However, California disallows a credit or deduction for Loan Forgiveness Eligible Expenses to the extent of the Forgiven Loan Amount. Mr. Grossman specializes as a subject matter expert in California Corporation Income or Franchise Tax matters. 2023. & TAX CODE 24344; 24344.5; 24344.7. 1577, and provides some taxpayer considerations. 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. In particular, Californias definition of an ineligible entity borrows its 25% diminution in gross receipts test from the qualification (i.e. 80 amends California law to operate more consistently with the federal CAA regarding the permissibility of deductions for expenses paid with forgiven PPP loan proceeds. US affiliates to deem to elect waters edge, California legislature allows group returns for international business travelers. The SBA offered banks, and later fintech companies, processing fees based on the size of loans, which ranged from 5% for loans of $350,000 or less to 1% for loans of $2 million. Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. 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. 1577, 2019-2020 REG. 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. (CAL. endstream endobj startxref The agreement incorporates the Governors Golden State Stimulus plan to assist California households that have borne the disproportionate economic burden of the COVID-19 Recession those with incomes below $30,000, as well as those unfairly excluded from previous federal stimulus payments. Scott Smith, State & Local Tax, National Technical Practice Leader, Business Restructuring & Turnaround Services, Total Tax Transparency & ESG Tax Strategy, Financial Institutions & Specialty Finance, California: Update to Paycheck Protection Program Loan Conformity, Do Not Sell My Personal Information as to BDO Investigative Due Diligence. Dana is based in San Jose, California. eyJtZXNzYWdlIjoiNWIzZGU0MDczYTM5MDRlMGI1ZTJmM2QxOGExOTlmZjY0 6 P.L. & TAX. See how. ZjM4OTJmMjgzYWNmN2I1NzQzMDI5YzFkNDg0ZGEwZGY0Zjk4ZTVmOTczYzhi This message will not be visible when page is activated. Do not delete! All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Learn how were making the game more inclusive for all. How to solve business problems and mitigate the risks, Make your transformation deliver on its promise. This isnt the tech you know. 17 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. 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. You meet the 25% gross receipts reduction qualifications. MmU1MjhmZWM1MzQxMzcyYmQyMmE2NGRlNTRlOGU3NDgxZjAyMDVlYmY2Mjk2 hbbd```b``Z " e1} Dl` ,r`BD* - hcHh]bo O>? ZTI5MDAwNDczOWI5MWMxY2RlNWVhNzcyY2Q3OWVmNmI2N2Y2ODEyZmM1NTYz Wordfence is a security plugin installed on over 4 million WordPress sites. SESS. We are at a critical moment, and Im proud we were able to come together to get Californians some needed relief.. REV. Credit: Spidell Tax, Analysis, and Education, 200 West Roseburg Avenue 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. Gavin Newsom signed Assembly Bill 80 (A.B. & TAX. 2 A.B. MTU3YmNhZDYyNDc5ZTczNDMyNzc0ZjU1YTI3NWRlZjg3OWVkNGRiYjAzNjUz People are hungry and hurting, and businesses our communities have loved for decades are at risk of closing their doors. 1577 and how these changes impact their California tax liabilities. Your ERM needs to cover new gaps and drive new value. 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. 15 See e.g., I.R.C. NmIyYjY1ZGFjODY4OTViMmNkMGJiYjAzM2JjYTBhMDJhZDYyYThmNTg3Yjcw 1577, 2019-2020 REG. 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. 17 (A.B. On September 9, 2020, Californias Governor Newsom signed Assembly Bill 1577 (A.B. Combined, the agreement represents a total of 5.7 million payments to low-income Californians. The new application form for PPP loans under $50,000 only requires borrowers to confirm the PPP-loan proceeds were used for eligible costs, and to provide supporting documentation showing expense payments. Unable to verify your submitted forgiveness amount and/or documents or 2.) 80's treatment of expenses paid with forgiven loan proceeds A.B. 1 A.B. California law does not conform to this expansion of PPP eligibility. On April 29, California Gov. You meet the 25% gross receipts reduction qualifications. Dana Lance is the Tax Practice Leader for the Greater Bay Area and the SALT Practice Leader for the West Region. YWFjZWQ2YzBhMWI1ZWY2ZDgwYmYxYzVmNDY5OTYxYTNkOTUyMTJlNzk0YTZk If youd like to discuss tax implications that may be facing your business, contact Osborne Rincon at (760) 777-9805. 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 and CTL purposes. AB 80 conformity only applies to the exclusion from income for PPP loan forgiveness and EIDL advance grants. This article provides an introduction to renewable energy tax credits and highlights several key factors that buyers and sellers of these credits should consider. If you have additional questions about this article or your business qualification status, contact your GC accountant or email us at contactus@gccpas.net. When policy shifts, our insights and analysis can help you plan and respond. Drive maximum value across your supply chain. -----BEGIN REPORT----- On July 4, 2020, Public Law 116-147 extended the authority to guarantee PPP loans to August 8, 2020. The American Rescue Plan Act (ARPA) (Public Law 117-2) was enacted on March 11, 2021. Do not include Social Security numbers or any personal or confidential information. Immediate Relief for Small BusinessesQuadrupled. 12 CAL. Onlyagross receiptsreduction inone quarterin2020mustmeet this25%thresholdtoqualifyforthe PPP loan expense deduction, assuming the entity is notpublicly traded. ZTg2N2Y3NGIyZGIwODA1ODY4OWI3ZDYzNWNjOTk5OTUyZmU4YTllMzc2OTVj 5 INCOME TAXES: FEDERAL CARES ACT: GROSS INCOME: LOAN FORGIVENESS, JULY 8, 2020 (available here). These subsidies/grants are subject to California tax, but expenses are fully deductible on the California return. Sec. Find out how the technology, banking and asset management sectors are adapting their strategies to handle todays threats. 4 See P.L. Tax laws are ever-changing, which is why you need proficient tax professionals working with you and your business to ensure you are in compliance with the current tax laws. CalFresh Student Outreach and Application Assistance. 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. Rather than deny deductions for expenses paid with forgiven PPP loan proceeds as A.B. If you claimed a deduction that you do not qualify for, you must file an amended return using our normal amended return procedures. 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. 9 For additional details relating to the federal Flexibility Act, please refer to the Deloitte Tax News & Views Capitol Hill Briefing, dated June 12, 2020 (available here). 0 MGI4ODNkMGY5N2YxNzFmNjdlOWM5ZDYzNjFiMDIzZmZmMTNlMWUzMTg2NWEy Please see www.deloitte.com/about to learn more about our global network of member firms. 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. More than 750,000 PPP loans were taken out by California small businesses. 297 0 obj <>/Filter/FlateDecode/ID[<681772630396424DB877BF5F6FFE419B>]/Index[276 36]/Info 275 0 R/Length 98/Prev 155748/Root 277 0 R/Size 312/Type/XRef/W[1 2 1]>>stream MjhlMTk5ZGY1MzFiNTZlYzQ5N2ZlMTAyOGIwYzZhZDAwOGU4ZDQ5N2U4Nzlj SESS., 1 (see new CRTC 17131.8(b)), 2 (see new CRTC 24308.6(b)). This tax treatment would also extend to the Economic Injury Disaster Loans as well. Notice 2020-32 (available here). On Sept. 9, 2020, which was after the IRS released Notice 2020-32 but before the CAA was signed, California enacted legislation, A.B. How does ESG fit into business strategy? Retroactively effectivefor tax years beginning on or after January 1, 2019,AB 80allowsindividuals andbusinesses todeductcoveredexpenses paid for with forgivenPPPloansorEIDLadvances and targeted grantsreceived under theCARES Act and the CAA. 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. MTQ4MmJiZjg5ZGY5MWQyZDU2ZmFiZDM1ZmZmZjkyM2E3MDRkYmViZTViM2Yz If you have any questions related to the information contained in the translation, refer to the English version. An additional $310 billion of PPP loan funding was subsequently provided by the federal Paycheck Protection Program and Health Care Enhancement Act (P.L. Taxpayers that have already filed their 2019 and 2020 returns should consider amending these returns to incorporate the adjustments allowed by AB 80. Our NFT Playbook is a roadmap to addressing IP rights, business infrastructure and risk for media & entertainment companies and others. 11 See 15 U.S.C. 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)). The new federal resources will extend care for children of essential workers through June of 2022, and funds increased access to subsidized child care for more than 8,000 children of essential workers and at-risk children who are not currently served in the system through June of 2022. 80 provides much needed guidance clarifying Californias treatment of deductions for expenses paid with forgiven PPP loan proceeds. Lauren is a senior associate working in the Washington National Tax practice of Deloitte Tax LLP. COVID-19 has caused PE firms to adjust their valuation practices postponing valuations to avoid reset triggers, exploring new approaches to valuations or diversifying existing ones. To qualify for expense deductions, basis adjustments, and lack of reduction of tax attributes related to an SOV grant under SB 113, you must meet the following qualifications. The authors of this alert would like to acknowledge the contributions of Lauren Kim to the drafting process. It does not apply to SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants. 16 See I.R.S. 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. Assembly Floor Analysis for A.B. 1577, 2019-2020 REG. 250 0 obj <>stream Identify how to treat the forgiveness of a PPP loan for tax purposes; Recognize how the IAS 20 grant approach is used to account for its PPP loan; Recognize actions that impact a CPA's independence in a PPP loan assistance engagement; Recall some of the rules pertaining to a CPA receiving an agent fee from a PPP loan lender, and CODE 17131.8(b); 24308.6(b), as amended by A.B. Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. REV. Podcast: Should borrowers submit PPP loan forgiveness applications early? But yesterday, the Calfornia Senate approved AB 80, which would make forgiven PPP loans tax-deductible - and give businesses a breather. Due to the timing of A.B. California conforms to the federal gross receipts test requiring a 25% or greater reduction in gross receipts and will therefore follow the rationale of this related federal guidance. On September 29, 2022, AB 158 was enacted to add an operative date of January 1, 2019 for the PPPEA to ensure taxpayers that had loans made during PPPEA would be eligible for the income exclusion and other applicable tax treatment. L. 116-260) was enacted. Credit: Spidell Tax, Analysis, and Education Go Back Print. If you do not qualify for deductions under AB 80, California follows the Rev. The compromise builds on the initiatives in the Governors state budget proposal to provide cash relief to lower-income Californians, increase aid to small businesses and provide license renewal fee waivers to businesses impacted by the pandemic. 1577) into law.1 A.B. SESS., 1 (see new CRTC 17131.8(c)), 2 (see new CRTC 24308.6(c)). 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program. By: Pedro T. Rincon, CVA, Partner Osborne Rincon CPAs. KServicing stated they were 1.) News Spidell's California Minute . MzZiNmY3MzJiY2FhODEyYjI2YzU5MzE4ZWE1NTYxNjAxZmVkNTg1ZjYyYzVh California taxpayers canalsofully deduct expenses paid with EIDL fundssince this thresholddoes not apply toEIDL grants. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. 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. Ineligible entities are either publicly tradedcompanies orentities that do not meet the requirements of 15 U.S.C. 80, California Assembly, April 15, 2021. 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. Payroll Protection Program (PPP) loans have been a lifeline to businesses since the onset of COVID-19. For tax yearsbeginning in2019,qualifyingtaxpayers cannowexclude PPP loanforgivenessorEIDL grants fromCalifornia gross incomeanddeductallowablecoveredexpenses paid withPPP loan or EIDL grant proceeds. Acting Governor Eleni Kounalakis Signs Legislation to Support States COVID-19 Preparedness, PHOTOS: Governor Newsom Visits Diablo Canyon Power Plant, More Time to File State Taxes for Californians Impacted by December and January Winter Storms, Governor Newsom on Read Across America Day: While Other States Ban Books, Were Helping Students Read, Governor Newsom Proclaims State of Emergency in 13 Counties Due to Winter Storms, Activates California Guard. You can also read the documentation to learn about Wordfence's blocking tools, or visit wordfence.com to learn more about Wordfence. (CAL. document.write(new Date().getFullYear()) California Franchise Tax Board. For taxpayers other than ineligible entities, A.B. On April 29, 2021 Governor Newsom signed California A.B. By showing up as I am, Im elevating my career. YjFhOWM4Y2FkNDM3NWJjM2ZmZjE2YmFmNjhlNjc3MDJjM2Q3NjJhMmE1NDgz This is important new information that needs to be shared with businesses immediately and it will likely come as a surprise to many. Emergency Financial Relief to Support Community College Students. 13 Specifically, A.B. hb```"{ Consult with a translator for official business. 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. NThmOTI5NTJhNjc1MTk0MWYwNDRhODc5Yjk0NWRlY2MxOGViMzcwMTViODJl 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). NTU5M2RhOWQwZTM1ZWU5NWE0YmI3YmJjZjMyYWI4M2IxYzcyNDVkMjY1MDc0 On September 9, 2020, Assembly Bill (AB) 1577 (Coronavirus Aid, Relief, and Economic Security (CARES) Act Conformity) was enacted which allowed an income exclusion for tax years beginning on or after January 1, 2020, for forgiven PPP loans. Read about their experiences and a few lessons learned along the way. 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. Separately, the Governor and legislative leaders said that discussions are continuing on measures for the safe reopening of the states K-12 schools, including strategies to address learning loss caused by the pandemic. If your forgiven loan relates to an EIDL Grant or Targeted EIDL Advance, you are not required to meet these qualifications to deduct expenses. 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. At Grant Thornton, we dont just understand your business. View the list of archivedMultistate Tax alerts. 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. Together with PitchBook, we give you the focused insights to take advantage of the trends. 15 U.S.C. Osborne Rincon CPAs | 79245 Corporate Centre Drive, La Quinta, CA 92253 | 760-777-9805 | Copyright 2018 Osborne Rincon. Certain services may not be available to attest clients under the rules and regulations of public accounting. Yjk1NTlhZjUzMmI3ODFlN2VlZDM3OWQ5OWM1ZDgzYmM3NTgyMWVkZjViZTQy If you make an election under Rev. 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. The owner of this site is using Wordfence to manage access to their site. Specifically, the new law states that [a]ny credit or deduction otherwise allowed under this part [(Part 10 for the PITL and Part 11 for the CTL)] 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.19. SB 113 also allows the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers for SVO and RRF grants. REV. & TAX. CODE 17131.8(g)(3)(B); 24308.6(g)(3)(B). If your PPP amount is over $150, 000 and you received your PPP loan through a bank in the SmartBiz network, your bank will be contacting you directly about applying for Forgiveness. Cybersecurity can never rest. The agreement adds just over $400 million in new federal funds that will provide stipends of $525 per enrolled child for all state-subsidized child care and preschool providers serving approximately 400,000 children in subsidized care statewide. 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. The payments will be provided to these households shortly after they file their 2020 tax returns. For federal qualifications regarding income tax treatment, visit Coronavirus Tax Relief for Businesses and Tax-Exempt Entities. This box/component contains JavaScript that is needed on this page. If you are a WordPress user with administrative privileges on this site, please enter your email address in the box below and click "Send". MWRkNGI5MjIxZWY4NWUwMzU3N2Y0MDFmODQ1ZmQzMjliYzI1YWJjM2E3OGU2 Principal, SALT Services Specifically, A.B. See how we connect, collaborate, and drive impact across various locations. MzJiOWRiMDc3MWUyZjhhMGViZjEyNDFkNWI4MTg3ZTU3NWRmNjEzYWNjNmM4 section 1106 of the CARES Act for forgiveness of the covered loan. Access from your area has been temporarily limited for security reasons. Friday, September 18th, 2020. NGQ1ZTQ2MjVlYTI2YTE3N2M5NzQ3NmNkNjNkMTc3M2JhZDE5OTA1OWZkYjc2 (HTTP response code 503). YjA1NTM0ZGYzOWRkOTM0Yjg0MTQ3Mzc5MzhlNzQ1Y2UwOTA0Y2ZlODFkZjdi A sign calling for student loan debt relief is seen in front of the Supreme Court as the justices are scheduled to hear oral arguments in two cases involving President Joe Biden's bid to reinstate . of research and economic analysis. 636(a)(37)(A)(iv)(I)(bb).10 Generally, to satisfy the gross receipts requirement, a taxpayer must have experienced a 25% or greater reduction in quarterly gross receipts for the first, second or third quarters of 2020 as compared to the same quarter of 2019.11 MWFlZjU2ZDU1ZTQzYjZkMGVlNWYwYmRlOWI5MDdmZWZiNGE1OTMwZWRkY2Rj 1557 generally conforms California to federal law allowing an exclusion from gross income for covered Paycheck Protection Program (PPP) loans that are forgiven as a part of the federal Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). 311 0 obj <>stream 39 (A.B. 116-139, the Enhancement Act).8 The federal government also enacted the Paycheck Protection Program Flexibility Act (P.L. 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