2021-61: Passthrough entity elective tax and PPP forgiveness update - Spidell

2021-61: Passthrough entity elective tax and PPP forgiveness update

Two important issues have been clarified by the FTB.

Passthrough Entity Elective Tax Credit

The FTB has confirmed that trusts, including grantor trusts and intentionally defective trusts, are “qualified taxpayers” for purposes of the Passthrough Entity Elective Tax Credit. This means the partnership/S corporation with a trust owner can pay the passthrough entity elective tax on behalf of the consenting trust owner. The trust may then claim the Passthrough Entity Elective Tax Credit on the trust return or can pass the credit on to its beneficiaries by reporting it on Schedule K-1 (541), line 13d, Other Credits.

PPP nonconformity update

The FTB has also updated its Paycheck Protection Program webpage to fix a previous error regarding which PPP loans qualify for forgiveness on the California return. Previously, the webpage indicated that California does not conform to the PPP loan forgiveness exclusion for loans forgiven after March 31, 2021. The page now states that:

“The Paycheck Protection Program Extension Act (PPPEA) (Public Law 117-6) was enacted on March 30, 2021, and extended the covered period of the PPP from March 31, 2021, through June 30, 2021. California law does not conform to this extension and does not allow an exclusion from income for PPP loans made after March 31, 2021 [emphasis added].” (www.ftb.ca.gov/about-ftb/newsroom/covid-19/paycheck-protection-program-loan-forgiveness.html)

This confirms that loans approved prior to April 1, 2021, but forgiven after March 31, 2021, are eligible for the exclusion.

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