Issue: On April 29, 2021, Governor Gavin Newsom signed into law Assembly Bill 80. It takes immediate effect for tax years beginning on or after January 1, 2019.
Key Takeaways: The legislation allows certain eligible small businesses to disregard the forgiven PPP loans that businesses received from the federal government during the pandemic and not count the funds as taxable income. These businesses can also deduct the cost of eligible expenses paid from PPP loan proceeds.
Action Items: Taxpayers that have already filed their 2019 and 2020 returns should consider amending these returns to incorporate the adjustments allowed by AB 80.
Assembly Bill 80 (AB 80), the California bill to allow deductions for expenses paid with forgiven PPP debt, was signed by Governor Gavin Newsom on April 29, 2021.
AB 80 brings the California state corporate and individual income tax treatment of forgiven Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loan (EIDL) advance grants under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA) into conformity with federal tax law (with some modifications).
Under AB 80, forgiven PPP loans or EIDL advance grants may be excluded from a taxpayer’s gross income when computing California corporate and individual income tax for tax years beginning on or after January 1, 2019.
Taxpayers that are not considered "ineligible entities" may also deduct business expenses paid with the proceeds of forgiven PPP loans or EIDL advance grants.
An "ineligible entity" is defined as a publicly traded company (as described in Section 342 of Division N of the CAA) or a taxpayer that did not experience at least a 25% reduction in gross receipts during 2020 in a calendar quarter as compared to the same calendar quarter in 2019.
If your California business received a PPP loan or EIDL advance grant, you should consider this new law when filing 2020 California corporate or individual income tax returns. If you have already filed 2019 and 2020 returns, you should consider amending these returns to incorporate the adjustments allowed by AB 80.
For more information or assistance, please contact one of the following HCVT state and local professionals:
Douglas Andersen | Partner | 562.216.5512 | douglas.andersen@hcvt.com
Nancy Chher | Principal | 562.216.1814 | nancy.chher@hcvt.com
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