California Adopts CARES Act Federal Tax Conformity Measures

The Legislature passed and Governor Newsom signed two federal tax law conformity measures dealing with the CARES Act. AB 276by Assemblywoman Laura Friedman (D-Glendale), conforms state tax law to the federal CARES Act to increase the maximum loan amount permitted from an employee’s retirement account and to delay the repayment date for up to one year. AB 1577 by Assemblywoman Autumn Burke (D-Inglewood), conforms state tax law to the federal law to exclude from income forgiven loans from the CARES Act, Paycheck Protection Program (PPP), and its subsequent acts.

AB 276 (Friedman), Chapter 62

AB 276 amended Section 17085 of the Revenue and Taxation Code. It was signed by the Governor on September 11 and, as a tax levy measure, the bill took effect immediately that day. Section 17085 provides specified conformity to Section 72 of the Internal Revenue Code, which relates to annuities and life insurance contracts. AB 276 added new subdivision (f) to Section 17085 to read: “For purposes of this part, Section 2202(b) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), relating to loans from qualified plans shall apply.”

AB 1577 (Burke), Chapter 39

AB 1577 added Sections 17131.8 and 24308.6 to the Revenue and Taxation Code. It was signed by the Governor on September 9 and, as a tax levy measure, the bill took effect immediately that day. Section 1 of the bill added Section 17131.8 to provide that, for taxable years beginning on and after January 1, 2020, gross income does not include any covered loan amount forgiven pursuant to Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), pursuant to the Paycheck Protection Program and Health Care Enhancement Act (Public Law 116-139), or pursuant to the Paycheck Protection Program Flexibility Act of 2020 (Public Law 116-142).

In addition, any credit or deduction otherwise allowed for any amount paid or incurred by the taxpayer upon which this exclusion from income is based is then reduced by the amount of the exclusion allowed. Finally, the term “covered loan” has the same meaning as in Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116–136).

Section 2 of the bill added Section 24308.6 to the Revenue and Taxation Code, which has the exact language as specified above. Section 24308.6 applies to corporate taxpayers, while Section 17131.8 applies to individual taxpayers.