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. 80s partial conformity to the federal treatment of expenses paid with forgiven PPP loan proceeds is welcome news that generally alleviates an otherwise burdensome federal conformity issue. 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. Golf is better when were all playing together. You can also read the documentation to learn about Wordfence's blocking tools, or visit wordfence.com to learn more about Wordfence. Don't let tax be the only deciding factor in your relocation. 13 Specifically, A.B. (CAL. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. In its May 2021 online issueofFTBTax News,the FTB also instructedtaxpayersthat forgiven PPP loansshould notbeincludedas gross receiptswhen calculating CaliforniasLLCfeeand tax. 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. This agreement builds on Governor Newsoms proposal and in many ways, enhances it so that we can provide the kind of immediate emergency relief that families and small businesses desperately need right now, said Senate President pro Tempore Atkins. MTQ4MmJiZjg5ZGY5MWQyZDU2ZmFiZDM1ZmZmZjkyM2E3MDRkYmViZTViM2Yz 1 A.B. REV. It does not apply to SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants. Read about their experiences and a few lessons learned along the way. CFOs are more optimistic about the U.S. economy, according to Grant Thorntons 2022 Q4 survey, as they push for growth while being judicious about costs. Assembly Floor Analysis for A.B. 20 See A.B. 1577), Laws 2020. This Google translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. But yesterday, the Calfornia Senate approved AB 80, which would make forgiven PPP loans tax-deductible - and give businesses a breather. This is alyx our streamlined concierge-enabled platform that connects real problems with the right resources and real solutions. & TAX. 39 (A.B. 1577, 2019-2020 REG. REV. Ineligible entities are either publicly tradedcompanies orentities that do not meet the requirements of 15 U.S.C. 1 A.B. SB 113 also allows the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers for SVO and RRF grants. MWRkNGI5MjIxZWY4NWUwMzU3N2Y0MDFmODQ1ZmQzMjliYzI1YWJjM2E3OGU2 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. 80) providing greater conformity to federal law regarding the deductibility of expenses paid using forgiven Paycheck Protection Program (PPP) loans.1 Under A.B. 17 (A.B. 11 See 15 U.S.C. As we continue to fight the pandemic and recover, Im grateful for the Legislatures partnership to provide urgent relief and support for California families and small businesses where its needed most, said Governor Newsom. ZTg2N2Y3NGIyZGIwODA1ODY4OWI3ZDYzNWNjOTk5OTUyZmU4YTllMzc2OTVj -----BEGIN REPORT----- 116-136, 1105(i). 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program. Borrowers that need assistance or have questions should call the SBA at (877) 552-2692, Monday - Friday, 8 a.m. - 8 p.m. EST. Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. If you do not qualify for deductions under AB 80, California follows the Rev. This box/component contains JavaScript that is needed on this page. 1577, 2019-2020 REG. Note that the citation to the federal law presumably should be 15 U.S.C. Automation used to be a possibility a goal for the future. GTIL does not deliver services in its own name or at all. In addition, the agreement provides a $600 one-time payment to taxpayers with Individual Tax Identification Numbers (ITINs) who were precluded from receiving the $1,200 per person federal payments issues last spring and the more recent $600 federal payments. 0 Consult with a translator for official business. 13 See I.R.C. Dana is based in San Jose, California. ZmE2MjY1MzQ2MjA0N2IxZDNmNTlhNjdhMDU1ZmY2NjQwYjZiMDRlZDRkZTBm LAW Section 1102 and 1106 of the CARES Act, established the PPP as a new loan program administered by the U.S. Small Business Administration (SBA) as part of its We are at a critical moment, and Im proud we were able to come together to get Californians some needed relief.. Partner, State and Local Tax West Region Leader. 80's treatment of expenses paid with forgiven loan proceeds A.B. 1577 and how these changes impact their California tax liabilities. If your forgiven loan relates to an RRF, you are not required to meet these qualifications to deduct expenses. ODE0ZjA1OTZlMmYzNGViM2E4NWJiYTMwNzQ0N2I2YmVhZTE1MDVlNWJjOTJk 1557 to provide some relief.6, On March 27, 2020, the federal government enacted the CARES Act in response to the COVID-19 pandemic.7 Sections 1102 and 1106 of the CARES Act amend section 7(a) of the Small Business Act to create the PPP, through which up to $349 billion in funding was provided to businesses through federally guaranteed loans. You must pay it back within either 3 or 5 years. If you have any issues or technical problems, contact that site for assistance. 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. 116-136. The web pages currently in English on the FTB website are the official and accurate source for tax information and services we provide. Unable to verify your submitted forgiveness amount and/or documents or 2.) In September 2020, California enacted AB 1577, which conformed to the CARES Act exclusion from gross income for PPP loan forgiveness. Taxpayers must have a 25% reduction in gross receipts in any 2020 calendar quarter as compared to the comparable 2019 calendar quarter in order to deduct expenses paid with PPP loan forgiven amounts. 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). As the forgiveness of a PPP loan is excluded from gross income, for LLCs, the amount of the forgiven PPP loan amount does not come within the meaning of "total income from all sources derived from or attributable to this state" and should not be included in the computation of the fee. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. 61; CAL. Taxpayers that have already filed their 2019 and 2020 returns should consider amending these returns to incorporate the adjustments allowed by AB 80. Access from your area has been temporarily limited for security reasons. 9 Note that the statutes originally applied to taxable years beginning on and after January 1, 2020. MmU1MjhmZWM1MzQxMzcyYmQyMmE2NGRlNTRlOGU3NDgxZjAyMDVlYmY2Mjk2 endstream endobj startxref 5 IRC Sec. This Tax alert provides a brief overview of the federal legislation relating to the PPP, summarizes the notable changes to California law made by A.B. The PPPEA was enacted on March 30, 2021 and extended the covered period of the PPP from March 31, 2021, through June 30, 2021. 15 U.S.C. -----END REPORT-----. 2 A.B. YWFjZWQ2YzBhMWI1ZWY2ZDgwYmYxYzVmNDY5OTYxYTNkOTUyMTJlNzk0YTZk AB 80 conformity only applies to the exclusion from income for PPP loan forgiveness and EIDL advance grants. At Grant Thornton, we dont just understand your business. Your access to this site was blocked by Wordfence, a security provider, who protects sites from malicious activity. 1 Ch. However, California disallows a credit or deduction for Loan Forgiveness Eligible Expenses to the extent of the Forgiven Loan Amount. A disallowance of the deductions effectively neutralized the benefit of the tax-exempt nature of the PPP loan forgiveness. 250 0 obj <>stream %PDF-1.7 % How to solve business problems and mitigate the risks, Make your transformation deliver on its promise. The agreement provides for two years of fee relief for roughly 59,000 restaurants and bars licensed through the states Department of Alcoholic Beverage Control that can range annually from $455 to $1,235. California Governor Gavin Newsom onApril29 signedinto law legislation that generallyconformsthe states tax treatment of Covid-19 aid in the form of loans and grants with the federalindividual and corporate income tax treatment of such aid, including the CARES Act and the Consolidated Appropriations Act, 2021 (CAA). YjNiOTAxNmNjNzdiZTlhZGIxNjNmYmViOWVmYThmZWI3YTRmMzM0ZmZiNjBj At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. These new provisions provide [f]or taxable years beginning on and after January 1, 2020, gross income does not include any covered loan amount forgiven pursuant to section 1106 of the [CARES Act], pursuant to the [Enhancement Act], or pursuant to the [Flexibility Act].17 For this purpose covered loan is defined as having the same meaning as in section 1106 of the [CARES Act].18 Thus, the Forgiven Loan Amount is not included in gross income for PITL or CTL purposes. Due to the timing of A.B. On July 4, 2020, Public Law 116-147 extended the authority to guarantee PPP loans to August 8, 2020. 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. 80 has been satisfied to avoid being classified as an ineligible entity.. AB 80 uses the same 25% gross reduction threshold qualification that was used for second draw PPP loans. As a result, it provided no California tax relief for fiscal year taxpayers whose tax year began before January 1, 2020, but who obtained a PPP loan after January 1, 2020. A.B. SESS., 1 (see new CRTC 17131.8(a)), 2 (see new CRTC 24308.6(a)). For this reason, taxpayers that have already filed or paid tax following the provisions of A.B. The agreement also provides a combined $35 million for food banks and diapers. All references to Section, Sec., or refer to the Internal Revenue Code of 1986, as amended. Specifically, A.B. SESS., 1 (see new CRTC 17131.8(c)), 2 (see new CRTC 24308.6(c)). 21-17) does not apply to either first- or second-draw loans received after March 31, 2021. To stay logged in, change your functional cookie settings. 80 provides much needed guidance clarifying Californias treatment of deductions for expenses paid with forgiven PPP loan proceeds. If you have questions regarding A.B. 1577) into law.1 A.B. Y2ZjZmQ1NzgyYTlkZmE1NGZmOTRmOTU2ZWE5M2Y5OWRlZTY2NTU3M2QxNmJh PPP Forgiveness: Urgent News About Nonconformity in California, Key Tax Credits Have Expired: What This Could Mean for You, 79245 Corporate Centre Drive, La Quinta, CA 92253. 116-260. It is unclearhowbusinesses that changed entity types during 2020will apply2019 gross receiptstoqualify for the PPPexpense deduction. Multistate Tax alert | September 30, 2020. California Rebuilding Fund Small businesses may be eligible for a loan up to $100,000 from the California Rebuilding Fund. 4 See P.L. How does ESG fit into business strategy? 1577 or other California tax matters, please contact any of the following Deloitte professionals: Roburt Waldow, principalMultistate, Deloitte Tax LLP, Washington National Tax, +1 612 397 4487, Christopher Campbell, principalMultistate, Deloitte Tax LLP, Washington National Tax, +1 213 553 3072, Valerie Dickerson, partnerMultistate, Deloitte Tax LLP, Washington National Tax, +1 202 220 2693, Kathy Freeman, managing directorMultistate, Deloitte Tax LLP, Sacramento, +1 916 288 3392, Shirley Wei, senior managerMultistate, Deloitte Tax LLP, Washington National Tax, +1 213 553 1715. Overview. eligibility) criteria for receiving a second draw PPP loan for federal income tax purposes under the CAA.13 Although this requirement only applied to second draw PPP loans for federal income tax purposes, it appears to be incorporated as a general limitation for California purposes when determining whether a taxpayer is classified as an ineligible entity under A.B. & TAX. ZjM5OWM1NmRhZmIzYzYxY2VlZmY4NDExYjhjMDA0YmRlOThjMjBhYjk3Nzkz It is worth noting that A.B. On September 9, 2020, Californias Governor Newsom signed Assembly Bill 1577 (A.B. Under the express terms of the CARES Act, forgiven loan amounts are excluded from the borrowers gross income.4 636(a)(37)(A)(iv)(I)(bb). You meet the 25% gross receipts reduction qualifications. Copyright 2023 BDO USA LLP. You will then receive an email that helps you regain access. Below are key provisions of the Immediate Action Agreement: Direct Relief to Individuals and Families. 80 defines an ineligible entity in part as a taxpayer that does not meet the reduction from the gross receipts requirements of Section 636(a)(37)(A)(iv)(bb) of Title 15 of the United States Code, as added by Section 311 of Division N of the Consolidated Appropriations Act, 2021 (Public Law 116-260). See CAL. NDZkZjRjZDY4ODVjMjk3OGE5MjViODBjYjExOTliZWFhNzgwY2FjMTkzYjll Certain services may not be available to attest clients under the rules and regulations of public accounting. According to the legislative analysis, this date was changed to ensure that all fiscal year filers are captured. The American Rescue Plan Act (ARPA) (Public Law 117-2) was enacted on March 11, 2021. Although businesses who do not qualify for an exclusion may fully deduct expenses paid with forgiven PPP loan amounts on their California return, the taxability of the PPP forgiveness will come as a big surprise for many California businesses. ZmEwMjJhMjJhYSJ9 1577 and how these changes impact their California tax liabilities. The agreement provides an additional $100 million in emergency financial aid for qualifying low-income students carrying six or more units, with award amounts to be determined locally and made available by early April. ZjM4OTJmMjgzYWNmN2I1NzQzMDI5YzFkNDg0ZGEwZGY0Zjk4ZTVmOTczYzhi Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. We are excited to finally have clarity on Californias PPP loan forgiveness stance. The agreement also reflects fee relief for more than 600,000 barbering and cosmetology individuals and businesses licensed through the Department of Consumer Affairs. On June 30, 2022, AB 194 was enacted which allowed an income exclusion for covered loan amounts forgiven pursuant to the Paycheck Protection Program Extension Act of 2021 (PPPEA) (Public Law 117-6). Private company boards should bring the backgrounds and insights to understand risks and opportunities and drive the business forward. 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. For additional information, visit Section 311 of the CAA, 2021, Revenue and Taxation Code (RTC) section 17131.8(g)(3)), and Small Business Administration (SBA) guidance. YjRjOWE1NzUwNDNiNTkxY2NkYmRhODRjM2M0MzBiOWQwNjYwZjIyNDQ3NTEw 2020 set a new high in annual PE software deal value. The agreement reflects a four-fold increase from $500 million to more than $2 billion for grants up to $25,000 for small businesses impacted by the pandemic, and also allocates $50 million for cultural institutions. Your access to this service has been limited. 10 CAL. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. The undersigned certify that, as of July 1, 2021 the internet website of the Franchise Tax Board is designed, developed and maintained to be in compliance with California Government Code Sections 7405 and 11135, and the Web Content Accessibility Guidelines 2.1, or a subsequent version, as of the date of certification, published by the Web Accessibility Initiative of the World Wide Web Consortium at a minimum Level AA success criteria. Rul. GTIL refers to Grant Thornton International Ltd (GTIL). 2 A.B. We cannot guarantee the accuracy of this translation and shall not be liable for any inaccurate information or changes in the page layout resulting from the translation application tool. & TAX. California taxpayers canalsofully deduct expenses paid with EIDL fundssince this thresholddoes not apply toEIDL grants. For additional information on the RRF grants, visit Section 5003 of the ARPA, RTC 17158.2(a), and SBA guidance. Do not delete! A medical researcher accelerated purchases by 45% with a new tech implementation plan. For federal qualifications regarding income tax treatment, visit Coronavirus Tax Relief for Businesses and Tax-Exempt Entities. The agreement also provides $20 million to reengage students who have either left their community college studies because of the pandemic or to engage students at risk of leaving. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons. Matt Tierney and Andre Bourgon from Grant Thornton discuss how to execute a winning ecosystem strategy to manage insurance companies. Because these loans are not considered covered loans as that term was defined when AB 80 was enacted, the forgiveness of these loans do not qualify for the California exclusion. Grant Thornton LLP is a member firm of GTIL. 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. On April 29, 2021 Governor Newsom signed California A.B. MTFiZWE1MGQyMjlhOGEzMTY3ODc1ZGE4ODNiNmM1MGQxMzUzYTgxZjQxYTk5 The authors of this alert would like to acknowledge the contributions of Lauren Kim to the drafting process. Watch industry leaders discuss advice on innovation. 117-6). NmIyYjY1ZGFjODY4OTViMmNkMGJiYjAzM2JjYTBhMDJhZDYyYThmNTg3Yjcw 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. 17 A.B. Connecting with our core purpose through a renewed lens. 1577. ZDE5MjljNTlmOGNmNzlmYTg5MGFiZWU3MjM1M2I1Yjg2OTA3NzZmYmU3NmFi (209) 527-4247 (fax). Friday, September 25th, 2020. For California purposes, forgiven PPP loans, SVO grants, and RRF grants are excluded from gross income. DTTL (also referred to as "Deloitte Global") does not provide services to clients. 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. A diversity, equity and inclusion video series. The California Franchise Tax Board (FTB) plans to issueguidanceexplainingqualification and other requirements with respect to AB 80, and it is expected to include guidance for taxpayers that have already filed 2020 California individual or corporate tax returns. Banks face new challenges on regulation, ESG, mortgages, digital assets, audit, tax or digital transformation in 2022. Proc. An additional $310 billion of PPP loan funding was subsequently provided by the federal Paycheck Protection Program and Health Care Enhancement Act (P.L. hbbd```b``Z " e1} Dl` ,r`BD* - hcHh]bo O>? By showing up as I am, Im elevating my career. OTc5MjdiOWVmNjcwMzYzYTRjZjhmOWI1YmQzZDczMDNkYzZmYjk2Mzk2ZWJi In addition to these measures, the agreement provides tax relief for businesses, commits additional resources for critical child care services and funds emergency financial aid for community college students. ZGU2YzllYThlZmU0NDllMTQxZDgyMWZmZWNlNGNkNjliYzNkMjQyNTQ1YWFj 2 Under the Consolidated Appropriations Act, 2021, as referenced in A.B. This tax treatment would also extend to the Economic Injury Disaster Loans as well. Onlyagross receiptsreduction inone quarterin2020mustmeet this25%thresholdtoqualifyforthe PPP loan expense deduction, assuming the entity is notpublicly traded. 1577, 1-3 (stating that [t]his act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect). However,AB 80 does not permitanindividual owner or corporation that is anineligible entity to deduct PPP covered expenses. A.B. Illinois Governor J.B. Pritzker signed new legislation (P.A. 1577 adds two identical California tax provisionsCalifornia Revenue & Taxation Code (CRTC) section 17131.8 under the Personal Income Tax Law (PITL) and CRTC section 24308.6 under the Corporation Tax Law (CTL). MDNjMzZlZmIzYWQ3NjYxMjhiZjg0Y2U1MzE0MjUyMjBhNWEwMzJlYzUwZjc0 hVkkF+qe6 Al+vji"3{gYiSZ2e):t z$/=N,zG&F0ihH&h jucN^#VBOZ.fY+n?1o%?}j-]drM5~j?oZQ~|f)?gV~R,.jz2,QzOu"JY[#M}K3_OO^6b^,#lYu7O. Lauren is a senior associate working in the Washington National Tax practice of Deloitte Tax LLP. The potential is great what to know before taking action. The treatment of deductions, basis, and tax attributes for California income tax purposes may differ from the federal income tax treatment. Y2NjYmFmZTQyOGZhYjViZTYxMTQ0ODRiYWY5OGVkNzNlOWI1NWY0YzU0ZDVl (209) 527-4247 (fax), https://www.grimbleby-coleman.com/resources/articles/265, 200 West Roseburg Avenue DTTL and each of its member firms are legally separate and independent entities. When addressing the new expectations of your workforce, speed is a key factor. California law excludes PPP loans forgiven under the CARES Act from gross income, Telecommunications, Media & Entertainment, Background on federal legislation relating to the PPP, Overview of notable changes under A.B. 80s gross income exclusion also extends to any Economic Injury Disaster Loan (EIDL) advance grants received under the CARES Act and the CAA.12, Though enacted later than many taxpayers would have liked, A.B. You can count on us to prioritize and complete work to the best of our ability based on these changes. By: Pedro T. Rincon, CVA, Partner Osborne Rincon CPAs. Spidell Publishing one of Californias leading continuing education organizations is reporting that the PPP loan forgiveness exclusion enacted by AB 80 (Ch. Gavin Newsom signed Assembly Bill 80 (AB 80), which generally conforms to the federal income tax treatment of Paycheck Protection Program (PPP) loan forgiveness and of the deductibility of expenses paid with a PPP loan that is forgiven, with a notable exception. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. SESS. Combined, the agreement represents a total of 5.7 million payments to low-income Californians. This message will not be visible when page is activated. National Tax Office Leader. See Terms of Use for more information.