CA issue, LLC fee & PPP loan

SMLLC does not qualify to conform to fed treatment for the PPP loan. Therefore, deductions paid with PPP funds are not deductible. In the calculation of the LLC fee, Lacerte is picking up the amount entered as "expenses nondeductible to state related to forgiven PPP loan" and including that in gross receipts, which is pushing the entity from a $3,300 liability to a $6,800 liability.

So Lacerte is treating this forgiven loan as income...but is that correct? It is tax-free income, and the FTB website says that if the taxpayer does not meet the 25% gross receipts threshold, expenses are not deductible. It says that RR 2020-27 controls. Spidell's website says in a couple of places that the PPP loan s/n/b included in the calculation of gross receipts, referring to 17942.

(b) (1) (A) For purposes of this section, “total income from all sources derived from or attributable to this state” means gross income, as defined in Section 24271, plus the cost of goods sold that are paid or incurred in connection with the trade or business of the taxpayer.

24271 refers to IRC Sec. 61.

Surely, at this late date, Lacerte is correct and I have missed something or am not seeing something? Thank you.

Why does this SMLLC not qualify for federal treatment of the PPP loan?

I can understand where the SMLLC did not have a 25% or more gross receipts reduction in a quarter and therefore the PPP loan is tax free/mostly tax free for the federal and taxable to California. In which case when you put the PPP amount on the Sch C input line in Lacerte labeled "Expenses nondeductible to state related to a forgiven Paycheck Protection Program loan (CA Only), it will add it to form CA(540), line 3 column C.

Spidell's website says in a couple of places that the PPP loan s/n/b included in the calculation of gross receipts, referring to 17942.

I would agree PPP loan is tax free to both Fed and CA but expenses not deductible to CA. IRC 61 is gross income unless excluded by law. PPP loan forgiveness is excluded by law. So why should it be included in LLC gross receipts. I use Drake where you enter the fee based on a table in the 568 booklet.

Thanks for the replies. Kris, yes, that is what I am doing and my question is why is Lacerte including that input as "other income" in the calc of gross receipts for purposes of the LLC fee?

Taxmaster, Drake does not calculate the LLC fee for you? You have to manually enter it?

Lacerte is doing this in the partnership module also. The nondeductible PPP expenses are disclosed as "other income".

I think Lacerte's classification as "other income" is their workaround for not showing this as negative expenses. I would override this for purposes of calculating the gross receipts tax.

Thanks - I needed the support before doing this override.

I think this is a bad workaround by Lacerte. I wonder how many preparers are just rolling with it, resulting in their clients paying too much for the LLC fee.

I hadn't even noticed this until you brought it up, but I do pay attention when the fee jumps to the next level.

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Taxmaster, Drake does not calculate the LLC fee for you? You have to manually enter it?

No, Drake does calculate the LLC fee based on Schedule IW. However, there is no specific information or a worksheet entered for PPP loans.