New Developments – May 2021
The FTB has stated that they will not be creating any new forms or certifications for taxpayers to demonstrate that they meet the 25% drop in gross receipts test for purposes of deducting expenses paid with forgiven PPP debt. They will be updating form instructions, though we do not know when to expect those updates.
The SBA has stopped accepting new PPP applications from most lenders as general funds run out. The only remaining funds available for new applications are $8 billion set aside for community financial institutions (CFIs), which typically work with businesses in underserved communities. The agency also has set aside $6 billion for PPP applications still in review status or needing more information due to error codes.
New Developments – April 2021
Gov. Newsom signed AB 80 on April 29, 2021. AB 80 generally conforms to the federal treatment of PPP loan forgiveness and EIDL grants, with one major exception:
- To deduct expenses paid with PPP loan forgiven amounts, the taxpayer must have a 25% reduction in gross receipts in any 2020 calendar quarter as compared to the comparable 2019 calendar quarter. If the taxpayer does not meet this threshold reduction, the expenses cannot be deducted on the California return.
- 2021-32: California’s partial PPP conformity bill sent to Governor
Expenses paid with 2020 PPP loans can be deducted on 2021 tax returns–The IRS announced a limited safe harbor for certain businesses that received first-round Paycheck Protection Program (PPP) loans but did not deduct any of the eligible expenses because they relied on (previously) current IRS guidance. This safe harbor is available only for taxpayers that filed their 2020 federal tax returns prior to Dec 27, 2020.
- Treasury Department and IRS provide safe harbor for small businesses to claim deductions relating to first-round Paycheck Protection Program loans
- Revenue Procedure 2021-20