On April 29, 2021 Governor Newsom signed California A.B. 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program (PPP) loans. The $150,000 limitation in prior versions of A.B. 80 was removed, and replaced with a requirement that only non-publicly traded companies who reported losses of at least 25% in gross receipts during one quarter of 2020 can deduct such expenses. That 25% decrease in gross receipts was also a condition for receiving a PPP loan in the second round of loans made available in late 2020. Publicly traded companies cannot deduct any amount of expenses paid with funds from forgiven PPP loans.
A.B. 80 also provides that Economic Injury Disaster Loan (EIDL) advance grants received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 are not included in gross income.
The changes were made via amending to California Revenue and Taxation sections 17131.8 and 24308.6, and are generally applicable to taxable years beginning on or after January 1, 2019.
If you have any questions regarding this information, please contact Justin Hepworth at (714) 424-8293 or Amy Tranckino at (858) 720-8960.
This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, solicitation, or legal advice, and does not form an attorney-client relationship. Further, this update is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. As you are aware, the COVID-19 crisis situation is dynamic and rapidly evolving, as are the laws, regulations, guidance and interpretations thereof. The information provided herein does not constitute tax advice and may not be relied upon for avoidance of tax penalties or for any other purpose. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.