AB 80 - Timing of payroll cost add backs for PPP Loan Forgiveness - Spidell

AB 80 – Timing of payroll cost add backs for PPP Loan Forgiveness

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Message Board AB 80 – Timing of payroll cost add backs for PPP Loan Forgiveness

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    • #301806
      Stephen Hartfield
      Participant

      Hi,

      I have a client that received a PPP loan in 2020 and forgiveness in 2021. However, based on AB 80, they do not qualify to deduct the related expenses.

      My question is: in which year do I exclude the expenses – 2020 or in the year of the forgiveness, 2021?

      Common sense would tell us that it would be 2021, but we all know that taxation never makes any sense!

      Thank you,

      Stephen Hartfield

       

       

    • #302105
      Glen Warriner
      Participant

      This my client’s situation exactly. I would like the “common sense” answer as well. Hope we get the anwser!

    • #302108
      Sandy Weiner
      Participant

      The FTB has stated that they will follow the IRS’s position in Rev. Rul. 2020-27. Therefore the expenses may not be deducted in 2020 if there is a “reasonable expectation” that the loan will be forgiven in 2021.

      • #302160
        Jennifer Hoskinson
        Participant

        Are you going back to amend all the ones that were already filed or are you just going to take into account the PPP adjustment for CA on the 2021 tax return? I filed so many already.

    • #302164
      Laura Strombom
      Participant

      Opinion request: looking at CA FTB following IRS Rev. Ruling 2020-27, what are your thoughts in this scenario?

      TP received $496,000 in PPP.  TP used it 100% for payroll, including union benefits.  (Though rent and utilities could  be added to offset a chunk of the union benefits if required, and TP filed on an 8 week period:  going out 24 weeks would allow 100% payroll again.) TP filed for forgiveness as soon as the bank began accepting requests last summer.  TP has not yet received forgiveness.    TP also posted record (by a lot) profits in 2020.  Continued inquiries to the bank come back “still waiting on SBA.”  All other clients I have who have applied in 2020 have received a forgiveness, including others with similar size loans and record profits, but in different industries.  (All applied not knowing what the future holds. And, in fact, the one in question may not survive 2021.  Record profits came from work bid and started before pandemic.   New projects since the pandemic are few and far between.  Major economic shifts seem to always have a delayed impact on commercial construction projects.)

      Do we have a reasonable expectation that the loan will be forgiven in 2021?  TP is worried they will be accused of not “needing” the loan and be required to pay it all back.  TP would appeal such a decision, but this is a case where no news is not feeling like good news.

    • #302213
      Sandy Weiner
      Participant

      Laura, That’s a tough one.  I think you would have an argument that given the delay in the bank/SBA response that you no longer have a “reasonable expectation of forgiveness” and could delay deducting the expenses, but other than Rev. Ruling 2020-27 and the examples contained in that ruling, we haven’t had any additional guidance as to what “reasonable expectation” means in this area.

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