California "will not tax" forgiven Paycheck Protection Program (PPP) loan amounts. For tax years beginning on and after January 1, 2020, California conforms to federal law excluding from income any covered loan amount forgiven pursuant to:
- Section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136);
- the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139); or
- the Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142).
For California purposes, "covered loan" has the same meaning as in the CARES Act.
The BAD - No Credit or Deduction for Expenses Paid Using Forgiven PPP Funds
California will not allow a credit or deduction for any expenses paid for using forgiven PPP funds. Taxpayers must reduce any credit or deduction otherwise allowed for those expenses by the amount of the forgiven loan excluded from income. So effectively
A.B. 1577, Laws 2020, operative as noted
Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board. Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.
For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC
Newport Beach and Yorba Linda, California
Tel: (949) 397-2292 (Newport Beach Office)
Tel: (714) 463-4430 (Yorba Linda Office)