AB 91 - Loophole Closure and Small Business and Working Families Tax Relief Act of 2019 September 2019 Tax News

Assembly Bill 91 modified the Earned Income Tax Credit, created the Young Child Tax Credit, disallowed a separate state election for certain qualified stock purchases, and selectively conformed, with modifications, to several federal Tax Cuts and Jobs Act provisions. In summary, AB 91:

1. Modifies the Earned Income Tax Credit by increasing the maximum adjusted gross income limitation for eligible individuals up to $30,000.
2. Enacts the refundable Young Child Tax Credit of up to $1,000 per year for families eligible for the EITC.
3. Conforms, with modifications, to increase the amount of earnings that can be contributed to the ABLE account and allows rollovers between Section 529 plan accounts and other Section 529 accounts and ABLE accounts. These changes also it eliminated some differences in the qualification criteria for ABLE accounts and qualified education expenses under federal tax law and California tax law.
4. Conforms, with modifications, to the exclusion from an individual's gross income the amount of student loan indebtedness discharged on or after December 31, 2018 due to the death or total and permanent disability of the student.
5. Conforms, with modifications, to the disallowance of a deduction for a specified percentage of Federal Deposit Insurance Corporation premiums paid by certain large financial institutions.
6. Conforms, with modifications, to the deduction limitation on excess employee remuneration, which revised the definitions of covered employee and publicly held corporation and disallowed the performance-based compensation and commission exceptions with respect to the deduction limitation relating to covered employees.
7. Disallows a net operating loss (NOL) from being carried back by individual and corporate taxpayers for NOLs attributable to taxable years beginning after December 31, 2018.
8. Allows a small business to use the cash method of accounting if its average annual gross receipts for the 3 taxable years do not exceed $25,000,000 and allows taxpayers to elect this provision to apply for taxable years beginning on or after January 1, 2018 and before December 31, 2018.
9. Exempts a corporation engaged in farming from the accrual method of accounting if its average annual gross receipts for the 3 taxable years do not exceed $25,000,000 and allows taxpayers to elect this provision to apply for taxable years beginning on or after January 1, 2018 and before December 31, 2018.
10. Exempts a taxpayer with average annual gross receipts for the 3 taxable years ending with the prior taxable year of $25,000,000 or less from the provisions that preclude the deduction of certain direct and indirect costs and determine whether those property costs are inventory costs or are capitalized and allows taxpayers to elect this provision to apply for taxable years beginning on or after January 1, 2018 and before December 31, 2018.
11. Exempts a small business with average annual gross receipts for 3 taxable years not exceeding $25,000,000 from the provisions that require a taxpayer to take inventories to clearly determine their income and allows taxpayers to elect this provision to apply for taxable years beginning on or after January 1, 2018 and before December 31, 2018.
12. Exempts construction contracts entered into by a taxpayer with average annual gross receipts not exceeding $25,000,000 from the requirement that the taxable income from a long-term contract be determined by the percentage of completion method and allows taxpayers to elect this provision to apply for taxable years beginning on or after January 1, 2018 and before December 31, 2018.
13. Conforms, with modifications, to the limitation on business losses from a non-corporate taxpayer for taxable years beginning after December 31, 2018. This provision will treat any disallowed excess business loss as a "carryover excess business loss" for the following taxable.
14. Conforms to federal law regarding technical termination of a partnership. Repeals a provision that caused termination of a partnership resulting from the sale or exchange of 50% or more of the interest in a partnership within a 12-month period. It is operative for taxable years beginning on or after January 1, 2019.  However, it also allows a partnership to elect to have this conformity apply to partnership taxable years beginning after December 31, 2017, and before January 1, 2019.
15. Conforms, with modifications, for exchanges on or after January 1, 2019, to the limitation on deferral of recognition of any gain or loss through a Like-Kind exchange to the exchanges of real property, except with respect to certain individual taxpayers whose income does not exceed specified adjusted gross income thresholds.
16. Disallows a separate state election for certain stock purchases treated as asset acquisitions, or where a taxpayer is deemed to have made an election under Section 338(e) of the Internal Revenue Code, relating to deemed election where the purchasing corporation acquires assets of the target corporation.

Go to California Legislative Information website for more information about AB 91.