2011 100 Booklet -- Corporation Tax Booklet

Instructions for Form 100California Corporation Franchise or Income Tax ReturnReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).In general, for taxable years beginning on or afterJanuary 1, 2010, California law conforms to theInternal Revenue Code (IRC) as of January 1,2009. However, there are continuing differencesbetween California and federal law. When Californiaconforms to federal tax law changes, we do notalways adopt all of the changes made at the federallevel. For more information, go to ftb.ca.gov andsearch for conformity. Additional informationcan be found in FTB Pub. 1001, SupplementalGuidelines to California Adjustments, theinstructions for California Schedule CA (540 or540NR), and the Business Entity tax booklets.The instructions provided with California taxforms are a summary of California tax law and areonly intended to aid taxpayers in preparing theirstate income tax returns. We include informationthat is most useful to the greatest number oftaxpayers in the limited space available. It isnot possible to include all requirements of theCalifornia Revenue and Taxation Code (R&TC) inthe tax booklets. Taxpayers should not considerthe tax booklets as authoritative law.What’s New/Tax Law Changese-filing – The Franchise Tax Board (FTB) offerse-filing for exempt homeowners associations andexempt political organizations filing Form 100,California Corporation Franchise or Income TaxReturn, for taxable years beginning on or afterJanuary 1, 2011.Beginning mid-July 2012, the FTB will offere-filing for exempt organizations filing Form 199,California Exempt Organization Annual InformationReturn, for taxable years beginning on or afterJanuary 1, 2011. Check with the softwareproviders to see if they support business e-filing.MyFTB Account – Corporations can use MyFTBAccount for Businesses to view the estimated taxpayments online. Go to ftb.ca.gov and searchfor myftb account. Corporations can also makepayments online using Web Pay for Businesses.The FTB does not charge for this service. Go toftb.ca.gov and search for web pay.California Motion Picture and TelevisionProduction – For taxable years beginning on orafter January 1, 2011, a California motion pictureand television production credit will be allowedto a qualified taxpayer. The credit is allocated andcertified by the California Film Commission (CFC).The qualified taxpayer can: Offset the credit against income tax liability. Sell the credit to an unrelated party(independent films only). Assign the credit to an affiliated corporation. Apply the credit against qualified sales anduse taxes.For more information, get form FTB 3541,California Motion Picture and Television ProductionCredit, form FTB 3551, Sale of Credit Attributableto an Independent Film, or go to ftb.ca.gov andsearch for film.Community Development Financial InstitutionsInvestment Credit – The Community DevelopmentFinancial Institutions Investment Credit has beenextended for taxable years beginning on or afterJanuary 1, 2012, and before January 1, 2017.Single-Sales Factor Formula – For taxableyears beginning on or after January 1, 2011,any apportioning trade or business, other thanan apportioning trade or business under R&TCSection 25128(b), may make an irrevocableannual election on an original timely filed returnto apportion California business income using thesingle-sales factor formula. For more information,get Schedule R, Apportionment and Allocation ofIncome.Doing Business – For taxable years beginningon or after January 1, 2011, a taxpayer is doingbusiness if it actively engages in any transactionfor the purpose of financial or pecuniary gainor profit in California or if any of the followingconditions is satisfied: The taxpayer is organized or commerciallydomiciled in California. The sales, as defined in R&TC Section 25120(e)or (f), of the taxpayer in California, includingsales by the taxpayer’s agents and independentcontractors, exceed the lesser of 500,000 or25% of the taxpayer’s total sales. The real property and tangible personalproperty of the taxpayer in California exceedthe lesser of 50,000 or 25% of the taxpayer’stotal real property and tangible personalproperty. The amount paid in California by the taxpayerfor compensation, as defined in R&TCSection 25120(c), exceeds the lesser of 50,000 or 25% of the total compensationpaid by the taxpayer.In determining the amount of the taxpayer’ssales, property, and payroll for doing businesspurposes, include the taxpayer’s pro rata share ofamounts from partnerships and S corporations.For more information, see R&TC Section 23101or go to ftb.ca.gov and search for law changes.Gross Receipts – For taxable years beginning onor after January 1, 2011, R&TC Section 25120was amended to add the definition of grossreceipts.“Gross receipts” means the gross amountsrealized (the sum of money and the fair marketvalue of other property or services received) on: The sale or exchange of property, The performance of services, or The use of property or capital (includingrents, royalties, interest, and dividends) in atransaction that produces business income, inwhich the income, gain, or loss is recognized(or would be recognized if the transactionwere in the United States) under the IRC.Amounts realized on the sale or exchange ofproperty shall not be reduced by the cost ofgoods sold or the basis of property sold.For a complete definition of “gross receipts,”refer to R&TC Section 25120(f) or go toftb.ca.gov and search for law changes.Finnigan Rule – For taxable years beginning onor after January 1, 2011, R&TC Section 25135(b)adopts the Finnigan rule in assigning sales fromtangible personal property.Market Assignment – For taxable yearsbeginning on or after January 1, 2011, R&TCSection 25136(b) requires a taxpayer to assignsales, other than sales of tangible personalproperty, based on market rather than costs ofperformance when a single-sales factor formulaelection has been made.For more information regarding the Finnigan Ruleor Market Assignment of Sales, get Schedule R orgo to ftb.ca.gov and search for law changes.Benefit Corporation – Beginning on or afterJanuary 1, 2012, a new type of corporationcalled a “benefit corporation” can be formedwith the purpose of creating general publicbenefit, provided certain requirements are met.An existing corporation can become a “benefitcorporation”, if certain procedures are followed.In addition, a “benefit corporation” can be createdthrough a merger or reorganization, if certainrequirements are met. (For more information,see the Corporations Code, commencing withsection 14600.)Flexible Purpose Corporation – Beginning on orafter January 1, 2012, a new type of corporationcalled a “flexible purpose corporation” can beformed, provided certain requirements are met.An existing corporation can merge or convert intoa “flexible purpose corporation”, upon completionof certain requirements. A “flexible purposecorporation” must have a special purpose whichmay include but is not limited to, charitable andpublic purpose activities that could be carried outby a nonprofit public benefit corporation. (Formore information, see the Corporations Code,commencing with section 2500.)Conformity – For updates regarding the federalacts, go to ftb.ca.gov and search for conformity.Important Information The FTB offers e-filing for corporations filingForm 100 including combined reports andcertain accompanying forms and schedules.Check with the software providers to see ifthey support business e-filing. The FTB offers e-filing for corporations filingForm 100X, Amended Corporation Franchiseor Income Tax Return, for taxable yearsbeginning on or after January 1, 2010. For taxable years beginning on or afterJanuary 1, 2010, the Internal RevenueService (IRS) requires certain corporationsto file Schedule UTP (Form 1120), UncertainTax Position Statement, with their incometax returns. For California purposes, if acorporation is required to file the ScheduleUTP (Form 1120) with the federal tax return,the corporation must attach a copy of thefederal Schedule UTP (Form 1120) to theCalifornia tax return. For taxable years beginning on or afterJanuary 1, 2010, and before January 1, 2018,a corporation that is a small business solelyowned by a deployed member of the UnitedStates Armed Forces shall not be subjectto the minimum franchise tax if the owneris deployed during the taxable year and thecorporation operates at a loss or ceasesForm 100 Booklet 2011 Page

operation. For more information, see GeneralInformation C, Minimum Franchise Tax.Corporations with total assets of 10 millionor more must complete the CaliforniaSchedule M‑1, Reconciliation of Income(Loss) per Books With Income (Loss) perReturn, and attach a copy of the federalSchedule M-3 (Form 1120), Net Income (Loss)Reconciliation for Corporations With TotalAssets of 10 Million or More, and/or federalSchedule M-3 (Form 1120-F), Net Income(Loss) Reconciliation for Foreign Corporationswith Reportable Assets of 10 Million or More.For more information, see Schedule M-1instructions, included in this booklet.If the corporation made purchases from outof-state or Internet sellers and owes Californiause tax, the corporation may report and paythe tax on the California Franchise or IncomeTax Return. See General Information Y,California Use Tax, for more information.If the corporation was involved in a reportabletransaction, including a listed transaction,the corporation may have a disclosurerequirement. Attach federal Form 8886,Reportable Transaction Disclosure Statement,to the back of the California return alongwith any other supporting schedules. If thisis the first time the reportable transaction isdisclosed on the return, send a duplicate copyof federal Form 8886 to the address below.Tax Shelter FilingATSU 398 MS F385Franchise Tax BoardPO Box 1673Sacramento CA 95812-9900The FTB may impose penalties if thecorporation fails to file federal Form 8886,Form 8918, Material Advisor DisclosureStatement, or any other required information.A material advisor is required to provide areportable transaction number to all taxpayersand material advisors for whom the materialadvisor acts as a material advisor.For more information, go to ftb.ca.gov andsearch for tax shelter.For taxable years beginning on or afterJanuary 1, 2007, interest and dividendsfrom intangible assets held in connectionwith a treasury function of the taxpayer’sunitary business, as well as the grossreceipts and any overall net gain fromthe maturity, redemption, sale, exchange,or other disposition of these assets, areexcluded from the sales factor. This exclusionencompasses the use of futures contracts andoptions contracts to hedge foreign currencyfluctuations. See Cal. Code Regs., tit. 18section 25137(c)(1)(D) for more information.For taxable years beginning on or afterJanuary 1, 2011, see R&TC Section 25120(f).For taxable years beginning on or afterJanuary 1, 2008, transactions and activitiesperformed on behalf of a taxpayer by an agentor an independent contractor are included inthe cost of performance analysis to determinethe state to which receipts from sales, otherthan sales of tangible personal property,should be assigned. See Cal. Code Regs., tit.18 section 25136 for more information.For taxable years beginning on or afterJanuary 1, 2009, a new jobs credit in thePage Form 100 Booklet 2011 amount of 3,000 is allowed for a qualifiedemployer for each increase in qualifiedfull-time employee hired in the current taxableyear. For more information, go toftb.ca.gov and search for new jobs or getform FTB 3527, New Jobs Credit.For taxable years beginning on or afterJuly 1, 2008, credit earned by members of acombined reporting group may be assignedto an affiliated corporation that is a memberof the same combined reporting group. Acredit assigned may only be claimed by theaffiliated corporation against its tax in taxableyears beginning on or after January 1, 2010.For more information, get form FTB 3544,Election to Assign Credit Within CombinedReporting Group, or form FTB 3544A, List ofAssigned Credit Received and/or Claimed byAssignee, or go to ftb.ca.gov and search forcredit assignment.For taxable years beginning on or afterJanuary 1, 2009: Group nonresident returns may includeless than two nonresident individuals. Nonresident individuals with more than 1 million of California taxable incomeare eligible to be included in groupnonresident returns. An additional one percent tax will beassessed on nonresident individuals whowould have California taxable income over 1 million.Get FTB Pub. 1067, Guidelines for Filing aGroup Form 540NR, for more information.In general, water’s-edge rules provide for anelection out of worldwide combined reporting.By electing water’s-edge, a California taxpayerelects into a complex blend of state andfederal tax concepts. Under water’s-edge,combined reporting is limited to certaincorporations whose income is subject to tax(directly or indirectly) by the United Statesgovernment. California taxpayers wishing toelect water’s-edge should get the Form 100W,Corporation Tax Booklet, Water’s-Edge Filers,for more information.An S corporation is a hybrid business entity.It is a separate legal entity and generallyoffers liability protection to its owners(shareholders). An S corporation mustelect to be treated as an S corporation. TheS corporation pays a reduced tax rate of 1.5%on its net income. The profits and lossesfrom the S corporation pass-through to eachshareholder through the Schedule K-1 (100S),Shareholder’s Share of Income, Deductions,Credits, etc., and each shareholder isresponsible for paying taxes on thedistributive share. California taxpayers wishingto elect to be treated as an S corporationshould get the Form 100S, S Corporation TaxBooklet, for more information.Use form FTB 3725, Assets Transferred fromParent Corporation to Insurance CompanySubsidiary, to report assets transferred froma parent corporation to an insurance companysubsidiary. Get form FTB 3725 for moreinformation.Use form FTB 3726, Deferred IntercompanyStock Account (DISA) and Capital GainsInformation, to meet the annual disclosurerequirements of the combined reporting groupof each DISA balance. Make sure to answerQuestion R on Form 100, Side 2. Get formFTB 3726 for more information. For taxable years beginning on or after January 1, 2003, corporate shareholders ofa Regulated Investment Company (RIC) areexplicitly denied a dividend deduction forearnings from the RIC that are not from stockdividends. R&TC Sections 17024.5 and 23051.5 havebeen amended to clarify that, unless otherwiseexpressly allowed, federal elections madebefore a taxpayer becomes a California taxpayerare binding for California tax purposes. Beginning on or after January 1, 2010,with certain limited exceptions, payers thatare required to withhold and remit backupwithholding to the IRS are also required towithhold and remit to the FTB. The Californiabackup withholding rate is 7% of the payment.For California purposes, dividends, interests,and any financial institutions release of loanfunds made in the normal course of businessare exempt from backup withholding.If the corporation (payee) has backupwithholding, the corporation (payee) mustcontact the FTB to provide a valid TaxpayerIdentification Number, which is either theCalifornia corporation number or the federalemployer identification number (FEIN), beforefiling the tax return. Failure to provide theCalifornia corporation number or FEIN mayresult in a denial of the backup withholdingcredit. For more information, go to ftb.ca.govand search for backup withholding. For installment sales occurring on or afterJanuary 1, 2009, buyers will be required towithhold on each installment sale paymentif the sale of California real property isstructured as an installment sale. For transactions occurring on or afterJanuary 1, 2007, that require withholding, aseller of California real estate may elect analternative to withholding 3 1/3% of the totalsales price. The seller may elect an alternativewithholding amount based on the maximumtax rate for individuals, corporations, or banksand financial corporations, as applied to thegain on the sale. The seller is required tocertify under penalty of perjury the alternativewithholding amount to the FTB. Get FTBPub. 1016, Real Estate Withholding Guidelines,for more information. R&TC Section 18662 requires buyers towithhold income taxes when purchasingCalifornia real property from corporate sellerswith no permanent place of business inCalifornia immediately after the transfer. Formore information, get FTB Pub. 1016.Sellers of California real estate must attach acopy of Form 593, Real Estate WithholdingTax Statement, to their tax return as proof ofwithholding.If the corporation needs to verify withholdingpayments, the corporation may callWithholding Services and Compliance at916.845.4900 or 888.792.4900.California law conforms to federal law for thefollowing: The IRC Section 1245(b)(8) relating toamortizable Section 197 intangibles propertydisposed on or after January 1, 2010.

The federal grant tax treatment for specifiedenergy property. The useful life of motor sports entertainmentcomplex. For taxable years beginning on or afterJanuary 1, 2005, corporations may elect toexpense, under IRC Section 179, part or allof the cost of certain properties placed inservice during the taxable year and used in thetrade or business. For more information, seeform FTB 3885, Corporation Depreciation andAmortization, included in this booklet. Large banks’ bad-debt losses deduction, whichare limited to the actual losses rather thancontributions to a reserve for bad debts. AMT treatment of contributions of appreciatedproperty. Disallowing the deduction for clubmembership fees and employee remunerationin excess of 1 million. Disallowing of the deduction for lobbyingexpenses. For purposes of inventory accounting, anadjustment for shrinkage, based on anestimate, may be made. Taxpayers canvoluntarily change their method of accountingif the method currently being used does notutilize estimates of inventory shrinkage andthe taxpayer now wishes to use that method. Timeshare associations may qualify fortax-exempt status like other homeowners’associations. Required recognition of gain on certainappreciated financial positions in personalproperty. Allows securities traders and commoditiestraders and dealers to elect to use mark-tomarket accounting similar to what is currentlyrequired for securities dealers. Commoditieswould include only commodities of a kind thatare dealt with in the organized commoditiesexchange. An election to use the markto-market method for federal purposes isconsidered an election for state purposes and aseparate election is not allowed. Limitation on exception for investmentcompanies under IRC Section 351. Expansion of deduction for certain interestand premiums paid for company-owned lifeinsurance. Modification of holding period applicable todividends received deduction. Repeal of special installment sales rule formanufacturers of tangible personal property. Payment of estimated tax for closely held realestate investment trusts (REITs) and incomeand services provided by REIT subsidiaries.California law does not conform to federal lawfor the following: The enhanced IRC Section 179 expensingelection for assets placed in service in 2010 or2011 taxable year. The first-year depreciation deduction allowedfor new luxury autos or certain passengerautomobiles acquired and placed in service in2010. The domestic production activities deduction. The IRC Section 613A (d)(4) relating to theexclusion of certain refiners. The federal election to defer the income fromdischarge of indebtedness in connection withthe reacquisition after December 31, 2008,and before January 1, 2011. The changes in the percentage of the gainexclusion for the sale of qualified smallbusiness stock acquired after February 17,2009, and before January 1, 2011. The IRS Notice 2008-83 relating tothe treatment of deductions under IRCSection 382(h) following an ownership change. The 50% bonus depreciation deduction [IRCSection 168(k)] for assets acquired and placedin service during 2008 through 2010, andduring 2011 for certain qualifying property. The decreased estimated tax payments forcertain small businesses. The treatment of the loss from the sale orexchange of certain preferred stock (of FannieMae or Freddie Mac). The additional first-year depreciation of certainqualified property placed in service afterOctober 3, 2008, and the election to claimadditional research and minimum tax creditsin lieu of claiming the bonus depreciation. Energy efficient commercial buildingsdeduction. Reduce the compensation deductionfor certain employers from 1 million to 500,000; and makes certain parachutepayments nondeductible. The percentage depletion deduction, whichmay not exceed 65% of the taxpayer’s taxableincome, is restricted to 100% of the net incomederived from the oil or gas well property. Exclusion from gross income of certainfederal subsidies for prescription drug plansunder IRC Section 139A. Certain environmental remediationexpenditures that would otherwise bechargeable to capital accounts may beexpensed and taken as a deduction in the yearthe expense was paid or incurred. Deduction for corporate donation of scientificproperty and computer technology. Decreased capital gains tax rate. Exemption from AMT for small corporations. The treatment of Subpart F and IRC Section 936 income. The IRC passive activity loss rules for realestate activities.The above lists are not intended to be all-inclusiveof the federal and state conformities anddifferences. For more information, refer to theR&TC.California Taxpayers that are 25%Foreign‑Owned U.S. Corporations and ForeignCorporationsCorporations that are required to file federalForm(s) 5472, Information Return of a 25%Foreign-Owned U.S. Corporation or a ForeignCorporation Engaged in a U.S. Trade or Business,with the federal return must attach a copy(ies)to the California return. The penalty for failing toinclude Form(s) 5472 as required is 10,000 perform. See General Information M, Penalties, formore information.Information Return for U.S. Taxpayers WhoHave Ownership (Directly or Indirectly) in aForeign CorporationFor taxable years beginning on or after January 1, 1997, U.S. taxpayers who have anownership interest (directly or indirectly) in aforeign corporation and are required to file federalForm(s) 5471, Information Return of U.S. PersonsWith Respect to Certain Foreign Corporations,with the federal return, must attach a copy(ies)to the California return. The penalty for failing toinclude a copy of federal Form(s) 5471 as requiredis 1,000 per form. See General Information M,Penalties, for more information.Records Maintenance RequirementsAny taxpayer subject to the apportionment andallocation provisions of the Corporation Tax Lawis required to keep and maintain records andmake the following available upon request: Any records needed to determine the correcttreatment of items reported on the combinedreport for purposes of determining the incomeattributable to California. Any records needed to determine the treatmentof items as nonbusiness or business income. Any records needed to determine theapportionment factors.See R&TC Section 19141.6 and the relatedregulations, for more information. A corporationmay be required to authorize an agent, through aPower of Attorney (POA), to act on its behalf inresponse to requests for information or recordspursuant to R&TC Section 19504. For moreinformation, go to ftb.ca.gov and search for poa.The penalty for not maintaining the above requiredrecords is 10,000 for each taxable year forwhich the failure applies. In addition, if the failurecontinues for more than 90 days after the FTBnotifies the corporation of the failure, a penaltyof 10,000 may be assessed for each additional30-day period of continued failure. See GeneralInformation M, Penalties, for more information.Small Business Stock QuestionnaireAn information questionnaire, form FTB 3565,Small Business Stock Questionnaire, is included inthis booklet. The purpose of this questionnaire is toprovide information regarding an issuance of stockpursuant to R&TC Section 18152.5. Corporationsthat issue stock intended to be qualified smallbusiness stock are required to attach formFTB 3565 to Form 100. See the instructions forform FTB 3565 for more information.Publicly Traded PartnershipsCalifornia publicly traded partnerships that are noteligible to make the special federal election underIRC Section 7704(g)(2), and that do not qualifyfor the exception for partnerships with passivetype income under IRC Section 7704(c), must fileForm 100 for taxable years beginning on or after January 1, 1998. A federal election under IRCSection 7704(g)(2) is considered an election forstate purposes. A separate election is not allowed.Financial Asset Securitization Investment Trusts(FASITs)The provisions of the IRC relating to FASITsapply for California with certain modifications.The FASIT is subject to the 800 minimumfranchise tax. A separate Form 100 should befiled to report the 800 minimum franchisetax. Write “FASIT” in red in the top margin ofthe return. If a corporation holds an ownershipinterest in a FASIT, it should report all the itemsof income, gains, deductions, losses, and creditson the corporation’s return and attach a scheduleshowing the breakdown of items from the FASIT.Classification of Certain Business Trusts andCertain Foreign Single Member Limited Li

Form 100X, Amended Corporation Franchise or Income Tax Return for taxable years beginning on or after January 1, 2010. Form 199, California Exempt Organization Annual Information Return. Form 565, Partnership Return of Income. Form 568, Limited Liability Company Return of Income. For more information, go t