AB 1577 – Extends CARES Act Exclusion of Loan Amounts Forgiven Under The PPP From Gross Income Subject To Income Taxes To State Income Tax Rules

CATEGORY: Nonprofit News, Private Education Matters
CLIENT TYPE: Nonprofit, Private Education
DATE: Oct 22, 2020

The federal Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) established the Paycheck Protection Program (“PPP”), through which qualified borrowers could obtain low-interest loans that if used on certain things (such as payroll or utilities) could be forgiven in whole or in part, depending on whether the borrower met certain criteria for forgiveness. The CARES Act included a provision statutorily excluding amounts forgiven under the PPP from gross income for income tax purposes. For for-profit businesses, this means that they will not pay income taxes on the amounts forgiven. For 501(c)(3) income-tax exempt organizations, including nonprofit schools, this means that the loan forgiveness amounts are also statutorily excluded from being considered unrelated business income, therefore, preventing 501(c)(3)s from having to pay unrelated business income taxes on forgiven amounts. This bill conforms state law to those provisions of the CARES Act, thereby excluding from gross income for state income tax purposes, loan forgiveness amounts under the PPP.

(AB 1577 adds sections 17131.8 and 24308.6 to the Revenue and Taxation Code.)