CalCPA Working to Address Conformity to Federal PPP Tax Rules

An issue of interest early this legislative session relates to state conformity to current federal tax rules for Paycheck Protection Program (PPP) loans. PPP loans provided a lifeline to countless California businesses and helped many Californians stay employed during unprecedented economic uncertainty. 

Among the provisions of the PPP, Congress specified that the acceptance and forgiveness of a PPP loan should not adversely affect the recipient’s tax liability. Specifically, Congress excluded forgiven PPP loan dollars from taxable gross income, and most recently, superseded IRS guidance to clarify that the forgiveness of a PPP loan does not affect the deductibility of business expenses paid with PPP dollars.

However, the most recent Congressional action to clarify the deductibility rules rendered California out of conformity. Unless it addressed, the lack of conformity could lead to significant and unexpected tax consequences for California businesses that received a PPP loan. 

CalCPA has engaged with legislative leaders, the administration and other stakeholders to elevate the need for urgent action—especially since businesses and tax practitioners are already beginning the process of tax compliance for the 2020 calendar tax year. These efforts include virtual meeting with legislators during CalCPA’s CPA Week to discuss this issue. You can find the packet of information that CalCPA members are delivering to members of the legislature on our website.

These efforts helped spur the introduction of AB 281 (Burke), which is intended to be a legislative vehicle to make the necessary conforming changes. CalCPA will continue to work the Legislature and other stakeholders to advocate for quick action. 

We encourage you to follow CalCPA communications for more on this issue, including possible opportunities for CalCPA members to engage with their elected official.

Feb. 1, 2021