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We do not control the destination site and cannot accept any responsibility for its contents, links, or offers. If this reduction threshold is not met, the expenses cannot be deducted on the California tax return. CODE 17131.8(b); 24308.6(b), as amended by A.B. 2020-27. 80 has been satisfied to avoid being classified as an ineligible entity.. 1577 attempted to do, A.B. & TAX. However, AB 1577 did not allow taxpayers to deduct PPP covered expenses. MWZiNjQ1YjdmYjEyZDUzZDUyNTVjODI0OGMzN2YyM2YxMWYxNGNmYTA3Yzk2 2021-20 for federal purposes, we will follow the federal treatment for California tax purposes. Drive maximum value across your supply chain. Although businesses who do not qualify for an exclusion may fully deduct expenses paid with forgiven PPP loan amounts on their California return, the taxability of the PPP forgiveness will come as a big surprise for many California businesses. MDNjMzZlZmIzYWQ3NjYxMjhiZjg0Y2U1MzE0MjUyMjBhNWEwMzJlYzUwZjc0 (CAL. The new federal resources will extend care for children of essential workers through June of 2022, and funds increased access to subsidized child care for more than 8,000 children of essential workers and at-risk children who are not currently served in the system through June of 2022. The agreement reflects a four-fold increase from $500 million to more than $2 billion for grants up to $25,000 for small businesses impacted by the pandemic, and also allocates $50 million for cultural institutions. How we work matters as much as what we do. 21-17) does not apply to either first- or second-draw loans received after March 31, 2021. At Deloitte, our purpose is to make an impact that matters by creating trust and confidence in a more equitable society. Executives are advised to pay special attention to emerging trends that will shape how boards and investors talk about ESG in 2021. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. Gavin Newsom signed Assembly Bill 80 (A.B. AB 80 applies retroactively to taxable years beginning on or after January 1, 2019. Follow our normal amended return procedures to claim any deduction or adjustment related to PPP loans. MWRkNGI5MjIxZWY4NWUwMzU3N2Y0MDFmODQ1ZmQzMjliYzI1YWJjM2E3OGU2 There's more to consider. Review the site's security and confidentiality statements before using the site. 0 We are at a critical moment, and Im proud we were able to come together to get Californians some needed relief.. On June 30, 2022, AB 194 was enacted which allowed an income exclusion for covered loan amounts forgiven pursuant to the Paycheck Protection Program Extension Act of 2021 (PPPEA) (Public Law 117-6). 636(a)(37)(A)(iv)(I)(bb).10 Generally, to satisfy the gross receipts requirement, a taxpayer must have experienced a 25% or greater reduction in quarterly gross receipts for the first, second or third quarters of 2020 as compared to the same quarter of 2019.11 According to the legislative analysis, this date was changed to ensure that all fiscal year filers are captured. You can outsource cybersecurity, but you can't outsource your risks. As we continue to fight the pandemic and recover, Im grateful for the Legislatures partnership to provide urgent relief and support for California families and small businesses where its needed most, said Governor Newsom. For federal qualifications regarding income tax treatment, visit Coronavirus Tax Relief for Businesses and Tax-Exempt Entities. :D 8 (CAL. The undersigned certify that, as of July 1, 2021 the internet website of the Franchise Tax Board is designed, developed and maintained to be in compliance with California Government Code Sections 7405 and 11135, and the Web Content Accessibility Guidelines 2.1, or a subsequent version, as of the date of certification, published by the Web Accessibility Initiative of the World Wide Web Consortium at a minimum Level AA success criteria. Note that the citation to the federal law presumably should be 15 U.S.C. To be eligible, businesses must have: Employed 50 or less full-time employees Had gross revenue of less than $5 million in 2019 Find out how the technology, banking and asset management sectors are adapting their strategies to handle todays threats. People are hungry and hurting, and businesses our communities have loved for decades are at risk of closing their doors. There have been a few different rounds of applications, and of course, the program is complex as businesses must be fully clear about inclusion/exclusions and how forgiveness and/or repayment terms work. You can count on us to prioritize and complete work to the best of our ability based on these changes. California businesses have been down to the wire this tax season, up against paying state taxes on their Paycheck Protection Program loans. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. ZmU1YzEwNzA1MTAyYzc0ODZiODFlZjZkNTUzYmQ2YzFmNmVlOTA2M2JlM2Y3 Rather than deny deductions for expenses paid with forgiven PPP loan proceeds as A.B. %%EOF Cultivating a sustainable and prosperous future, Real-world client stories of purpose and impact, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. 80 is not a complete conformity bill, and there are some key distinctions to be made from the federal treatment of PPP loans. NDZkZjRjZDY4ODVjMjk3OGE5MjViODBjYjExOTliZWFhNzgwY2FjMTkzYjll California has NOT passed AB 80: the PPP forgiveness bill March 9, 2021 AB 80, the bill that would allow up to $150,000 of expenses to be deducted if paid with PPP forgiven loan amounts has not yet passed. Y2ZjZmQ1NzgyYTlkZmE1NGZmOTRmOTU2ZWE5M2Y5OWRlZTY2NTU3M2QxNmJh Read about their experiences and a few lessons learned along the way. section 1106 of the CARES Act for forgiveness of the covered loan. 1577 is effective immediately and applies to taxable years beginning on and after January 1, 2020.20 Taxpayers that have received a PPP loan should be aware that the Forgiven Loan Amount is excluded from gross income for California PITL and CTL purposes. Your ERM needs to cover new gaps and drive new value. On April 29, 2021, California Gov. 1 Ch. California law does not conform to this expansion of PPP eligibility. 80 provides much needed guidance clarifying Californias treatment of deductions for expenses paid with forgiven PPP loan proceeds. 80, deductions for expenses paid using PPP loan proceeds are allowed even when the loan is forgiven provided the taxpayer is not an ineligible entity. Under the legislation, an ineligible entity is a taxpayer that either: (i) is a publicly-traded company; or (ii) does not experience a 25% reduction in gross receipts in an applicable quarter of 2020 as compared to the same quarter in 2019.2, The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides forgivable business loans when the recipient meets certain eligibility criteria.3 Under the PPP, qualifying borrowers can apply to have some (or all) of their loan forgiven to the extent it was used for certain expenses such as rent, utilities, mortgage payments, and employee payroll. 117-6). 636(a)(37)(A)(iv)(I)(bb). 2020) (available here). A.B. 162, 163; CAL. 17 (A.B. This measure is part of Californias effort to recover now that the pandemic is easing, state restrictions are lifting, and businesses are moving back towards full operations. 1577 added new corporate and income tax statutes providing that [a]ny credit or deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which this exclusion is based shall be reduced by the amount of the exclusion allowed under this section.8, A.B. There has been no activity, and we can't get good information on when and if it will pass, and what will actually be included in the final bill. 39 (A.B. MTFiZWE1MGQyMjlhOGEzMTY3ODc1ZGE4ODNiNmM1MGQxMzUzYTgxZjQxYTk5 View the list of archivedMultistate Tax alerts. On April 29, California Gov. 15 See e.g., I.R.C. If you claimed a deduction that you do not qualify for, you must file an amended return using our normal amended return procedures. MWM2OTQ4NmFlOWMzMjAzOGE0OWFjNWI2NmU3ZmQ0MjU3Y2U0ZDcwMWMxYWU1 California conforms to the federal gross receipts test requiring a 25% or greater reduction in gross receipts and will therefore follow the rationale of this related federal guidance. Certain services may not be available to attest clients under the rules and regulations of public accounting. 15 U.S.C. The agreement provides an additional $24 million for financial assistance and services through Housing for the Harvest a program providing support for agricultural workers who have to quarantine due to COVID-19. ~A=.d XmtLY RLqg! U CalFresh Student Outreach and Application Assistance. 1577, addressing the treatment of PPP loans for tax years beginning on and after Jan. 1, 2020.7 Consistent with IRS Notice 2020-32, this legislation generally provided that forgiven PPP loan amounts would be excluded from the borrowers gross income, but that associated deductions would not be allowed for expenses paid with forgiven PPP loans. We strive to provide a website that is easy to use and understand. Tax laws are ever-changing, which is why you need proficient tax professionals working with you and your business to ensure you are in compliance with the current tax laws. To qualify for expense deductions, basis adjustments, and lack of reduction of tax attributes related to AB 80, you must meet the following qualifications. On June 30, 2022, AB 194 was enacted which allowed an income exclusion for covered loan amounts forgiven pursuant to the Paycheck Protection Program Extension Act of 2021 (PPPEA)(Public Law 117-6). and CTL purposes. For this reason, taxpayers that have already filed or paid tax following the provisions of A.B. If you do not qualify for deductions under AB 80, California follows the Rev. CFOs are more optimistic about the U.S. economy, according to Grant Thorntons 2022 Q4 survey, as they push for growth while being judicious about costs. AB 80 generally conforms to the federal treatment of PPP loan forgiveness and EIDL grants, with one major exception. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. 116-136. (209) 527-4247 (fax). California Governor Gavin Newsom onApril29 signedinto law legislation that generallyconformsthe states tax treatment of Covid-19 aid in the form of loans and grants with the federalindividual and corporate income tax treatment of such aid, including the CARES Act and the Consolidated Appropriations Act, 2021 (CAA). 80 generally allows for the deductibility of such expenses in years beginning on or after Jan. 1, 2019, provided the taxpayer is not an ineligible entity.9 The legislation defines an ineligible entity as any publicly-traded company, or any entity that does not meet the 25% reduction in gross receipts requirements of 15 U.S.C. The agreement also reflects fee relief for more than 600,000 barbering and cosmetology individuals and businesses licensed through the Department of Consumer Affairs. Sec. We cannot guarantee the accuracy of this translation and shall not be liable for any inaccurate information or changes in the page layout resulting from the translation application tool. Y2VmMzUxZjkwZWU4YmYxYWRhYTJlNWMyOTM4MTQ2NGI4MThhNDBmOGNjNmY3 Joshua Josh is a State and Local Tax (SALT) Principal in the San Francisco office of Grant Thornton LLP. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. The SBA offered banks, and later fintech companies, processing fees based on the size of loans, which ranged from 5% for loans of $350,000 or less to 1% for loans of $2 million. 80. Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. For tax years beginning in 2019, qualifying taxpayers can now exclude PPP loan forgiveness or EIDL grants from California gross income and deduct allowable covered expenses paid with PPP loan or EIDL grant proceeds. If you have additional questions about this article or your business qualification status, contact your GC accountant or email us at contactus@gccpas.net. The agreement also partially conforms California tax law to new federal tax treatment for loans provided through the Paycheck Protection Plan, allowing companies to deduct up to $150,000 in expenses covered by the PPP loan. If you think you have been blocked in error, contact the owner of this site for assistance. NGNiMzc0NzFlYmE5YTE4MGYwMjAwYmYwYWVlYWZhYjRhNGVjYzU0Njk2Zjhk 61; CAL. DTTL and each of its member firms are legally separate and independent entities. Those processing fees gave BofA an incentive to increase the size of PPP loans, according to the small businesses that are suing the $3.05 trillion-asset bank. In September 2020, California enacted AB 1577, which conformed to the CARES Act exclusion from gross income for PPP loan forgiveness. 211 0 obj <> endobj 636(a)(37)(A)(iv)(I)(bb). The agreement provides roughly $6 million to support outreach and application assistance to University of California, California State University and California Community College students made newly eligible for CalFresh the state-administered federal program for supplemental food assistance. tax guidance on Middle Class Tax Refund payments, General information for the Middle Class Tax Refund, Paycheck Protection Program (PPP) loan forgiveness, FAQs for Paycheck Protection Program (PPP), Coronavirus Tax Relief for Businesses and Tax-Exempt Entities, Revenue and Taxation Code (RTC) section 17131.8(g)(3)). 4 See P.L. Governor Gavin Newsom has signed Assembly Bill 80, to amend the law. 80, gross receipts from the fourth quarter of 2020 may be compared to the fourth quarter of 2019 only with respect to an application submitted on or after Jan. 1, 2021. See 15 U.S.C. SESS., 1 (see new CRTC 17131.8(a)), 2 (see new CRTC 24308.6(a)). 1577, 2019-2020 REG. Otherwise . The 25% gross receipts limitation does not apply to the EIDL advance grants, so taxpayers may exclude the EIDL grants and may fully deduct these expenses even if they dont meet the threshold reduction. Shortly after enactment of the CARES Act, the Internal Revenue Service (IRS) issued Notice 2020-32 providing that deductions for business expenses otherwise allowable under the Internal Revenue Code (IRC) (e.g., deductions under IRC Secs. 11 See 15 U.S.C. MTQ4MmJiZjg5ZGY5MWQyZDU2ZmFiZDM1ZmZmZjkyM2E3MDRkYmViZTViM2Yz Podcast: New hiring credit enacted for small businesses. Ultimately, this will make tax planning for 2021 essential if a business received loan forgiveness during the year, as this nonconformity was not anticipated. Careful consideration will need to be given to these issues, as well as the need for documentation to support that the 25% diminution in gross receipts requirement of A.B. document.write(new Date().getFullYear()) California Franchise Tax Board. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. California's partial PPP conformity bill sent to Governor (04-26-21) The California General Assembly has sent AB 80 to the Governor, and he is expected to sign it. The new legislation supersedes AB 1577. Separately, the Governor and legislative leaders said that discussions are continuing on measures for the safe reopening of the states K-12 schools, including strategies to address learning loss caused by the pandemic. Section 636(a)(37)(A)(iv)(bb), which requires the entity tohave experienced at least a 25% drop in gross receiptsinthe first, second or thirdquarter of 2020, or the fourth quarter if a PPP loan application was submitted on or after January 1, 2021,compared tothe same quarter in 2019. The new legislation supersedes AB 1577. N2Y5N2FjOGU2ZGVmZWI4MDRhNTg4NjNjZjgxYjA2MzBlYjU1MmMzNDY0NTY1 NDQyOTJlYTVmOTZkMzNjMTFiNDZlY2VjNjdlMmViOTViNWVlZmRkMzIyZWNl California aligning with fed PPP loan treatment. Modesto, CA 95350, (209) 527-4220 (phone) To help guide planning, weve highlighted key topics under focus from regulators worldwide and what those developments could mean for business. -----END REPORT-----. endstream endobj startxref Further, AB 1577 applied only to tax years beginning on or after January 1, 2020. 1577, 2019-2020 REG. 1577), Laws 2020. Taxpayers that have received PPP loans should consult with their California tax advisors regarding the changes made by A.B. NmIyNjRmZjA0MDdkNzU5Y2IwOGU3MjMzZTk5MTBkNmQwYTY0OTQ3YTg3ODc1 On September 9, 2020, Californias Governor Newsom signed Assembly Bill 1577 (A.B. However, they were amended to apply to taxable years beginning on or after January 1, 2019. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. PPP Forgiveness: Urgent News About Nonconformity in California, Key Tax Credits Have Expired: What This Could Mean for You, 79245 Corporate Centre Drive, La Quinta, CA 92253. The authors of this alert would like to acknowledge the contributions of Lauren Kim to the drafting process. Connecting with our core purpose through a renewed lens. Don't let tax be the only deciding factor in your relocation. 2020), A.B. A custom solution allowing banks and their customers to calculate SBA PPP loan amounts based on unique business characteristics. California law excludes PPP loans forgiven under the CARES Act from gross income has been saved, California law excludes PPP loans forgiven under the CARES Act from gross income has been removed, An Article Titled California law excludes PPP loans forgiven under the CARES Act from gross income already exists in Saved items. eyJtZXNzYWdlIjoiNWIzZGU0MDczYTM5MDRlMGI1ZTJmM2QxOGExOTlmZjY0 Cybersecurity can never rest. This will bring conformity to the federal treatment of PPP loan forgiveness and EIDL grants, with one important exception relating to reduction in gross receipts in the 2019-2020 taxable year. This is alyx our streamlined concierge-enabled platform that connects real problems with the right resources and real solutions. Credit: Spidell Tax, Analysis, and Education, 200 West Roseburg Avenue 116-139, the Enhancement Act).8 The federal government also enacted the Paycheck Protection Program Flexibility Act (P.L. This agreement builds on Governor Newsoms proposal and in many ways, enhances it so that we can provide the kind of immediate emergency relief that families and small businesses desperately need right now, said Senate President pro Tempore Atkins. 19 A.B. Proc. NDEyZDM0YmQ2MzdjM2I1OTg1YmYxMTdhYzE2OWE5MWEyMjJkYTM5ZTg4ZjYw 80s partial conformity to the federal treatment of expenses paid with forgiven PPP loan proceeds is welcome news that generally alleviates an otherwise burdensome federal conformity issue. On September 9, 2020, Assembly Bill (AB) 1577 (Coronavirus Aid, Relief, and Economic Security (CARES) Act Conformity) was enacted which allowed an income exclusion for tax years beginning on or after January 1, 2020, for forgiven PPP loans. 12 CAL. If you have questions regarding A.B. On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) (Pub. These loans are not forgivable. AB 80 conformity only applies to the exclusion from income for PPP loan forgiveness and EIDL advance grants. In its May 2021 online issueofFTBTax News,the FTB also instructedtaxpayersthat forgiven PPP loansshould notbeincludedas gross receiptswhen calculating CaliforniasLLCfeeand tax. 20 See A.B. Wordfence is a security plugin installed on over 4 million WordPress sites. If you have any issues or technical problems, contact that site for assistance. 6 See CALIFORNIA SENATE COMMITTEE ON GOVERNANCE AND FINANCE ANALYSIS, JULY 24, 2020 (available here); CALIFORNIA ASSEMBLY FLOOR ANALYSIS, AUG. 29, 2020. 1577, 2019-2020 REG. Any differences created in the translation are not binding on the FTB and have no legal effect for compliance or enforcement purposes. 1577 disallows a credit or deduction for Loan Forgiveness Eligible Expenses to the extent of the Forgiven Loan Amount. California law excludes PPP loans forgiven under the CARES Act from gross income, Telecommunications, Media & Entertainment, Background on federal legislation relating to the PPP, Overview of notable changes under A.B. You will then receive an email that helps you regain access. We are building an economic foundation for the recovery of jobs, small businesses and, indeed, our everyday lives, said Speaker Rendon. 80 defines an ineligible entity in part as a taxpayer that does not meet the reduction from the gross receipts requirements of Section 636(a)(37)(A)(iv)(bb) of Title 15 of the United States Code, as added by Section 311 of Division N of the Consolidated Appropriations Act, 2021 (Public Law 116-260). See CAL. Our response tackles the human and the economic impacts of COVID in a way that echoes President Bidens American Rescue Plan and will help those who are hurting most. How does ESG fit into business strategy? The information contained herein is general in nature and is based on authorities that are subject to change. of research and economic analysis. 1557 generally conforms California to federal law allowing an exclusion from gross income for covered Paycheck Protection Program (PPP) loans that are forgiven as a part of the federal Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. 80, largely conforming to Federal rules relating to deductibility of expenses paid with funds from forgiven Paycheck Protection Program. NmIyYjY1ZGFjODY4OTViMmNkMGJiYjAzM2JjYTBhMDJhZDYyYThmNTg3Yjcw Generated by Wordfence at Sat, 4 Mar 2023 17:56:41 GMT.Your computer's time: document.write(new Date().toUTCString());. Yjk1NTlhZjUzMmI3ODFlN2VlZDM3OWQ5OWM1ZDgzYmM3NTgyMWVkZjViZTQy 1577 and how these changes impact their California tax liabilities. SESS., 1 (see new CRTC 17131.8(c)), 2 (see new CRTC 24308.6(c)). 102-1125) on February 3, 2023, that makes significant enhancements to a variety of Illinois credit and incentive programs. Report any allowable deductions on your original return. Illinois Governor J.B. Pritzker signed new legislation (P.A. Taxpayers must have a 25% reduction in gross receipts in any 2020 calendar quarter as compared to the comparable 2019 calendar quarter in order to deduct expenses paid with PPP loan forgiven amounts. 7 Ch. This will bring conformity to the federal treatment of PPP loan forgiveness and EIDL grants, with one important exception relating to reduction in gross receipts in the 2019-2020 taxable year. hVkkF+qe6 Al+vji"3{gYiSZ2e):t z$/=N,zG&F0ihH&h jucN^#VBOZ.fY+n?1o%?}j-]drM5~j?oZQ~|f)?gV~R,.jz2,QzOu"JY[#M}K3_OO^6b^,#lYu7O. Please search again using different keywords and/or filters. We are now into the second year of the requirement for most partnerships to file Schedules K-2 and K-3, and the compliance challenges continue. A.B. Friday, September 25th, 2020. 80) providing greater conformity to federal law regarding the deductibility of expenses paid using forgiven Paycheck Protection Program (PPP) loans.1 Under A.B. Friday, September 18th, 2020. These new provisions provide [f]or taxable years beginning on and after January 1, 2020, gross income does not include any covered loan amount forgiven pursuant to section 1106 of the [CARES Act], pursuant to the [Enhancement Act], or pursuant to the [Flexibility Act].17 For this purpose covered loan is defined as having the same meaning as in section 1106 of the [CARES Act].18 Thus, the Forgiven Loan Amount is not included in gross income for PITL or CTL purposes. 80, California Assembly, April 15, 2021. We translate some pages on the FTB website into Spanish. Learn how were making the game more inclusive for all. endstream endobj startxref 1577, 2019-2020 REG. KServicing stated they were 1.) 2023. If you believe Wordfence should be allowing you access to this site, please let them know using the steps below so they can investigate why this is happening. Scott Smith, State & Local Tax, National Technical Practice Leader, Business Restructuring & Turnaround Services, Total Tax Transparency & ESG Tax Strategy, Financial Institutions & Specialty Finance, California: Update to Paycheck Protection Program Loan Conformity, Do Not Sell My Personal Information as to BDO Investigative Due Diligence. & TAX CODE 17024.5(a); 23051.5(a). NWE3NWRjN2NhODFhNjkyOWNiYzZhZWJjN2U5M2FhYjEzNTQ3YTVhMDA5MzNi On July 4, 2020, Public Law 116-147 extended the authority to guarantee PPP loans to August 8, 2020. MjhlMTk5ZGY1MzFiNTZlYzQ5N2ZlMTAyOGIwYzZhZDAwOGU4ZDQ5N2U4Nzlj . 1577, 1-3 (stating that [t]his act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect). ODE0ZjA1OTZlMmYzNGViM2E4NWJiYTMwNzQ0N2I2YmVhZTE1MDVlNWJjOTJk The new application form for PPP loans under $50,000 only requires borrowers to confirm the PPP-loan proceeds were used for eligible costs, and to provide supporting documentation showing expense payments. For California purposes, forgiven PPP loans, SVO grants, and RRF grants are excluded from gross income. 1577 adds two identical California tax provisionsCalifornia Revenue & Taxation Code (CRTC) section 17131.8 under the Personal Income Tax Law (PITL) and CRTC section 24308.6 under the Corporation Tax Law (CTL). 9 Note that the statutes originally applied to taxable years beginning on and after January 1, 2020. Principal, SALT Services The agreement provides for two years of fee relief for roughly 59,000 restaurants and bars licensed through the states Department of Alcoholic Beverage Control that can range annually from $455 to $1,235. 116-142, the Flexibility Act) to, among other things, modify certain restrictions imposed in regulations issued by the Small Business Administration (SBA) relating to qualifications for forgiveness of PPP loans.9 Administered by the SBA and overseen by the US Treasury Department, the PPP is designed to provide short-term relief to millions of Americas businesses to ensure they can sustain operations and keep their workers employed as the economy recovers.10, The PPP allows qualifying businesses to apply for a loan to maintain their payroll and some overhead expenses through the period of emergency.11 If a business takes a loan under the PPP, it may apply to have some or all of the loan forgiven (the Forgiven Loan Amount)specifically that portion of the PPP loan used to cover payroll costs, interest on mortgage obligations, rent obligations, and utility payments, subject to specific conditions and during the 24 week period after the loan is distributed (the Loan Forgiveness Eligible Expenses).12 Generally, federal and California law treat the cancellation of debt as gross income.13 However, the CARES Act excludes the Forgiven Loan Amount from gross income for federal tax purposes.14 Additionally, for federal and California tax purposes, certain business expenses may be deducted such as those under IRC sections 162 or 163.15 The Internal Revenue Service, however, issued Notice 2020-32 clarifying that deductions otherwise allowable under any provision of the IRC, including sections 162 and 163, are not allowed to the extent of the Forgiven Loan Amount.16.