California Form 4197 for Cannabis

[Strongsilence-CPA]

I have not found Form 4197 "Information on Tax Expenditure Items". This is a California form released earlier in 2021.  It applies to California cannabis businesses.  

[TaxGuyBill]

I don't know this for sure, but I suspect the software does not have it. 

A new form, for one state, during a crazy tax season, that is only used for a very small number of tax returns is unlikely to be in Intuit software.

[George4Tacks]

You are very INTUITive. https://www.ftb.ca.gov/forms/2020/2020-4197.pdf can be attached as a pdf.   Be sure to check the box NOT to attach to federal 

[mhkdgal]

Does the CA Form 4197 ONLY apply to cannabis businesses?   Spidell's CA Taxletter makes it sound like it applies to any business that had a PPP loan forgiven.   That would apply to a lot of CA businesses.  I completed an S-corp return for a client that did receive PPP loan forgiveness, and Lacerte did not generate the Form 4197.   See below from Spidell...

Did your client receive COVID-19–related benefits?

If so, you may have one more new form to fill out.

By Sandy Weiner, J.D.

Beginning with the 2021 tax year, taxpayers that benefited from the California exclusion from gross income from various loans or grants must complete and file Form FTB 4197, Information on Tax Expenditure Items, as an attachment to their tax return.

Under California law, the FTB is mandated to collect specified information regarding all new tax expenditures to determine whether these new tax exemptions are meeting their stated goals. Form FTB 4197 is part of this data collection effort.1

While no one likes to file one more form, the good news is that the information required is extremely simple.

Who must file?

New for the 2021 tax year, taxpayers who “benefited” from the following loans and/or grants must complete Form FTB 4197:

• Paycheck Protection Program loan forgiveness (Code PPP);
• “Other” loan forgiveness provided under Sec. 1109 of the CARES Act (essentially PPP loan forgiveness provided under the authority of the U.S. Department of Treasury, the Farm Credit Administration, and specified other federal agencies other than the Small Business Administration) (Code OLF); and
• EIDL advance grants (Code EIDL).

As before, taxpayers operating a cannabis business must also complete Form 4197.

Although nowhere on the form does it define “benefited,” we believe taxpayers that claimed the exclusion must complete the form, even if they were unable to deduct expenses paid for with the forgiven PPP loan amounts.

[qbteachmt]

This topic is from last year's tax filing.

I see there is "should file" and not "must file."

https://www.ftb.ca.gov/forms/Search/home/results/5050

The FTB has also confirmed that no penalties will be imposed for taxpayers who fail to file Form 4197, Information on Tax Expenditure Items, with their tax return. Taxpayers who received PPP loan forgiveness, Economic Injury Disaster Loan (EIDL) advance grants, or who operate cannabis businesses are asked to complete this form to assist the FTB in fulfilling its state-mandated data collection requirements regarding recently enacted tax benefits. However, because this form is not an “information return” there is no consequence for failing to file the return.

From: https://www.caltax.com/search-results/338775/2/10/

Wednesday, March 02, 2022 | By: Sandy Weiner

We are clarifying with the FTB what are the ramifications, if any, if a taxpayer fails to file the Form 4197.  We'll keep you posted.

Monday, March 07, 2022 | By: Sandy Weiner

Good news.  The FTB has confirmed that the Form 4197 is not an "information return" and no penalties will be imposed for failing to file this return.  The FTB also stated that failure to include FTB Form 4197 in the original return filing, would not require the return to be amended. FTB Form 4197 can be submitted separately as general correspondence.

https://www.caltax.com/search-results/338196/3/12/

[mhkdgal]

Thank you!  I completely missed that it was a topic from last year's filing...my brain is stuck in 2021. 

 Thanks for the additional follow-up information from Spidell about the ramifications of not filing it.  Now I understand why there is no diagnostic in Lacerte about needing to complete the information for this form!

Thanks!

[qbteachmt]

"I completely missed that it was a topic from last year's filing"

And the dates on resources, such as the web, are critical as well. Mostly it's because of States like CA, when you start passing retro-active changes.

🙂