In his May revised California budget proposal, Governor Newsom is proposing that California retroactively conform to the exclusion for COD income from Paycheck Protection Program (PPP) loan forgiveness amounts for PPP loans approved after March 31, 2021. Although details have yet to be provided, we believe that these loans would be treated similarly to loans approved prior to April 2021. This means that taxpayers would be able to deduct expenses paid with these excluded forgiven PPP loan amounts if they can demonstrate a 25% reduction in gross receipts from any quarter in 2019 compared to the comparable quarter in 2020.
At this stage, the Governor’s proposal is just a proposal. Legislation will have to be enacted, but impacted taxpayers who have not yet filed their returns may want to hold off filing to see if legislation is enacted. Those who have already filed will be able to file refund claims if a PPP conformity bill is enacted.
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