Details of Public Law 116-260, section 278 , Clarification of Tax Treatment of Certain Loan Forgiveness and other Business Financial Assistance

The provisions related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), PL 116-136, including PPP-related provisions, Economic Injury Disaster Loan (EIDL) advances, and subsidies for certain loan payments under the CARES Act are effective for taxable years ending after 3/27/2020.

The provision relating to grants for shuttered venue operators is effective for taxable years ending after 12/27/2020.

The provision relating to EIDL advances under Division N, Title III, section 331 (Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act) is effective for taxable years beginning after 12/27/2020.

California generally conforms to IRC section 61 pursuant to RTC sections 17071 and 24271 as of 1/1/2015, except as otherwise provided. For taxable years beginning on or after 1/1/2020, sections 17131.8 and 24308.6 were added to the RTC to exclude from gross income, for state income tax purposes, any covered loan amount forgiven pursuant to the CARES Act section 1106(i), and to reduce by the amount of such exclusion any credit or deduction otherwise allowed for amounts paid or incurred using the excluded amount.

In addition, California does not conform to IRC section 265, regarding expenses and interest relating to tax-exempt income, but instead has stand-alone language that disallows certain deductions related to tax exempt income under RTC sections 17280 and 24425.

California does not conform to the forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance as provided by the CARES Act under this provision, nor to forgiveness of grants for shuttered venues. California also does not conform to the allowance of deductions for expenses paid with the amounts not included in income by this section, or the provision stating tax basis and other tax attributes will not be modified as a result of those amounts being excluded from gross income.

20/21 21/22 22/23 23/24 $ (42,000,000) $ (250,000,000) $ (170,000,000) $ (85,000,000)