By: Pedro T. Rincon, CVA, Partner Osborne Rincon CPAs
Payroll Protection Program (PPP) loans have been a lifeline to businesses since the onset of COVID-19. There have been a few different rounds of applications, and of course, the program is complex as businesses must be fully clear about inclusion/exclusions and how forgiveness and/or repayment terms work.
Spidell Publishing – one of California’s leading continuing education organizations – is reporting that the PPP loan forgiveness exclusion enacted by AB 80 (Ch. 21-17) does not apply to either first- or second-draw loans received after March 31, 2021.
This is important new information that needs to be shared with businesses immediately – and it will likely come as a surprise to many.
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. 117-6). Because these loans are not considered “covered loans” as that term was defined when AB 80 was enacted, the forgiveness of these loans do not qualify for the California exclusion.
Although businesses who do not qualify for an exclusion may fully deduct expenses paid with forgiven PPP loan amounts on their California return, the taxability of the PPP forgiveness will come as a big surprise for many California businesses.
Ultimately, this will make tax planning for 2021 essential if a business received loan forgiveness during the year, as this nonconformity was not anticipated. Tax laws are ever-changing, which is why you need proficient tax professionals working with you and your business to ensure you are in compliance with the current tax laws. If you’d like to discuss tax implications that may be facing your business, contact Osborne Rincon at (760) 777-9805.