The IRS and the Treasury have announced that states can conform to recent federal tax benefits (such as the allowance of deductions for amounts paid with forgiven PPP debt) and still benefit from the federal funding provided to states through the American Rescue Plan Act (ARPA). This eliminates the concern about whether California would lose federal ARPA funding if California enacts AB 80, which would allow taxpayers to deduct up to $150,000 in expenses paid with forgiven PPP debt.
This does not mean the deductions are now allowed for California, but it does mean California has the green light to enact the legislation. We will continue to monitor the situation and will let you know as soon as any law is passed. For now, we continue to recommend extending returns for clients with PPP loans.
The full text of the Treasury guidance can be found at: