Special Alerts
AB 80, California’s PPP Deduction Conformity Bill
AB 80, California’s PPP deduction conformity bill, has been signed by the Governor. While the bill has some conformity provisions, there are also some key exceptions.
Partial Conformity
California will allow deductions for amounts paid with forgiven PPP debt, and there is no longer a $150,000 limit on those deductions. However, to qualify to take the deductions, a business must demonstrate at least a 25% reduction in gross receipts in any 2020 calendar quarter compared to the comparable 2019 calendar quarter. If they were in business for all of 2019, they can also compare calendar year 2019 to calendar year 2020.
If the entity was not in business during all of 2019, then the business must show a 25% reduction in gross receipts during any quarter in 2020 from the 2019 calendar quarters it was in operation. This language piggybacks on the gross receipt reduction requirement for eligibility for second draw PPP loans. However, the bill does not include any of the other restrictions from that provision, such as an employee limit.
AB 80 also provides that EIDL advance and targeted grants are excluded from taxable income, and the expenses paid with those amounts are fully deductible. The 25% gross receipt reduction threshold does not apply to these grant recipients for purposes of the exclusion or allowing deductions.
Publicly traded companies may not deduct expenses paid with forgiven PPP loan amounts.
The deductions will be allowed retroactively to taxable years beginning on or after January 1, 2019, and apply to:
- Both first and second draw PPP forgiven loans; and
- EIDL grants and targeted advances (not to EIDL loans in general).
Nonconformity
AB 80 does not conform to the exclusion of:
- SBA subsidies (SBA payments of up to six months of principal and interest on existing SBA loans);
- Shuttered Venue Operators Grants; or
- Restaurant Revitalization Fund grants.
This means these subsidies and grants are included in the taxpayer’s income, and any expenses paid with these amounts are deductible on the California return.
Next Steps
Tax commentators have reached out to the FTB for guidance regarding:
- How this conformity will be reflected on returns; and
- What procedures taxpayers should follow if they have already filed their returns under pre-AB 80 law and guidance.
The full text of the bill is available at http://bit.ly/AB-80-Bill-Text.
What constitutes gross receipts?
AB 80 uses the definition of “gross receipts” from the Consolidated Appropriations Act provision addressing second draw PPP loans. For the SBA’s guidance on this definition, see http://bit.ly/second-draw-PPP-loans.
About the Author
D. Steven Yahnian has been a member of the California Bar and a practicing Attorney since 1980. He has also been a California CPA since 1984. Mr. Yahnian also holds the CFP® designation.
Mr. Yahnian practices in the following areas of law through YAHNIAN LAW CORPORATION:
- Estate Planning & Administration
- Asset Protection Planning
- Tax Planning, Tax Debt Resolution and Tax Litigation
- Business & Corporate Law and Planning
- Real Property Law & Planning
As a CPA/CFP, Mr. Yahnian also has a separate accounting and tax return preparation practice called DSA ACCOUNTING.
Mr. Yahnian is a California State Bar Certified Specialist in the following
• Taxation Law and
• Estate Planning, Trust & Probate Law.
Mr. Yahnian received a B.S. degree in Accounting from USC, a J.D. from Loyola University of Los Angeles School of Law and an LL.M. in Taxation from New York University Law School. He also has a Certificate in Taxation from UCLA (with distinction).
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