Emergency Financial Relief to Support Community College Students. SESS. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. Read about their experiences and a few lessons learned along the way. We are excited to finally have clarity on California's PPP loan forgiveness stance. The American Rescue Plan Act (ARPA) (Public Law 117-2) was enacted on March 11, 2021. 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 $2 million. 297 0 obj <>/Filter/FlateDecode/ID[<681772630396424DB877BF5F6FFE419B>]/Index[276 36]/Info 275 0 R/Length 98/Prev 155748/Root 277 0 R/Size 312/Type/XRef/W[1 2 1]>>stream MTFiZWE1MGQyMjlhOGEzMTY3ODc1ZGE4ODNiNmM1MGQxMzUzYTgxZjQxYTk5 A.B. To help guide planning, weve highlighted key topics under focus from regulators worldwide and what those developments could mean for business. 80's treatment of expenses paid with forgiven loan proceeds A.B. 12 CAL. Shortly after enactment of the CARES Act, the Internal Revenue Service (IRS) issued Notice 2020-32 providing that deductions for business expenses otherwise allowable under the Internal Revenue Code (IRC) (e.g., deductions under IRC Secs. :D 8 NDZkZjRjZDY4ODVjMjk3OGE5MjViODBjYjExOTliZWFhNzgwY2FjMTkzYjll Immediate Relief for Small BusinessesQuadrupled. We understand you. For tax yearsbeginning in2019,qualifyingtaxpayers cannowexclude PPP loanforgivenessorEIDL grants fromCalifornia gross incomeanddeductallowablecoveredexpenses paid withPPP loan or EIDL grant proceeds. NGNiMzc0NzFlYmE5YTE4MGYwMjAwYmYwYWVlYWZhYjRhNGVjYzU0Njk2Zjhk This content supports Grant Thornton LLPs marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. hVkkF+qe6 Al+vji"3{gYiSZ2e):t z$/=N,zG&F0ihH&h jucN^#VBOZ.fY+n?1o%?}j-]drM5~j?oZQ~|f)?gV~R,.jz2,QzOu"JY[#M}K3_OO^6b^,#lYu7O. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. 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. Californians have been hurting. On April 29, California Gov. Any differences created in the translation are not binding on the FTB and have no legal effect for compliance or enforcement purposes. 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. 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. The authors of this alert would like to acknowledge the contributions of Lauren Kim to the drafting process. National Tax Office Leader. 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 SESS. Y2NjYmFmZTQyOGZhYjViZTYxMTQ0ODRiYWY5OGVkNzNlOWI1NWY0YzU0ZDVl On February 9, 2022, Senate Bill (SB) 113 (Economic Relief) was enacted to allow an income exclusion for Shuttered Venue Operator (SVO) grants provided under CAA for tax years beginning on or after January 1, 2019 and for Restaurant Revitalization Fund (RRF) grants provided under ARPA for taxable years beginning on or after January 1, 2020. 2020-27. GTIL does not deliver services in its own name or at all. PPP Loan Forgiveness for Borrowers International China Practice India Practice Latin America Practice Consulting Technology Risk & IT Compliance Strategy & Operations Transactions Specialty Technology Automation Data Analytics & BI Development & Integration Enterprise Systems Technology Products Technology Strategy Automation hb```"{ Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. 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. . 17 A.B. 8 CAL. 6 P.L. This box/component contains JavaScript that is needed on this page. 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. These pages do not include the Google translation application. 1577 attempted to do, A.B. According to the legislative analysis, this date was changed to ensure that all fiscal year filers are captured. 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. You can also read the documentation to learn about Wordfence's blocking tools, or visit wordfence.com to learn more about Wordfence. The documentation must clearly identify both of the reference quarters (if not using annual comparison), must section 1106 of the CARES Act for forgiveness of the covered loan. Please see www.deloitte.com/about to learn more about our global network of member firms. Ataxpayercannot combinetwo or more2020quarterly losses to arrive at thisthreshold. For tax years beginning in 2019, qualifying taxpayers can now exclude PPP loan forgiveness or EIDL grants from California gross income and deduct allowable covered expenses paid with PPP loan or EIDL grant proceeds. Podcast: New hiring credit enacted for small businesses. 6 See CALIFORNIA SENATE COMMITTEE ON GOVERNANCE AND FINANCE ANALYSIS, JULY 24, 2020 (available here); CALIFORNIA ASSEMBLY FLOOR ANALYSIS, AUG. 29, 2020. 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. 13 Specifically, A.B. 636(a)(37)(A)(iv)(I)(bb). Businesses are struggling. This content supports Grant Thornton LLPs marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. You must pay it back within either 3 or 5 years. 102-1125) on February 3, 2023, that makes significant enhancements to a variety of Illinois credit and incentive programs. Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. 4 See P.L. MTU3YmNhZDYyNDc5ZTczNDMyNzc0ZjU1YTI3NWRlZjg3OWVkNGRiYjAzNjUz ITIN taxpayers who also qualify for the California EITC would receive a total of $1,200. No Results Found. It does not apply to SBA subsidies paid on SBA loans, Shuttered Venue Operator Grants, or Restaurant Revitalization Grants. 1577 and how these changes impact their California tax liabilities. 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. B expects to apply to the lender for forgiveness of the covered loan in 2021. Financial help for businesses - Coronavirus COVID-19 Response - California 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). These subsidies/grants are subject to California tax, but expenses are fully deductible on the California return. REV. 116-136. 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program. 1577, 1, 2; CALIFORNIA ASSEMBLY FLOOR ANALYSIS, AUG. 29, 2020 (available here); see also Coronavirus Aid, Relief, and Economic Security Act, Pub. By showing up as I am, Im elevating my career. 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. ZjM5OWM1NmRhZmIzYzYxY2VlZmY4NDExYjhjMDA0YmRlOThjMjBhYjk3Nzkz You meet the 25% gross receipts reduction qualifications. PPP Forgiveness: Urgent News About Nonconformity in California For California purposes, forgiven PPP loans, SVO grants, and RRF grants are excluded from gross income. See Terms of Use for more information. This is alyx our streamlined concierge-enabled platform that connects real problems with the right resources and real solutions. 15 See e.g., I.R.C. 1557 also disallows otherwise allowable credits and deductions for amounts paid or incurred using forgiven loan funds.3 Because California generally conforms to the version of the Internal Revenue Code (IRC) that existed as of January 1, 2015, California did not automatically conform to the CARES Act and subsequent, related federal legislation.4 Absent conformity, the California Legislature anticipated that California businesses could have to pay more than $3 billion in additional taxes attributable to forgiven PPP loans.5 As a result, the California Legislature enacted A.B. 80, deductions for expenses paid using PPP loan proceeds are allowed even when the loan is forgiven provided the taxpayer is not an ineligible entity. Under the legislation, an ineligible entity is a taxpayer that either: (i) is a publicly-traded company; or (ii) does not experience a 25% reduction in gross receipts in an applicable quarter of 2020 as compared to the same quarter in 2019.2, The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides forgivable business loans when the recipient meets certain eligibility criteria.3 Under the PPP, qualifying borrowers can apply to have some (or all) of their loan forgiven to the extent it was used for certain expenses such as rent, utilities, mortgage payments, and employee payroll. L. No. This message will not be visible when page is activated. Find out how to manage the business risks behind data. If you are a WordPress user with administrative privileges on this site, please enter your email address in the box below and click "Send". hb```b``V``e``[ ,@QR40 Mjy{zf9sUnhRn(=vl&G99I\@V7?$vt0Ft 0AU:\l0 c`\=H$X$BCA~'YlxH/t>x Exceptional organizations are led by a purpose. Together with PitchBook, we give you the focused insights to take advantage of the trends. California Conforms to Federal PPP Loan Forgiveness Rules ZmEwMjJhMjJhYSJ9 On Sept. 9, 2020, which was after the IRS released Notice 2020-32 but before the CAA was signed, California enacted legislation, A.B. of research and economic analysis. Follow our normal amended return procedures to claim any deduction or adjustment related to PPP loans. 16 See I.R.S. Mjg2ZDhmNTczMDFhNjc3MjY1YjcxNGU5YjlmODg2YzdmYjUyOWIyNjQ1Njhj NGQ1ZTQ2MjVlYTI2YTE3N2M5NzQ3NmNkNjNkMTc3M2JhZDE5OTA1OWZkYjc2 Certain services may not be available to attest clients under the rules and regulations of public accounting. & TAX CODE 17024.5(a); 23051.5(a). 61; CAL. 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. REV. The agreement provides $600 in one-time relief to households receiving the California EITC for 2020. But yesterday, the Calfornia Senate approved AB 80, which would make forgiven PPP loans tax-deductible - and give businesses a breather. and CTL purposes. endstream endobj startxref 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. SB 113 also allows the deduction of expenses, basis adjustments, and tax attribution adjustments for qualifying taxpayers for SVO and RRF grants. The new legislation supersedes AB 1577. Copyright 2023 BDO USA LLP. See how we connect, collaborate, and drive impact across various locations. CODE 17131.8(b); 24308.6(b), as amended by A.B. For taxpayers other than ineligible entities, A.B. 2 A.B. You can count on us to prioritize and complete work to the best of our ability based on these changes. We are at a critical moment, and Im proud we were able to come together to get Californians some needed relief.. 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. 1577, addressing the treatment of PPP loans for tax years beginning on and after Jan. 1, 2020.7 Consistent with IRS Notice 2020-32, this legislation generally provided that forgiven PPP loan amounts would be excluded from the borrowers gross income, but that associated deductions would not be allowed for expenses paid with forgiven PPP loans. 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. 2020 set a new high in annual PE software deal value. (%mu9YS-+e"D3mU3]3|.efah4Yi^=|jmMg16^2*5+Qh . 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 . 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. 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.