specific conditions and during the 24 week period after the loan is distributed (the Loan Forgiveness Eligible Expenses).12 Generally, federal and California law treat the cancellation of debt as gross income.13 However, the CARES Act excludes the Forgiven Loan Amount from gross income for federal tax purposes.14 Additionally, for federal and California tax purposes, certain business expenses may be deducted such as those under IRC sections 162 or 163.15 The Internal Revenue Service, however, issued Notice 2020-32 clarifying that deductions otherwise allowable under any provision of the IRC, including sections 162 and 163, are not allowed to the extent of the Forgiven Loan Amount.16. If you make an election under Rev. Connecting with our core purpose through a renewed lens. However, they were amended to apply to taxable years beginning on or after January 1, 2019. 80, some California taxpayers may have either filed their 2020 returns prior to its enactment, or made an extension payment based on the provisions of A.B. REV. Report any allowable deductions on your original return. Do not delete! 18 A.B. 4 See P.L. NDZkZjRjZDY4ODVjMjk3OGE5MjViODBjYjExOTliZWFhNzgwY2FjMTkzYjll This tax treatment would also extend to the Economic Injury Disaster Loans as well. tax guidance on Middle Class Tax Refund payments, General information for the Middle Class Tax Refund, Paycheck Protection Program (PPP) loan forgiveness, FAQs for Paycheck Protection Program (PPP), Coronavirus Tax Relief for Businesses and Tax-Exempt Entities, Revenue and Taxation Code (RTC) section 17131.8(g)(3)). Not-for-profit organizations and higher education institutions, Transportation, logistics, warehousing and distribution, Operation and organizational transformation, Blockchain, digital assets & Web3 solutions, Do not sell/share my personal information. On April 29, 2021, AB 80 (Consolidated Appropriations Act (CAA) Conformity) was enacted which allowed the additional income exclusion for second draw PPP loans and Economic Injury Disaster Loan (EIDL) advance grants and allowed the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers, for tax years beginning on or after January 1, 2019. MWZiNjQ1YjdmYjEyZDUzZDUyNTVjODI0OGMzN2YyM2YxMWYxNGNmYTA3Yzk2 1577 adds two identical California tax provisionsCalifornia Revenue & Taxation Code (CRTC) section 17131.8 under the Personal Income Tax Law (PITL) and CRTC section 24308.6 under the Corporation Tax Law (CTL). A.B. MWRkNGI5MjIxZWY4NWUwMzU3N2Y0MDFmODQ1ZmQzMjliYzI1YWJjM2E3OGU2 Modesto, CA 95350, (209) 527-4220 (phone) Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. 162 and 163) will be disallowed to the extent PPP loan proceeds are ultimately forgiven.5 Later in 2020, the IRS issued Revenue Ruling 2020-27 further explaining that taxpayers cannot deduct expenses paid with PPP loan proceeds if the taxpayer reasonably expects forgiveness of the covered loan regardless of the year when forgiveness occurs. 7 For additional details relating to the federal CARES Act and subsequent legislations relating to the PPP, please refer to the Deloitte Heads Up, Volume 27, Issue 8, Highlights of the CARES Act, updated September 18, 2020 (available here). Our goal is to provide a good web experience for all visitors. On July 4, 2020, Public Law 116-147 extended the authority to guarantee PPP loans to August 8, 2020. 0 For California purposes, forgiven PPP loans, SVO grants, and RRF grants are excluded from gross income. Joshua Josh is a State and Local Tax (SALT) Principal in the San Francisco office of Grant Thornton LLP. How we work matters as much as what we do. L. 116-260) was enacted. Find out how to manage the business risks behind data. 15 U.S.C. People are having a hard time making ends meet. & TAX. Spidell Publishing one of Californias leading continuing education organizations is reporting that the PPP loan forgiveness exclusion enacted by AB 80 (Ch. GTIL refers to Grant Thornton International Ltd (GTIL). M2EzM2JjMzhiMzQ0OGJhZjM2Y2YwYzkiLCJzaWduYXR1cmUiOiIzZWNjNmEy Please see www.deloitte.com/about to learn more about our global network of member firms. 250 0 obj <>stream Payroll Protection Program (PPP) loans have been a lifeline to businesses since the onset of COVID-19. 1577, A.B. ZmEwMjJhMjJhYSJ9 229 0 obj <>/Filter/FlateDecode/ID[<53445A688FC0F84BB5871A6886EB3172>]/Index[211 40]/Length 93/Prev 93697/Root 212 0 R/Size 251/Type/XRef/W[1 3 1]>>stream Digs with Dignity is on a mission to provide those transitioning from homelessness with custom, fully furnished living spaces that feel like home. Companies must focus on attracting and retaining talent, modernizing HR to serve new business needs while becoming more efficient. 1577 added new corporate and income tax statutes providing that [a]ny credit or deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which this exclusion is based shall be reduced by the amount of the exclusion allowed under this section.8, A.B. Multistate Tax alert | September 30, 2020. hb```"{ 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program. Consult with a translator for official business. In response to the IRSs guidance, Congress enacted the Consolidated Appropriations Act, 2021 (CAA) on Dec. 27, 2020, to allow greater deductibility of expenses paid with forgiven PPP loan proceeds.6 This federal response more broadly allows for the deductibility of expenses paid with forgiven PPP loan proceeds. How to solve business problems and mitigate the risks, Make your transformation deliver on its promise. This measure is part of Californias effort to recover now that the pandemic is easing, state restrictions are lifting, and businesses are moving back towards full operations. California has NOT passed AB 80: the PPP forgiveness bill March 9, 2021 AB 80, the bill that would allow up to $150,000 of expenses to be deducted if paid with PPP forgiven loan amounts has not yet passed. Review the site's security and confidentiality statements before using the site. 116-260. CODE 17131.8(g)(3); 24308.6(g)(3). People are hungry and hurting, and businesses our communities have loved for decades are at risk of closing their doors. & TAX. Grant payments for CalWORKS households are expected by mid-April; timing for the delivery of SSI/SSP and CAPI grants is currently under discussion with federal officials.