Assembly Bill 80 Forgiven Loans: Income Exclusion & Business Expense Deductions

Assembly Bill 80 (AB 80) was enacted on April 29, 2021 to exclude any advance grant amount issued pursuant to specified provisions of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act) or the Consolidated Appropriations Act, 2021 (CAA), and covered loan amounts forgiven pursuant to the CARES Act and the CAA.

This bill adopts with modifications the provisions of the CAA, prohibiting denial of any deductions, basis adjustments, and an adjustment to tax attributes, related to any loan amount forgiven, as described above. However, certain entities are excluded from this provision.

This bill applies to taxable years beginning on or after January 1, 2019.

Income

For California tax purposes, gross income does not include any covered loan amounts and advances from Economic Injury Disaster Loan (EIDL) Program forgiven under California’s conformity to the following federal laws:

  • CARES Act
  • Paycheck Protection Program and Health Care Enhancement Act
  • Paycheck Protection Program Flexibility Act of 2020
  • CAA

Expenses

The CAA allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to these federal provisions with modifications.

For California purposes, certain entities are excluded from this treatment. Ineligible entities include a publicly-traded company or one that does not meet the 25% reduction from gross receipts requirements under Section 311 of the CAA. These ineligible taxpayers may not deduct expenses paid with amounts received from PPP loans under this provision. The exclusion does not apply to deductions for eligible expenses paid with amounts from EIDL loans.

What to do

For California purposes, taxpayers may file tax year 2020 amended returns to claim expenses made deductible under AB 80 that were not previously deductible.

For taxpayers who claim the deductions on their federal returns for the 2021 tax year (under IRS Revenue Procedure 2021-20), California will permit these taxpayers to carry the deductions through to their California 2021 returns as well (this is provided the taxpayer did not claim the deduction in any other taxable year).