CODE 17131.8(g)(3); 24308.6(g)(3). 5 INCOME TAXES: FEDERAL CARES ACT: GROSS INCOME: LOAN FORGIVENESS, JULY 8, 2020 (available here). 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. 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 Otherwise . More than 750,000 PPP loans were taken out by California small businesses. See how we connect, collaborate, and drive impact across various locations. 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. AB 80 generally conforms to the federal treatment of PPP loan forgiveness and EIDL grants, with one major exception. MWRkNGI5MjIxZWY4NWUwMzU3N2Y0MDFmODQ1ZmQzMjliYzI1YWJjM2E3OGU2 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. 250 0 obj <>stream 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. NDZkZjRjZDY4ODVjMjk3OGE5MjViODBjYjExOTliZWFhNzgwY2FjMTkzYjll x000K@4CgCGt@1: L%v5Fo- j-YW v The payments will be provided to these households shortly after they file their 2020 tax returns. REV. AB 80 uses the same 25% gross reduction threshold qualification that was used for second draw PPP loans. 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. 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). Golf is better when were all playing together. Your business does not meet PPP loan forgiveness requirements. However, California disallows a credit or deduction for Loan Forgiveness Eligible Expenses to the extent of the Forgiven Loan Amount. A diversity, equity and inclusion video series. 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. 7 Ch. For California purposes, forgiven PPP loans, SVO grants, and RRF grants are excluded from gross income. Other special rules in the federal statute apply to entities that were not in business for the entirety of 2019. For additional information on the RRF grants, visit Section 5003 of the ARPA, RTC 17158.2(a), and SBA guidance. %PDF-1.6 % Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. An additional $310 billion of PPP loan funding was subsequently provided by the federal Paycheck Protection Program and Health Care Enhancement Act (P.L. This isnt the tech you know. Taxpayers that have already filed their 2019 and 2020 returns should consider amending these returns to incorporate the adjustments allowed by AB 80. Onlyagross receiptsreduction inone quarterin2020mustmeet this25%thresholdtoqualifyforthe PPP loan expense deduction, assuming the entity is notpublicly traded. Credit: Spidell Tax, Analysis, and Education, 200 West Roseburg Avenue We do not control the destination site and cannot accept any responsibility for its contents, links, or offers. If youd like to discuss tax implications that may be facing your business, contact Osborne Rincon at (760) 777-9805. Executives are advised to pay special attention to emerging trends that will shape how boards and investors talk about ESG in 2021. Cybersecurity can never rest. If you have additional questions about this article or your business qualification status, contact your GC accountant or email us at contactus@gccpas.net. . Careful consideration will need to be given to these issues, as well as the need for documentation to support that the 25% diminution in gross receipts requirement of A.B. April 29, 2021 Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. For this reason, taxpayers that have already filed or paid tax following the provisions of A.B. SB 113 also allows the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers for SVO and RRF grants. 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. On April 29, California Gov. & TAX CODE 17024.5(a); 23051.5(a). 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). Y2NjYmFmZTQyOGZhYjViZTYxMTQ0ODRiYWY5OGVkNzNlOWI1NWY0YzU0ZDVl When addressing the new expectations of your workforce, speed is a key factor. REV. ~A=.d XmtLY RLqg! U SESS., 1 (see new CRTC 17131.8(b)), 2 (see new CRTC 24308.6(b)). 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. Proc. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. 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. 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. Private company boards should bring the backgrounds and insights to understand risks and opportunities and drive the business forward. 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. Note that the citation to the federal law presumably should be 15 U.S.C. What will help even more is using a holistic approach to create a winning strategy. Certain services may not be available to attest clients under the rules and regulations of public accounting. SACRAMENTO Governor Gavin Newsom, Senate President pro Tempore Toni G. Atkins and Assembly Speaker Anthony Rendon today announced that they have reached an agreement on a package of immediate actions that will speed needed relief to individuals, families and businesses suffering the most significant economic hardship from the COVID-19 Recession. All references to Section, Sec., or refer to the Internal Revenue Code of 1986, as amended. MjhlMTk5ZGY1MzFiNTZlYzQ5N2ZlMTAyOGIwYzZhZDAwOGU4ZDQ5N2U4Nzlj Ataxpayercannot combinetwo or more2020quarterly losses to arrive at thisthreshold. 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. 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. document.write(new Date().getFullYear()) California Franchise Tax Board. How to solve business problems and mitigate the risks, Make your transformation deliver on its promise. 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. the forgiveness of PPP loans. Do not include Social Security numbers or any personal or confidential information. OTc5MjdiOWVmNjcwMzYzYTRjZjhmOWI1YmQzZDczMDNkYzZmYjk2Mzk2ZWJi 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. For taxpayers other than ineligible entities, A.B. Social login not available on Microsoft Edge browser at this time. The agreement also reflects fee relief for more than 600,000 barbering and cosmetology individuals and businesses licensed through the Department of Consumer Affairs. Fill the form below and we'll contact you to schedule an appointment: Grimbleby ColemanCertifiedPublicAccountants,Inc. California Conforms to Federal PPP Loan Forgiveness Rules. 1577 and how these changes impact their California tax liabilities. Automation used to be a possibility a goal for the future. California aligning with fed PPP loan treatment. Joshua Josh is a State and Local Tax (SALT) Principal in the San Francisco office of Grant Thornton LLP. 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. 5 IRC Sec. Review the site's security and confidentiality statements before using the site. ZDE5MjljNTlmOGNmNzlmYTg5MGFiZWU3MjM1M2I1Yjg2OTA3NzZmYmU3NmFi Partner, State and Local Tax West Region Leader. The potential is great what to know before taking action. ZTI5MDAwNDczOWI5MWMxY2RlNWVhNzcyY2Q3OWVmNmI2N2Y2ODEyZmM1NTYz This tax treatment would also extend to the Economic Injury Disaster Loans as well. 1577, and provides some taxpayer considerations. endstream endobj startxref 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. This is important new information that needs to be shared with businesses immediately and it will likely come as a surprise to many. 13 See I.R.C. The 25% gross receipts limitation does not apply to the EIDL advance grants, so taxpayers may exclude the EIDL grants and may fully deduct these expenses even if they dont meet the threshold reduction. Gavin Newsom signed Assembly Bill 80 (A.B. 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. NWE3NWRjN2NhODFhNjkyOWNiYzZhZWJjN2U5M2FhYjEzNTQ3YTVhMDA5MzNi The 2023 BDO CFO Outlook Survey offers critical insights to support strategic decision-making and help your company thrive. 1577, A.B. 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). This Google translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. 636(a)(37)(A)(iv)(I)(bb). 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. 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. In September 2020, California enacted AB 1577, which conformed to the CARES Act exclusion from gross income for PPP loan forgiveness. MzZiNmY3MzJiY2FhODEyYjI2YzU5MzE4ZWE1NTYxNjAxZmVkNTg1ZjYyYzVh All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. 2023. GTIL does not deliver services in its own name or at all. DTTL and each of its member firms are legally separate and independent entities. According to the Franchise Tax Board, because AB 80 only conforms to the federal PPP loan forgiveness provisions as they were last amended by the Consolidated Appropriations Act of 2021, California does not conform to the extension of the PPP loan program by the PPP Extension Act of 2021 (P.L. NmIyYjY1ZGFjODY4OTViMmNkMGJiYjAzM2JjYTBhMDJhZDYyYThmNTg3Yjcw The American Rescue Plan Act (ARPA) (Public Law 117-2) was enacted on March 11, 2021. 116-260. California taxpayers canalsofully deduct expenses paid with EIDL fundssince this thresholddoes not apply toEIDL grants. 2020-27. California Rebuilding Fund Small businesses may be eligible for a loan up to $100,000 from the California Rebuilding Fund. 1577. 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. 11 See 15 U.S.C. 265 disallows deductions related to tax-exempt income. 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. 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. National Tax Office Leader. If your forgiven loan relates to an EIDL Grant or Targeted EIDL Advance, you are not required to meet these qualifications to deduct expenses. MWM2OTQ4NmFlOWMzMjAzOGE0OWFjNWI2NmU3ZmQ0MjU3Y2U0ZDcwMWMxYWU1 The owner of this site is using Wordfence to manage access to their site. The agreement would provide the $600 payments to households with ITINs and income below $75,000. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the "Deloitte" name in the United States and their respective affiliates. 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. View the list of archivedMultistate Tax alerts. Generated by Wordfence at Sat, 4 Mar 2023 17:56:39 GMT.Your computer's time: document.write(new Date().toUTCString());. Credit: Spidell Tax, Analysis, and Education Go Back Print. It does not apply to SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants. 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. -----END REPORT-----. Answer: For a Second Draw PPP Loan amount of $150,000 or less, the borrower must provide documentation substantiating the reduction in gross receipts before or at the time the borrower seeks loan forgiveness (or upon SBA request). Yjk1NTlhZjUzMmI3ODFlN2VlZDM3OWQ5OWM1ZDgzYmM3NTgyMWVkZjViZTQy hbbd``b`?`\@ "$@b Bq@S my S{.$4VP&F% 1FrO G Forms, publications, and all applications, such as your MyFTB account, cannot be translated using this Google translation application tool. The agreement provides an additional $24 million for financial assistance and services through Housing for the Harvest a program providing support for agricultural workers who have to quarantine due to COVID-19. 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. 636(a)(37)(A)(iv)(I)(bb). Section 636(a)(37)(A)(iv)(bb), which requires the entity tohave experienced at least a 25% drop in gross receiptsinthe first, second or thirdquarter of 2020, or the fourth quarter if a PPP loan application was submitted on or after January 1, 2021,compared tothe same quarter in 2019. endstream endobj 212 0 obj <>/Pages 210 0 R/StructTreeRoot 12 0 R/Type/Catalog/ViewerPreferences 230 0 R>> endobj 213 0 obj <>/MediaBox[0 0 612.12 792.12]/Parent 210 0 R/Resources<>/Font<>/ProcSet[/PDF/Text/ImageC]/XObject<>>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 214 0 obj <>stream Find out how to manage the business risks behind data. Y2ZjZmQ1NzgyYTlkZmE1NGZmOTRmOTU2ZWE5M2Y5OWRlZTY2NTU3M2QxNmJh 18 A.B. The authors of this alert would like to acknowledge the contributions of Lauren Kim to the drafting process. Banks face new challenges on regulation, ESG, mortgages, digital assets, audit, tax or digital transformation in 2022. 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. ZjM5OWM1NmRhZmIzYzYxY2VlZmY4NDExYjhjMDA0YmRlOThjMjBhYjk3Nzkz :D 8 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. Multistate Tax alert | September 30, 2020. 1577, 2019-2020 REG. 6 P.L. 80 has been satisfied to avoid being classified as an ineligible entity.. OTFhMGFmZGQ0YThjYTRlMDNjYWE5NDNlMmI2NjY2ZTFiYTdmNzc0NGFjM2Zj Please search again using different keywords and/or filters. Osborne Rincon CPAs | 79245 Corporate Centre Drive, La Quinta, CA 92253 | 760-777-9805 | Copyright 2018 Osborne Rincon. 0 636(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 20 See A.B. SESS. 15 U.S.C. Please see www.deloitte.com/about to learn more about our global network of member firms. DTTL (also referred to as "Deloitte Global") does not provide services to clients. 6 See CALIFORNIA SENATE COMMITTEE ON GOVERNANCE AND FINANCE ANALYSIS, JULY 24, 2020 (available here); CALIFORNIA ASSEMBLY FLOOR ANALYSIS, AUG. 29, 2020. Notice 2020-32 (available here). GTIL refers to Grant Thornton International Ltd (GTIL). The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons. 1577) into law.1 A.B. Companies must focus on attracting and retaining talent, modernizing HR to serve new business needs while becoming more efficient. Read about the challenges and opportunities that could lie ahead. Dana Lance is the Tax Practice Leader for the Greater Bay Area and the SALT Practice Leader for the West Region. Dana is based in San Jose, California. NDEyZDM0YmQ2MzdjM2I1OTg1YmYxMTdhYzE2OWE5MWEyMjJkYTM5ZTg4ZjYw 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. You meet the 25% gross receipts reduction qualifications. See Terms of Use for more information. Assembly Bill 80 (AB 80) allows qualifying taxpayers to exclude from California gross income Paycheck Protection Program (PPP) loans that have been forgiven, and advance grants provided under the Economic Injury Disaster Loan (EIDL) program. 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. Who should lead the charge? GTIL and each member firm of GTIL is a separate legal entity. N2Y5N2FjOGU2ZGVmZWI4MDRhNTg4NjNjZjgxYjA2MzBlYjU1MmMzNDY0NTY1 1577 is effective immediately and applies to taxable years beginning on and after January 1, 2020.20 Taxpayers that have received a PPP loan should be aware that the Forgiven Loan Amount is excluded from gross income for California PITL and CTL purposes. To qualify for expense deductions, basis adjustments, and lack of reduction of tax attributes related to AB 80, you must meet the following qualifications. 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.
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