October 27, 2020

Volume X, Number 301

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October 27, 2020

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October 26, 2020

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California Conforms To Federal Income Tax Treatment Of PPP Loan Forgiveness

As reported in our earlier blog post The CARES ACT – Tax Relief, the federal CARES Act provides for forgiveness of indebtedness for eligible recipients of Paycheck Protection Program (“PPP”) loans in an amount equal to the sum of the recipient’s payroll costs, interest on mortgage obligations, rent obligations and utility payments (subject to certain conditions and limitations).  Under federal law, any amount of covered loans forgiven under the CARES Act is excluded from gross income for federal income tax purposes.

Because California only selectively conforms to the Internal Revenue Code, and as of a specific date, at the time the CARES Act was enacted the forgiveness of PPP loans would have generated taxable for California income and franchise tax purposes.  However, California has now passed Assembly Bill No. 1577, conforming to the PPP loan forgiveness rules. A.B. 1577 added Sections 17131.8 and 24308.6 to the California Revenue and Taxation Code, which provide that gross income does not include any covered loan amount forgiven pursuant to Section 1106 of the CARES Act, pursuant to the Paycheck Protection Program and Health Care Enhancement Act, or pursuant to the Paycheck Protection Program Flexibility Act of 2020.  A.B. 1577 also denies business expense deductions for those expenses that were paid for using forgiven loan funds, as does federal law.  The provisions are applicable to taxable years beginning on or after January 1, 2020.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 289
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About this Author

Hepworth, Associate, Sheppard Mullin
Associate

Justin Hepworth is an associate in the Tax and Estate Planning Practice Group in the firm's Orange County office.

Justin's practice focuses on tax transactional and controversy matters. He assists clients with multistate income, franchise, sales, and transfer tax issues. He advises on audit defense, voluntary disclosure agreements, unclaimed property planning, and other controversy and compliance matters. He has extensive experience handling nexus issues, sales tax exemption issues, state research and development credits, unitary business...

714-424-8293
Partner

Amy L. Tranckino is a partner in the firm's San Diego (Del Mar) office and Practice Group Leader of the Tax, Employee Benefits, and Trusts and Estates Practice Group.  Ms. Tranckino is a seasoned deal lawyer. Clients appreciate her creative, solutions oriented approach to complex business matters, including mergers and acquisitions, tax credit financings and partnership ventures.

Experience: 

  • Mergers and acquisitions of both private and public companies
  • Cross-Border Transactions
  • Distressed company M&A transactions, including in bankruptcies
  • Tax credit transactions and structures including flip transactions, sale-leasebacks, inverted leases and capital leases, among others
  • Complex "corporate divorces" through redemptions and dissolutions
  • Numerous private placements of equity and debt securities
  • Joint venture(s) and strategic alliances
  • Negotiation of numerous complex business and financial relationships

Her areas of practice include: 

  • Business Law & Taxation
    Ms. Tranckino advises clients ranging from family owned businesses to public companies in many diverse industries such as organic food and beverage, healthcare, consumer goods, energy, professional services and real estate.
     
  • Tax Credit Deals
    Ms. Tranckino advises developers, investors and lenders, in connection with affordable housing, historic, energy and new markets tax credit projects (primary responsibility for over $800 million in tax credit equity financings).

 

858.720.8960
Ryan Brenner Finance & Bankruptcy Sheppard Mullin Washington, DC
Associate

Ryan Brenner is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office.

Areas of Practice

Ryan represents national commercial real estate lenders and has closed numerous mortgage loans and related secondary market transactions. Ryan also regularly works on financing loans originated to lenders’ balance sheets through repo and warehouse lines.

Additionally, Ryan represents private equity companies, insurance companies and other investors in their real estate acquisitions, dispositions, leasing and joint...

202.747.2330
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