California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 13 - Accounting Periods and Methods of Accounting › Article 3 - Year of Inclusion › Section 24674 - [FN*] Obligations Issued at Discount

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Non-Interest-Bearing Obligations Issued at Discount.
(1) Election to Include Increase in Income
					 Currently.
If a taxpayer owns a noninterest-bearing obligation
						issued at a discount and redeemable for fixed amounts increasing at stated
						intervals, and if the increase, if any, in redemption price of such obligation
						during the income year (as described in paragraph (2) of this subsection) does
						not constitute income for such year under the method of accounting used in
						computing its net income, then the taxpayer may, at its election, treat the
						increase as constituting income for the income year in which such increase
						occurs. If the election is not made, the taxpayer shall treat the increase as
						constituting income for the income year in which the obligation is redeemed or
						disposed of, or finally matures, whichever is earlier. Any such election must
						be made in the taxpayer's return and may be made for any income year. If an
						election is made with respect to any such obligation described in this
						paragraph, it shall apply also to all other obligations of the type described
						owned by the taxpayer at the beginning of the first income year to which the
						election applies, and to those thereafter acquired by it, and shall be binding
						for the income year for which the return is filed and for all subsequent income
						years, unless the Franchise Tax Board permits the taxpayer to change to a
						different method of reporting income from such obligations. See Section
						24651(e) and
						subsection (e) of Reg. 24651, relating to requirement respecting a change of
						accounting method. Although the election once made is binding upon the
						taxpayer, it does not apply to a transferee of the taxpayer.
(2) Amount of Increase in Case of
					 Non-Interest-bearing Obligations. In any case in which an election is made
					 under Section
					 24674,the amount which accrues in
					 any income year to which the election applies is measured by the actual
					 increase in the redemption price occurring in that year. This amount does not
					 accrue ratably between the dates on which the redemption price changes. For
					 example, if two dates on which the redemption price increases (February 1 and
					 August 1) fall within an income year and if the redemption price increases in
					 the amount of 50 cents on each such date, the amount accruing in that year
					 would be $1.00 ($0.50 on February 1 and $0.50 on August 1). If the taxpayer
					 owns a non-interest-bearing obligation of the character described in paragraph
					 (1) of this subsection acquired prior to the first income year to which its
					 election applies, it must also include in gross income for such first income
					 year the increase in the redemption price of such obligation occurring between
					 the date of acquisition of the obligation and the first day of such first
					 income year.