STATE OF CALIFORNIA FRANCHISE TAX BOARD California Forms & Instructions 100S Do you need help? (800) 338-0505 Most of your questions can be answered by reading the instructions in this booklet. If you need additional help, use our automated toll-free phone service available 24 hours a day. Or, if you have internet access go to our website at: www.ftb.ca.gov. If you cannot get the answer you need, call our general toll-free phone service listed on page 56. 1999 S Corporation Tax Booklet Members of the Franchise Tax Board Kathleen Connell, Chair Johan Klehs, Member B. Timothy Gage, Member This Booklet Contains: Form 100S, California S Corporation Franchise or Income Tax Return Schedule B (100S), S Corporation Depreciation and Amortization Schedule C (100S), S Corporation Tax Credits Schedule D (100S), S Corporation Capital Gains and Losses and Built-in Gains Schedule QS, Qualified Subchapter S Subsidiary (QSub) Information Worksheet Schedule H (100S), S Corporation Dividend Income Deduction FTB 2426, Water's-Edge Cover Sheet Schedule K-1 (100S), Shareholder's Share of Income, Deductions, Credits, etc. FTB 3539, Payment Voucher for Automatic Extension for Corpora- tions and Exempt Organizations FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations — Corporations FTB 3830, S Corporation's List of Shareholders and Consents
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STATE OF CALIFORNIAFRANCHISE TAX BOARD
CaliforniaForms & Instructions
100S
Do you need help? (800) 338-0505Most of your questions can be answered by reading the instructions in this booklet. Ifyou need additional help, use our automated toll-free phone service available 24hours a day. Or, if you have internet access go to our website at: www.ftb.ca.gov.If you cannot get the answer you need, call our general toll-free phone service listedon page 56.
1999S Corporation Tax Booklet
Members of the Franchise Tax Board
Kathleen Connell, ChairJohan Klehs, Member
B. Timothy Gage, Member
This Booklet Contains:Form 100S, California S Corporation Franchise or Income TaxReturnSchedule B (100S), S Corporation Depreciation and AmortizationSchedule C (100S), S Corporation Tax CreditsSchedule D (100S), S Corporation Capital Gains and Losses andBuilt-in GainsSchedule QS, Qualified Subchapter S Subsidiary (QSub)Information WorksheetSchedule H (100S), S Corporation Dividend Income DeductionFTB 2426, Water's-Edge Cover SheetSchedule K-1 (100S), Shareholder's Share of Income, Deductions,Credits, etc.FTB 3539, Payment Voucher for Automatic Extension for Corpora-tions and Exempt OrganizationsFTB 3805Q, Net Operating Loss (NOL) Computation and NOL andDisaster Loss Limitations — CorporationsFTB 3830, S Corporation's List of Shareholders and Consents
Instructions for Form 100SCalifornia S Corporation Franchise or Income Tax ReturnReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).
What’s NewPreparer Tax Identification Number (PTIN)This filing season tax professionals will havethe option of providing their individual SocialSecurity Number (SSN) or Preparer TaxIdentification Number (PTIN) on returns theyprepare. The alternative number can be usedin lieu of an SSN beginning January 1, 2000.Preparers who want a PTIN must completeand submit federal Form W-7P, Application forPreparer Tax Identification Number, to theIRS.
Tax Law ChangesIn general, California tax law conforms to theInternal Revenue Code (IRC) as of January 1,1998. However, there are continuing differ-ences between California and federal tax law.California has not conformed to most of thechanges made to the IRC by the federalInternal Revenue Service Restructuring andReform Act of 1998 (Public Law 105-206)and has not conformed to any of the changesmade by the Tax and Trade Relief ExtensionAct of 1998 (Public Law 105-277).California law changes effective for incomeyears beginning on or after January 1, 1999.• The sunset date of January 1, 1999 on the
issuance of qualified small business stockwas removed, thereby making theexclusion permanent.
• For corporations that incorporate orqualify to do business in California on orafter January 1, 2000, the prepayment ofthe minimum franchise tax to the Secre-tary of State (SOS) is no longer required.For the first income year (second taxableyear) the corporation will compute its taxliability by multiplying its state net incomeby the appropriate tax rate and will not besubject to the minimum franchise tax. Thecorporation will become subject tominimum franchise tax beginning in itssecond income year (third taxable year).This does not apply to qualified Subchap-ter S subsidiaries or corporations thatreorganize solely to avoid payment of itsminimum franchise tax.
• For the purposes of determining thecorrect amount of tax for water’s-edgeelectors, the presumption of correctnessattaches to all federal audit determinations,including determinations made at theaudit, appeals, and/or competent authoritylevels.
• The law was amended to eliminateambiguity with respect to the due date forfiling a tax return by requiring corporatetaxpayers to file their income tax return “onor before the 15th day of the third monthfollowing the close of its income year.”
• The law was amended to clarify thatpayment of estimated tax by corporations
and exempt organizations is not aprerequisite for receiving an extension oftime to file a return.
• The sunset date of January 1, 2000 waseliminated and instead provides that thechapter authorizing the Tax CreditAllocation Committee to allocate the creditfor the costs of constructing or rehabilitat-ing low-income housing shall be in effectso long as the federal low-income housingcredit is in effect.
• The state credit for “qualified researchexpenses” was increased from 11% to12%.
• State-chartered credit unions now qualifyfor exemption from franchise or incometax under Bank and Corporation Tax Lawand also credit unions are exempt fromother state, county, and municipal taxesand license fees, except certain specifiedtaxes.
• The four year statute of limitationsapplicable to credits and claims for refundwas modified to begin on the date thereturn was actually filed, if the return wastimely filed by the extended due date.
California law conforms to federal law forthe following provisions for income yearsbeginning on or after January 1, 1998:• Tax-exempt organizations may be
shareholders in an S corporation.• Deferral of income recognition of suspense
accounts. Family farm corporations withincome over $25 million may defer tax onincome that was a result of changes inaccounting methods required of thesecorporations. For calendar year taxpayers,the suspense account for these deferralsmust be recaptured starting with incomeyears beginning on or after January 1, 1998.For fiscal year taxpayers, the suspenseaccount must be recaptured starting inincome years beginning after June 8, 1997, ifthe fiscal year taxpayer’s income year endson or after December 31, 1997.
• Expensing of Environmental RemediationCosts. Certain environmental remediationexpenditures that would otherwise bechargeable to capital accounts may beexpensed and taken as a deduction in theyear the expense was paid or incurred. Anelection to expense environmentalremediation costs for federal purposes isconsidered to be an election for statepurposes and a separate election is notallowed.
• Shrinkage Estimates for InventoryAccounting. For purposes of inventoryaccounting, an adjustment for shrinkage,based on an estimate, may be made.Taxpayers can voluntarily change theirmethod of accounting if the methodcurrently being used does not utilize
estimates of inventory shrinkage and thetaxpayer now wishes to use that method.
• Temporary suspension of incomelimitations on percentage depletion forproduction from marginal wells. Thepercentage depletion deduction, whichmay not exceed 65% of the taxpayer’staxable income, is no longer restricted to100% of the net income derived from theoil or gas well property.
• Required recognition of gain on certainappreciated financial positions in personalproperty.
• Election of mark-to-market for securitiesand commodities traders. Allows securitiestraders and commodities traders anddealers to elect to use mark-to-marketaccounting similar to what is currentlyrequired for securities dealers. Commodi-ties would include only commodities of akind that are dealt with in the organizedcommodities exchange. An election to usethe mark-to-market method for federalpurposes is considered an election forstate purposes and a separate election isnot allowed.
• Limitation on exception for investmentcompanies under IRC Section 351.
• Contributions of property. For certaincontributions of ordinary income andcapital gain property, the IRC Section170(e)(1) limitation is modified so that, inthe case of charitable contribution of stockin an S corporation, rules similar to IRCSection 751 (relating to unrealizedreceivables and inventory items) apply indetermining whether gain on the stock waslong-term, if stock was sold by theS corporation.
• S corporations with Employee StockOwnership Plan (ESOP) shareholders. Ifan ESOP is an S corporation shareholder,items of income or loss of the S corpora-tion that flow through to the ESOP are nottreated as unrelated business taxableincome (UBTI). Previously, such itemswere treated as UBTI.
• ESOPs and employees of S corporations.S corporations which establish andmaintain ESOPs are not required to giveparticipants the right to demand distribu-tions in the form of employer securities, ifthe participants have the right to receivesuch distributions in cash.
• IRC 338 elections. An IRC Section 338election, relating to stock purchasestreated as asset acquisitions, is treated asan election for state purposes. A separateelection for state purposes is not allowed.
• Expansion of deduction for certain interestand premiums paid for company-ownedlife insurance.
• Modification of holding period applicableto dividends received deduction.
Page 4 Form 100S Booklet 1999
• Repeal of special installment sales rule formanufacturers of tangible personalproperty.
• Required registration for abusive taxshelters.
• Perfection of untimely S corporationelection. If for any income year beginningon or after January 1, 1987, a corporationfailed to qualify as an S corporation solelybecause it did not file a timely federalForm 2553, Election by a Small BusinessCorporation, the S corporation shall betreated as an S corporation for Californiapurposes for the income year in which thefederal election was originally made andfor each subsequent income year if boththe following conditions are met:1. The corporation and all of its share-
holders reported their income forCalifornia tax purposes on originalreturns consistent with S corporationstatus for the year the S corporationelection should have been made, andfor each subsequent income year (ifany) until terminated; and
2. The corporation and its shareholdersfiled a federal Form 2553 with the IRSrequesting automatic relief with respectto the late S corporation election in fullcompliance with federal Rev. Proc.1997-48 I.R.B. 1997-43 and theS corporation received notification ofacceptance of the untimely filedS corporation election from the IRS.The S corporation shall provide a copyof the notification to the FTB uponrequest.
California law does not conform to federallaw for the following:• Decreased capital gains tax rate.• Special tax rules for ESOPs. Certain special
tax rules relating to employee stockownership plans (ESOPs) will not applywith respect to S corporation stock held bythe ESOP. These include rules relating tocertain contributions to ESOPs, thededuction for dividends paid on employersecurities, and the rollover of gain on thesale of stock to an ESOP. See IRCSections 404(a)(9) and 404(k) for moreinformation.
• Accelerated depreciation for property onIndian reservations.
• The elimination of the deduction for clubmembership fees. Also, California lawdoes not conform to the disallowance ofthe deduction for employee remunerationin excess of $1 million.
• The federal provisions disallowing thededuction for lobbying expenses. Theexpense is still deductible for Californiapurposes.
• The treatment of Subpart F andSection 936 income.
Important InformationCalifornia Tax Forms on the Internet!Do you need a California franchise or incometax form or publication? Do you have Internetaccess? If so, you may download, view, andprint 1994 through 1999 California tax forms,schedules, instructions, and publications.Legal Notices and Rulings numbered 96-1and subsequent are also available. Go to ourwebsite at: www.ftb.ca.govRecords Maintenance RequirementsAny taxpayer filing on a water’s-edge orworldwide basis is required to keep andmaintain records and make available uponrequest the following:• Any records needed to determine the
correct treatment of items reported on theworldwide or water’s-edge combinedreport for purposes of determining theincome attributable to California;
• Any records needed to determine thetreatment of items as nonbusiness orbusiness income;
• Any records needed to determine theapportionment factor; and
• Documents and information needed todetermine the attribution of income to theU.S. or foreign jurisdictions under IRCSubpart F, IRC Section 882, or othersimilar provisions of the IRC.
See R&TC Section 19141.6 and the regula-tions thereunder for more information. Acorporation may be required to authorize anagent to act on its behalf in response torequests for information or records pursuantto R&TC Section 19504. The penalty forfailure to maintain the above required recordsis $10,000 for each income year for which thefailure applies. In addition, if the failurecontinues for more than 90 days after the FTBnotifies the S corporation of the failure, apenalty of $10,000 may be assessed for eachadditional 30-day period of continued failure.For income years beginning on or afterJanuary 1, 1996, there is no maximumamount of penalty that may be assessed. SeeGeneral Information M, Penalties, for moreinformation.Note: A corporation that makes a validelection to be treated as an S corporation forCalifornia purposes is not allowed to beincluded in a combined report of a unitarygroup, except as provided by R&TCSection 23801(d)(1).
General InformationForm 100S is used if a corporation haselected to be a California small businesscorporation (S corporation).All federal S corporations subject to Californialaws that did not make a CaliforniaC corporation election must file Form 100Sand pay the greater of the minimum franchisetax or the 1.5% income or franchise tax. Thetax rate for financial S corporations is 3.5%.
In addition, if an S corporation has one ormore shareholders who are nonresidents ofCalifornia or trusts with nonresident fiducia-ries, the S corporation must file formFTB 3830, S Corporation’s List of Sharehold-ers and Consents (included in this booklet).This list must include the names and socialsecurity numbers or federal employeridentification numbers (FEIN) of all sharehold-ers and each nonresident shareholder’s orfiduciary’s signed consent to be subject toCalifornia’s jurisdiction to tax theshareholder’s pro-rata share of incomeattributable to California sources.R&TC Section 23801(b)(3) authorizes the FTBto retroactively revoke the S corporation statusif the S corporation fails to file form FTB 3830and meet the requirements outlined above.The taxable income of the S corporation iscalculated two different ways for two differentpurposes. First, it is calculated in the samemanner as for C corporations, with certainmodifications, for purposes of computing the1.5% income or franchise tax. Second, it iscalculated using federal rules for the pass-through of income and deductions, etc. forpurposes of pass-through to the shareholders.
A Franchise or Income TaxCorporation franchise taxEntities subject to the corporation franchisetax include all S corporations that are:• Incorporated in California; or• Qualified to do business in California; or• Doing business in California, whether or
not incorporated or qualified underCalifornia law.
The tax must be prepaid for the privilege ofdoing business. It is measured by the incomeof the preceding income year for the privilegeof doing business in the following taxableyear. For purposes of these instructions, theterm “income year” means taxable year forS corporations that are taxed under Chapter 3(i.e., corporations that are not doing businesswithin California but derive income fromsources within California) of the Bank andCorporation Tax Law.The term “doing business” means activelyengaging in any transaction for the purpose offinancial gain or profit.
Corporation income taxThe corporation income tax is imposed on allS corporations that derive income fromsources within California but are not doingbusiness in California.For purposes of the corporation income tax,the term “corporation” is not limited toincorporated entities, but also includes:• Associations;• Massachusetts or business trusts;• Real estate investment trusts; and• Other business entities classified as
associations under Title 18 Cal. Code RegsSections 23038(b)-1 through 23038(b)-3.
Form 100S Booklet 1999 Page 5
B Tax Rate and MinimumFranchise Tax
Tax rateThe tax rate for S corporations that aresubject to either the franchise or the incometax is 1.5%. The tax rate for certain capitalgains, built-in gains, and excess net passiveincome is 8.84%.Financial S corporations are required to use arate of 2% above the S corporation rate(currently 1.5% or 8.84% for certain capitalgains, built-in gains, and excess net passiveincome). See R&TC Section 23186(f).
Minimum franchise taxAll S corporations subject to the corporationfranchise tax and any S corporation “quali-fied” to do business in California must fileForm 100S and pay at least the minimumfranchise tax as required by law. Theminimum franchise tax is $800 and must bepaid whether the S corporation is active,inactive, operates at a loss, or files a returnfor a short period of less than 12 months.There is no minimum franchise tax for:• Corporations that derive income from
sources within California but are subjectonly to income tax because they are not“doing business” in California, and are notincorporated or qualified under the laws ofCalifornia (get FTB Pub. 1050, FTB Pub.1060, or FTB Pub. 1063 for moreinformation regarding “doing business”);
associations;• Exempt organizations; and• Corporations that are not incorporated
under the laws of California; whose soleactivities in California are engaging inconvention and trade show activities forseven or fewer days during the incomeyear; and do not derive more than $10,000of gross income reportable to Californiaduring the income year. These S corpora-tions are not “doing business” inCalifornia. Get FTB Pub. 1060 for moreinformation.
S corporations are not subject to thealternative minimum tax.
C Elections and TerminationsElectionsCorporations that elect federal S corporationstatus and have a California filing require-ment, are deemed to have made a California Selection on the same date as the federalelection. These corporations must report thefederal S election to the FTB using formFTB 3560, S Corporation Election or Termina-tion/Revocation.If a federal S corporation wants to be aCalifornia C corporation, it must elect suchtreatment using form FTB 3560. Onlycorporations incorporated or qualified to do
business in California may make this election.Such an election is treated as a revocation ofthe California election and will be disregardedif not filed when due. Get form FTB 3560 forinformation on filing deadlines.A federal S corporation that previously electedto be a California C corporation may elect tobecome a California S corporation unless theCalifornia S corporation status was terminatedwithin the past 5 years. Use form FTB 3560 tomake this election.
TerminationsA corporation may terminate its S corporationstatus by:• Revoking the election (federal or state); or• Ceasing to qualify as an S corporation; or• Violating the passive investment income
restrictions on corporations with earningsand profits.
An S corporation may terminate its S electionfor California, by revocation, withoutterminating its federal S election. However,terminating the taxpayer’s federal S electionsimultaneously terminates its CaliforniaS election.If the taxpayer terminates its S corporationstatus, short period returns are required forthe S corporation short year and theC corporation short year, if applicable.During the five years after the termination ofthe S corporation status, the taxpayer may notmake another California S election unless theFTB consents.For more information about elections andterminations, get form FTB 3560.
D Accounting Period andMethod
The income year of the S corporation mustnot be different from the taxable year used forfederal purposes, unless initiated or approvedby the FTB (R&TC Section 24632).A change in accounting method requiresconsent from the FTB. However, anS corporation that obtains federal approval tochange its accounting method, or that ispermitted or required by federal law to make achange in its accounting method without priorapproval, and does so, is deemed to have theFTB’s approval if: (1) the S corporation files atimely Form 100S consistent with the changefor the 1st year the change is effective, and(2) the change is consistent with Californialaw. A copy of federal Form 3115, Applicationfor Change in Accounting Method, and a copyof the federal consent to the change must beattached to Form 100S for the 1st year thechange becomes effective. The FTB maymodify requested changes if the adjustmentswould distort income for California purposes.If the corporation is a bank, savings and loanassociation, or financial corporation, it can nolonger use the bad debt reserve method ofaccounting and elect to be, or continue to be,an S corporation for income years beginningon or after January 1, 1997. However, the
S corporation status can be maintained orelected if the corporation changes itsaccounting method from the bad debt reservemethod to the specific write-off method. GetFTB Notice 98-3 for more information.Note: California is not following the automaticconsent procedure for a change of accountingmethod involving previously unclaimedallowable depreciation or amortization ofFederal Revenue Procedure 96-31. Get FTBNotice 96-3 for more information.
E When to FileFile Form 100S by the 15th day of the 3rdmonth after the close of the income yearunless the return is for a short period asrequired under R&TC Section 24634. SeeR&TC Section 18601(c) for the due date ofthe short period return. Generally, the duedate of a short period return is the same asthe due date of the federal short period return.Farmer’s cooperative associations must fileForm 100S by the 15th day of the 9th monthafter the close of the income year.See General Information O, Dissolution/Withdrawal, and General Information P,Ceasing Business, for information on finalreturns.
F Extension of Time to FileIf an S corporation cannot file its Californiareturn by the 15th day of the 3rd month afterthe close of the income year, it may file on orbefore the 15th day of the 10th month,without filing a written request for anextension. If the S corporation is suspendedon the original due date, the automaticextension will not apply. An automaticextension does not extend the time forpayment. The full amount of tax must be paidby the original due date of Form 100S. If thereis an unpaid tax liability on the original duedate, get form FTB 3539, Payment Voucherfor Automatic Extension for Corporations andExempt Organizations (included in thisbooklet) and send it with the payment by theoriginal due date of the Form 100S.Note: If the corporation must pay its taxliability using Electronic Funds Transfer (EFT),all taxes due must be remitted by EFT to avoidpenalties. Do not send form FTB 3539.
G Electronic Funds Transfer(EFT)
Corporations that meet certain requirementsmust remit all of their payments through EFTrather than by paper checks to avoid penal-ties. Once a corporation remits an estimatedtax payment or extension payment in excessof $20,000 or has a total tax liability in excessof $80,000, the FTB will notify the corporationthat all future payments must be made by EFT.Those that wish to participate on a voluntarybasis may do so. For more information, callthe FTB EFT Section at (916) 845-4025, or getFTB Pub. 3817, Electronic Funds TransferProgram Information Guide.
Page 6 Form 100S Booklet 1999
H Where to FileIf tax is due, and the corporation is notrequired to use EFT, make the check or moneyorder payable to the Franchise Tax Board.Write the California corporation number and“1999 Form 100S” on the check or moneyorder. Mail the return and payment to:
FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0501
Mail all other returns, including those withpayment by EFT to:
FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0500
Private Delivery ServicesCalifornia law conforms to federal lawregarding the use of certain designatedprivate delivery services to meet the “timelymailing as timely filing/paying” rule for taxreturns and payments. See federalForm 1120S, U.S. Income Tax Return for anS Corporation, for a list of designated deliveryservices. If a private delivery service is used,address the return to:
FRANCHISE TAX BOARDSACRAMENTO CA 95827
Caution: Private delivery services cannotdeliver items to PO boxes. If using one ofthese services to mail any item to the FTB, DONOT use an FTB PO box.Private Mailbox (PMB) NumberIf you lease a mailbox from a private businessrather than from the United States PostalService, enter the box number in the specialfield on the tax return labeled “PMB no.”
I Net Income ComputationThe computation of net income from tradeand business activities generally follows thedetermination of taxable income as providedin the IRC. However, there are differences thatmust be taken into account when completingForm 100S. There are two ways to completeForm 100S, the federal reconciliation methodor the California computation method.1. Federal reconciliation method
a. Attach a copy of federal Form 1120S,Page 1, U.S. Income Tax Return for anS Corporation, and all pertinentsupporting schedules, or transfer theinformation from federal Form 1120S,Page 1, to Schedule F and attach allpertinent supporting schedules;
b. Enter the amount of federal ordinaryincome (loss) from trade or businessactivities before any net operating loss(NOL) on Form 100S, Side 1, line 1; and
c. Enter the state adjustments (includingany adjustments necessary to reportitems not included in ordinary trade orbusiness income or loss) on line 2through line 14, to arrive at net incomeafter state adjustments, Side 1, line 15.
See the specific line instructions for moreinformation.2. Schedule F – California computation
methodIf the S corporation has no federal filingrequirement, or if the S corporationmaintains separate records for statepurposes, complete Form 100S,Schedule F, Computation of Trade orBusiness Income, to determine stateordinary income. If ordinary income iscomputed under California laws, generallyno state adjustments are necessary.Transfer the amount from Schedule F,line 22, to Side 1, line 1. CompleteForm 100S, Side 1, line 1 through line 14,only if applicable.
Note: Regardless of the net income computa-tion method used, the corporation mustattach any form, schedule, or supportingdocument referred to on the return andschedules or forms filed with FTB.Substitution of federal schedulesS corporations may not substitute federalschedules for California schedules.
J Certain Capital Gains/Built-in Gains
For California purposes, when a C corporationelects to be an S corporation, certain items ofgain or loss recognized in S corporation yearsare subject to the C corporation 8.84% taxrate instead of the S corporation 1.5% tax rate(financial S corporations add 2%).Former IRC Section 1374 allowed a thresholdamount in determining if the S corporationwas subject to the 8.84% tax. However, formerIRC Section 1374 was replaced by current IRCSection 1374, which does not allow thethreshold amount and is applicable to otheritems of income in addition to capital gains.
Capital gains under former IRC Section 1374Generally, S corporations that made thefederal S election before January 1, 1987, orduring 1987 or 1988, and are under thetransitional relief rules applicable to built-ingains may be subject to a tax on capital gains(under former IRC Section 1374) forCalifornia purposes for certain sales ordispositions.Based on former IRC Section 1374, a tax isimposed at 8.84% (or the financialC corporation tax rate) if:• The S corporation is not subject to tax on
the gain under the new built-in gains rules(see below);
• The excess of the net long-term capitalgain over the net short-term capital loss ismore than $25,000;
• The excess is more than 50% of thecorporation’s taxable income; and
• The taxable income is more than $25,000.The capital gains tax under former IRCSection 1374 does not apply if the corporationwas an S corporation during each of thepreceding three years or for the entire period
in the case of new corporations in existence forless than four years. However, see theinstructions for federal Form 1120S,Schedule D, for rules applicable to certaincarryover basis assets.
Built-in gains under current IRCSection 1374For those S corporations that made the initialfederal S election after December 31, 1986,certain income items reported by theS corporation are taxed at 8.84% (or thefinancial C corporation tax rate). Thisprovision applies for a period of 10 yearsfollowing the C corporation’s election tobecome an S corporation. The amount ofbuilt-in gain that is taxed at 8.84% (or thefinancial C corporation tax rate) is the excessof recognized built-in gains over recognizedbuilt-in losses, limited by taxable income asdetermined under IRC Section 1374(d)(2)(A).The following items are treated as built-ingains subject to this tax:• Accounts receivable of cash basis
taxpayers from C corporation years;• Long-term contract deferred income from
C corporation years;• Deferred income from installment sales
made in C corporation years;• Recapture of depreciation from
C corporation years;• Income from unreplaced LIFO inventory
from C corporation years; and• Any other income item that is attributable
to C corporation years.(These are just a few of the examples. This listis not intended to be all inclusive.)Note: For purposes of current IRCSection 1374, the effective date of anyCalifornia S election made in 1987 and 1988reverts back to the date of the federalS election if the corporation was previously afederal S corporation.
Transitional rules under IRC Section 1374The Tax Reform Act of 1986, Act Section633(d)(8), to which California conforms,provides special transitional relief from thebuilt-in gains tax for qualified S corporations.A “qualified S corporation” is anyS corporation that has an applicable value of$10 million or less on August 1, 1986, alltimes thereafter and before the corporation iscompletely liquidated, and is more than 50%owned by 10 or fewer qualified persons. A“qualified person” is an individual, an estate,or a trust that is described in IRCSection 1361(c)(2)(A)(ii) or (iii).
This transitional relief applies to qualifiedcorporations that elected S corporation statusafter December 31, 1986, and beforeJanuary 1, 1989. The relief is not available toan otherwise qualified S corporation in thecase of the sale or distribution of capitalassets held 6 months or less or in the case ofthe sale or distribution of assets which resultsin ordinary income (loss).
Form 100S Booklet 1999 Page 7
K Estimated TaxEvery S corporation, must pay estimated taxusing Form 100-ES, Corporation Estimated Tax.Estimated tax is generally due and payable infour installments:• The 1st payment is due on the 15th day of
the 4th month of the income year (notethat this payment may not be less than theminimum franchise tax, plus QSub annualtax, if applicable); and
• The 2nd, 3rd, and 4th installments are dueand payable on the 15th day of the 6th,9th, and 12th months, respectively, of theincome year.
Note for first-time filers: The prepayment oftax made to the California Secretary of State(SOS) at the time of incorporation orqualification is for the privilege of “doingbusiness” during the S corporation’s 1sttaxable year. Do not claim this payment as anestimated tax payment or credit against thetax liability shown on the return for theS corporation’s 1st year.The 1st tax return the corporation files reportsthe income of its 1st income year. The taxshown on that return is the tax for theprivilege of doing business in thecorporation’s 2nd taxable year.California law has conformed to the federalexpanded annualization periods for thecomputation of estimate payments. Forincome years beginning on or after January 1,1998, the applicable percentage for estimatebasis is 100%.Get the instructions for Form 100-ES for moreinformation.Note: If the corporation must pay its taxliability using EFT, all estimate payments duemust be remitted by EFT to avoid penalties.
L Commencing S CorporationsThe tax measured by the income in the 1styear of business (1st income year) is for theprivilege of “doing business” during the 2ndyear.Even if the 1st income year is for a period ofless than 12 months or if the S corporation isinactive during the 1st income year, theS corporation must pay at least the minimumfranchise tax by the 1st estimate installmentdue date, and file Form 100S by the due date.Get FTB Pub. 1060, Guide for CorporationsStarting Business in California, for moreinformation.
M PenaltiesFailure to file a timely returnAny S corporation that fails to file aForm 100S on or before the due date isassessed a penalty. The penalty is 5% of thetax due, after any timely payments or credits,for each month of delinquency, not to exceed25% of the unpaid tax. If the S corporationdoes not file its return by the extended duedate, the automatic extension will not apply
and the late filing penalty will be assessed fromthe original due date of the return.
Failure to pay total tax by the due dateAny S corporation that fails to pay the totaltax shown on Form 100S by the original duedate is assessed a penalty. The penalty is 5%of the unpaid tax, plus 0.5% for each month,or part of the month (not to exceed 40months) the tax remains unpaid. This penaltymay not exceed 25% of the unpaid tax.Note: If an S corporation is subject to boththe penalty for failure to file a timely returnand the penalty for failure to pay the total taxby the due date, a combination of the twopenalties may be imposed, but the total willnot exceed 25% of the unpaid tax.
Underpayment of estimated taxAny S corporation that fails to pay, pays late,or underpays an installment of estimated taxis assessed a penalty. The penalty is apercentage of the underpayment for theunderpayment period.Get form FTB 5806, Underpayment ofEstimated Tax by Corporations, to determineboth the amount of underpayment and theamount of penalty.Note: If the S corporation uses Exception B orException C to compute or eliminate any ofthe four installments, form FTB 5806 must beattached to the front of Form 100S.EFT PenaltyIf the S corporation must pay its tax liabilityusing EFT, all payments must be remitted byEFT to avoid penalties. The EFT penalty is10% of the amount not paid by EFT. SeeR&TC Section 19011 and General InformationG, Electronic Funds Transfer (EFT), for moreinformation.
Information reporting penaltiesFor income years beginning on or afterJanuary 1, 1997, U.S. taxpayers who have anownership interest in (directly or indirectly) aforeign corporation and were required to filefederal Form(s) 5471, Information Return ofU.S. Persons With Respect to Certain ForeignCorporations, with the federal return, mustattach a copy(s) to the California return. Apenalty for failure to include a copy of federalForm(s) 5471, as required, is $1,000 perrequired form for each year the failure occurs.The penalty applies for income yearsbeginning on or after January 1, 1998. Thepenalty will not be assessed if the taxpayerprovides a copy of the form(s) within 90 daysof request from the FTB and the taxpayeragrees to attach a copy(s) of Form 5471 to allreturns filed for subsequent years.Certain domestic corporations that are 25%or more foreign-owned and foreign corpora-tions engaged in a U.S. trade or businessmust attach federal Form(s) 5472, Informa-tion Return of a 25% Foreign-Owned U.S.Corporation or a Foreign Corporation Engagedin a U.S. Trade or Business, to Form 100S.The penalty for failing to includeForm(s) 5472, as required, is $10,000 per
required form for each year the failure occurs.See R&TC Section 19141.5.If the S corporation does not file itsForm 100S by the due date or extended duedate, whichever is later, copies of federalForm(s) 5472 must still be filed on time or thepenalty will be imposed. Attach a cover letterto the copies indicating the taxpayer’s name,California corporation number, and incomeyear. Mail to the same address used forreturns without payments. See GeneralInformation H, Where to File. When theS corporation files Form 100S, also attachcopies of the federal Form(s) 5472.
Record maintenance penaltiesThe penalty for failure to maintain certainrecords is $10,000 for each income year forwhich the failure applies. In addition, if thefailure continues for more than 90 days afterthe FTB notifies the S corporation of thefailure, in general, a penalty of $10,000 maybe assessed for each additional 30-day periodof continued failure. For income yearsbeginning on or after January 1, 1996, thereis no maximum amount of penalty that maybe charged.See the Important Information section for adiscussion of the records required to bemaintained. See R&TC Section 19141.6 andthe regulations thereunder for moreinformation.
Accuracy and fraud related penaltiesCalifornia conforms to IRC Sections 6662through 6665 that authorize the imposition ofan accuracy-related penalty equal to 20% ofthe related underpayment and the impositionof a fraud penalty equal to 75% of the relatedunderpayment. See R&TC Section 19164, formore information.Secretary of State penaltyThe California Corporations Code requires theFTB to assess a penalty for failure to file anannual statement of corporate officers withthe California SOS. See R&TC Section 19141.For more information, contact the:
CALIFORNIA SECRETARY OF STATEPO BOX 944230SACRAMENTO CA 94244-2300Telephone: (916) 657-3537
Other penaltiesOther penalties may be imposed for a checkor EFT returned for insufficient funds, non-U.S. foreign corporations operating whileforfeited or without qualifying to do businessin California, and domestic corporationsoperating while suspended in California. SeeR&TC Sections 19134 and 19135, for moreinformation.
N InterestInterest is due and payable on any tax due ifnot paid by the original due date ofForm 100S. Interest is also due on somepenalties. The automatic extension of time tofile Form 100S does not stop interest fromaccruing. California follows federal rules for
Page 8 Form 100S Booklet 1999
the calculation of interest. Get FTB Pub. 1138,Refund/Billing Information, for moreinformation.
O Dissolution/WithdrawalThe franchise tax for the period in which theS corporation formally dissolves or withdrawsis measured by the income of the year inwhich it ceased doing business in California,unless such income has already been taxed atthe rate prescribed for the taxable year ofdissolution or withdrawal.An S corporation that is a successor to acorporation that commenced doing business inCalifornia before January 1, 1972, is allowed acredit that may be refunded in the year ofdissolution or withdrawal. The amount of therefundable credit is the difference between theminimum franchise tax for the corporation’sfirst full 12 months of doing business and thetotal tax paid for the same period.To claim this credit, enter the amount onForm 100S, Side 1, line 36. To the left ofline 36, write “Dissolving/ Withdrawing.”The return for the final taxable period is dueon or before the 15th day of the 3rd fullmonth after the month during which theS corporation formally dissolved or withdrew.Get FTB Pub. 1149, Terminating a Corportion,for more information.Samples and/or forms for a dissolution,surrender, or merger agreement filing may beobtained by addressing your request to:
ATTN: LEGAL REVIEWCALIFORNIASECRETARY OF STATE1500 11TH ST 3RD FLOORSACRAMENTO CA 95814-5701
P Ceasing BusinessBecause the corporation franchise tax is aprepaid tax, a special tax computation isnecessary when an S corporation ceases todo business in California. The tax for the finalyear in which the S corporation does businessin California is:• The tax measured by the income of the
preceding year; PLUS• The tax measured by the income of the
year in which the corporation ceases to dobusiness; PLUS
• The tax due on unreported incomeattributable to installment obligations.
The tax due must be at least the minimumfranchise tax. Generally, the S corporation willremain subject to the minimum franchise taxfor each year it is in existence until it files acertificate of dissolution or withdrawal withthe California SOS. See GeneralInformation O, Dissolution/Withdrawal, andR&TC Sections 23331 through 23335 formore information.
Q Suspension/ForfeitureIf an S corporation fails to file Form 100Sand/or fails to pay any tax, penalty, or interestdue, its powers, rights, and privileges may be
suspended (in the case of a domesticS corporation) or forfeited (in the case of aforeign S corporation).S corporations that operate while suspendedor forfeited are subject to a $2,000 penaltyper income year, which is in addition to anytax, penalties, and interest already accrued.Also, any contracts entered into duringsuspension or forfeiture are voidable at therequest of any party to the contract other thanthe suspended or forfeited corporation.Such contracts will remain voidable andunenforceable unless the S corporationapplies for relief from contract voidability andthe FTB grants relief.See R&TC Sections 19135, 19719, 23301,23305.1, and 23305.2 for more information.
R Apportionment of IncomeS corporations with business incomeattributable to sources both within andoutside of California are required to apportionsuch income. To calculate the apportionmentpercentage, use Schedule R, Apportionmentand Allocation of Income. Be sure to answerQuestion P on Form 100S, Side 2.Note: A corporation that has made a validelection to be treated as an S corporation isgenerally not included in a combined report.However, in some cases, the FTB may usecombined reporting methods to clearly reflectincome of an S corporation (R&TCSection 23801(d)(1)).
S Excess Net PassiveInvestment Income
California conforms to IRC Section 1375 forincome years beginning on or after January 1,1987. If an S corporation does not haveexcess net passive investment income forfederal purposes, then the S corporation willnot have excess net passive investmentincome for California purposes.If at the close of the income year, anS corporation has undistributed earnings andprofits (defined in IRC Section 1362(d)(3))from previous years as a C corporation andhas passive investment income that repre-sents more than 25% of total gross receipts,then the S corporation may be subject to a taxon the excess net passive investment income(R&TC Section 23811).If an S corporation has an 80% or greaterownership stake in a C corporation, dividendsreceived from that C corporation are nottreated as passive investment income, forpurposes of IRC Sections 1362 and 1375, ifthe dividends are attributable to the earningsand profits of the C corporation derived fromthe active conduct of a trade or business.
T Water’s-Edge ReportingFor income years beginning on or afterJanuary 1, 1988, taxpayers may elect tocompute income attributable to California onthe basis of a water’s-edge election, affiliated
foreign corporations are excluded from thecombined report.To make the water’s-edge election, anS corporation should enter into a contractwith the FTB by filing Form 100-WE, Water’s-Edge Contract. For the election to be valid forany income year, Form 100-WE should besigned and attached to the originalForm 100S. A copy should be attached to allsubsequent returns filed during the contractperiod.In consideration for being allowed to file on awater’s-edge basis, the S corporation must,among other things:• File returns on a water’s-edge basis for a
period of 84 months;• Agree to business income treatment of
dividends received from certain corpora-tions; and
• Consent to the taking of certain deposi-tions and the acceptance of subpoenasduces tecum requiring the reasonableproduction of documents.
Water’s-edge returns must have formFTB 2426, Water’s-Edge Cover Sheet(included in this booklet), attached to thefront of Form 100S.Get Form 100-WE, Water’s-Edge Booklet, formore information.
U Amended ReturnTo correct or change Form 100S, file the mostcurrent Form 100X, Amended CorporationFranchise or Income Tax Return. Using theincorrect form may delay processing of theamended return. If the IRS examined andchanged the S corporation’s federal return orif the S corporation filed an amended federalreturn, file Form 100X within six months ofthe final federal determination.
V Information ReturnsEvery S corporation engaged in a trade orbusiness and making or receiving certainpayments in the course of the trade orbusiness is required to file informationreturns which report the amount of thesepayments.Payments that must be reported include, butare not limited to, compensation for servicesnot subject to withholding, commissions,fees, prizes and awards, payments toindependent contractors, rents, royalties andpensions exceeding $600 annually, interestand dividends exceeding $10 annually, andcash payments over $10,000 received in atrade or business. Payments of any amountby a broker or barter exchange must also bereported.S corporations must report payments made toCalifornia residents by providing copies offederal Form 1099. Reports must be made forthe calendar year and are due to the IRS nolater than February 28th of the year followingpayment. S corporations must also submitfederal Form 8300, Report of Cash Payments
Form 100S Booklet 1999 Page 9
Over $10,000 Received in a Trade or Busi-ness, within 15 days after the date of thetransaction.S corporations must report interest paid onmunicipal bonds held by California taxpayersand issued by a state other than California, ora municipality other than a Californiamunicipality. Entities paying interest toCalifornia residents on these types of bondsare required to report interest paymentsaggregating $10 or more and paid afterJanuary 1, 1999. Information returns are dueJune 1, 2000. Get form FTB 4800, FederallyTax Exempt Non-California Bond Interest andInterest-Dividend Payment Information, formore information.California conforms to the informationreporting requirements of IRC Section 6045(f)for certain payments made to attorneys. If theS corporation has complied with the require-ments for federal purposes, the S corporationwill be treated as having complied with therequirements for California purposes and nopenalty will be imposed.California conforms to the informationreporting requirements imposed under IRCSections 6038, 6038A, and 6038B. Anyinformation returns required to be filed forfederal purposes under these IRC Sections arealso required to be filed for Californiapurposes. Required federal informationreturns should be attached to the Form 100Swhen filed. If these information returns arenot provided, penalties may be imposed underR&TC Sections 19141.2 and 19141.5.Mail all information returns required to befiled separate from the tax return to:
FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0500
W Qualified New Corporations(QNCs)
SOS prepayment taxEffective for income years beginning on orafter January 1, 1998, and before January 1,2000, the minimum tax prepaid to theCalifornia SOS for the 1st income year is$300 for a QNC. For purposes of the $300prepaid minimum tax, a QNC is a corporationthat reasonably estimates it will:• Have gross receipts, less returns and
allowances, reportable to California of$1 million or less;
• Have tax liability that does not exceed $800;• Not have 50% or more of its stock owned,
upon initial issuance, by another corporation;• Begin operations at or after the time of its
incorporation; and• Not have begun business prior to its
incorporation as a single proprietorship,partnership, or other form of businessentity.
Gross receipts includes the gross receipts ofeach member of the commonly controlled
group, as defined in R&TC Section 25105, ofwhich the bank or corporation is a member.If during the 1st income year, thecorporation’s gross receipts exceed $1 millionor tax liability exceeds $800, the corporationmust pay an additional amount of $500, if thecorporation prepaid the $300 minimum tax tothe SOS.The corporation must pay the additional tax onor before the original due date of its 1strequired return without regard to extension.See R&TC Section 23221 for moreinformation.Minimum franchise taxFor income years beginning on or afterJanuary 1, 1999 and before January 1, 2000,the minimum franchise tax for a QNC for the1st return required to be filed is $500. Theminimum franchise tax for the 1st return isdue as an estimate payment on the 15th dayof the 4th month of the QNC’s 1st incomeyear. For purposes of the QNC minimumfranchise tax, the corporation must meet thefollowing criteria:• Incorporate on or after January 1, 1999;• Begin business operations at or after the
time of incorporation;• Reasonably estimate that it will have gross
receipts, less returns and allowances,reportable to California of $1 million orless;
• Reasonably estimate it will not have a taxliability that exceeds the minimumfranchise tax of $800; and
• Did not begin business as a singleproprietorship, partnership, or other formof business entity prior to its incorporation.
Gross receipts includes the gross receipts ofeach member of the commonly controlledgroup, as defined in R&TC Section 25105, ofwhich the bank or corporation is a member.If during the income year, the corporation’sgross receipts exceed $1 million or the taxliability exceeds the minimum franchise tax of$800, the corporation must pay an additionalamount of $300. The corporation must paythe additional amount on or before theoriginal due date of its 1st required returnwithout regard to extension. See R&TCSection 23153 for more information.
X Net Operating Loss (NOL)Carryover periods varying from 5 to 15 yearsand carryover deductions varying from 50%to 100% are allowed for NOLs sustained byqualified corporations.R&TC Sections 24416 through 24416.6 and25108 provide for NOL carryovers incurred inthe conduct of a trade or business.R&TC Section 24347.5 provides specialtreatment for the carryover of disaster lossesincurred in an area designated by thePresident of the United States or the Governorof California as a disaster area.
For more information, see form FTB 3805Q,Net Operating Loss (NOL) Computation andNOL and Disaster Loss Limitations —Corporations (included in this booklet), or getform FTB 3805Z, Enterprise Zone BusinessBooklet; form FTB 3806, Los AngelesRevitalization Zone Booklet; form FTB 3807,Local Agency Military Base Recovery AreaBooklet; or form FTB 3809, Targeted Tax AreaBusiness Booklet.
Y At-Risk RulesCalifornia S corporations are subject to IRCSection 465 relating to the at-risk rules. Formore information, see federal Form 6198,At-Risk Limitations. Losses from passiveactivities are first subject to the at-risk rulesand then to the passive activity rules.
Z Passive Activity LossLimitation
California S corporations generally follow IRCSection 469 and the regulations thereunderthat allow losses from passive activities to beapplied only against income from passiveactivities.California differs from federal law in thatrental real estate activities of taxpayersengaged in a real property business are stilltreated as a passive activity.California law also differs from federal law inthat the passive activity loss rules are appliedat both the S corporation level and at theshareholder level. The passive activity lossrules must be applied in determining the netincome of the S corporation that will be taxedusing the 1.5% tax rate. Subsequent to theincome and deductions flowing through to theshareholders, the rules are again applied indetermining the net income of the share-holder. Treatment at the shareholder level isthe same as the federal treatment prior toJanuary 1, 1994.The passive activity loss rules apply to theS corporation as if it were an individual (i.e.,losses from passive activities may not be usedto offset other income, except for $25,000 inlosses from rental real estate). However, whendetermining whether the S corporationmaterially participates in the activity, thematerial participation rules that apply to a“closely held C corporation” should beapplied to the S corporation. For moreinformation, see IRC Section 469(h)(4).S corporations must use form FTB 3801,Passive Activity Loss Limitations, to figure theallowable net loss from passive activities.
AA Passive Activity CreditsS corporation credits subject to the passiveactivity credit limitation rules include:• Research credit;• Orphan drug credit carryover; and• Low-income housing credit.Get form FTB 3801-CR, Passive Activity CreditLimitations, for more information.
Page 10 Form 100S Booklet 1999
BB Tax CreditsIf a C corporation had unused credit carry-overs when it elected S corporation status,the carryovers were reduced to 1/3 andtransferred to the S corporation. Theremaining 2/3 were disregarded. Theallowable carryovers may be used to offsetthe 1.5% tax on net income in accordancewith the respective carryover rules. TheseC corporation carryovers may not be passedthrough to shareholders. Refer toSchedule C (100S), S Corporation Tax Credits,included in this booklet.S corporations may generate credits fromboth the Bank and Corporation Tax Law andthe Personal Income Tax Law. Follow theguidelines below:• If a credit listed on page 18 is allowed only
under the Bank and Corporation Tax Law,1/3 of the credit may be used to offset theS corporation tax or may be carried over, ifallowed. The remaining 2/3 must bedisregarded and may not be carried over.No part of the credit may be passedthrough to the shareholders.
• If the credit is allowed only under PersonalIncome Tax Law, the full credit may bepassed through to the shareholders. Nopart of the credit may be used by theS corporation to offset the S corporationtax or to be carried over.
• If a credit is allowed under both the Bankand Corporation Tax Law and PersonalIncome Tax Law, the S corporation may use1/3 of the credit to offset the S corporationtax or it may be carried over, if allowed. Theremaining 2/3 must be disregarded andmay not be carried over. The full amount ofthe credit, as calculated under the PersonalIncome Tax Law, may also be passedthrough to the shareholders.
Credits and credit carryovers may not reducethe minimum franchise tax, the QSub annualtax(es), built-in gains tax, excess net passiveincome tax, credit recaptures, the increase intax imposed for the deferral of installmentsale income, or an installment of LIFOrecapture tax.
CC Group NonresidentShareholder Return
Nonresident shareholders of an S corporationdoing business in California may elect to file agroup nonresident return on Form 540NR,California Nonresident or Part-Year ResidentIncome Tax Return. Get FTB Pub. 1067,Guidelines for Filing a Group Form 540NR formore information.
DD Qualified Subchapter SSubsidiary (QSub)
California has conformed to the sections ofthe IRC that allow S corporations to own aQSub. A QSub is a domestic corporation thatis not an ineligible corporation (i.e., it must beeligible to be an S corporation as defined by
IRC Section 1361(b)(2)). In addition, 100% ofthe stock of the subsidiary must be held bythe S corporation parent and the parent mustelect to treat the subsidiary as a QSub. AQSub is not treated as a separate entity and allassets, liabilities, and items of income,deduction, and credit of the QSub are treatedas belonging to the parent S corporation. Theactivities of the QSub are treated as activitiesof the parent S corporation. An election madeby the parent S corporation under IRCSection 1361(b)(3) to treat the corporation asa QSub for federal purposes is treated as abinding election for California purposes. Aseparate election is not filed for California.The federal election is made on federalForm 966, Corporate Dissolution or Liquida-tion. For information on making the election,get IRS Notice 97-4, 1997-1 C.B. 351.California requires that an S corporationparent attach a copy of the Form 966 for eachQSub doing business or qualified to dobusiness in California to the return for theincome year during which the QSub electionwas made. California follows the federaltransitional relief procedures for perfecting aQSub election.A QSub is subject to an $800 annual taxwhich is paid by the S corporation parent. TheQSub annual tax is due and payable when theS corporation’s first estimated tax payment isdue. If the QSub is acquired, or a QSubelection is made during the income year, theQSub annual tax is due with theS corporation’s next estimated tax paymentafter the date of the QSub election oracquisition. The QSub annual tax is subject tothe estimated tax rules and penalties.An S corporation that owns a QSub does notfile a combined return. Instead, the QSub isdisregarded, and the activities, assets,liabilities, income, deductions, and credits ofthe QSub are considered to be the assets,liabilities, income, and credits of theS corporation. If the QSub is not unitary withthe S corporation, then it is treated as aseparate division and separate computationsmust be made to compute business incomeand apportionment factors for the QSub andthe S corporation, and to apportion toCalifornia the business income of each.An S corporation parent must complete theSchedule QS, Qualified SubchapterS Subsidiary Information Worksheet onpage 33 and attach it to the Form 100S foreach income year in which a QSub is acquiredor a QSub election is made.
Specific Line InstructionsFiling Form 100S without errors will expediteprocessing. Before mailing Form 100S, makesure entries have been made for:• California corporation number (7 digits);• Federal employer identification number
(FEIN) (9 digits); and• Corporation name and address.
File the 1999 Form 100S for calendar year1999 and fiscal years that begin in 1999.Enter income year beginning and ending datesonly if the return is for a short year or a fiscalyear. If the S corporation reports its incomeusing a calendar year, leave blank. If thereturn is filed for a short period (less than 12months), write “short year” in red in the topmargin on Form 100S, Side 1.Note: The 1999 Form 100S may also be usedif:• The corporation has an income year of
less than 12 months that begins and endsin 2000; and
• The 2000 Form 100S is not available at thetime the corporation is required to file itsreturn. The S corporation must show its2000 income year on the 1999 Form 100Sand incorporate any tax law changes thatare effective for income years beginningafter December 31, 1999.
Convert all foreign monetary amounts to U. S.dollars.Caution: California law is different fromfederal law. California taxes S corporationsunder Chapter 2 (commencing with Section23101) or Chapter 3 (commencing withSection 23501) of the Bank and CorporationTax Law.
Questions A through RAnswer all applicable questions. Be sure toanswer Questions E through R on Side 2.Note the following instructions whenanswering:
Question A – Final ReturnGet FTB Pub 1149, Terminating a Corporationfor more information.Question B – Transfer or acquisition ofvoting stockAll S corporations must answer Question B. Ifthe answer is “yes,” a “Statement of Changein Control and Ownership of Legal Entities”(BOE-100-B) must be filed with the StateBoard of Equalization, or substantial penaltiesmay result. Forms and information may beobtained from the Board of Equalization at(800) 400-7115.Answer “yes” to Question B on Side 1 if:• The percentage of outstanding voting
shares of this S corporation or itssubsidiary(ies) owned by one person orone entity cumulatively surpassed 50%during this year; or
• The total percentage of voting sharestransferred to one irrevocable trustcumulatively surpassed 50% this year; or
• One or more irrevocable proxies trans-ferred voting rights to more than 50% ofthe outstanding shares to one person orone entity during this year; or
• This S corporation’s cumulative ownershipor control of the stock or other ownershipinterest in any legal entity surpassed 50%during this year; or
Form 100S Booklet 1999 Page 11
• Cumulatively more than 50% of the totaloutstanding shares of this S corporationhave been transferred or changedownership or control this year.
R&TC Section 64(e) requires this informationfor use by the California State Board ofEqualization.Question C – Principal business activitycodeAll S corporations must answer Question C.Include the 6 digit PBA code from the chartfound on page 21 through page 23 of thisbooklet.The code should be the number for thespecific industry group from which thegreatest percentage of California “totalreceipts” is derived. “Total receipts” meansgross receipts plus all other income. TheCalifornia code number may be different fromthe federal code number.If, as its principal business activity, thecorporation: (1) purchases raw material;(2) subcontracts out for labor to make afinished product from the raw materials; and(3) retains title to the goods, the corporation isconsidered to be a manufacturer and mustenter one of the codes under “Manufacturing.”Also, write in the business activity andprincipal product or service on the linesprovided.
Question E – Does this return includeQualified Subchapter S Subsidiaries(QSubs)?Answer “yes” if the S corporation owns aQSub. Refer to the instructions for line 22 andline 35 to report the QSub annual tax. Be sureto complete the worksheet on page 33 of thisbooklet and attach the worksheet toForm 100S when filed.Question R – 2000 tax formsIf the S corporation’s return is prepared bysomeone else, or if the S corporation doesnot need Form 100S mailed to it next year,check the box at Question R.
Line 1 – Ordinary income (loss) from tradeor businessS corporations using federal reconciliation tofigure net income (see General Information I,Net Income Computation) must:• Transfer the amount from federal
Form 1120S, line 21 to line 1 and attach acopy of the federal return and all pertinentsupporting schedules; or copy theinformation from federal Form 1120S,Page 1, onto Side 2, Schedule F andtransfer the amount from Schedule F,line 22, to line 1.
• Then, complete Form 100S, Side 1, line 2through line 14, State Adjustments.
S corporations using the California computa-tion to figure ordinary income (see GeneralInformation I, Net Income Computation) musttransfer the amount from Side 2, Schedule F,line 22, to line 1. Complete Form 100S,Side 1, line 2 through line 14, only ifapplicable.
Line 2 through Line 14 – State adjustmentsTo figure net income for California purposes,corporations using the federal reconciliationmethod (see General Information I, NetIncome Computation) must enter Californiaadjustments to the federal net income online 2 through line 14. If a specific line for theadjustment is not on Form 100S, enter theadjustment on line 7, Other additions, orline 13, Other deductions, and attach aschedule.
Line 2 – Taxes not deductibleCalifornia law does not permit a deduction forCalifornia corporation franchise or income taxesor any other taxes on, according to, or measuredby income or profits. Add these taxes to incomeon line 2. Examples of these taxes areCalifornia’s minimum franchise tax, the 1.5%income or franchise tax, and the environmentaltaxes imposed by IRC Section 59A.
Line 3 – Interest on government obligationsS corporations subject to the Californiafranchise tax must report interest received ongovernment obligations even though it maybe exempt from state or federal individualincome tax. This interest must be added toincome on line 3. See line 13 instructions forS corporations subject to the Californiacorporation income tax.Line 4 – Net capital gainEnter on this line any net capital gain subjectto the 1.5% tax rate (3.5% for financialS corporations) shown on Schedule D (100S),Section B, and any gains subject to the 8.84%tax rate (10.84% for financial S corporations)shown on Schedule D (100S), Section A,line 3a and line 6a.
Line 5 – Depreciation and amortizationDepreciation for S corporations follows thedepreciation rules provided under CaliforniaPersonal Income Tax Law. Unlike othercorporations, an S corporation is allowed tocompute depreciation using the ModifiedAccelerated Cost Recovery System (MACRS).Complete Schedule B (100S) for assetssubject to depreciation and for assets subjectto amortization. Enter the total of Schedule B,Part III, on Form 100S Side 1, line 5.
Line 6 – Portfolio incomeEnter on this line net portfolio income notincluded in line 1 but that must be included inthe S corporation’s net income for computingthe 1.5% tax. Include interest, dividends, androyalties. Do not include any passive activityamounts on this line. Instead, include passiveactivity amounts on line 7 or line 13.Line 7 – Other additionsInclude on this line other items not added onany other line to arrive at California netincome. Attach a schedule that clearly showshow each item was computed and explain thebasis for the adjustment.If a federal contribution deduction was takenin arriving at the amount entered on line 1,include that amount in the computation ofline 7. See line 11, Contributions.
Enter any passive activity income on line 7.California ordinary net gain or lossBefore entering the amount fromSchedule D-1, line 18, determine whether thegain is subject to built-in gains tax. If the gainis subject to built-in gains tax, enter theamount on Schedule D (100S), Part IV so thebuilt-in gains tax can be computed, and enterthe difference between the amount onSchedule D-1, line 18 and the amount subjectto built-in gains tax on 100S, Side 1, line 7.See General Information O, Dissolution/Withdrawal.Note: Business expense deductions are notallowed with respect to payments to a clubthat restricts membership or the use of itsservices or facilities on the basis of age, sex,race, religion, color, ancestry, or nationalorigin. “Club” means a club as defined in theBusiness and Professions Code, Div. 9, Ch. 3,Art. 4, beginning with Section 23425. Addback such deductions on this line.
Line 9 and Line 10 – DividendsSee Schedule H (100S), Dividend IncomeDeduction, instructions.
Line 11 – ContributionsFor income years beginning on or afterJanuary 1, 1996, the contribution deductionis 10% of California net income, withoutregard to charitable contributions and specialdeductions (e.g., the deduction for dividendsreceived). The definition of California netincome differs from federal taxable income forcomputing the contribution deduction.Five-year carryover provisions per IRCSection 170(d)(2) shall apply for excesscontributions made during income yearsbeginning on or after January 1, 1996.On a separate worksheet, using theForm 100S format, complete Form 100S,Side 1, through line 15 (without regard toline 11). Then complete the worksheet belowto determine the contribution deduction toenter on this line.1. Net income after state adjustments
from Side 1, line 15 . . . . . . . . . . . _____2. Deduction for dividends received . _____3. Net income for contribution
6. Enter the smaller of line 4 orline 5 here and on Side 1, line 11 _____
If any federal contribution deduction wastaken in arriving at the amount entered onSide 1, line 1, enter that amount as anaddition on line 7.Get Schedule R, Apportionment and Alloca-tion of Income, to figure the contributioncomputation for apportioning corporations.
Page 12 Form 100S Booklet 1999
Line 12 – Enterprise Zone (EZ), LocalAgency Military Base Recovery Area(LAMBRA), or Targeted Tax Area (TTA)business expense and/or net interestdeductionBusinesses conducting a trade or businesswithin an EZ, LAMBRA, or TTA may elect totreat a portion of the cost of qualified propertyas a business expense rather than a capitalexpense. For the year the property is placed inservice, the business may deduct a percent-age of the cost in that year rather thandepreciate it over the life of the asset. Formore information, get form FTB 3805Z, formFTB 3807, or form FTB 3809.Also, a deduction may be claimed on this linefor the amount of net interest on loans madeto an individual or company doing businessinside an EZ. For more information, get formFTB 3805Z.Be sure to attach form FTB 3805Z, formFTB 3807, or form FTB 3809 if any of thesebenefits are claimed. If the proper form is notattached, these tax benefits may bedisallowed.
Line 13 – Other deductionsInclude on this line deductions not claimed onany other line. Attach a schedule that clearlyshows how each deduction was computedand explain the basis for the deduction.Include in the computation for line 13 anypassive activity loss. Also enter any IRCSection 179 expense from Schedule B (100S),line 5.For S corporations subject to income (and notfranchise) tax, interest received on obligationsof the federal government and on obligationsof the State of California and its politicalsubdivisions is exempt from income tax. Ifsuch interest is reported on line 3, deduct iton this line.
Federal ordinary net gain or lossEnter any federal ordinary net gain or lossfrom federal Form 4797, Sales of BusinessProperty, line 18, if the amount is included inincome on line 1.
Line 16 – Net income (loss) for statepurposesIf all the S corporation income is derived fromCalifornia sources, transfer the amount fromline 15 to this line.If only a portion of income is derived fromCalifornia sources, complete Schedule R,before entering any amount on this line.Transfer the amount from Schedule R, line 24,to this line. Be sure to answer “yes” toQuestion P on Form 100S, Side 2.If this line is a net loss, complete and attachthe 1999 form FTB 3805Q to Form 100S.
Line 17 – R&TC Section 23802(e) deductionIf the S corporation has a tax imposed onexcess net passive investment income, certaincapital gains, and built-in gains, a deductionis allowed against the net income taxed at the
1.5% rate. See the “Excess Net PassiveIncome and Income Tax Worksheet,” includedon page 15 to determine if the S corporationis subject to the tax on excess net passiveinvestment income. If a tax is shown on thisworksheet, enter the amount of excess netpassive income from line 8 of the worksheeton Form 100S, Side 1, line 17.For purposes of the built-in gains tax, enterthe smaller amount of line 11 or line 13 fromSchedule D (100S), Section A, Part III orline 20 from Schedule D (100S), Section A,Part IV.Line 18 – Net operating loss (NOL)carryover deductionThe NOL deduction is the amount of the NOLcarryover from prior years that may bededucted from income in this income year.However, the loss may not reduce theS corporation’s current year income belowzero. Any excess loss must be carriedforward.If line 16 less line 17 is a positive amount,enter the NOL carryover (but not more thanline 16 less line 17) from the S corporation’s1999 form FTB 3805Q, Part III, line 3 onForm 100S, Side 1, line 18. Attach a copy ofthe 1999 form FTB 3805Q to Form 100S. Ifthe full amount of the NOL carryover is notdeducted this year, complete and attach a1999 form FTB 3805Q showing the computa-tion of the NOL carryover to future years.If line 16 less line 17 is a negative amount,enter -0- on this line and see form FTB 3805Qinstructions for the computation of the NOLcarryover to future years.No NOL carryover arising from a year inwhich an S corporation was a C corporationmay be applied against the 1.5% tax. See IRCSection 1371(b)(1) and R&TCSection 23802(d). However, if the corporationterminates its S election, thus becoming aC corporation, then the prior year NOLcarryover may be used to the extent it has notexpired.Note: NOL carryovers arising from a year inwhich the S corporation was a C corporationmay be used in computing the tax on built-ingains.
Line 19 – EZ, LARZ, or LAMBRA NOLcarryover deductionAn NOL generated by a business that operates(operated) or invests (invested) within an EZ,the LARZ, or a LAMBRA may receive specialtax treatment. 100% of the NOL generated canbe carried forward for up to 15 years. Getform FTB 3805Z, form FTB 3806, or formFTB 3807, for more information.Enter the EZ, LARZ, or LAMBRA NOLcarryover deduction from the S corporation’sform FTB 3805Z, form FTB 3806, or formFTB 3807, on Form 100S, line 19. Attach acopy of the form FTB 3805Z, form FTB 3806,or form FTB 3807 to the Form 100S.
Line 20 – Disaster loss carryover deductionIf the S corporation has a disaster losscarryover deduction, enter the total amountfrom Part III, line 2 of the 1998 FTB 3805Qonly if the corporation has income in thecurrent year.Line 22 – TaxS corporations must use a tax rate of 1.5%.Financial S corporations must use thefinancial tax rate of 3.5%. The tax on this linemay not be less than the sum of the minimumfranchise tax and QSub annual tax(es), ifapplicable. See General Information B, TaxRate and Minimum Franchise Tax.If the S corporation is the parent of a QSuband paid the $800 annual tax on behalf ofeach QSub, add the total amount of QSubannual tax(es) to the tax on net income or theminimum franchise tax, whichever isapplicable, and enter the result on line 22.Use the QSub information worksheet onpage 33 of this booklet.Example 1: Corporation A, an S corporation,is the parent of three QSubs, B, C & D. QSubB & C are either incorporated or qualified todo business in California. QSub D is notincorporated, doing business, or qualified todo business in California. Corporation A issubject to $1,600 of QSub annual tax.Example 2: Beta Corporation, an S corpora-tion, is the parent of three QSubs. Only one ofthe QSubs is qualified and doing business inCalifornia. Beta Corporation reports netincome for California tax purposes on line 21of $100,000. Tax on net income is $1,500. Online 22, Beta Corporation will report tax of$2,300. The $2,300 includes tax on netincome of $1,500 plus $800 of QSub annualtax payments for one QSub. The two QSubsnot doing business in California do not haveto pay the QSub tax.
Line 23 through Line 26 – Tax creditsCredits may be used to reduce the California taxliability, however, may not be used to reduce thetax on line 22 to an amount less than the sum ofthe minimum franchise tax plus the QSubannual tax(es), if applicable. Also, theS corporation is allowed to claim only 1/3 of thetotal credit generated against the 1.5% franchisetax. See General Information AA, Passive ActivityCredits, and BB, Tax Credits.Complete and submit the applicable creditform for each credit claimed. For anycarryover only credits, complete formFTB 3540, Credit Carryover Summary. Seepage 14 for a list of available credits.Transfer the credit(s) from the respectivecredit forms to Schedule C (100S) to computethe amount of credit to claim on Form 100S.Then transfer the credit(s) from Schedule C(100S) to Form 100S. Each credit is identifiedby a code number. To claim one, two, or threecredits, enter the credit name, code number,and the amount of the credit on line 23,line 24, and line 25. Enter the total of any
Form 100S Booklet 1999 Page 13
remaining credits from Schedule C (100S) online 26. Do not make an entry on line 26unless line 23 through line 25 are complete.Attach all credit forms, schedules, andSchedule C (100S) to Form 100S.
Line 29 – Tax from Schedule D (100S)S corporations must enter the tax fromSchedule D (100S) (included in this booklet).See General Information J, Certain CapitalGains/Built-in Gains, for more information.
Line 30 – Excess net passive income taxIf the corporation has always been anS corporation for California purposes or hasno federal excess net passive investmentincome, the excess net passive investmentincome tax does not apply. See GeneralInformation S, Excess Net Passive InvestmentIncome, for more information.To determine if the S corporation owes thistax, complete line 1 through line 3 and line 9of the “Excess Net Passive Income andIncome Tax Worksheet” on page 15. If line 2is greater than line 3 and the S corporationhas taxable income, it must pay the tax.Complete a separate schedule using theformat of line 1 through line 11 of theworksheet to figure the tax. Enter the tax fromline 11 of the worksheet on Form 100S,Side 1, line 30. Attach the schedule showingthe computation. Reduce each item of passiveincome passed through to shareholders by itsportion of the tax on line 30. See IRCSection 1366(f)(3) and R&TCSection 23803(b)(2).
R&TC Section 23811(e) provides a deductionfor C corporation earnings and profitsattributable to California sources for anyincome year by the amount of a consentdividend paid after the close of the incomeyear. The amount of the consent dividend islimited to the difference between theC corporation earnings and profits attributableto California sources and the C corporationearnings and profits for federal purposes.Line 32 – Additional SOS prepayment taxFor income years beginning on or afterJanuary 1, 1999, and before January 1, 2000,the corporation must pay an additional $500on the original due date of the 1st requiredreturn if it:• Incorporated as a qualified new corpora-
tion with the California SOS;• Paid the $300 prepaid minimum tax to the
California SOS; and• Had gross receipts, less returns and
allowances, exceeding $1 million or tax onnet income exceeding $800 during the 1stincome year.
If the corporation is required to pay theadditional SOS prepayment tax, enter $500 onthis line. If the SOS prepayment tax is notrequired, enter -0-. See General InformationW, Qualified New Corporations (QNCs), formore information.
Line 33 – Adjusted total taxAdd line 31 and line 32. Enter the result onthis line.
Line 35 – 1999 estimated tax payments andexcess SOS prepayment tax
Enter the total amount of estimated taxpayments made during the 1999 income yearon this line. If the S corporation is the parentof a QSub and made payments for the QSubannual tax, include the total amount of QSubannual tax payment made during 1999 on thisline along with the total estimated taxpayments. See General Information DD,Qualified Subchapter S Subsidiary (QSub), formore information. Be sure to complete theSchedule QS on page 33 of this booklet andattach it to the return.For income years beginning prior toJanuary 1, 2000, if the S corporation prepaidan $800 minimum tax to the SOS, but met theQNC criteria during its 1st income year, theS corporation is entitled to a refund of theexcess prepaid tax. Include an additional $500on this line. See General Information W,Qualified New Corporations (QNCs), for moreinformation.Line 38 and Line 39 – Tax due oroverpaymentIn addition to any amount entered on line 38or line 39, tax due or overpayment, alsoinclude any amounts required to be includedfrom Schedule J, Add-On Taxes or Recaptureof Tax Credits included in this booklet. SeeSchedule J instructions for more information.
Line 42 – Penalties and interestComplete and attach form FTB 5806,Underpayment of Estimated Tax by Corpora-tions, to the front of Form 100S only ifException B or Exception C is used tocompute or eliminate the penalty.
Page 14 Form 100S Booklet 1999
CREDIT NAME CODE DESCRIPTIONCommunity Development Financial Institution 209 20% of a qualified deposit made into a community development financial institutionDeposits – Obtain certification from:
CALIFORNIA ORGANIZED INVESTMENTNETWORK (COIN)DEPARTMENT OF INSURANCE300 CAPITOL MALL, STE 1460SACRAMENTO CA 95814
Disabled Access for Eligible Small Businesses – 205 Similar to the federal credit, but limited to $125 per eligible small busines s, and basedFTB 3548 on 50% of qualified expenditures that do not exceed $250
Donated Agricultural Products Transportation – 204 50% of the costs paid or incurred for the transportation of agricultural produ ctsFTB 3547 donated to nonprofit charitable organizations
Employer Child Care Contribution – FTB 3501 190 Employer: 30% of contributions to a qualified planEmployer Child Care Program – FTB 3501 189 Employer: 30% of the cost of establishing a child care program or constructing a child
care facilityEnhanced Oil Recovery – FTB 3546 203 1/3 of the similar federal credit but limited to qualified enhanced oil recovery projects
located within CaliforniaEnterprise Zone Hiring & Sales or Use Tax – 176 Business incentives for enterprise zone businesses
FTB 3805ZFarmworker Housing – Construction 207 50% of qualified costs paid or incurred to construct or rehabilitate qualified farmworkersFarmworker Housing – Loan housingObtain certification from: 208 Banks and financial corporations: 50% of foregone interest income on qualified
FARMWORKER HOUSING ASSISTANCE farmworker housing loansPROGRAM, CALIFORNIA TAX CREDITALLOCATION COMMITTEE916 CAPITOL MALL, ROOM 485SACRAMENTO CA 95814
Local Agency Military Base Recovery Area 198 Business incentives for LAMBRAs(LAMBRA) Hiring & Sales or Use Tax – FTB 3807Low-Income Housing – FTB 3521 172 Similar to the federal credit but limited to low-income housing in CaliforniaManufacturing Enhancement Area – FTB 3808 211 Hiring Credit for Manufacturing Enhancement AreaManufacturers’ Investment – FTB 3535 199 6% of the cost of qualified propertyPrior Year Alternative Minimum Tax – FTB 3510 188 Must have paid alternative minimum tax in a prior year and have no alternative minimum
tax liability in the current yearPrison Inmate Labor – FTB 3507 162 10% of wages paid to prison inmatesResearch – FTB 3523 183 Similar to the federal credit but limited to costs for research activities in CaliforniaRice Straw 206 $15 per ton of rice straw grown in CaliforniaObtain certification from:
DEPARTMENT OF FOOD AND AGRICULTURE 1220 N STREET, ROOM 409 SACRAMENTO CA 95814
Salmon & Steelhead Trout Habitat Restoration – 200 The lesser of 10% of qualified costs or other amount determined by the Departm ent ofObtain certification from: Fish and Game
DEPARTMENT OF FISH AND GAME C/O FISH TIMBER TAX CREDITS PROGRAM PO BOX 944209 SACRAMENTO CA 95244-2090
Targeted Tax Area (TTA) Hiring & Sales or Use 210 Business incentives for TTA businessesTax – FTB 3809
Agricultural Products 175Commercial Solar Electric System 196Commercial Solar Energy 181 The expiration dates for these credits have passed. However, these credits had carryoverContribution of Computer Software 202 features. You may claim these credits if there is a carryover available from prior years. IfEmployer Ridesharing – Large employer 191 you are not required to complete Schedule P (100), get form FTB 3540, CreditEmployer Ridesharing – Small employer 192 Carryover Summary, to figure your credit carryover to future years.Employer Rideshare – Transit 193Energy Conservation 182Los Angeles Revitalization Zone (LARZ) Hiring
& Sales or Use Tax 159Low Emission Vehicles 160Orphan Drug 185Recycling Equipment 174Ridesharing 171Solar Energy 180Solar Pump 179Technology Property Contributions 201
Form 100S Booklet 1999 Page 15
Schedule C (100S)Use Schedule C (100S) to determine theallowable amount of credits to claim on the1999 Form 100S and the credit carryover tofuture years. For more information, seeGeneral Information Z, Passive Activity LossLimitation, AA, Passive Activity Credits, andBB, Tax Credits.Column (a) The amount entered in column (a)must be limited to 1/3 the amount of the totalcredit.
Schedule D (100S)Schedule D (100S) is divided into Section Aand Section B. Use Section A to report allbuilt-in gains and certain capital gains subjectto the 8.84% tax rate (10.84% for financialS corporations). Use Section B to report allother capital gains subject to the 1.5% taxrate (3.5% for financial S corporations). SeeGeneral Information J, Certain Capital Gains/Built-in Gains, for more information.Note: Use California amounts when comput-ing gain from like-kind exchanges on federalForm 8824.
Section A
Part I and Part IIS corporations use Part I to report andsummarize gains and losses attributable to:(1) sale or exchange of capital assets; and(2) gains on distributions to shareholders ofappreciated assets that are capital assets. Besure to use the California basis for all assetswhen computing the gain or loss. See theinstructions for federal Schedule D(Form 1120S) for more information.
Line 2 and Line 5Use California numbers when figuring theamount to enter for short- or long-termcapital gains or losses from like-kindexchanges from federal Form 8824.
Part IIITo determine if the S corporation is subject tothe tax on certain capital gains, see the
instructions for federal Schedule D(Form 1120S) and General Information J,Certain Capital Gains/Built-in Gains, for moreinformation.
Line 9If the S corporation is liable for the tax onexcess net passive income (Form 100S,Side 1, line 30) or the built-in gains tax (seePart IV below), and capital gain or loss wasincluded in the computation of either tax,figure the amount to enter on line 9 asfollows:Step 1: Refigure line 1, line 2, and line 4through line 6c in column (f) and line 7 ofSchedule D (100S) by:• Excluding the portion of any recognized
built-in capital gain or loss that does notqualify for transitional relief; and
• Reducing any capital gain taken intoaccount in determining passive investmentincome (line 2 of the Excess Net PassiveIncome and Income Tax Worksheet above)by the portion of excess net passiveincome attributable to such gain. Theattributable portion is figured by multiply-ing excess net passive income by afraction, the numerator of which is thecapital gain (less any expenses attributableto such gain), and the denominator ofwhich is net passive income.
Step 2: Refigure line 3a, line 6a, line 8, andline 9 of Schedule D (100S) using theamounts determined in Step 1. See GeneralInformation J, Certain Capital Gains/Built-inGains, for more information.
Part IVLine 16To determine if the S corporation is subject totax on built-in gains, see the instructions forfederal Schedule D (Form 1120S) and GeneralInformation J, Certain Capital Gains/Built-inGains, for more information.
Apportioning corporations only:All recognized built-in gains and all recog-nized built-in losses apportioned and
SchedulesSchedule B (100S)Effective January 1, 1998, California lawconforms to federal law regarding the incomeforecast method and the exemption of limitson depreciation for incremental costs of cleanfuel vehicles.California generally conforms to the provi-sions of IRC Section 197 for amortization ofintangibles for income years beginning on orafter January 1, 1994. However, there may bedifferences in the federal and Californiaamounts for intangible assets acquired inincome years beginning prior to January 1,1994. See R&TC Section 24355.5 for moreinformation.California did not allow depreciation under thefederal accelerated cost recovery system(ACRS) for years prior to 1987. California alsodoes not allow depreciation under MACRS forassets placed in service while the corporationwas taxable as a C corporation.S corporations must continue calculating theCalifornia depreciation deduction for assetsplaced in service before January 1, 1987, inthe same manner as in prior years. Get formFTB 3885, Corporation Depreciation andAmortization, to determine how to continuedepreciating these assets. The following werethe most common methods used to calculatedepreciation for years prior to 1987:• Straight-line;• Declining balance; and• Sum-of-the-years digits.For assets placed in service in 1987 and after,S corporations may use the same method forCalifornia as was used for federal purposes.S corporations conducting a trade or businessinside an EZ, a LAMBRA, or a TTA may electto treat a portion of the cost of qualifiedproperty as a business expense in the firstyear it is placed in service. This expensededuction is in lieu of the IRC Section 179expense deduction. For more information, getform FTB 3805Z, form FTB 3807, or formFTB 3809.
Excess Net Passive Income and Income Tax Worksheet1 Enter gross receipts for the income year (see IRC Section 1362(d)(3)(B) for gross receipts from the sale of capital assets)* 12 Enter passive investment income as defined in IRC Section 1362(d)(3)(C)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Enter 25% (.25) of line 1. If line 2 is less than line 3, the corporation is not liable for this tax . . . . . . . . . . . . . . . . . . . . . . . . 34 Excess passive investment income. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Enter expenses directly connected with the production of income on line 2 (see IRC Section 1375(b)(2))* . . . . . . . . . . . . . 56 Net passive income. Subtract line 5 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Divide the amount on line 4 by the amount on line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Excess of net passive income. Multiply line 6 by line 7 (see instructions on line 11 below) . . . . . . . . . . . . . . . . . . . . . . . . . 89 Enter taxable income** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10 Enter the smaller of line 8 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1011 Excess net passive income tax. Enter 8.84% (financial S corporations must use 10.84%) of line 10 here and on Form 100S,
Side 1, line 30. (If an amount is entered here, go to line 8 above and carry the line 8 amount to Form 100S, line 17.) . . . . . 11* Income and expenses on line 1, line 2, and line 5 are from total operations for the income year. This includes applicable income and expenses from
Form 100S, Side 1. See IRC Sections 1362(d)(3)(C) and 1375(b)(4) for exceptions regarding line 2 and line 5.** Taxable income is defined in federal Treas. Regulations Section 1.1374-1A(d). Figure taxable income by completing line 1 through line 17 of Form 100,
California Corporation Franchise or Income Tax Return. Clearly mark ‘’ENPI Taxable Income’’ on the Form 100 computation and attach it to Form 100S.
Page 16 Form 100S Booklet 1999
allocated to California must be included online 16.
Line 18If the S corporation:• Filed its election to be an S corporation
after 1986;• Was a C corporation before it elected to be
an S corporation, or acquired an assetwith a basis determined by reference to itsbasis (or the basis of any other property)in the hands of a C corporation; and
• Has a California net unrealized built-in gainas defined in IRC Section 1374(d)(1), thatis in excess of the California net recog-nized built-in gain from prior years;
Then compute the California net unrealizedbuilt-in gain reduced by the California netrecognized built-in gain from prior years.On line 18, enter the smaller of line 16,line 17, or the amount computed above.Line 19Enter on this line the amount from formFTB 3805Q that reflects NOLs from the yearsthe corporation was a C corporation. Reducefuture NOL carryovers from C corporationyears by the amount applied on this line.
Section BS corporations use Part I and Part II to reportthe sale or disposition of all capital assetsacquired as an S corporation or which are notreported in Section A. For more information,see the instructions for federal Schedule D(Form 1120S).
Schedule FSee General Information I, Net IncomeComputation, for information on net incomecomputation methods.
Line 7 – Compensation of OfficersIf the S corporation’s total receipts are$150,000 or more, complete and attach aschedule showing the compensation ofofficers. On the schedule list:• Name of officer;• Social security number of officer;• Percentage of time devoted to the business;• Percentage of stock owned; and• Amount of compensation.Also show the calculation of compensation ofofficers deducted:• Total compensation of officers, minus• Compensation of officers claimed in the
cost of goods sold schedule and elsewhereon the return.
Line 8 – Salaries and wagesGain from the exercise of California QualifiedStock Options (CQSOs) issued and exercisedafter 1996 and before 2002, can be excludedfrom gross income if the individual’s earnedincome is $40,000 or less. The exclusionfrom gross income is subject to the alterna-tive minimum tax and the S corporation is notallowed a deduction for the compensationexcluded from the employee’s gross income.
Schedule JComplete Schedule J if the S corporation hascredit amounts to recapture or is required toinclude installment payments of “add-on”taxes for:• LIFO recapture resulting from an
S corporation election;• Interest computed under the look-back
method for completed long-term contracts;• Interest on tax attributable to installment
sales of certain property or use of theinstallment method for non-dealerinstallment obligations; or
• IRC Section 197(f)(9)(B)(ii) election torecognize gain on the disposition of anIRC Section 197 intangible.
Revise the tax due or overpayment onForm 100S, line 38 or line 39, as appropriate,by the amount from Schedule J, line 6.
LIFO recapture taxIf the S corporation computed the LIFOrecapture tax in the final year as a C corpora-tion, include on Schedule J, line 1, any LIFOinstallment due this income year.
Long-term contractsIf the S corporation must compute interestunder the look-back method for completedlong-term contracts, complete formFTB 3834, Interest Computation Under theLook-Back Method for Completed Long-TermContracts, and include the amount of interestthe S corporation owes or the amount ofinterest to be credited or refunded to theS corporation on Schedule J, line 2. Attachform FTB 3834 to Form 100S. If interest is tobe credited or refunded, enter as a negativeamount.
Interest on tax attributable to paymentsreceived on installment sales of certaintimeshares and residential lotsIf the S corporation elected to pay interest onthe amount of tax attributable to paymentsreceived on installment obligations arisingfrom the disposition of certain timeshares andresidential lots under IRC Section 453(l)(3)(R&TC Section 24667), it must include theinterest due on Schedule J, line 3a. For theapplicable interest rates, get FTB Pub. 1138,Refund/Billing Information. Attach a scheduleshowing the computation.
Interest on tax deferred under theinstallment method for certain nondealerinstallment obligationsIf an obligation arising from the disposition ofproperty to which IRC Section 453A (R&TCSection 24667) applies is outstanding at theclose of the income year, the corporationmust include the interest due under IRCSection 453A(c) on Schedule J, line 3b.Attach a schedule showing the computation.For the applicable interest rates, get FTBPub. 1138, Refund/Billing Information.
IRC Section 197(f)(9)(B)(ii) electionComplete Schedule J, line 4 if the corporationelected to pay tax on the gain from the sale ofan intangible under the related personexception to the anti-churning rules.
Credit recapturesComplete Schedule J, line 5, if the S corpora-tion completed the credit recapture portion of:• FTB 3501, Employer Child Care Program/
Contribution Credit;• FTB 3805Z, Enterprise Zone Deduction and
Credit Summary, Part VI;• FTB 3806, Los Angeles Revitalization Zone
Deduction and Credit Summary, Part IV;• FTB 3807 Local Agency Military Base
Recovery Area Deduction and CreditSummary, Part VI;
• FTB 3808, Manufacturing EnhancementArea Credit Summary, Part III;
• FTB 3809, Targeted Tax Area Deductionand Credit Summary, Part V; or
• FTB 3535 Manufacturers’ InvestmentCredit, Part III.
Schedule K and Schedule K-1Shareholders’ share of income, deductions,credits, etc.
Purpose of schedulesSchedule K (100S) is a summary schedule ofall the shareholders’ shares of theS corporation’s income, deductions, credits,etc. Schedule K-1 (100S) shows eachshareholder’s separate share of pass-throughitems and adjusted basis. Use federalSchedule K and Schedule K-1 (Form 1120S)as a basis for preparing California Schedule Kand Schedule K-1 (Form 100S).Note: Amounts on Schedule K-1 (100S) maynot add up to amounts reflected onForm 100S, Side 1 amounts because Side 1calculates tax at the S corporation level whileSchedule K-1 (100S) amounts are calculatedusing different rules.Attach one copy of each Schedule K-1 (100S)to the Form 100S filed with the FTB. Keep onecopy of each Schedule K-1 (100S) for theS corporation’s records, and give eachshareholder a copy of Schedule K-1 (100S)on or before the due date of Form 100S.Note: Be sure to give each shareholder a copyof either the Shareholder’s Instructions forSchedule K-1 (100S) (included in thisbooklet) or specific instructions for each itemreported on the shareholder’s Schedule K-1(100S).
Substitute formsYou need approval from the FTB to use asubstitute Schedule K-1 (100S). The substi-tute schedule must include the Shareholder’sInstructions for Schedule K-1 (100S) or otherprepared specific instructions. For moreinformation, get FTB Pub. 1098, Guidelinesfor the Development and Use of Substitute,Scannable, and Reproduced Tax Forms.
Form 100S Booklet 1999 Page 17
General InstructionsSpecial reporting requirements for passiveactivitiesIf items of income (loss), deduction, or creditfrom more than one activity are reported onSchedule K-1 (100S), the S corporation mustattach a statement to Schedule K-1 (100S) foreach activity that is a passive activity to theshareholder. Rental activities are passiveactivities to all shareholders. Trade orbusiness activities are passive activities toshareholders who do not materially participatein the activity.The attachment must include all the informa-tion explained in the instructions for federalSchedule K-1 (Form 1120S).
Specific Line InstructionsItem A through Item E (Schedule K-1 (100S)only)To insure correct processing of Schedule K-1(100S), answer all items that are appropriate.Item A and Item B (Schedule K-1 (100S)only)See the instructions for Item A and Item C offederal Schedule K-1 (Form 1120S).
IncomeLine 1 – Ordinary income (loss) from tradeor business activitiesEnter in column (c) any California adjust-ments to ordinary income that do not need tobe separately stated. Include in this columnthe adjustment to add back the minimumfranchise tax or the 1.5% tax deducted forfederal purposes.Line 2 – Net income (loss) from rental realestate activitiesEnter the net of income and expenses of anyrental real estate activity of the S corporation.If the S corporation has more than one rentalreal estate activity reported on these lines,attach a separate schedule or useSchedule K-1 (100S), line 23 to list theincome or loss from each activity, plus anyother information required under the rules forpassive activities. Attach form FTB 3801,Passive Activity Loss Limitations, to Form100S.Line 3a, Line 3b, and Line 3c – Net income(loss) from other rental activities(Schedule K (100S) only)Enter the net of income and expenses of otherrental activities not listed on line 2 above. Ifthe S corporation has more than one rentalactivity reported on these lines, attach aseparate schedule listing the income or lossfrom each activity, plus any other informationrequired under the rules for passive activities.Line 4a through Line 4f – Portfolio income(loss)Portfolio income (loss) is any gross incomefrom interest, dividends, annuities, orroyalties that is not derived in the ordinary
course of business. Portfolio income must beseparately accounted for as such. Portfolioincome also includes gains or losses from thesale or other disposition of property (otherthan an interest in a passive activity) produc-ing portfolio income or held for investment.
Line 4a, Line 4b, and Line 4c – Interest,dividend, and royalty incomeEnter only taxable interest, dividend, androyalty income that is portfolio income.
Line 4d and Line 4e – Net capital gain (loss)Enter on line 4d and line 4e the amount ofcapital gains and losses that is portfolioincome (loss). If any of the income (loss) isnot portfolio income (loss), include it on line 6.Line 4f – Other portfolio income (loss)Enter any other portfolio income (loss) notentered on line 4a through line 4e.
Line 5 – Net gain (loss) under IRCSection 1231The amount for line 5 comes fromSchedule D-1, Sales of Business Property. Donot include specially allocated ordinary gainsand losses or net gains or losses frominvoluntary conversions due to casualties orthefts on this line. Instead, report these gainsor losses on line 6.If the S corporation has more than oneactivity and the amount on line 5 is a passiveactivity amount to the shareholder, attach astatement to Schedule K-1 (100S) (or useSchedule K-1 (100S), line 23) to identify towhich activity the IRC Section 1231 gain(loss) relates.Line 6 – Other income (loss)Enter any other item of income or loss notincluded on line 1 through line 5, such as:a. Wagering gains and losses. See IRC
Section 165(d).b. Recovery of tax benefit items. See IRC
Section 111.c. Any gain or loss where the S corporation
was a trader or dealer in IRC Section 1256contracts or property related to suchcontracts. See IRC Section 1256(f).
d. Net gain (loss) from involuntary conver-sions due to casualty or theft.
e. Loss(es) from qualified low-incomehousing projects for shareholders that arequalified investors.
f. Eligible gain from the sale or exchange ofqualified small business stock (defined inR&TC Section 18152.5). Also report on anattachment to Schedule K (100S) andSchedule K-1 (100S) the name of thecorporation that issued the stock and theadjusted basis of that stock.
Note: The exclusion allowed under R&TCSection 18152.5 for small business stock isnot allowed for an S corporation but isallowed for the shareholder.
DeductionsLine 7 – Charitable contributionsEnter the total amount of charitable contribu-tions made by the S corporation during its
income year on Schedule K (100S) and eachshareholder’s distributive share on ScheduleK-1 (100S). On an attachment to eachschedule, separately show the dollar amountof contributions subject to each of the 50%,30%, and 20% of adjusted gross incomelimits.A resident shareholder is allowed a deductionfor contributions to a qualified organization asprovided in IRC Section 170.Line 8 – Expense deduction for recoverypropertyThe amount of expense deduction forrecovery property that can be claimed from allsources will vary depending on the type ofproperty and the year of designation. Formore information, see IRC Section 179 andR&TC Sections 17201, 17267.2, 17267.6, and17268.
Line 9 – Deductions related to portfolioincome (loss)Enter on this line the deductions allocable toportfolio income (loss) other than interestexpenses. Generally, these deductions are IRCSection 212 expenses and are subject to IRCSection 212 limitations at the shareholderlevel. However, interest expense related toportfolio income (loss) is generally investmentinterest expense and is reported on line 11a.
Investment InterestLine 11a through Line 11b(2)These lines must be completed whether or nota shareholder is subject to the investmentinterest rules.
Line 11a – Interest expense on investmentdebtsInclude on this line interest paid or accrued topurchase or carry property held for invest-ment. Property held for investment includesproperty that produces portfolio income(interest, dividends, annuities, royalties, etc.).Therefore, interest expense allocable toportfolio income should be reported onSchedules K and K-1 (100S), line 11a ratherthan Schedules K and K-1 (100S), line 9.Investment interest does not include interestexpense allocable to a passive activity. Apassive activity is a rental activity or a trade orbusiness activity in which the shareholderdoes not materially participate.Property held for investment includes ashareholder’s interest in a trade or businessactivity that is not a passive activity to theshareholder and in which the shareholderdoes not materially participate. An examplewould be a shareholder’s working interest inoil and gas property (i.e., the shareholder’sinterest is not limited) if the shareholder doesnot materially participate in the oil and gasactivity.The amount on line 11a will be reflected (afterapplying the investment interest expenselimitations) by individual shareholders ontheir Schedule CA (540 or 540NR), CaliforniaAdjustments.
Page 18 Form 100S Booklet 1999
For more information, get form FTB 3526,Investment Interest Expense Deduction.
Line 11b(1) and Line 11b(2) – Investmentincome and expensesEnter on line 11b(1) only the investmentincome included on Schedules K and K-1(100S), line 4a, line 4b, line 4c, and line 4f.Enter on line 11b(2) only the investmentexpense included on Schedules K and K-1(100S), line 9.If there are items of investment income orexpense included in the amounts that arerequired to be passed through separately tothe shareholder on Schedule K-1 (100S),such as net short-term capital gain or loss,net long-term gain or loss and other portfoliogains or losses, give each shareholder aschedule identifying these amounts. See theinstructions for Form 1120S, for moreinformation on portfolio income.Investment income includes gross incomefrom property held for investment, gainattributable to the disposition of property heldfor investment, and other amounts that aregross portfolio income. Investment incomeand investment expenses do not include anyincome or expenses from a passive activity.Property subject to a net lease is not treatedas investment property because it is subjectto the passive loss rules. Do not reduceinvestment income by losses from passiveactivities.Investment expenses are deductible expenses(other than interest) directly connected withthe production of investment income.Get form FTB 3526 for more information.
Tax CreditsLine 12a – Low-income housing creditR&TC Section 23610.5 provides a credit thatmay be claimed by owners of residentialrental projects providing low-income housing.The credit is generally effective for buildingsplaced in service after 1986. If the sharehold-ers are eligible to claim the low-incomehousing credit, attach a copy of formFTB 3521, Low-Income Housing Credit, toForm 100S and to each shareholder’sSchedule K-1 (100S).
Line 12b – Credits related to rental realestate activitiesReport any information that the shareholderneeds to figure credits related to a rental realestate activity other than the low-incomehousing credit. Attach to each shareholder’sSchedule K-1 (100S) a schedule showing theamount to be reported and the form on whichthe amount should be reported.Line 12c – Credits related to other rentalactivitiesUse this line to report information that theshareholder needs to figure credits related toa rental activity other than a rental real estateactivity. Attach to each shareholder’sSchedule K-1 (100S) a schedule showing the
amount to be reported and the form on whichthe amount should be reported.
Line 13 – Other creditsEnter on an attached schedule eachshareholder’s allocable share of any credit orcredit information reported on Schedule C(100S) that is related to a trade or businessactivity.The following are examples of credits thatmay apply to each shareholder:• Employer child care program/contribution
credit (get form FTB 3501);• Enterprise zone hiring & sales or use tax
credit (get form FTB 3805Z);• Local Agency Military Base Recovery Area
(LAMBRA) hiring & sales or use tax credit(get form FTB 3807);
• Manufacturing enhancement area (MEA)hiring credit (get form FTB 3808);
• Targeted tax area (TTA) hiring and sales oruse tax credit (get form FTB 3809);
• Research credit (get form FTB 3523); or• Manufacturers’ investment credit (get form
FTB 3535).
Adjustments and TaxPreference ItemsLine 14a through Line 14eEnter the items of income and deductions thatenter into each shareholder’s computation ofadjustments and tax preference items. Ashareholder with alternative minimum taxitems may be required to file Schedule P(540, 540NR, or 541), Alternative MinimumTax and Credit Limitations.Get the instructions for federal Schedules Kand K-1 (Form 1120S), Adjustments and TaxPreference Items, line 14a through line 14e,for more information.
Other State TaxesLine 15a through Line 15eSubject to certain conditions, shareholdersmay claim a credit against their individual taxfor net income taxes paid by the S corporationto another state that either taxes the corpora-tion as an S corporation or does not recog-nize S corporation status. For purposes ofthis credit, net income taxes include theshareholder’s share of taxes on, according to,or measured by income. Enter the name of theother state(s), the income reported to theother state(s), and the amount of tax paid.Attach a copy of the return filed with the otherstate.Residents are taxable on all their pro ratashare of income and generally receive a creditfor taxes paid to other states. Nonresidentsmust use the amounts shown in column (e).See R&TC Sections 18001, 18002, and 18006for more information.
Other ItemsLine 16a through Line 19Refer to the instructions for federalSchedules K and K-1 (Form 1120S).
Line 20 (Schedule K only)Enter total distributions made to shareholdersother than dividends reported on Schedule K,line 22. Noncash distributions of appreciatedproperty are valued at fair market value. Referto the instructions for federal Form 1120S forthe ordering rules on distributions.
Line 21 (Schedule K only)The S corporation may need to reportsupplemental information separately to eachshareholder that is not specifically requestedon the Schedule K-1 (100S).Attach a schedule to the Schedule K showingthe computation of those items that must bereported separately to shareholders includingany credit recapture reported by shareholderson Schedule K-1, line 23.Shareholders may need to obtain the amountof their proportionate interest of aggregategross receipts, less returns and allowances,from the S corporation. As a result oflegislation enacted in 1996, alternativeminimum taxable income shall not includeincome, adjustments, and items of taxpreference related to any trade or business ofa qualified taxpayer who has gross receipts,less returns and allowances, during thetaxable year of less than $1,000,000 from alltrades or businesses. The S corporation canprovide the shareholder’s proportionateinterest of aggregate gross receipts onSchedule K-1 (100S), line 23. For purposes ofR&TC Section 17062(b)(4), “gross receipts”means the sum of gross receipts from theproduction of business income (within themeaning of subdivisions (a) and (c) of R&TCSection 25120) and the gross receipts fromthe production of nonbusiness income (withinthe meaning of subdivision (d) of R&TCSection 25120). “Proportionate interest”includes an interest in a pass-through entity.See R&TC Section 17062, Instructions forfederal Schedule K (1020S), line 21, andSchedule K-1 (100S) instructions for moreinformation.
Line 22 (Schedule K only)Report the distribution amount made out ofprior C corporation years accumulatedearnings and profits (E&P). The corporationshould issue a federal Form 1099-DIV to eachof the shareholders reporting their propor-tionate distribution amounts.
Line 20 (Schedule K-1 only)Report the distribution amount for eachshareholder that was paid out of priorC corporation years accumulated earningsand profits (E&P). Each shareholder shouldreceive a federal Form 1099-DIV reporting theproportionate distribution amount shown onSchedule K-1 (100S), line 20.Line 21 (Schedule K-1 only)Report the distribution amount for eachshareholder for distributions other thandividends reported on Schedule K-1 (100S),line 20. Noncash distributions of appreciatedproperty are valued at fair market value. Refer
Form 100S Booklet 1999 Page 19
to the instructions for federal Form 1120S forthe ordering rules on distributions.
Line 22 (Schedule K-1 only)Report the amount of loan repayments theS corporation has made to each shareholderwho has loaned the S corporation money.
Supplemental InformationLine 23 (Schedule K-1 only)The S corporation will provide supplementalinformation required to be reported to eachshareholder on this line.The S corporation should provide an amountshowing each shareholder’s proportionateinterest in the S corporation’s aggregate grossreceipts, less returns and allowances, onSchedule K-1 (100S), line 23. See theinstructions for Schedule K (100S), line 21.Report the credit recapture amount on line 23if the S corporation completed the creditrecapture portion of:• FTB 3501, Employer Child Care Program/
Contribution Credit; or• FTB 3805Z, Part VI, Hiring Credit Enter-
prise Zone; or• FTB 3806, Los Angeles Revitalization Zone
(LARZ) Hiring Credit & Sales or Use TaxCredit; or
• FTB 3807, Local Agency Military BaseRecovery Area (LAMBRA) Hiring Credit &Sales or Use Tax Credit; or
• FTB 3535, Manufacturers’ InvestmentCredit; or
• FTB 3809, Targeted Tax Area (TTA) HiringCredit & Sales or Use Tax Credit; or
Also show on line 23 a statement showingeach of the following:1. Each shareholder’s share of business
income apportioned to an enterprise zone,LAMBRA, MEA, or TTA; and
2. Each shareholder’s pro-rata share ofbusiness capital gain or loss included in 1above.
Table 1 and Table 2Table 1 – Enter the shareholder’s pro-ratashare of nonbusiness income from intan-gibles. Because the source of this incomemust be determined at the shareholder level,do not enter income in this category incolumn (e). If the income (loss) for an incomeitem is a mixture of income (loss) in differentsubclasses (for example, short and long termcapital gain), attach a supplemental scheduleproviding a breakdown of income in eachsubclass.Nonbusiness income is all income other thanbusiness income. See definition of businessincome below.Table 2 – In Part A, enter the shareholder’spro rata share of the S corporation’s businessincome. The shareholder will then add thatincome to its own business income andapportion the combined business income.
Business income is defined by Title 18 Cal.Code Reg. Section 25120(a) as incomearising in the regular course of the taxpayer’strade or business. Business income includesincome from tangible and intangible propertyif the acquisition, management, and disposi-tion of the property constitutes integral partsof the taxpayer’s regular trade or business.In Part B, enter the shareholder’s pro ratashare of nonbusiness income from real andtangible property that is located in California.Because this income has a California source,this income should also be included on theappropriate line in column (e).In Part C, enter the shareholder’s pro ratashare of the S corporation’s payroll, property,and sales factors.
Schedule LLine 23Retained earnings include balances in theaccumulated adjustments account (AAA), theother adjustments account, and other retainedearnings.
Schedule M-1Schedule M-1 is used to reconcile thedifference between book and tax accountingfor an income or expense item. TheS corporation must complete Schedule M-1 iftotal assets of the entity are at least $25,000.The federal and state Schedule M-1 may bethe same when you use the federal reconcilia-tion method for net income computation. SeeGeneral Information I, Net Income Computa-tion, for more information. The Schedule M-1will be different if using the Californiacomputation method for net income. TheCalifornia computation method is generallyused when the S corporation has no federalfiling requirement, or if the S corporationmaintains separate records for state pur-poses.
Schedule M-2The computation of the California AAA andother adjustments account (OAA) is similar tothe federal computation applying Californiaamounts. Get the instructions for federalForm 1120S and IRC Section 1368 foradditional information.Column (a) – The AAA is an account of theS corporation that generally reflects theaccumulated undistributed net income of thecorporation for the corporation’s post-1986years. S corporations with accumulated E&Pfrom C corporation years must maintain theAAA to determine the tax effect of distribu-tions during S corporation years and the post-termination transition period. AnS corporation without accumulated E&P doesnot need to maintain the AAA in order todetermine the tax effect of distributions.However, if an S corporation withoutaccumulated E&P engages in certaintransactions to which IRC Section 381(a)applies, such as a merger into an S corpora-
tion with accumulated E&P, the S corporationmust be able to calculate its AAA at the timeof the merger for purposes of determining thetax effect of post-merger distributions.Therefore, it is recommended that allS corporations maintain the AAA.At the end of the income year, the AAA isdetermined by taking into account all items ofincome, loss, and deductions for the incomeyear (including nondeductible losses andexpenses that are not capitalized but exclud-ing certain exempt income and state taxesattributable to C corporation years). After theyear-end income and expense adjustments aremade, the account is reduced by distributionsmade during the income year. The AAA shouldbe reduced by the California built-in gains taxamount and the minimum franchise tax.Note: The amount on Form 100S, Side 1,line 2, should be included as an other additionon Schedule M-2, line 3, and as an otherreduction on Schedule M-2, line 5. Alsoinclude any other adjustments to arrive atCalifornia income.Note: The AAA may have a negative balance atyear end as a result of losses or deductionsfrom the S corporation.Column (b) – The other adjustments accountis adjusted for tax-exempt income (andrelated expenses) of the S corporation. Afteradjusting for tax-exempt income, the accountis reduced for any distributions made duringthe year.Note: Cancellation of debt income excludedfrom gross income is not considered taxexempt income for purposes of determiningAAA or OAA.Column (c) – Other retained earnings includeappropriated and unappropriated retainedearnings accumulated in prior years when theS corporation was a C corporation. Line 1,column (c) for the first S corporation returnwill be the sum of the ending balances ofappropriated and unappropriated retainedearnings for the previous year.
DistributionsGenerally, property distributions (includingcash) are applied in the following order toreduce accounts of the S corporation that areused to compute the tax effect of distributionsmade by the S corporation to its shareholders:1. Reduce the AAA determined without
regard to any net negative adjustment forthe income year (but not below zero). Ifdistributions during the income yearexceed the AAA at the close of the incomeyear determined without regard to any netnegative adjustment for the income year,the AAA is allocated pro rata to eachdistribution made during the income year.See IRC Section 1368(c). The term “netnegative adjustment” means the excess, ifany, of the reductions in the AAA for theincome year (other than distributions) overthe increases in the AAA for the incomeyear.
Page 20 Form 100S Booklet 1999
2. Reduce accumulated E&P. Generally, theS corporation has accumulated E&P only ifit has not distributed E&P accumulated inprior years when the S corporation was aC corporation (IRC Section 1361(a)(2)), orwhen the S corporation merged withanother corporation that has C corporationaccumulated E&P. The only adjustmentsthat can be made to the accumulated E&Pof an S corporation are:a. Reductions for dividend distributions;
andb. Adjustments for redemptions,
liquidations, reorganizations, etc.3. Reduce the other adjustment account.4. Reduce any remaining shareholders’
equity account.Note: Shareholders’ previously taxed income(PTI) (Column (c), federal Form 1120S,Schedule M-2, 1120S) — CaliforniaS corporations will never have undistributedPTI. The federal code section that created PTIwas removed from the IRC before Californiaincorporated the federal S corporationprovisions into the R&TC.
Elections relating to the order ofdistributionsThe corporation may modify the orderingrules by making one or more of the followingelections:• Election to distribute accumulated E&P
first. If the corporation has accumulatedE&P and wants to distribute E&P beforemaking distributions from the AAA, it may
elect to do so with the consent of all itsaffected shareholders (IRCSection 1368(e)(3)(B)). This election isirrevocable and applies only for the taxyear for which it is made. For moreinformation regarding this election, seeStatement Regarding Elections.
• Election to make a deemed dividend. If thecorporation wants to distribute all or partof its C corporation accumulated E&Pthrough a deemed dividend, it may elect todo so with the consent of all its affectedshareholders (IRC Section 1368(e)(3)(B)).Under this section, the corporation will betreated as also having made the election todistribute E&P first. The amount of thedeemed dividend cannot exceed theaccumulated E&P at the end of the incomeyear reduced by any actual distributions ofaccumulated E&P made during the incomeyear. A deemed dividend is treated as if itwere a pro rata distribution of money tothe shareholders, received by the share-holders, and immediately contributed backto the corporation all on the last day of thetax year. This election is irrevocable andapplies only for the tax year for which it ismade.
Statement regarding electionsTo make any of the above elections, thecorporation must attach a statement to atimely filed original Form 100S or amendedForm 100S for the year in which the electionis made. The corporation must identify theelection it is making and state that each
shareholder consents to the election. Acorporate officer must sign the statementunder penalties of perjury on behalf of thecorporation. The statement of election tomake a deemed dividend must include theamount of the deemed dividend distributed toeach shareholder.When making either of the above elections,the corporation must prepare copies offederal Form 1099-DIV for shareholders toreport this dividend as taxable income.Note: The corporation may file the election forCalifornia purposes only. It is not necessaryfor the corporation to have the same electionfor federal purposes in order to make aCalifornia election. However, regardless ofwhether or not the corporation makes thesame election on the federal return, thecorporation must attach a separate electionstatement to the California return.
C corporation E&PCheck the box below Schedule M-2, line 9, ifthe S corporation was a C corporation in aprior year(s) and has C corporation E&P atthe end of the income year. For this purpose,C corporation E&P means the remainingbalance of E&P of any S corporation for anyincome year when it was not an S corpora-tion. If the S corporation has C corporationE&P, it may be liable for excess net passiveincome tax and the distributions to sharehold-ers may have different tax consequences forfederal and California purposes. See instruc-tions for Form 100S, Side 1, line 29 andline 30, for details on these taxes.
Form 100S Booklet 1999 Page 21
Form 100SCodes for Principal Business ActivityThis list of principal business activities and their associated codes is designed toclassify a business by the type of activity in which it is engaged to facilitate theadministration of the California Revenue and Taxation Code. For income yearsbeginning after 1997, these principal business activity codes are based on the NorthAmerican Industry Classification System (NAICS).
Using the list of activities and codes below, determine from which activity thecompany derives the largest percentage of its ‘’total receipts.’’ Total receipts isdefined as the sum of gross receipts or sales (Side 2, Schedule F, line 1a) plus allother income (Side 2, Schedule F, line 4 and line 5). If the company purchases rawmaterials and supplies them to a subcontractor to produce the finished product, butretains title to the product, the company is considered a manufacturer and must useone of the manufacturing coes (311110-339900).
Once the principal business activity is determined, entries must be made onForm 100S, Question C. For the business activity code number, enter the six digitcode selected from the list below. On the next line enter a brief description of thecompany’s business activity. Finally, enter a description of the principal product orservice of the company on the next line.
112900 Other Animal ProductionForestry and Logging113110 Timber Tract Operations113210 Forest Nurseries & Gathering
of Forest Products113310 LoggingFishing, Hunting and Trapping114110 Fishing114210 Hunting & TrappingSupport Activities for Agriculture andForestry115110 Support Activities for Crop
Production (including cottonginning, soil preparation,planting, & cultivating)
115210 Support Activities for AnimalProduction
115310 Support Activities for Forestry
Mining211110 Oil & Gas Extraction212110 Coal Mining212200 Metal Ore Mining212310 Stone Mining & Quarrying212320 Sand, Gravel, Clay, & Ceramic
& RefractoryMinerals Mining & Quarrying212390 Other Nonmetallic Mineral
Mining & Quarrying213110 Support Activities for Mining
Utilities221100 Electric Power Generation,
Transmission, & Distribution221210 Natural Gas Distribution221300 Water, Sewage, & Other
Systems
ConstructionCodeBuilding, Developing, and GeneralContracting233110 Land Subdivision & Land
Retail TradeMotor Vehicle and Parts Dealers441110 New Car Dealers441120 Used Car Dealers441210 Recreational Vehicle Dealers441221 Motorcycle Dealers441222 Boat Dealers441229 All Other Motor Vehicle
Dealers441300 Automotive Parts, Accessories,
& Tire StoresFurniture and Home FurnishingsStores442110 Furniture Stores442210 Floor Covering Stores442291 Window Treatment Stores442299 All Other Home Furnishings
StoresElectronics and Appliance Stores443111 Household Appliance Stores443112 Radio, Television, & Other
Electronics Stores443120 Computer & Software Stores443130 Camera & Photographic
Supplies StoresBuilding Material and GardenEquipment and Supplies Dealers444110 Home Centers444120 Paint & Wallpaper Stores444130 Hardware Stores444190 Other Building Material
Dealers444200 Lawn & Garden Equipment &
Supplies StoresFood and Beverage Stores445110 Supermarkets and Other
Grocery (except Convenience)Stores
445120 Convenience Stores445210 Meat Markets445220 Fish & Seafood Markets445230 Fruit & Vegetable Markets445291 Baked Goods Stores445292 Confectionery & Nut Stores445299 All Other Specialty Food
Stores445310 Beer, Wine, & Liquor StoresHealth and Personal Care Stores446110 Pharmacies & Drug Stores446120 Cosmetics, Beauty Supplies, &
Perfume Stores446130 Optical Goods Stores446190 Other Health & Personal Care
Transportation andWarehousingAir, Rail, and Water Transportation481000 Air Transportation482110 Rail Transportation483000 Water TransportationTruck Transportation484110 General Freight Trucking, Local484120 General Freight Trucking,
Long-distance484200 Specialized Freight TruckingTransit and Ground PassengerTransportation485110 Urban Transit Systems485210 Interurban & Rural Bus
Transportation485310 Taxi Service485320 Limousine Service485410 School & Employee Bus
Transportation485510 Charter Bus Industry485990 Other Transit & Ground
Insurance Carriers and RelatedActivities524140 Direct Life, Health, & Medical
Insurance & ReinsuranceCarriers
524150 Direct Insurance & Reinsur-ance (except Life, Health, &Medical) Carriers
524210 Insurance Agencies &Brokerages
524290 Other Insurance RelatedActivities
Funds, Trusts, and Other FinancialVehicles525100 Insurance & Employee Benefit
Funds525910 Open-End Investment Funds
(Form 1120-RIC)525920 Trusts, Estates, & Agency
Accounts525930 Real Estate Investment Trusts
(Form 1120-REIT)525990 Other Financial Vehicles
Real Estate and Rental andLeasingReal Estate531110 Lessors of Residential
Buildings & Dwellings531120 Lessors of Nonresidential
Buildings (exceptMiniwarehouses)
531130 Lessors of Miniwarehouses &Self-Storage Units
531190 Lessors of Other Real EstateProperty
531210 Offices of Real Estate Agents& Brokers
531310 Real Estate PropertyManagers
531320 Offices of Real EstateAppraisers
531390 Other Activities Related toReal Estate
Rental and Leasing Services532100 Automotive Equipment Rental
& Leasing532210 Consumer Electronics &
Appliances Rental532220 Formal Wear & Costume
Rental532230 Video Tape & Disc Rental532290 Other Consumer Goods Rental532310 General Rental Centers532400 Commercial & Industrial
Machinery & EquipmentRental & Leasing
Lessors of Nonfinancial IntangibleAssets (except copyrighted works)533110 Lessors of Nonfinancial
Intangible Assets (exceptcopyrighted works)
Professional, Scientific, andTechnical ServicesLegal Services541110 Offices of Lawyers541190 Other Legal ServicesAccounting, Tax Preparation,Bookkeeping, and Payroll Services541211 Offices of Certified Public
812330 Linen & Uniform Supply812910 Pet Care (except Veterinary)
Services812920 Photofinishing812930 Parking Lots & Garages812990 All Other Personal ServicesReligious, Grantmaking, Civic,Professional, and SimilarOrganizations813000 Religious, Grantmaking, Civic,
Services541940 Veterinary Services541990 All Other Professional,
Scientific, & Technical Services
Management of Companies(Holding Companies)551111 Offices of Bank Holding
Companies551112 Offices of Other Holding
Companies
Administrative and Supportand Waste Management andRemediation ServicesAdministrative and Support Services561110 Office Administrative Services561210 Facilities Support Services561300 Employment Services561410 Document Preparation
Services561420 Telephone Call Centers561430 Business Service Centers
(including private mail centers& copy shops)
561440 Collection Agencies561450 Credit Bureaus561490 Other Business Support
Waste Management and RemediationServices562000 Waste Management &
Remediation Services
Educational Services611000 Educational Services
(including schools, colleges, &universities)
Health Care and SocialAssistanceOffices of Physicians and Dentists621111 Offices of Physicians (except
mental health specialists)621112 Offices of Physicians, Mental
Health Specialists621210 Offices of DentistsOffices of Other Health Practitioners621310 Offices of Chiropractors621320 Offices of Optometrists621330 Offices of Mental Health
Practitioners (exceptPhysicians)
621340 Offices of Physical, Occupa-tional & Speech Therapists, &Audiologists
621391 Offices of Podiatrists621399 Offices of All Other Miscella-
neous Health PractitionersOutpatient Care Centers621410 Family Planning Centers621420 Outpatient Mental Health &
5 Other costs. Attach schedule . . . . . . . . . . . . . .6 Total. Add line 1 through line 5 . . . . . . . . . . . . .7 Inventory at end of year . . . . . . . . . . . . . . . . . .8 Cost of goods sold. Subtract line 7 from line 6 �
Was there any substantial change in the manner of determining quantities, costs, or valuations between opening and closing inventory? . . . . . . � Yes � NoIf “yes,’’ attach an explanation. Enter California seller’s permit number, if any �_____________________ Method of inventory valuation _________________Check if the LIFO inventory method was adopted this income year for any goods. If checked, attach federal Form 970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . � �If the LIFO inventory method was used for this income year, enter the amount of closing inventory computed under LIFO . . . . . . . �____________________Schedule J Add-On Taxes or Recapture of Tax Credits. See instructions.1 LIFO recapture due to S corporation election (IRC Sec. 1363(d) deferral: $__________________) . . . . . . . . . . . . . . . . . � 12 Interest computed under the look-back method for completed long-term contracts (attach form FTB 3834) . . . . . . . . . . � 23 Interest on tax attributable to installment: a) Sales of certain timeshares and residential lots . . . . . . . . . . . . . . . . . . . . � 3a
Write “Schedule J’’ to the left of line 38 or line 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 6E Does this return include Qualified Subchapter S Subsidiaries? . . . . . � � Yes � NoF Date incorporated:__________________ � Where: State Country____________G Maximum number of shareholders in the corporation at any time during
the year: �______________________H Date business began in California or date income was first derived from
California sources: �_______________________________________________I Is the corporation under audit by the IRS or has it been audited
in a prior year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � � Yes � NoJ Effective date of federal S election: �_______________________________________
K Effective Date of California S election: � ____________________________L Accounting method: � (1) � Cash (2) � Accrual (3) � Other
M Location of principal accounting records: ________________________________________
N “Doing business as’’ name: � __________________________________O Have all required information returns (e.g., federal Form 1099,
8300, etc.) been filed with the Franchise Tax Board? . . . . . . . . . . . . � N/A � Yes � NoP Is this corporation apportioning income to California using
allowances) of this corporation more than $1 million? . . . . . . . . . . . . . . . � � Yes � No
100S99209 For Privacy Act Notice, get form FTB 1131.
PleaseSignHere
PaidPreparer’sUse Only
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it istrue, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Signature of officer Title Date Telephone� ( )Preparer’s signature Date Check if self-
(d) Total amountusing California law.Combine (b) and (c)
where applicable
1 Ordinary income (loss) from trade or business activities . . . . . . . . . . . . . . . . . .2 Net income (loss) from rental real estate activities . . . . . . . . . . . . . . . . . . . . . . .3 a Gross income from other rental activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
b Expenses from other rental activities. Attach schedule . . . . . . . . . . . . . . . . . .c Net income (loss) from other rental activities. Subtract line 3b from line 3a .
b (1) Investment income included on line 4a, line 4b, line 4c, and line 4f . . . .(2) Investment expenses included on line 9 above . . . . . . . . . . . . . . . . . . . . .
12 a Low-income housing credit. See instructions. Attach schedule . . . . . . . . . . .b Credits related to rental real estate activities other than on line 12(a).
(2) Deductions allocable to oil, gas, and geothermal properties . . . . . . . . . .e Other adjustments and tax preference items. Attach schedule . . . . . . . . . . . .
15 a Type of income ________________________________________________b Name of state _________________________________________________c Total gross income from sources outside California. Attach schedule . . . . . .d Total applicable deductions and losses. Attach schedule . . . . . . . . . . . . . . . .e Total other state taxes. Check one: � Paid � Accrued . . . . . . . . . . . . . . . .
16 a Total expenditures to which an IRC Section 59(e) election may apply . . . . . .b Type of expenditures ___________________________________________
distributions reported on line 22 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Other items and amounts not included in line 1 through line 20 above that
are required to be reported separately to shareholders. Attach schedule . . . . .22 Total dividend distributions paid from accumulated earnings and profits . . . . .23 Income (loss) (required only if Schedule M-1 must be completed). Combine
line 1, line 2, and line 3c through line 6. From the result, subtract the sumof line 7 through line 11a and line 16a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income(Loss)
Deduc-tions
Invest-mentInterest
TaxCredits
Adjust-mentsand TaxPreferenceItems
OtherStateTaxes
OtherItems
Schedule K S Corporation Shareholders’ Shares of Income, Deductions, Credits, etc.
25 Less cost of treasury stock . . . . . . . . . . . . . . . . . . .26 Total liabilities and shareholders’ equity . . . . . . .Schedule M-1 Reconciliation of income (loss) per books with income (loss) per return.
Do not complete this schedule if the amount on Schedule L, line 14, column (d), is less than $25,000.1 Net income per books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Income included on Schedule K, line 1 through line 6,
not recorded on books this year (itemize)_________________
________________________________________________���3 Expenses recorded on books this year not included on
Schedule K, line 1 through line 11a and line 16a (itemize)
5 Other costs. Attach schedule . . . . . . . . . . . . . .6 Total. Add line 1 through line 5 . . . . . . . . . . . . .7 Inventory at end of year . . . . . . . . . . . . . . . . . .8 Cost of goods sold. Subtract line 7 from line 6 �
Was there any substantial change in the manner of determining quantities, costs, or valuations between opening and closing inventory? . . . . . . � Yes � NoIf “yes,’’ attach an explanation. Enter California seller’s permit number, if any �_____________________ Method of inventory valuation _________________Check if the LIFO inventory method was adopted this income year for any goods. If checked, attach federal Form 970 . . . . . . . . . . . . . . . . . . . . . . . . . . . . � �If the LIFO inventory method was used for this income year, enter the amount of closing inventory computed under LIFO . . . . . . . �____________________Schedule J Add-On Taxes or Recapture of Tax Credits. See instructions.1 LIFO recapture due to S corporation election (IRC Sec. 1363(d) deferral: $__________________) . . . . . . . . . . . . . . . . . � 12 Interest computed under the look-back method for completed long-term contracts (attach form FTB 3834) . . . . . . . . . . � 23 Interest on tax attributable to installment: a) Sales of certain timeshares and residential lots . . . . . . . . . . . . . . . . . . . . � 3a
Write “Schedule J’’ to the left of line 38 or line 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � 6E Does this return include Qualified Subchapter S Subsidiaries? . . . . . � � Yes � NoF Date incorporated:__________________ � Where: State Country____________G Maximum number of shareholders in the corporation at any time during
the year: �______________________H Date business began in California or date income was first derived from
California sources: �_______________________________________________I Is the corporation under audit by the IRS or has it been audited
in a prior year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . � � Yes � NoJ Effective date of federal S election: �_______________________________________
K Effective Date of California S election: � ____________________________L Accounting method: � (1) � Cash (2) � Accrual (3) � Other
M Location of principal accounting records: ________________________________________
N “Doing business as’’ name: � __________________________________O Have all required information returns (e.g., federal Form 1099,
8300, etc.) been filed with the Franchise Tax Board? . . . . . . . . . . . . � N/A � Yes � NoP Is this corporation apportioning income to California using
allowances) of this corporation more than $1 million? . . . . . . . . . . . . . . . � � Yes � No
100S99209 For Privacy Act Notice, get form FTB 1131.
PleaseSignHere
PaidPreparer’sUse Only
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it istrue, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Signature of officer Title Date Telephone� ( )Preparer’s signature Date Check if self-
(d) Total amountusing California law.Combine (b) and (c)
where applicable
1 Ordinary income (loss) from trade or business activities . . . . . . . . . . . . . . . . .2 Net income (loss) from rental real estate activities . . . . . . . . . . . . . . . . . . . . . .3 a Gross income from other rental activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
b Expenses from other rental activities. Attach schedule . . . . . . . . . . . . . . . . .c Net income (loss) from other rental activities. Subtract line 3b from line 3a
b (1) Investment income included on line 4a, line 4b, line 4c, and line 4f . . . .(2) Investment expenses included on line 9 above . . . . . . . . . . . . . . . . . . . .
12 a Low-income housing credit. See instructions. Attach schedule . . . . . . . . . .b Credits related to rental real estate activities other than on line 12(a).
(2) Deductions allocable to oil, gas, and geothermal properties . . . . . . . . . .e Other adjustments and tax preference items. Attach schedule . . . . . . . . . . .
15 a Type of income ________________________________________________b Name of state _________________________________________________c Total gross income from sources outside California. Attach schedule . . . . .d Total applicable deductions and losses. Attach schedule . . . . . . . . . . . . . . .e Total other state taxes. Check one: � Paid � Accrued . . . . . . . . . . . . . . .
16 a Total expenditures to which an IRC Section 59(e) election may apply . . . . .b Type of expenditures ___________________________________________
distributions reported on line 22 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Other items and amounts not included in line 1 through line 20 above that
are required to be reported separately to shareholders. Attach schedule . . . . .22 Total dividend distributions paid from accumulated earnings and profits . . . . .23 Income (loss) (required only if Schedule M-1 must be completed). Combine
line 1, line 2, and line 3c through line 6. From the result, subtract the sumof line 7 through line 11a and line 16a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income(Loss)
Deduc-tions
Invest-mentInterest
TaxCredits
Adjust-mentsand TaxPreferenceItems
OtherStateTaxes
OtherItems
Schedule K S Corporation Shareholders’ Shares of Income, Deductions, Credits, etc.
25 Less cost of treasury stock . . . . . . . . . . . . . . . . . . .26 Total liabilities and shareholders’ equity . . . . . . .Schedule M-1 Reconciliation of income (loss) per books with income (loss) per return.
Do not complete this schedule if the amount on Schedule L, line 14, column (d), is less than $25,000.1 Net income per books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Income included on Schedule K, line 1 through line 6,
not recorded on books this year (itemize)_________________
________________________________________________���3 Expenses recorded on books this year not included on
Schedule K, line 1 through line 11a and line 16a (itemize)
Name of QSub California Federal employer Effective date of Date of QSub Amount ofcorporation identification federal QSub annual tax QSub annual
number number election payment tax paid(MM/DD/YY) (MM/DD/YY)
General InformationFor income years beginning on or afterJanuary 1, 1997, California law has con-formed to the federal treatment of QualifiedSubchapter S Subsidiaries (QSub), withcertain exceptions. The QSub is subject to anannual tax of $800 which is paid by the Scorporation’s parent. See General InformationDD, Qualified Subchaper S Subsidiary (QSub),for more information.An S corporation parent must complete theSchedule QS and attach it to the Form 100S.
PurposeThe Qualified Subchapter S SubsidiaryInformation Worksheet is used by theS corporation parent of a QSub to inform theFranchise Tax Board (FTB) of the QSub(s) itowns. This will notify the FTB that the QSubitems of income, deductions, and credits willbe included in the parent’s return and theQSub will not be filing a separate Californiafranchise or income tax return.
Specific Instructions
Part IEnter in Part I the name of the parentS corporation, the S corporation’s Californiacorporation number (7 digits), and the FederalEmployer Identification Number (FEIN)(9 digits).
Part IIEnter in Part II the information for each QSubrequired to be included in the CaliforniaS Corporation Franchise or Income TaxReturn. In column (a), enter the name of eachQSub included in this return. If the QSub hasor had a California corporation number, enterthe number in column (b). If the QSub has orhad a FEIN, enter the number in column (c). Ifthe corporation does not have a Californiacorporation number and/or a FEIN, enter“none.”
Enter the effective date of the federal QSubelection made for the subsidiary in column(d). An election made by the parent Scorporation under IRC Section 1361(b)(3) totreat a corporation as a qualified subchapterS subsidiary for federal purposes is treated asa binding election for California purposes. Aseparate election cannot be filed forCalifornia. If the effective date falls on a dateother than the first day of the subsidiary’sincome year, the subsidiary must file a shortperiod return if it was subject to tax inCalifornia prior to the effective date.The S corporation parent is required to pay$800 annual tax for each QSub it owns that isincorporated, qualified, or doing business inCalifornia. The QSub annual tax is due andpayable when the S corporation’s firstestimated tax payment is due. If the QSub isacquired during the income year, the QSubannual tax is due with the S corporation’s nextestimated tax installment. Enter the date ofpayment in column (e) and amount of QSubannual tax paid in column (f).
Page 34 Form 100S Booklet 1999
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FTB 3805Q 1999
Net Operating Loss (NOL) Computation and NOLand Disaster Loss Limitations — Corporations
Corporation name California corporation number
3805Q99109
3805QCALIFORNIA FORM
INCOME YEAR
1999Attach to your California tax return (Form 100, Form 100S, or Form 109).
FEINDuring the year the corporation incurred the NOL, the corporation was a(n): m C Corporation m S Corporationm Exempt Organization m Limited Liability Company (classified as corporations)If the corporation previously filed California returns under another corporate name, enter the corporation name and California corporation number:_________________________________________________________________________________________________________________________________
Note: If the corporation is included in a combined report of a unitary group, see instructions, General Information C.
PART I Computation of current year NOL. If you do not have a current year NOL, go to Part II.1 Net loss from Form 100, line 18; Form 109, line 2; or Form 100S, line 16.
Enter as a positive number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 _________________2 1999 disaster loss from line 1. Enter as a positive number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 _________________3 Subtract line 2 from line 1. If zero or less, enter -0- and see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 _________________4 a Enter the amount of the loss incurred by a new business included in line 3 . . . . . . . . . . . . . . . . . . 4a_________________
b Enter the amount of the loss incurred by an eligible small business included in line 3 . . . . . . . . . . . 4b_________________c Add line 4a and line 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c_________________
PART II NOL carryover and disaster loss carryover limitations. See Instructions.
1 Net income (loss) – Enter the amount from Form 100, line 18; Form 109, line 2;or Form 100S, line 16 less line 17 (but not less than -0-) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior Year NOLs(a) (b) (c) (d) (e) (f) (h)
Year of Code (See instructions for Type of NOL Initial loss Carryover Amount used Carryover to 2000loss Part II, column (b)) (See below) from 1998 in 1999 (col. (e) - col. (f))
2
Current Year NOLs
3 1999 19 or 20 DIS
4 1999
1999
1999
1999
Type of NOL: General (GEN), New Business (NB), Eligible Small Business (ESB), Title 11 (T11), or Disaster (DIS).
PART III 1999 NOL deduction1 Total the amounts in column (f) from Part II, line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 __________________2 Enter the total amount from column (f) that represents disaster loss carryover deduction here and on Form 100,
line 21; or Form 100S, line 20. Form 109 filers enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 __________________3 Subtract line 2 from line 1. Enter this amount on Form 100, line 19; Form 109, line 4; or form 100S, line 18 . . . . . . . . . . . . . . 3 __________________
(col. (d) - col. (f))
(g)Available balance
Page 36 FTB 3805Q 1999
1999 Instructions for Form FTB 3805QNet Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – CorporationsReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).
General InformationIn general, California tax law conforms to the InternalRevenue Code (IRC) as of January 1, 1998. However, thereare continuing differences between California and federaltax law. California has not conformed to most of thechanges made to the IRC by the federal Internal RevenueService (IRS) Restructuring and Reform Act of 1998(Public Law 105-206) and has not conformed to any of thechanges made by the Tax and Trade Relief Extension Act of1998 (Public Law 105-277).
In 1998, the Franchise Tax Board (FTB) implemented thenew principal business activity (PBA) code chart that isbased on the North American Industry ClassificationSystem (NAICS) in the corporate tax booklets. However,the California R&TC still uses the Standard IndustrialCodes (SIC) for purposes of the new business and eligiblesmall business NOL.
The Los Angeles Revitalization Zone (LARZ) expired onDecember 1, 1998. No new LARZ NOLs may be generated.However, LARZ NOL carryovers can be utilized to theextent of business income apportioned to the formerLARZ. Get FTB 3806, Los Angeles Revitalization ZoneBusiness Booklet, for more information.
A PurposeUse form FTB 3805Q to figure the current year NOL and tolimit NOL and disaster loss carryover deductions.
Note: Exempt trusts should use form FTB 3805V, NetOperating Loss (NOL) Computation and NOL and DisasterLoss Limitations – Individuals, Estates, and Trusts.
The California NOL is figured the same way as the federalNOL, except that for California:• An NOL may be carried over only to future years (no
carrybacks are allowed); and• The carryover period and the amount to be carried over
differ from federal allowances.
Only a portion of the NOL may be eligible for carryover tofuture years because California has established differentcategories of NOL. See General Information F for moreinformation.
Note: If the corporation has a current year NOL underR&TC Section 24416.2, 24416.5, and 24416.6 (relating toEZ, LAMBRA, or TTA NOLs), it must elect on its return forthe income year in which the loss is incurred to carry overthe loss either under that section or the loss under R&TCSection 24416 (relating to general NOLs). If the formerelection is made, you must use the applicable economicdevelopment area (EDA) form to calculate the NOL. Theelection is irrevocable. Get form FTB 3805Z, formFTB 3807, or form FTB 3809 for more information.
B Apportioning CorporationsThe loss carryover for a corporation that apportionsincome is the amount of the corporation’s loss, if any, afteradding income or loss apportioned to California withincome or loss allocable to California under Chapter 17 ofthe Bank and Corporation Tax Law. The loss carryover maybe deducted from income of that corporation apportionedand allocable to California in subsequent years.
C Combined ReportingCorporations that are members of a unitary group filing asingle return must use intrastate apportionment, separatelycomputing the loss carryover for each corporation in thegroup using its individual apportionment factors (R&TCSection 25108). Complete a separate form FTB 3805Q forEACH taxpayer included in the combined report. Attach theform FTB 3805Q for EACH taxpayer member included inthe combined report BEHIND the combined formFTB 3805Q for all members.
Unlike the loss treatment for a federal consolidated return, aCalifornia loss carryover for one member in a combinedreport may not be applied to the income of another memberincluded in the combined report. Get FTB Pub. 1061,Guidelines for Corporations Filing a Combined Report, formore information.
D Water’s-EdgeEach taxpayer’s NOL carryover is limited to the amountdetermined by recomputing the income and factors of theoriginal worldwide combined reporting group as if thewater’s-edge election had been in force for the year of theloss. The NOL carryover may not be increased as a resultof the recomputation.
E S CorporationsAn S corporation is allowed to carry over a loss that isincurred during a year in which it has in effect a validelection to be treated as an S corporation. The loss is alsopassed through to the shareholders in the year incurredand is taken into account in determining eachshareholder’s NOL carryover, if any.
If a corporation changes from a C corporation to anS corporation, the loss incurred while the corporation wasa C corporation may not be applied to offset incomesubject to the 1.5% tax imposed on an S corporation.However, losses incurred while the corporation was aC corporation may be applied against the built-in gainswhich is subject to tax. If the corporation incurred losseswhile it was a C corporation and an S corporation, and theS corporation is using C corporation losses to offset itsbuilt-in gains, the corporation must complete two formsFTB 3805Q and attach them to Form 100S, CaliforniaS Corporation Franchise or Income Tax Return. Theunused losses incurred while the corporation was aC corporation are “unavailable” except as provided forabove unless and until the S corporation reverts back to aC corporation or the carryover period expires.
F Types of NOLsThe following table shows the types of NOL available, adescription, and the percentages and carryover periods foreach type of loss.
Type of NOL and Description
General NOL (GEN)Available as a result of a loss incurred in years after 1986 and allowed under R&TC Section 24416.Does not include losses incurred from activities that qualify as a new business or an eligible small business, and EZ,LARZ, LAMBRA, TTA, or disaster loss.
New Business NOL (NB)Get FTB Legal Ruling 96-5 for more information.Incurred by a trade or business that first commenced in California on or after January 1, 1994.During the first three years of business, 100% of an NOL may be carried over for an extended period, but only to the extent of the netloss from the new business. The term ‘’new business’’ also includes any taxpayer engaged in biopharmaceutical activities or otherbiotechnology activities described in Codes 2833 to 2836 of the SIC Manual. It also includes any taxpayer that has not receivedregulatory approval for any product from the United States Food and Drug Administration. See R&TC Section 24416(g)(7)(A) formore information.If a taxpayer’s NOL exceeds the net loss from the new business, the excess may be carried over as a general NOL.If a taxpayer acquires assets of an existing trade or business which is doing business in California, the trade or business thereafterconducted by the taxpayer or related person is not a new business if the fair market value (FMV) of the acquired assets exceeds 20%of the FMV of the total assets of the trade or business conducted by the taxpayer or any related person. To determine whether theacquired assets exceed 20% of the total assets, include only the assets that continue to be used in the same trade or business activityas were used immediately prior to the acquisition. For this purpose, the same trade or business activity means the same divisionclassification listed in the SIC Manual.If a taxpayer or related person has been engaged in a trade or business in California within the preceding 36 months and thereaftercommences an additional trade or business in California, the additional trade or business qualifies as a new business only if theactivity is classified under a different division classification of the SIC Manual.Business activities conducted by the taxpayer or related persons wholly outside California are disregarded in determining whether the trade or business conducted within California is a new business. Related persons are defined in IRC Sections 257 or 318.
(continued on next page)
Year NOL NOL Carryoverincurred carried over period
1993-1999 50% 5 Years1987-1992 None Expired
Year ofoperation
Year 1 100% 8 YearsYear 2 100% 7 YearsYear 3 100% 6 Years
FTB 3805Q 1999 Page 37
Specific Line Instructions
Part IUse Part I of this form to figure the current year NOLeligible for carryover.
Line 2 – If the corporation incurred a disaster loss during1999, enter the amount of the loss on this line. Enter as apositive number.
Line 3 – If the amount is zero or less, the corporationdoes not have a current year general NOL. Go to Part II forcomputation of general NOL carryovers, the current yeardisaster loss, and carryover from disaster losses.
Line 7 – Go to Part II, Current Year NOLs, to record your1999 NOL carryover to 2000. Complete columns (b), (c),(d), and (h) only, for each type of loss that you incurred.
If you have a eligible qualified new business or a smallbusiness and your NOL is greater than the amount of netloss from such a business, use the general NOL first. Ifyou operate one or more new businesses and one or moreeligible small businesses, determine the amount of theloss attributable to the new business(es), the smallbusiness(es), and the general NOL in the followingmanner. The NOL is first treated as a new business NOL tothe extent of the loss from the new business. Anyremaining NOL is then treated as an eligible smallbusiness NOL to the extent of the loss from the eligiblesmall business. Any further remaining NOL is treated as anNOL under the general rules.
Part IIUse Part II to limit current year disaster loss and losscarryover deductions to current year income and to recordall of the corporation’s loss carryover information.
If the corporation has losses from more than one sourceand/or more than one category, the corporation mustcompute the allowable NOL carryover for each lossseparately.
When to use an NOL carryover
Use your NOLs in the order the losses were incurred.There is no requirement to deduct NOL carryovers beforedisaster loss carryovers.
Type of NOL and Description (continued)
Eligible Small Business (ESB)Get Legal Ruling 96-5 for more information.Incurred in a trade or business activity that has gross receipts, less returns and allowances, of less than $1 million during theincome year.100% of an NOL may be carried over, but only to the extent of the net loss from the eligible small business. If a taxpayer’s NOLexceeds the net loss from an eligible small business, the excess may be carried over at 50% as a general NOL.The corporation should use the same SIC Code division classifications described in the new business NOL section to determine whatconstitutes a trade or business activity.
Title 11 Bankruptcy (T11)If the corporation is claiming an NOL carryover deduction under the provisions of R&TC Section 24416(e)(4)(A), enter the carryoveramount on Side 1, Part II, line 2.
Disaster Losses (DIS)Casualty losses in areas of California declared by the President of the United States or the Governor of California to be in a state ofdisaster.An election may be made under IRC 165(I) permitting the disaster loss to be taken against the previous year’s income. If you madethis election, see current year NOLs, Part II, line 3. If special legislation is enacted under R&TC Section 24347.5 and the specifieddisaster loss exceeds income in the year it is claimed, 100% of the excess may be carried over for up to 5 income years. If any excessloss remains after the 5-year period, 50% of that remaining loss may be carried over for up to 10 additional incomes years.
Year NOL NOL Carryoverincurred carried over period
Incomeyears
beginning 100% 5 Yearson or after
1/1/94
1987-1993 50% 10 Years
See list 100% 5 Yearsin the 50% 10 Years
Instructionsfor Part II
Prior Year NOLs
Column (a) – Enter the year the loss was incurred.
Column (b) – If the loss is due to a disaster, enter thedisaster code from the list below. If the loss is from a newbusiness or eligible small business, enter the SIC Code forthe new business or eligible small business from theStandard Industrial Classification Manual. DO NOT enterthe code from the PBA chart available in the 1999Form 100 or Form 100S booklets. If the loss was from anS Corporation, enter the entity’s federal employeridentification number from Schedule K-1 (100S).
Following is a list of events that have been declareddisasters:
Year Code Event1999 20 Wildfires and other related casualties*1999 19 Winter Freeze 98/9919981998 18 El Niño 981997 17 Disaster floods 96/9719961996 16 Firestorms 96*1995 15 Storms, flooding, and other related casualties1994 14 San Luis Obispo fire and other related casualties1994 13 Los Angeles, Orange, and Ventura County earthquake
and other related casualties1993 12 Storms, floods, and other related casualties1992 11 Wildfires and other related casualties in Calaveras and
Shasta Counties1992 10 San Bernardino County earthquake and other related
casualties1992 9 Riots, arson, and related casualties in California during
April and May1992 8 Humboldt County earthquake and related casualties1992 7 Storms, floods, and other related casualties1991 6 Oakland/Berkeley fire and other related casualties1990 5 Santa Barbara fires and other related casualties1989 4 Bay Area earthquake and other related casualties1987 3 Forest fires, October earthquake, and other related
casualties1986 2 Storms, floods, and other related casualties1985 1 Forest fires and related casualties occurring in
California*Carryover period limited to 5 years at 50%. No special legislationwas enacted.
Column (c) – Enter the type of NOL from the table inGeneral Information F, Types of NOLs. If using an EDANOL, get the applicable form for the NOL type.
Column (d) – Enter the amount of the initial loss for theyear given in column (a).
Column (e) – Enter the carryover amount from the 1998form FTB 3805Q, Part II, column (h).
Column (f) – Enter the smaller of the amount incolumn (e) or the amount in column (g) of the previousline.
Column (g) – Enter the result of subtracting column (f)from the balance in column (g) of the previous line.
Column (h) – Subtract the amount in column (f) from theamount in column (e) and enter the result.
Current Year NOLs
Line 3, Column (d) – Enter your 1999 disaster loss fromPart I, line 2. If you did not elect to deduct your disasterloss in the prior year:
• In column (f), enter the disaster loss used in 1999.• In column (h), enter column (d) less column (f).
If you elected to deduct your 1999 disaster loss on your1998 return, and you have an excess amount to be carriedover to 1999, enter the carryover amount from your 1998form FTB 3805Q, Part II, line 3, column (h), in Part II,line 2, column (e). Use the Prior Year NOL instructions forcolumn (a) through column (h) except:
• In column (a), enter 1999;• In column (b), enter 19 or 20; and• In column (d), enter the total disaster loss incurred in
1999.
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Water’s-Edge Cover SheetYEAR
1999
California corporation number
For calendar year 1999 or fiscal year beginning month ________ day ________ year 1999, and ending month ________ day ________ year ________
242699109
CALIFORNIA FORM
2426
FTB 2426 C2 1999
Corporation name
Attach this form to the front of Form 100 or Form 100S.
Corporation and Contract Information
THE WATER’S-EDGE CONTRACT PERIOD BEGINS ___________________________ AND ENDS __________________________
Indicate which of the following forms are included with this return by checking all applicable boxes:
FTB 2416 FTB 2424 Form 100-WE Copy of Form100-WEfrom prior yearelection
MONTH DAY YEAR MONTH DAY YEAR
THIS FORM MUST BE ATTACHED TO THE FRONT OF FORM 100 OR FORM 100S
Signature of officer Date
Print or type name of signing officer Telephone
( )Print or type title
PleaseSignHere
General Information
PurposeUse form FTB 2426 as a cover sheetwhenever a corporation files a returndetermining its California income on awater’s-edge basis.
General InstructionsForm FTB 2426 should be attached to thefront of Form 100 or Form 100S.Do not attach form FTB 1116, Notice ofNonrenewal of Water’s-Edge Contract, orform FTB 1117, Request to TerminateWater’s-Edge Election, to this form. Maileach of these forms separately from anyother form.For a proper election, Form 100-WE,Water’s-Edge Contract, should be attachedto the original return. Any taxpayer electingwater’s-edge must be in good standing withboth the Franchise Tax Board and theCalifornia Secretary of State.
Attach a copy of the applicable contract tothe front of all subsequent returns filedduring the contract period.California Corporation Number for UnitaryGroup Single ReturnEnter the California corporation number ofthe key corporation designated in theelection to file a Unitary Group Single Return.
S Corporation Depreciation and AmortizationCorporation name as shown on Form 100S California corporation number
B100S99109
B (100S)CALIFORNIA SCHEDULE
INCOME YEAR
1999For use by S corporations only. Attach to Form 100S.
Part I Depreciation. Use additional sheet(s) if necessary.1 Enter federal depreciation from federal Form 4562, line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 California depreciation:(a) Description of property (b) Date (c) Cost or (d) Depreciation (e) Method (f) Life (g) Depreciation
acquired other basis allowed or allowable of figur- or rate for this yearin earlier years ing dep.
3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Subtract line 3 from line 1. Enter here and on the applicable line of Schedule K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Enter the IRC 179 expense. Enter here and on Form 100S, Side 1, line 13. Do not enter more than $19,000 . . . . . . . . . . . . 5Part II Amortization. Use additional sheet(s) if necessary.1 Enter federal amortization from federal Form 4562, line 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 California amortization:(a) Description of property (b) Date (c) Cost or (d) Amortization (e) R&TC (f) Period or (g) Amortization
acquired other basis allowed or allowable section percentage for this yearin earlier years
3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 California amortization adjustment. Subtract line 3 from line 1. Enter here and on the applicable line of Schedule K . . . . . . 4Part III Depreciation and Amortization Adjustment.Combine amounts on Part I, line 4 and Part II, line 4. Enter here and on Form 100S, Side 1, line 5 . . . . . . . . . . . . . . . . . . . . .
S Corporation Tax Credits C (100S)CALIFORNIA SCHEDULE INCOME YEAR
1999See instructions for Form 100S, General Information Z, AA, and BB.Be sure to complete and attach all supporting credit forms.1 Regular tax from Form 100S, Side 1, line 22 . . . . . . . . . . . . . . . .2 Minimum franchise tax plus QSub annual tax(es) if applicable . .3 Subtract line 2 from line 1. If zero or less, enter -0- . . . . . . . . . . .4 Code: ____ ____ ____ Credit Name:_______________________5 Code: ____ ____ ____ Credit Name:_______________________6 Code: ____ ____ ____ Credit Name:_______________________7 Code: ____ ____ ____ Credit Name:_______________________8 Code: ____ ____ ____ Credit Name:_______________________9 Code: ____ ____ ____ Credit Name:_______________________
10 Code: ____ ____ ____ Credit Name:_______________________11 Enter the credit amounts on Form 100S, Side 1, line 23,
line 24, and line 25. If more than three credits, enter the totalremaining credits on Form 100S, Side 1, line 26 . . . . . . . . . . . . .
(a) Credit amount (b) Carryover from (c) Credit used this (d) Tax balance (e) Credit carryoverlimited to 1/3 prior year year (not more to 2000of total than (a) + (b))
Side 2 Schedules B/C/D/H (100S) 1999
S CorporationCapital Gains and Losses and Built-In Gains
Corporation name as shown on Form 100S California corporation number
D (100S)CALIFORNIA SCHEDULE
INCOME YEAR
1999
SECTION A – 8.84% Tax on Certain Capital Gains and Built-In GainsPart I Short-Term Capital Gains and Losses – Assets Held One Year or Less. Use additional sheet(s) if necessary.
1 (a) Description of property (b) Date acquired (c) Date sold (d) Gross sales price (e) Cost or other basis (f) Gain (loss)(Example: 100 shares 7% preferred of “Z” Co.) (mo., day, yr.) (mo., day, yr.) plus expense of sale ((d) less (e))
2 Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . . . 23 a Net short-term capital gain (loss). Combine line 1 and line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a
b Tax on short-term capital gain(s) included on line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3bc Subtract line 3b from line 3a. Enter this amount on Form 100S, Schedule K, column (d), line 4d or line 6 . . . . . . . . . . . 3c
Part II Long-Term Capital Gains and Losses – Assets Held More Than One Year. Use additional sheet(s) if necessary.45 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal form 8824. See instructions . . . . . . . . . . . . . . 56 a Net long-term capital gain (loss). Combine line 4 and line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6a
b Tax on long-term capital gain(s) included on line 15 and line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6bc Subtract line 6b from line 6a. Enter this amount on Form 100S, Schedule K, column (d), line 4e or line 6 . . . . . . . . . . . 6c
Part III Tax on Certain Capital Gains. See instructions before completing this part.7 Enter IRC Section 1231 gain from Schedule D-1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Net long-term capital gain (loss). Combine line 6a and line 7 and enter here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Note: If the corporation is liable for the excess net passive income tax (Form 100S, Side 1, line 30) or the built-ingains tax (Part IV below), see instructions for line 9.
9 Net capital gain. Enter excess net long-term capital gain (line 8) over net short-term capital loss (line 3c) . . . . . . . . . . . . . 910 Statutory minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1011 Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112 Multiply line 11 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213 Taxable income. See instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . . . . . . . 1314 Multiply line 13 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1415 Tax on certain capital gains. Enter smaller of line 12 or line 14 here and on Form 100S, Side 1, line 29 . . . . . . . . . . . . . . . 15Part IV Tax on Built-In Gains. See instructions before completing this part.16 Excess of recognized built-in gains over recognized built-in losses attributable to California. Attach computation schedule 1617 Taxable income. See the instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . . . . 1718 Enter the smaller of line 16 or line 17 or computed amount. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1819 Net operating loss (NOL) carryover deduction from years the corporation was a C corporation (IRC Section 1374(b)(2))
(limited to the amount allowable for state purposes.) Attach the NOL form from the appropriate year. See instructions . . . 1920 Subtract line 19 from line 18. If zero or less, enter -0- here and on line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 Tax on built-in gains. Multiply line 20 by 8.84% (financial S corps. must use 10.84%). Enter here and on Form 100S, Side 1, line 29 21Part V Net Capital Gains (Losses)Combine amounts on Part I, line 3a and Part II, line 6a. Enter here and on Form 100S, Side 1, line 4 . . . . . . . . . . . . . . . . . . . . .SECTION B – 1.5% Tax on Capital GainsPart I Short Term Capital Gains and Losses – Assets Held One Year or Less. Use additional sheet(s) if necessary.
12 a Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . . . 2a
b Unused capital loss carryover from 1998 attributable to the S corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b3 Net short-term capital gain (loss). Combine line 1 through line 2b. Enter here and on Form 100S, Schedule K, column (d), line 4d or line 6 . 3
Part II Long-Term Capital Gains and Losses – Assets Held More Than One Year. Use additional sheet(s) if necessary.45 Enter gain from Schedule D-1, line 7 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . . . 67 Net long-term capital gain (loss). Combine line 4 through line 6. Enter here and on Form 100S, Schedule K,
column (d), line 4e or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Enter excess of net short-term capital gain (line 3) over net long-term capital loss (line 7) . . . . . . . . . . . . . . . . . . . . . . . . . 89 Net capital gain. Enter excess of net long-term capital gain (line 7) over net short-term capital loss (line 3) . . . . . . . . . . . . 9
10 Total line 8 and line 9. Enter here and on Form 100S, Side 1, line 4. Note: If losses exceed gains, carry forwardlosses to 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
S Corporation Dividend Income DeductionSee instructions for Schedule H (100S). Use and attach additional sheets if necessary.
Part I Elimination of Intercompany Dividends (R&TC Section 25106)(a) Dividend payer (b) Dividend (c) Total amount (d) Amount that (e) Amount from (f) Amount from (g) Balance
payee of dividends qualifies column (d) paid column (d) paid column (c)received for 100% out of current out of prior minus
elimination year E&P year E&P column (d)
1 2 3 4 5 67 Total amounts in each column. Enter amount from Part I,
column (d) on Form 100S, Side 1, line 9 . . . . . . . . . . . . .Part II Deduction for Dividends Paid by a Corporation Taxed by California (R&TC Section 24402)
(a) Dividend payer (b) Dividends (c) FEIN or (d) Percentage of (e) Limitation (f) Percentage (g) Deductiblepaid by California ownership of percentage of dividends dividendsCA taxpayer corporation no. dividend payer (See instructions) deductible columns(See instructions) of dividend payer (b)X(e)X(f)
1 2 3 4 5 6
7 Total amounts in columns (b) and (g)Part III Deduction for Dividends Paid to a California Corporation by an Insurance Company (R&TC Section 24410)
(a) Dividend payer (b) Dividend (c) California (d) Percentage of (e) Amount of (f) Apportionment (g) Deductiblepayee corporation no. ownership of qualified factors of dividends
of dividend dividend payer insurance insurance column (e) Xpayee dividends company column (f)
(Seeinstructions)
1 2 3 4 5 6
7 Total amounts in columns (e) and (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Add amounts from Part II, column (g) and Part III, column (g), enter the result here and add to
amount in Part I, column (d), line 7. Enter the result on Form 100S, Side 1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Part IV Deduction for Dividends Paid to a Fully Included Member of a Water’s-Edge Combined Report (R&TC Section 24411)
(Foreign dividends paid by partially included members of a water’s-edge combined report cannot be computed on this schedule.)(a) Dividend payer (b) Percentage of (c) Member of (d) Amount of (e) Amount from (f) Amount from (g) Deductible
ownership of water’s-edge qualified col. (d) paid out col. (d) paid out dividendsdividend payer combined dividends of current year of prior year column (d) X .75
reporting group received by E&P E&Pdividend was payeepaid to (payee) (See instructions)
1 2 3 4
5 67 Total amount in column (g). Enter total from Part IV, column (g) on
Instructions for Schedule H (100S)S Corporation Dividend Income Deduction
S corporations may claim a deduction fordividends paid by a corporation taxed byCalifornia on earnings from which thedividends are paid.
Part IIntercompany DividendsDividends paid to an electing S corporationfrom earnings and profits accumulated duringany income year in which the dividend payerwas included in the combined report, whichincluded the dividend payee, qualify for the100% intercompany dividend elimination.Complete Schedule H (100S), Part I. Enter thetotal of Part I, column (d) on Form 100S,Side 1, line 9.
Part II and Part IIIOther DividendsTo determine the deductible percentage of adividend (Schedule H (100S), Part II,column (f)) send a written request showingthe complete name of the dividend payingcorporation to:
DEDUCTIBLE DIVIDENDSFRANCHISE TAX BOARDPO BOX 1468SACRAMENTO CA 95812-1468
Or call the FTB at the phone numbers listedon page 55 of this booklet. Allow six to eightweeks for a written reply.Enter this percentage amount on Schedule H(100S), Part II, column (f).To figure the amount of dividends to enter onForm 100S, line 9, compare Schedule H(100S) Part II and Part III.To complete Part II:1. Fill in columns (a) through (c).
For Part II, column (b), if any portion of adividend also qualifies for the intercom-pany elimination in Part I, enter thebalance from Part I, column (g) in Part II,column (b).
2. Enter the corporation’s percentage ofownership of the dividend payingcorporation on Schedule H (100S),column (d).
3. Determine the limitation percentage andenter it on Schedule H (100S), Part II,column (e). Refer to the ownershippercentages in column (d) and thelimitation percentages below to determinethe applicable limitation percentage.
If the dividend Then the limitationpaying corporation is: percentage is:Less than 20% owned . . . . . . . . . . . . . . 70%At least 20% but not morethan 50% owned . . . . . . . . . . . . . . . . . . . 80%More than 50% owned . . . . . . . . . . . . . 100%
4. Multiply the dividend received (column (b))by the limitation percentage (column (e)).
5. Multiply the result of line 4 by thedeductible percentage (column (f)).
6. Enter the result of line 5 in column (g).To complete Part III:1. Follow steps 1 and 2 above.
For Part III, column (e), if any portion of adividend also qualifies for the intercom-pany elimination in Part I, enter thebalance from Part I, column (g) in Part III,column (e).
2. Enter in column (e) the amount ofqualified insurance dividends receivedfrom Schedule H (100S), Part I,column (g) for which a deduction underPart I and Part II has not been claimed.
3. Enter the apportionment factors for theinsurance corporation in column (f).Note: The apportionment factors used inthis computation are different from theapportionment factors used for ScheduleR apportionment. See R&TC Section24410 for more information.
4. Multiply the amount in column (e) by theamount in column (f) and enter the resultin column (g).
Total the amounts on Schedule H (100S),Part II, column (g), line 7 and Part III,column (g), line 7. Enter the result on Part III,column (g), line 8 and on Form 100S, Side 1,line 9.Dividends received from a corporation, inwhich the S corporation owns less than 80%of the stock are considered passive invest-ment income.
Part IVWater’s-Edge DividendsCalifornia R&TC Section 24411 allows for a75% deduction of a portion of the dividendsreceived and included in the water’s-edgereturn. For income years beginning on or afterJanuary 1, 1998, dividends received frombanks qualify for the water’s-edge dividenddeduction. Both business and nonbusinessdividends qualify for the dividend deduction.The allowable business dividend deduction isdetermined by multiplying the total dividenddeduction (business and nonbusiness) by theratio of business dividends to total dividends.The remaining dividend deduction is thenonbusiness dividend deduction.In no event will a R&TC Section 24411deduction be allowed with respect to adividend for which a deduction was allowedunder R&TC Sections 24402 or 24410 orwhich was eliminated under R&TCSection 25106.
Current year qualifying dividends aredividends received by any current member ofthe water’s-edge group from a corporation(regardless of the place of incorporation) if:• The average of the payer’s property,
payroll, and sales factors within the U.S. isless than 20%; and
• More than 50% of the total combinedvoting power of all classes of voting stockis owned directly or indirectly by amember of the water’s-edge group at thetime the dividend is received.
Interest Expense DeductionFor income years beginning on or afterJanuary 1, 1997, the amount of interestexpense incurred for purposes of foreigninvestments that must be offset againstdeductible foreign dividends must becomputed by multiplying the amount ofinterest expense by the same percentage usedto compute the deductible portion of thequalifying foreign dividends.The payer need not be in a unitary relation-ship with the recipient or any other memberof the water’s-edge group.Intercompany dividends received within thecurrent year’s water’s-edge group should beeliminated pursuant to R&TC Section 25106before computing the dividend deduction.A deduction of 100% is provided for divi-dends derived from certain foreign construc-tion projects. A construction project is definedas an activity attributable to an alteration ofland or any improvement thereto. Theconstruction project, the location of which isnot subject to the taxpayers’ control, must beundertaken for an entity, including a govern-mental entity, that is not affiliated with thewater’s-edge group. For more information,see R&TC Section 24411 and Form 100-WE,Water’s-Edge Booklet and instructions.Complete Form 100S, Schedule H (100S),Part IV and enter the total of column (g) onForm 100S, Side 1, line 10. For Part IV,column (d), if any portion of a dividend alsoqualifies for the intercompany elimination inPart I, enter the balance from Part I,column (g) in Part IV, column (d).
FTB 3830 C1 1999
INCOME YEAR
1999 S Corporation’s List of Shareholders and ConsentsCALIFORNIA FORM
3830
Corporation name California corporation number
Federal employer identification number (FEIN)
For use by S corporations with one or more nonresident shareholders or trusts with nonresident fiduciaries. Attach to Form 100S and give a copy toeach nonresident shareholder or fiduciary. Use additional sheet(s) if necessary.
-Note: Completion of this form does not satisfy the requirements for filing an income tax return for California.List below the names and identification numbers of shareholders of record at the end of the corporation’s income year.
Only nonresident shareholders and nonresident fiduciaries must sign:Number Shareholder’s name I consent to the jurisdiction of the State of California to tax my pro-rata Shareholder’s
share of the S corporation income attributable to California sources. Social security no./Federal
Signature Dateemployer identification no.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15List below the names and identification numbers of shareholders who sold or transferred their ownership interests before the end of the corporation’s income year.
Only nonresident shareholders and nonresident fiduciaries must sign:Number Shareholder’s name I consent to the jurisdiction of the State of California to tax my pro-rata Shareholder’s
share of the S corporation income attributable to California sources. Social security no./Federal
Signature Dateemployer identification no.
1
2
3
4
5
General Information
A PurposeWhen an S corporation has one or more share-holders who are nonresidents of California ortrusts with nonresident fiduciaries, use formFTB 3830 to:• List the names and social security numbers or
federal employer identification numbers of allshareholders; and
• Obtain the signature of each nonresidentshareholder or fiduciary evidencing consent tothe jurisdiction of California to tax their pro-ratashare of income attributable to Californiasources. For ease in gathering proper signa-tures, multiple copies of the form FTB 3830 maybe used.
Caution: Failure to attach this form (with requiredsignatures) to Form 100S is grounds for theFranchise Tax Board to retroactively revoke theS corporation election. Revenue and Taxation Code(R&TC) Section 23801(b).
B Nonresidents Who Must File aCalifornia Return
If you are a nonresident shareholder, in addition tosigning form FTB 3830, you may also need to fileForm 540NR, California Nonresident or Part-YearResident Income Tax Return. Form 540NR must befiled if you had income from California sourcesand:• You were single or unmarried in 1999 and your
gross income from all sources was more than$10,899; or adjusted gross income from allsources was more than $8,719; or
• You were married in 1999, and you and yourspouse had a combined gross income from allsources of more than $21,798; or adjustedgross income from all sources of more than$17,438; or
• You can be claimed as a dependent as providedin Internal Revenue Code (IRC) Section 63(c)(5)when the individual’s gross income from allsources exceeds the standard deduction allowedunder the IRC; or
• If you owe the State of California $1 or more oftax. (R&TC Section 18507).
C Group NonresidentShareholder Return
Certain nonresident shareholders of anS corporation doing business in California mayelect to file a group nonresident return usingForm 540NR. For more information, get FTBPub. 1067, Guidelines for Filing a GroupForm 540NR.
383099109For Privacy Act Notice, see form FTB 1131.
Table 1 — Each shareholder’s share of nonbusiness income from intangiblesInterest $ ________________ Royalties $ __________________ Dividends $ _________________1231 Gains/Losses $ ________________ Capital Gains/Losses $ __________________ Other $ _________________
FOR USE BY APPORTIONING UNITARY SHAREHOLDERS ONLY — See instructionsTable 2 — Unitary shareholder’s pro-rata share of business income and factors
A. Shareholder’s share of the S corporation’s business income $________________________________B. Shareholder’s share of the nonbusiness income from real and tangible property sourced or allocable to California:
Capital Gains/Losses $ ________________ Rents/Royalties $ __________________1231 Gains/Losses $ ________________ Other $ __________________
C. Shareholder’s share of the S corporation’s property, payroll, and sales:
Factors Total within and outside California Total within CaliforniaProperty: Beginning $ $
Ending $ $Annual Rent Expense $ $
Payroll $ $Sales $ $
Schedule K-1 (100S) 1999 Page 49
Shareholder’s Instructions for Schedule K-1 (100S)For S Corporation Shareholder’s Use OnlyReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).
PurposeThe S corporation uses Schedule K-1 (100S) toreport your share of the S corporation’s income,deductions, credits, etc. Please keep a copy of itfor your records.Although the S corporation is subject to varioustaxes, you are liable for the income tax on yourshare of the S corporation’s income, whether ornot distributed, and you must include yourshare on your tax return.The amount of losses and deductions that youmay claim on your tax return may be less thanthe amount reported on Schedule K-1 (100S).Generally, the amount of losses and deductionsyou may claim is limited to your basis in theS corporation, debt owed to you by theS corporation, and the amount for which you areconsidered at-risk. If the S corporation haslosses, deductions, or credits from a passiveactivity, you must also apply the passive activityrules. It is your responsibility to consider andapply any applicable limitations. See Limitationson Losses, Deductions, and Credits. Use theseinstructions to help you report the items shownon Schedule K-1 (100S) on your California taxreturn.For the line items where “attach schedule”appears, the S corporation should haveprovided additional information applicable tothat line or the S corporation should have madean entry on Side 2, line 23.Nonresident shareholders of an S corporationthat is doing business in California may qualifyto file a group nonresident return onForm 540NR, California Nonresident or Part-Year Resident Income Tax Return. For moreinformation on the election to file a groupnonresident return, get FTB Pub. 1067,Guidelines for Filing a Group Form 540NR.
Line 1 through Line 22If you are an individual shareholder, take theamounts in column (c) that are from nonpassiveactivities and enter these amounts on theappropriate form or schedule as explained inthese instructions.Report the amounts in column (d) or column (e)that are from passive activities on the Californiaform or schedule where they are normallyreported. Bring the total amounts figured on theappropriate California form or schedule to formFTB 3801, Passive Activity Loss Limitations, tofigure the amount of your passive activity losslimitation. Then transfer the passive activity lossback to the form or schedule it is normallyreported on to figure your California adjustmentamount. Enter this adjustment amount on thecorresponding line of Schedule CA (540 or540NR), California Adjustments, or Form 541,California Fiduciary Income Tax Return.If there is no California schedule or form to figureyour passive activity loss adjustment amount on(i.e., rental loss from passive activities), you mayfigure the adjustment amount on the California
Adjustment Worksheet in the instructions for formFTB 3801. Enter the total of your adjustments fromall passive activities from line 1 and line 2 of thisworksheet on Schedule CA (540 or 540NR), asapplicable.If you have losses, deductions, credits, etc.,from a prior year that were not deductible orusable because of certain limitations, such asthe at-risk rules, these carryforward losses,deductions, and credits may be taken intoaccount in determining your net income, loss,etc., for this year. However, do not combine theprior year amounts with any amounts shown onthis Schedule K-1 (100S) to get a net figure toreport on any supporting schedules, state-ments, or forms attached to your return.Instead, report the amounts on an attachedschedule, statement, or form on a year-by-yearbasis.
Line 1 through Line 3The amounts shown on line 1 through line 3reflect your share of income or loss from theS corporation’s business or rental operationswithout reference to your limitations on lossesor adjustments that may be required because of:• The adjusted basis of your S corporation
ownership interest per IRC Section 1366(d);• The amount for which you are at-risk as
determined under IRC Section 465; and• The passive activity limitations of IRC
Section 469.See the instructions for federal Schedule K-1(Form 1120S) line 1 through line 3 for moreinformation.
Limitations on Losses,Deductions, and CreditsBasis rulesGenerally, you may not claim your share of theS corporation loss (including capital loss) thatis greater than the adjusted basis of yourshareholder interest at the end of theS corporation’s income year.Basis is increased by:1. All income (including tax-exempt income)
reported on Schedule K-1 (100S).2. Money and adjusted basis in property
contributed to the corporation.3. The excess of the deduction for depletion
over the adjusted basis of the propertysubject to depletion.
Basis is decreased by:1. Fair market value of property distributions
(including cash) made by the corporation(excluding dividend distributions reportedon Form 1099-DIV and distributions inexcess of basis) reported on Schedule K-1(100S), line 21.
2. All losses and deductions (includingnondeductible expenses) reported onSchedule K-1 (100S).
These items are not a complete list of factorsthat determine basis. For example, please seeTreas. Reg. §1.1367-1.At-risk rulesGenerally, if you have: (1) a loss or otherdeduction from an activity carried on as a tradeor business or for the production of income bythe corporation; and (2) amounts in the activityfor which you are not at-risk, you will have tocomplete federal Form 6198, At-Risk Limita-tions, to figure the allowable loss to report onyour return. For California purposes, you mustcomplete federal Form 6198 using Californiaamounts.The at-risk rules generally limit the amount ofloss (including loss on disposition of assets)and other deductions (such as IRC Section 179or R&TC Sections 17267.2, 17267.6, and 17268deductions) that you may claim to the amountyou could actually lose in the activity. See theinstructions for federal Schedule K-1(Form 1120S), At-Risk Limitations, for moreinformation.
Passive activity limitationsCaution: During 1993, the U.S. Congress madechanges to the passive activity loss provisions ofthe IRC relating to real estate professionals.California has not conformed to those changes.California tax law conforms to federal IRCSection 469 rules that limit the deduction ofcertain losses and credits.These rules apply to shareholders who:• Are individuals, estates, or trusts; and• Have a loss or credit from a passive activity.A passive activity is generally a rental activity ora trade or business activity in which theshareholder does not materially participate.If you have a loss or deductions from a passiveactivity, you will need to complete formFTB 3801 to figure the allowable amounts toreport on your individual return. You will alsoneed to complete form FTB 3801 if you havepassive activity income from this S corporationand passive activity loss or deduction fromanother source.The amounts reported on Schedule K-1 (100S)line 2 and line 3 are from rental activities of theS corporation and are generally passive activityincome (loss) to all shareholders.There is an exception to this rule for lossesincurred by qualified investors in qualified low-income housing projects. The S corporation willidentify any of these qualified amounts on anattachment for line 2.Passive activity credits are also limited to passiveincome. See the instructions for line 13.
California Adjustment —Column (c)Use this column to account for your proportion-ate share of the differences in the computationof federal and California income.
Page 50 Schedule K-1 (100S) 1999
The most common items are:• California minimum franchise tax;• Depreciation expense due to different basis
of the assets or depreciation method used;• Gain or loss on sale of assets due to the
effects of different depreciation methods orbasis; and
• Government bond interest income:
a) U.S. bond interest is taxable for federalpurposes but not for Californiapurposes; and
b) State bond interest (other than fromCalifornia bonds) is taxable for Californiafranchise tax purposes but not for federalpurposes.
Total amounts using Californialaw — Column (d) andCalifornia source amounts andcredits — Column (e)Shareholders who are California residents will useamounts shown in column (d) because Californiaresident individuals are subject to personal incometax on all income from whatever source derived(R&TC Section 17041). Nonresident shareholderswho do not conduct a trade or business that isunitary with the S corporation should use theamounts in column (c), column (d) (for totalincome purposes), column (e) (for Californiasource income purposes), and Table 1. If thenonresident shareholder conducts a unitarybusiness with the S corporation, data incolumn (e) should not be used. Instead, theshareholder must combine its share of the Scorporation’s income with the income from itstrade or business and apportion that income usingan apportionment percentage consisting of acombination of the factors from its trade orbusiness and the shareholder’s share of thefactors from the S corporation from Table 2.Amounts in Table 1 should be sourced to theresidency or commercial domicile of theshareholder.
IncomeInconsistent treatment of itemsGenerally, shareholders must report IRCsubchapter S items shown on theirSchedule K-1 (100S), and any attachedschedules, the same way the corporationtreated the items on its return. If the treatmenton a shareholder’s original or amended return isinconsistent with the corporation’s treatment, orif the corporation has not filed a return, youmust attach a statement with your original oramended return to identify and explain anyinconsistency or to note that a corporate returnhas not been filed. If a shareholder is requiredto attach this statement but fails to do so, theshareholder may be subject to an accuracyrelated penalty.
Line 1 – Ordinary income (loss) from trade orbusiness activitiesThe amount reported on line 1, column (d) orcolumn (e) is your share of the ordinary income(loss) from the trade or business activities ofthe S corporation. Generally, where you reportthis amount on Form 540, Form 540NR, orForm 541 depends on whether or not the
amount is from an activity that is a passiveactivity to you.If, in addition to this passive activity income,you have a passive activity loss from thisS corporation or from any other source, reportthe line 1, column (d) or column (e) income onform FTB 3801.If a loss is reported on line 1, column (d) orcolumn (e), report the loss on the applicableline of form FTB 3801 to determine how muchof the loss is allowable.
Line 2 – Net income (loss) from rental realestate activitiesGenerally, the income (loss) reported on line 2,column (d) or column (e), is a passive activityamount to all shareholders. However, there is anexception for losses from a qualified low-income housing project. The loss limitations donot apply to qualified investors in qualified low-income housing projects. The S corporation willhave attached a schedule for line 2 to identifysuch amounts, if applicable. Enter the Californiaadjustment amount from column (c) onSchedule CA (540 or 540NR) as applicable.Use the following instructions to determinewhere to enter a line 2 amount.• If you have a loss on line 2, column (d) or
column (e) (other than a qualified low-income housing project loss), enter thispassive activity loss on the applicable line ofform FTB 3801 to determine how much ofthe loss is allowable.Note: If you are a qualified investor reportinga qualified low-income housing project loss,enter the California adjustment amount fromcolumn (c) directly on Schedule CA (540 or540NR).
• If you have income on line 2, column (d) orcolumn (e) and no passive losses, enter theCalifornia adjustment from column (c) onSchedule CA (540 or 540NR).
Line 3 – Net income (loss) from other rentalactivitiesThe amount on line 3, column (d) or column (e)is a passive activity amount for all shareholders.• If line 3, column (d) or column (e) is a loss,
enter the loss on the applicable line of formFTB 3801.
• If income is reported on line 3, column (d) orcolumn (e) and you have no passive losses,enter the California adjustment fromcolumn (c) on Schedule CA (540 or 540NR).
Line 4 – Portfolio income (loss)Income (loss) referred to as “portfolio” income(loss) in these instructions is not part of apassive activity subject to the rules of IRCSection 469. Portfolio income includes incomenot derived in the ordinary course of a trade orbusiness from interest, dividends, annuities, orroyalties and gain (loss) on the sale of propertythat produces these types of income or is heldfor investment. If you have amounts onSchedule K-1 (100S), line 4a through line 4f,report these amounts as follows:• Enter line 4a, column (c) and/or column (e)
on Schedule CA (540 or 540NR), line 8whichever column is applicable;
• Enter line 4b, column (c) and/or column (e)on Schedule CA (540 or 540NR), line 9whichever column is applicable;
• Enter line 4c, column (c) and/or column (e)on Schedule CA (540 or 540NR), line 17whichever column is applicable;
• Enter line 4d and line 4e, column (d) orcolumn (e) on Schedule D; and
• Enter line 4f, column (d) or column (e) onthe applicable schedule.
Caution: Generally, amounts reported on line 4dand line 4e are gains or losses attributable to thedisposition of property held for investment andare therefore classified as portfolio income(loss). If, however, an amount reported on line 4dor line 4e, column (d) or column (e), is a passiveactivity amount, the S corporation should identifythe amount.The S corporation uses line 4f, column (d) orcolumn (e), to report portfolio income otherthan interest, dividend, royalty, and capital gain(loss) income. A statement will be attached totell you what kind of portfolio income isreported on line 4f, column (d) or column (e).
Line 5 – Net gain (loss)If the amount on line 5 relates to a rentalactivity, the IRC Section 1231 gain (loss) is apassive activity amount.• If the amount is not a passive activity
amount to you, report it on Schedule D-1,Sales of Business Property, line 2,column (g) or column (h), whichever isapplicable. You do not have to complete theinformation called for in column (b) throughcolumn (f). Write “From Schedule K-1(100S)” across these columns.
• If a gain is reported on line 5, column (d) orcolumn (e), and it is a passive activityamount to you, report the gain onSchedule D-1, line 2, column (h), and referto “Passive Loss Limitations” in theinstructions for Schedule D-1.
• If a loss is reported on line 5, column (d) orcolumn (e) and it is a passive activityamount to you, report the loss onSchedule D-1, line 2, column (h), and referto “Passive Loss Limitations” in theinstructions for Schedule D-1. You will needto use form FTB 3801 to determine howmuch of the loss is allowed onSchedule D-1.
Line 6 – Other income (loss)Amounts on this line are other items of income,gain, or loss not included on line 1 throughline 5. The S corporation should give you adescription of your share for each of theseitems.Report income or gain items that are passiveactivity amounts to you as instructed below. If,in addition to this passive activity income orgain, you have passive activity losses from anyother source, also report the passive activityincome or gain on form FTB 3801.Line 6 items may include the following:• S corporation gains from the disposition of
farm recapture property (refer toSchedule D-1) and other items to which IRCSection 1252 applies;
Schedule K-1 (100S) 1999 Page 51
• Recovery of bad debts, prior taxes, anddelinquency amounts (IRC Section 111).Report the amount from line 6, column (c),on Schedule CA (540 or 540NR), line 21,whichever column is applicable;
• Gains and losses from gambling(IRC Section 165(d));
• Any income, gain, or loss to theS corporation under IRC Section 751(b)from a partnership. Report this amount onSchedule D-1, line 10;
• Specially allocated ordinary gain (loss) froma partnership. Report this amount onSchedule D-1, line 10;
• Net gain (loss) from involuntary conversionsdue to casualty or theft. The S corporationwill give you a schedule that shows theCalifornia amounts to be entered on federalForm 4684, Casualties and Thefts, line 34,column (b)(i), column (b)(ii), andcolumn (c);
• Net short-term capital gain or loss, net long-term capital gain or loss, gain or loss fromSchedule D (100S) that is not portfolioincome (e.g., gain or loss from thedisposition of nondepreciable personalproperty used in a trade or business activityof the S corporation);
• Any new gain or loss from IRC Section 1256contracts; and
• Eligible gain from the sale or exchange ofqualified small business stock (as defined inR&TC Section 18152.5). The S corporationshould also give you the name of thecorporation that issued the stock and yourpro-rata share of the basis of that stock.
Note: Corporate shareholders are not eligible forthe R&TC Section 18152.5 exclusion.
DeductionsLine 7 – Charitable contributionsThe S corporation will give you a schedule thatshows which contributions were subject to the50%, 30%, and 20% limitations. Refer to thefederal instructions for Form 1040 for moreinformation.If there is an amount on Schedule K-1 (100S),line 7, column (c), enter this amount onSchedule CA (540 or 540NR), line 38.
Line 8 – Expense deduction for recoverypropertyThe maximum amount of expense deduction forrecovery property (IRC Section 179 deduction)that you may claim from all sources is $19,000.The S corporation will give you information onyour share of the cost of the S corporation’s IRCSection 179 property so that you can computethis limitation. Your IRC Section 179 deductionis also limited to your taxable income from allyour trades or businesses. See form FTB 3885A,Depreciation and Amortization Adjustments –Individuals, and federal Publication 534,Depreciating Property Placed in Service Before1987, for more information.If the S corporation reported an EZ, TTA, orLAMBRA or business expense deduction on thisline from R&TC Sections 17267.2, 17267.6 or
17268, complete form FTB 3805Z, formFTB 3809, or form FTB 3807, to report yourpro-rata share.
Line 9 – Deductions related to portfolioincome (loss)Amounts entered on this line are the expenses(other than investment interest expense andexpenses from a REMIC) paid or incurred toproduce portfolio income. If you have anamount on Schedule K-1 (100S), line 9,column (c), enter this amount on Schedule CA(540 or 540NR), line 37. However, if any of theline 9 amount should not be reported onSchedule CA (540 or 540NR), the S corporationwill identify that amount for you.
Line 10 – Other deductionsAmounts on this line are other deductions notincluded on line 7 through line 9. If there is anamount on Schedule K-1 (100S), line 10,column (c), enter this amount on the applicableline of Schedule CA (540 or 540NR).
Investment InterestLine 11a and Line 11bIf the S corporation paid or accrued interest ondebts it incurred to buy or hold investmentproperty, the amount of interest you can deductmay be limited.For more information and the special provisionsthat apply to investment interest expense, get formFTB 3526, Investment Interest Expense Deduction,and federal Publication 550, Investment Incomeand Expenses.
Line 11a – Interest expense on investmentdebtsEnter the amount from column (d) orcolumn (e) on form FTB 3526 along with yourinvestment interest expense from other sources.Form FTB 3526 will help you determine howmuch of your total investment interest isdeductible.
Line 11b(1) and Line 11b(2) – Investmentincome and investment expensesUse the column (d) or column (e) amounts onthese lines to determine the amount to enter onform FTB 3526, line 4.Caution: The amounts shown on line 11b(1) andline 11b(2) include only investment income andexpenses included on lines 4a, 4b, 4c, 4f, andline 9 of this Schedule K-1 (100S). TheS corporation should attach a schedule thatshows you the amount of any investmentincome and expenses included in any other linesof your Schedule K-1 (100S). Use theseamounts, if any, to adjust line 11b(1) andline 11b(2) to determine your total investmentincome and total investment expenses from thisS corporation. Combine these totals withinvestment income and expenses from all othersources to determine the amount to enter onform FTB 3526, line 4.
Tax CreditsThe S corporation must provide you theinformation needed to compute a creditallowable on your tax return.
Line 12a – Low-income housing creditYour share of the S corporation’s low-incomehousing credit is shown on line 12a, column (d)or column (e). Any available credit is entered onform FTB 3521, Low-Income Housing Credit. Toclaim this credit, attach a copy of formFTB 3521 to your return.Caution: You may not claim the low-incomehousing credit on any qualified low-incomehousing project for which any person wasallowed any benefit under Section 502 of thefederal Tax Reform Act of 1986. Also, thepassive activity credit limitations of IRCSection 469 may limit the amount of credit youmay take. Get form FTB 3801-CR, PassiveActivity Credit Limitations, to figure the amountof credit that may be limited under the passiveactivity rules.For more information, see the instructions forline 13.
Line 12b – Credits related to rental real estateactivitiesIf applicable, the S corporation may use thisline, through an attached schedule, to give youthe information you need to compute creditsrelated to rental real estate activities other thanthe low-income housing credit.For more information, see the instructions forline 13.
Line 12c – Credits related to other rentalactivitiesIf applicable, the S corporation will use this line,through an attached schedule, to give you theinformation you need to compute credits relatedto rental activities other than rental real estateactivities.For more information, see the instructions forline 13.
Line 13 – Other creditsIf applicable, the S corporation will use this line,through an attached schedule, to give you theinformation you need to compute credits relatedto a trade or business activity.Credits that may be reported on line 12c orline 13 (depending on the type of activity theyrelate to) include but are not limited to:• Enterprise zone hiring & sales or use tax
credit (FTB 3805Z);• Targeted Tax Area (TTA) hiring & sales or
use tax credit (FTB 3809);• Local Agency Military Base Recovery Area
(LAMBRA) hiring & sales or use tax credit(FTB 3807);
• Research credit (FTB 3523);• Manufacturers’ investment credit
(FTB 3535); or• Manufacturing Enhancement Area (MEA)
hiring credit (FTB 3808).Note: The pass-through rules of IRC Sec-tion 1366, the at-risk limitations of IRC Sec-tion 465, and the passive activity limitations ofIRC Section 469 may limit the amount of creditsthat you may take. Credits on line 12 and line 13may be passive activity credits to shareholderswho do not materially participate in the activitiesof the S corporation.
Page 52 Schedule K-1 (100S) 1999
Passive activity credits are limited to taxattributable to passive activities. If you do notmaterially participate in the activities of theS corporation, get form FTB 3801-CR, PassiveActivity Credit Limitations, to determine theamount of the credit you may take.
Adjustments and TaxPreference ItemsLine 14a through Line 14eUse the information reported on line 14a throughline 14e (as well as adjustments and tax prefer-ence items from other sources) to prepareSchedule P (540, 540NR or 541), AlternativeMinimum Tax and Credit Limitations.For more information, get federal Schedule K-1(Form 1120S), instructions for Adjustments andTax Preference Items.
Other State TaxesLine 15a through Line 15eYou may claim a credit against your individualtax for your share of net income taxes paid bythe S corporation to certain other states whicheither tax the corporation as an S corporation ordo not recognize S corporation status. Forpurposes of this credit, net income taxesinclude your share of taxes on, according to, ormeasured by income.Residents are taxed on their pro-rata share of allincome and generally receive a credit for taxespaid to other states. Nonresidents and part-yearresidents use column (e) for your pro-rata shareof California source pass-through income.For more information, get California Schedule S,Other State Tax Credit.
Other ItemsNote: Amounts on line 16a through line 22 maynot necessarily be California source amounts.However, enter the same amount in column (e)as entered in column (d).
Line 16a through Line 19Refer to the instructions for federalSchedule K-1 (1120S).
Line 20The S corporation must issue a federalForm 1099-DIV to you for this distribution.Report this amount as a taxable dividend onyour tax return.
Line 21Reduce your basis in stock of the S corporationby the distributions on line 21. If thesedistributions exceed your basis in stock, theexcess is treated as gain from the sale orexchange of property and is reported onSchedule D.
Line 22If the line 22 payments are made on indebted-ness with a reduced basis, the repaymentsresult in income to you to the extent therepayments are more than the adjusted basis ofthe loan. See IRC Section 1367(b)(2) forinformation on reduction in basis of a loan andrestoration of basis of a loan with a reducedbasis. See federal Revenue Ruling 68-537,1968-2 C.B. 372, for more information.
Supplemental InformationLine 23The S corporation will provide supplementalinformation required to be reported to you onthis line. If the S corporation is claiming taxbenefits from an EZ, LAMBRA, TTA or MEA, itwill give you your pro-rata share of (1) businessincome apportioned to the EZ, LAMBRA, MEA,or TTA, and (2) business capital gains andlosses included in (1) on this line. Get formFTB 3805Z, FTB 3807, FTB 3808, or FTB 3809 toclaim any applicable credit or business expensededuction.The S corporation may have provided anamount showing your proportionate interest inthe S corporation’s aggregate gross receipts,less returns and allowances on Schedule K-1(100S), line 23. Legislation enacted in 1996allows a qualified taxpayer to exclude fromalternative minimum taxable income adjust-ments and items of tax preference attributableto any trade or business. A “qualified taxpayer”is defined as an individual, estate, or trust that:• Is the owner of, or has an ownership interest
in a trade or business; and• Has aggregate gross receipts, less returns
and allowances, of less than $1,000,000from all trades or businesses that thetaxpayer is an owner of, or has an ownershipinterest in, in the amount of that taxpayer’sproportionate interest in each trade orbusiness.
“Aggregate gross receipts, less returns andallowances” means the sum of the grossreceipts of the trades or businesses which youown and the proportionate interest of the grossreceipts of the trades or businesses which youown and of pass-through entities in which youhold an interest.“Proportionate interest” is defined as:• In the case of a pass-through entity which
reports a profit for the taxable or incomeyear, your profit interest in the entity at theend of your taxable year.
• In the case of a pass-through entity whichreports a loss for the taxable or income year,your loss interest in the entity at the end ofyour taxable year.
• In the case of a pass-through entity which issold or liquidates during the taxable orincome year, your capital account interest inthe entity at the time of the sale orliquidation.
“Proportionate interest” includes an interest in apass-through entity including a partnership,S corporation, regulated investment company,real estate investment trust, or real estatemortgage investment conduit.For purposes of R&TC Section 17062(b)(4),“gross receipts” means the sum of grossreceipts from the production of businessincome (within the meaning of subdivisions (a)and (c) of R&TC Section 25120) and the grossreceipts from the production of nonbusinessincome (within the meaning of subdivision (d)of R&TC Section 25120). “Proportionateinterest” includes an interest in a pass-throughentity. See R&TC Section 17062 for moreinformation.
If the S corporation listed any credit recaptureon this line, see your tax booklet for informationon how to report the credit recapture.
Table 1The income data contained in Table 1 is notreflected in column (e) because the source ofsuch income must be determined at theshareholder level. The shareholder must make adetermination whether the nonbusinessintangible income item is from a Californiasource.Net nonbusiness income is computed bysubtracting related nonbusiness expenses fromthe nonbusiness income.
Table 2If the shareholder and S corporation areengaged in a single unitary business, theshareholder’s share of the S corporation’sbusiness income is entered on Table 2, Part A.The shareholder will then add that income to itsown business income and apportion thecombined business income.The shareholder’s share of the S corporation’spayroll, property, and sales data is in Table 2,Part C. The business income in Table 2, Part A iscombined with the taxpayer’s other businessincome from the unitary business. The appor-tionment numerator and denominator data areadded to the appropriate numerator anddenominator of the shareholder’s payroll,property, and sales factors.
DETACH HERE
353999109
Payment Voucher for Automatic Extensionfor Corporations and Exempt Organizations
CALIFORNIA FORM
3539 (CORP)California corporation number Federal employer identification number
Corporation/exempt organization name
Address PMB no. Type of form filed.
City State ZIP Code
YEAR
1999For calendar year 1999 or fiscal year beginning month _____ day ____ year 1999, and ending month _____ day ____ year ____ .
IF NO PAYMENT IS DUE, DO NOT FILE THIS FORM
FTB 3539 1999EFT TAXPAYERS, DO NOT USE THIS FORM
Instructions for Form FTB 3539Automatic Extension for Corporations and Exempt Organizations
General InformationUse form FTB 3539 only if:• You cannot file your 1999 return by the original due
date; and• You owe tax for 1999.Use the worksheet on the following page to determine if youowe tax.• If you do not owe tax, there is nothing to file at this time
and no need to complete or mail this voucher.• If you owe tax, complete the voucher and mail it along
with your check or money order to the Franchise TaxBoard by the original due date of the return.
If a corporation, including real estate investment trusts(REITs), real estate mortgage investment conduits(REMICs), regulated investment companies (RICs), limitedliability companies (LLCs) classified as corporations, or anexempt organization in good standing, cannot file itsCalifornia tax return by the original due date, a seven monthextension to file will be allowed automatically without filinga written request. To qualify for the automatic extension, thecorporation’s or exempt organization’s tax return must befiled by the extended due date. The corporation’s powers,rights, and privileges must not be suspended or forfeited bythe Franchise Tax Board (FTB) or the California Secretary ofState (SOS) as of the original due date. The extended duedate for corporations is the 15th day of the 10th monthfollowing the close of the income year or October 16, 2000(calendar year filers). The extended due date for exemptorganizations filing Form 199 or Form 109 is the 15th dayof the 12th month following the close of the taxable year(fiscal year filers) or December 15, 2000 (calendar yearfilers).The extended due date for an employees’ trust defined inIRC Section 401(a) and an IRA filing Form 109 is the 15thday of the 11th month after the end of the income year(fiscal year filers) or November 15, 2000 (calendar yearfilers).An extension of time to file the tax return is not an extensionof time to pay the tax. To avoid late payment penalties andinterest, 100% of the tax liability must be paid by the 15thday of the 3rd month (fiscal year corporations), or the 15thday of the 5th month (fiscal year exempt organizations)
following the close of the income year or March 15, 2000(calendar year corporations), or May 15, 2000 (calendaryear exempt organizations). Employees’ trusts and IRAsmust pay 100% of the tax liability by the 15th day of the 4thmonth after the end of the income year.Save the completed worksheet as a permanent part of thecorporation’s or exempt organization’s tax records alongwith a copy of the return.
Electronic Funds Transfer (EFT)Corporations or exempt organizations that meet certainrequirements must remit all of their payments through EFTrather than by paper checks. Corporations or exemptorganizations that remit an estimated tax payment orextension payment in excess of $20,000 or that have a totaltax liability in excess of $80,000 must pay through EFT. TheFTB will notify corporations or exempt organizations thatare subject to this requirement. If you are an EFT taxpayer,DO NOT USE THIS FORM. Those that wish to participate ona voluntary basis may do so. For more information, call1-800-852-2753 or get FTB Pub. 3817, Electronic FundsTransfer Program Information Guide.
Where to FileIf tax is due and the corporation or exempt organization isnot required to use EFT, attach a check or money order forthe tax due to form FTB 3539. Write the California corpora-tion number or FEIN and 1999 FTB 3539 on the check ormoney order. Mail only the voucher portion with thepayment to:
FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0551
Private Mail Box (PMB) NumberIf you lease a mail box from a private business rather thanfrom the United States Postal Service, enter the box numberin the special field on the voucher labeled “PMB no.”
(Calendar year corporations — Due March 15, 2000)(Employees’ trust and IRA — Due April 17, 2000)(Calendar year exempt organizations — Due May 15, 2000)
Tax Due
� Form 100� Form 100S� Form 109� Form 199
-
Page 54 FTB 3539 1999
TAX PAYMENT WORKSHEET FOR YOUR RECORDS
1 Total tentative tax. Include alternative minimum tax if applicable. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Estimated tax payments including prior year overpayment applied as a credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Tax Due. If line 2 is more than line 1, see instructions. If line 1 is more than line 2, subtract line 2 from line 1.
Enter the result here and on form FTB 3539 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Penalties and InterestIf the corporation or exempt organization fails to pay its totaltax by the original due date, a late payment penalty plusinterest will be added to the tax due. If the corporation orexempt organization does not file its return by the extendeddue date, or the corporation’s powers, rights, and privilegeshave been suspended or forfeited by the FTB or the CaliforniaSOS, as of the original due date, the automatic extension willnot apply and a delinquency penalty plus interest will beassessed from the original due date of the return.
Combined ReportsIf members of a combined unitary group have made orintend to make an election to file a Combined Unitary GroupSingle Return, only the key corporation designated to filethe return should submit form FTB 3539. The key corpora-tion must include payment of at least the minimumfranchise tax for each corporation of the combined unitarygroup that is subject to the franchise tax in California.If members of a combined unitary group intend to fileseparate returns with the FTB, each member must submit itsown form FTB 3539 if there is an amount entered on line 3of the worksheet.
Exempt Organizations• Form 100 filers:
The due dates for corporations also apply to the filing ofForm 100, California Corporation Franchise or IncomeTax Return, by political action committees and exempthomeowners’ associations.Political action committees and exempt homeowners’associations that file Form 100 should not enter theminimum franchise tax on line 1 of the Tax PaymentWorksheet.
• Form 199 Filers:Generally, Form 199, California Exempt OrganizationAnnual Information Return, requires a $10 filing fee to bepaid with the return on the original or extended due date.
Use form FTB 3539 only if paying the fee early. Enter theamount of the fee on line 3 of the Tax Payment Work-sheet.
• Form 109 Filers:The due dates for filing Form 109, California ExemptOrganization Business Income Tax Return, depend onthe type of organization filing the return. Employees’pension trusts and IRAs (including education IRAs)must file on or before the 15th day of the 4th monthafter the close of their income year. All other exemptorganizations (except homeowners’ associations andpolitical organizations) must file on or before the 15thday of the 5th month after the close of their income year.
How to Complete the Tax Payment WorksheetLine 1 – Enter the total tentative tax, including the alterna-tive minimum tax for the income year.• If filing Form 100 or Form 100S and subject to franchise
tax, the tentative tax may not be less than the minimum
franchise tax (for income years beginning January 1,1999 but before January 1, 2000) and Qualified Subchap-ter S Subsidiary (QSub) annual tax (S corporations only).
• If filing Form 100 or Form 100S, and subject to incometax, enter the amount of tax. Corporations subject to theincome tax do not pay the minimum franchise tax.
• If a corporation incorporates or qualifies to do businessin California on or after January 1, 2000, the prepaymentof the minimum franchise tax to the Secretary of State(SOS) is no longer required. For the first income year(second taxable year) the corporation will compute itstax liability by multiplying its state net income by theappropriate tax rate and will not be subject to theminimum franchise tax. The corporation will becomesubject to minimum franchise tax beginning in itssecond income year (third taxable year).
• If filing Form 109, enter the amount of tax. Form 109filers are not subject to the minimum franchise tax.
• Qualified New Corporation (QNC):A qualified new corporation is a corporation that:• Reasonably estimates it will have gross receipts, less
returns and allowances, reportable to California of $1million or less during the income year; and
• Reasonably estimates it will have tax liability thatdoes not exceed $800; and
• Did not begin business operations as a sole propri-etorship, a partnership, or any other form of businessentity; and
• Began business operations at or after the time of itsincorporation.
If the corporation believed it was a QNC, paid less than an$800 prepayment to the SOS, and during the income yearthe corporation did not meet the QNC criteria (see above),then include the appropriate amount(s) on line 1:• $500 , if the amount prepaid to the SOS was $300 for
income years commencing on or after January 1,1999 and before January 1, 2000, and/or
• $300 , if the minimum franchise tax paid for thesecond taxable year was $500 for corporations thatincorporated or qualified to do business on or afterJanuary 1, 1999 and before January 1, 2000.
Line 2 – Enter the estimated tax payments, including prioryear overpayment applied as a credit. Also include any QSubannual tax payments (S corporations only).
Line 3Tax due. If the amount on line 2 is more than the amount online 1, the payments and credits are more than the tax. Thecorporation or exempt organization has no tax due. DO NOTSEND THE PAYMENT VOUCHER. The corporation or exemptorganization will automatically qualify for an extension if thetax return is filed by the extended due date.If the amount on line 1 is more than the amount on line 2,then the corporation’s or exempt organization’s tax is morethan its payments and credits. The corporation or exemptorganization has tax due.Subtract line 2 from line 1. Enter this amount on line 3 andon form FTB 3539.
Form 100S Booklet 1999 Page 55
Where To Get Income Tax FormsBy Internet – If you have Internet access, you may download, view, andprint 1999 California income tax forms, instructions, and publications.Legal Notices and Rulings dated 96-1 and later are also available. Go toour website at: www.ftb.ca.govBy phone – To order 1999 California tax forms:• Refer to the list in the right column and find the code number for the
form you want to order.• Call (800) 338-0505.• Select business entity tax information.• Select order tax forms.• Enter the three-digit code shown to the left of the form title when
you are instructed to do so.Please allow two weeks to receive your order. If you live outsideCalifornia, please allow three weeks to receive your order.For prior year California tax forms, call our toll-free number listed under“General Toll-Free Phone Service.”In person – Most libraries, post offices, and banks provide freeCalifornia personal income tax booklets during the filing season. Manylibraries and some quick print businesses have forms and schedules foryou to photocopy (you may have to pay a nominal fee). Note thatemployees at libraries, post offices, banks, and quick print businessescannot provide tax information or assistance.By mail – Write to: TAX FORMS REQUEST UNIT, FRANCHISE TAXBOARD, PO BOX 307, RANCHO CORDOVA CA 95741-0307.
LettersIf you write to us, be sure to include your California corporationnumber or federal employer identification number, your daytime andevening telephone numbers, and a copy of the notice with your letter.Send your letter to:
FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0540
We will respond to your letter within six to eight weeks. In some cases,we may need to call you for additional information. Do not attachcorrespondence to your tax return unless the correspondence relates toan item on the return.
General Toll-Free Phone ServiceBetween January 3 – April 17, 2000 , our general toll-free phoneservice is available:• Monday – Friday, 6 a.m. until midnight; and• Saturdays and holidays, 7 a.m. until 4 p.m.After April 17, 2000, our general toll-free phone service is available:• Monday – Friday, 7 a.m. until 8 p.m.; and• Saturdays, 7 a.m. until 4 p.m.The best times to call are before 10 a.m. and after 6 p.m. All timeslisted are Pacific Standard Time (PST).From within the United States . . . . . . . . . . . . . . . . . . . (800) 852-5711From outside the United States (not toll-free) . . . . . . . (916) 845-6500For federal tax questions, call the IRS at . . . . . . . . . . . (800) 829-1040Assistance for persons with disabilitiesThe FTB complies with provisions of the Americans with DisabilitiesAct. Persons with hearing or speech impairment call:From voice phone (California Relay Service) . . . . . . . . (800) 735-2922From TTY/TDD (Direct line to FTB customer service) . (800) 822-6268For all other assistance or special accommodations . . (800) 852-5711Asistencia bilingue en espanolPara obtener servicios en espanol y asistencia para completar sudeclaracion de impuestos/formularios, llame al numero de telefono(anotado arriba) que le corresponde.
How To Get California Tax InformationCalifornia Tax Forms and Publications817 California Corporation Tax Forms and Instructions.
This booklet contains: Form 100, California CorporationFranchise or Income Tax Return; and the following forms whichare also available separately:821 Schedule P (100), Alternative Minimum Tax and Credit
Limitations — Corporations822 FTB 3885, Corporation Depreciation and Amortization807 FTB 3805Q, Net Operating Loss (NOL) Computation
and NOL and Disaster Loss Limitations — Corporations808 FTB 3539, Payment Voucher for Automatic Extension for
Corporations and Exempt Organizations816 California S Corporation Tax Forms and Instructions.
This booklet contains: Form 100S, California S CorporationFranchise or Income Tax Return; Schedule QS, QualifiedSubchapter S Subsidiary (QSub) Information Worksheet; and thefollowing forms which are also available separately:823 Schedule B (100S), S Corporation Depreciation and
AmortizationSchedule C (100S), S Corporation Tax CreditsSchedule H (100S), Dividend IncomeSchedule D (100S), S Corporation Capital Gains andLosses and Built-In Gains
825 Schedule K-1 (100S), Shareholder’s Share of Income,Deductions, Credits, etc.
826 FTB 3830, S Corporation’s List of Shareholders andConsents
808 FTB 3539, Payment Voucher for Automatic Extension forCorporations and Exempt Organizations
814 Form 109, Exempt Organization Business Income Tax Return818 Form 100-ES, Corporation Estimated Tax813 Form 100X, Amended Corporation Franchise or Income Tax
Return815 Form 199, Exempt Organization Annual Information Return819 Schedule R, Apportionment and Allocation of Income812 FTB Pub. 1038, Guide for Corporations Dissolving, Withdrawing
or Merging809 FTB Pub. 1060, Guide for Corporations Starting Business
in California810 FTB Pub. 1061, Guidelines for Corporations Filing a Combined
Report827 Form 100-WE, Water’s-Edge Booklet829 FTB 3564, Authorization of Agent Under Revenue and
Returns and Paying Filing Fees802 FTB 3500, Exemption Application803 FTB 3555, Request for Tax Clearance804 FTB 3557, Application for Revivor811 FTB 3560, S Corporation Election or Termination/Revocation806 FTB 5806, Underpayment of Estimated Tax by Corporations800 FTB Pub. 1028, Guidelines for Homeowners’ Associations801 FTB Pub. 1075, Exempt Organizations — Guide for Political
Organizations832 FTB 3555A, Request for Tax Clearance for Exempt Organizations
Your Rights As A TaxpayerOur goal at the FTB is to make certain that your rights are protected sothat you will have the highest confidence in the integrity, efficiency, andfairness of our state tax system. FTB Pub. 4058, California Taxpayers’Bill of Rights, includes information on your rights as a Californiataxpayer, the Taxpayers’ Rights Advocate Program, and how you canrequest written advice from the FTB on whether a particular transactionis taxable.See “Where to Get Income Tax Forms” on this page.
Page 56 Form 100S Booklet 1999
Our automated toll-free phone service is available 24 hours a day, 7days a week, in English and Spanish to callers with touch-tonetelephones. To order business entity forms, the automated service isavailable from 6 a.m. to 8 p.m. Monday through Friday, except stateholidays. You can:• Order current year California income tax forms, and• Hear recorded answers to many of your questions about California
taxes.Have paper and pencil ready to take notes.Call from within the United States . . . . . . . . . . . . . . . . (800) 338-0505Call from outside the United States (not toll-free) . . . . (916) 845-6600
To Order FormsSee “Where to Get Income Tax Forms” on the previous page.
To Get InformationIf you need an answer to any of the following questions, call(800) 338-0505, select business entity tax information, then general taxinformation, follow the recorded instructions, and enter the three-digitcode when instructed to do so.Code Filing Assistance715 If my actual tax is less than the minimum franchise tax,
what figure do I put on line 23 of Form 100?717 What are the current tax rates for corporations?718 How do I get an extension of time to file?722 When do I have to file a short-period return?734 Is my corporation subject to franchise tax or income tax?S Corporations704 Is an S corporation subject to the minimum franchise tax?705 Are S corporations required to file estimate payments?706 What forms do S corporations file?707 The tax for my S corporation is less than the minimum
franchise tax. What figure do I put on line 22 of Form 100S?708 Where do S corporations make adjustment for state and
federal law differences on Schedule K-1 (100S) and where dononresident shareholders find their California source income ontheir Schedule K-1 (100S)?
Exempt Organizations709 How do I get tax exempt status?710 Does an exempt organization have to file Form 199?735 How can an exempt organization incorporate without
paying corporation fees and costs?736 I have exempt status. Do I need to file Form 100 or Form 109
in addition to Form 199?Minimum Tax and Estimate Tax712 What is the minimum franchise tax?714 My corporation is not doing business; does it have to pay the
minimum franchise tax?716 When are my estimate payments due?Billings and Miscellaneous Notices723 I received a bill for $250. What is this for?728 Why was my corporation suspended?729 Why is my subsidiary getting a request for a return when we
file a combined report?Tax Clearance724 How do I dissolve my corporation?725 What do I have to do to get a tax clearance?726 How long will it take to get a tax clearance certificate?727 My corporation was suspended/forfeited. Can I still get a
tax clearance?
� Automated Toll-Free Phone Service (Keep This Booklet For Future Use)Miscellaneous700 Who do I need to contact to start a business?701 I need a state ID number for my business. Who do I contact?702 Can you send me an employer’s tax guide?703 How do I incorporate?719 How do I properly identify my corporation when dealing with
the Franchise Tax Board?720 How do I obtain information about changing my corporation’s
name?721 How do I change my accounting period?737 Where do I send my payment?738 What is electronic funds transfer?739 How do I get a copy of my state corporate tax return?740 What requirements do I have to report municipal bond interest
paid by a state other than California?750 How do I organize or register an LLC?751 How do I cancel my registration as an LLC?752 What tax forms do I use to file as an LLC?758 If a corporation converted to an LLC during the current year, is
the corporation liable for tax as a corporation and an LLCtax/fee in the same year?
Field OfficesYou can get information, pick up California tax forms, and resolveproblems on your account if you visit one of our field offices. FTB fieldoffice locations are open Monday through Friday from 8 a.m. to 5 p.m.The offices will remain open additional hours and days January 15through April 17, 2000. For the extended hours of the office nearestyou, call (800) 338-0505, select personal income tax information, thenselect general information, and enter code 110 when instructed.
Field Office AddressBakersfield 1800 30th St., Ste. 370Burbank 333 N. Glenoaks Blvd., Ste. 200Fresno 2550 Mariposa St., Rm. 3002Long Beach 4300 Long Beach Blvd., Ste. 700BLos Angeles 300 S. Spring St., Ste. 5704Oakland 1515 Clay St., Ste. 305Sacramento 3321 Power Inn Road, Ste. 250San Bernardino 464 W. 4th St., Ste. 454San Diego 5353 Mission Center Road, Ste. 314San Francisco 455 Golden Gate Avenue, Ste. 7400San Jose 96 N. Third St., 4th FloorSanta Ana 600 W. Santa Ana Blvd., Ste. 300Santa Rosa 50 D St., Rm. 130Stockton 31 East Channel St., Rm. 219Ventura 4820 McGrath St., Ste. 270West Covina 100 N. Barranca St., Ste. 600Out of State OfficesChicago 1 N. Franklin, Ste. 400
Chicago, IL 60606-3401Houston 1415 Louisiana, Ste. 1515
Houston, TX 77002-7351Long Island 1325 Franklin Avenue, Ste. 560
Garden City, NY 11530Manhattan 1212 Avenue of the Americas, 4th Floor
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