California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 17 - Allocation of Income › Article 1 - General Provisions › Section 25113 - Water's-Edge Election

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 This regulation shall be applicable to taxable years beginning on or after
					 January 1, 2008.
(b) Definitions.
					 For purposes of Revenue and Taxation Code section
					 25113
					 and this regulation, the following definitions are applicable:
(1) Water's-edge group. The water's-edge
					 group means all banks, corporations or other entities whose income and
					 apportionment factors are considered pursuant to Revenue and Taxation Code
					 section
					 25110
					 in computing the income of the individual taxpayer for the current taxable year
					 which is derived from or attributable to sources within this state.
(2) Original return. The original return is
					 the last return filed on or before the due date (taking extensions into
					 account) regardless of the form on which it is filed or however it may be
					 denominated. A return filed after the due date (taking extensions into account)
					 regardless of the form on which it is filed or however it may be denominated
					 may be an original return, if no other return has been filed, but it would not
					 be a timely filed, original return.
(3) Timely filed. A timely filed return is
					 one filed on or before the due date (taking extensions into account).
(4) Commencement date. The commencement date
					 of a water's-edge election is the first day of the period for which the
					 election is made. Subsection (c)(6) of this regulation provides rules for
					 taxpayers that have a valid election for taxable years beginning before January
					 1, 2003.
(5) Net book value. Net
					 book value is equal to an asset's original cost minus depreciation, depletion
					 and amortization. Book value means the amount which an asset is carried on a
					 balance sheet. Depreciation means the systematic write off of the cost of a
					 tangible asset over the asset's useful life. Depletion means the systematic
					 write off of the cost of harvesting or mining a natural resource. Amortization
					 means the systematic write off of the cost of an intangible asset over the
					 asset's useful life. Book value, depreciation, depletion and amortization will
					 be reflected using United States Generally Accepted Accounting Principles (US
					 GAAP). If any member of a component unitary group does not maintain its books
					 on US GAAP, the Franchise Tax Board may allow an alternative method of
					 valuation of that member's business assets.
(6) Parent Corporation. A parent corporation
					 of the taxpayer is a corporation that owns or constructively owns stock
					 possessing more than 50 percent of the voting power of the taxpayer as
					 determined under Revenue and Taxation Code section
					 25105,
					 subdivisions (e) and (f).
(7)
					 Unitary affiliate group. Unitary affiliate group is all of those corporations
					 that would constitute a unitary group if a water's-edge election were not
					 made.
(8) New unitary affiliate
					 group. New unitary affiliate group is a unitary affiliate group that is created
					 by a new affiliation of two or more corporations, or by the addition of one or
					 more new members to an existing unitary affiliate group.
(9) Component unitary group. Component
					 unitary group is that portion of a group of corporations that have become
					 members of a new unitary affiliate group that were members of their own
					 respective unitary affiliate group prior to entering the new unitary affiliate
					 group, disregarding any corporations that did not become part of the new
					 unitary group.
(10) Business
					 assets. Business assets are assets, including intangible assets, other than
					 stock of a member of the unitary affiliate group, which are used in the conduct
					 of the business of the unitary affiliate group or would produce business income
					 to the unitary affiliate group, if an election were not in place, if the assets
					 were sold.
Business assets are valued at net book value as of the
						date that electing taxpayers and non-electing taxpayers or non-taxpayers become
						members of a new unitary affiliate group. A copy of the taxpayer's valuation of
						the business assets shall be attached to the return for which the valuation is
						required by Revenue and Taxation Code section
						25113.
						The Franchise Tax Board may, in its sole discretion, allow an alternative
						valuation date if it determines that an alternative date would be more
						appropriate.
(11) Taxpayer.
					 Taxpayer means the individual corporation with a requirement to file under this
					 part. It does not mean the water's-edge group or all the members of the
					 water's-edge group that are required to file under this part.
(12) Good cause. Good cause shall have the
					 same meaning as specified in Treasury Regulation section
					 1.1502-75(c).
(13) Common parent election. A common parent
					 election may be made by a parent corporation that is an electing taxpayer or by
					 an officer or other authorized agent of either a parent corporation of a
					 non-electing taxpayer or another corporation with authority to bind a
					 non-electing taxpayer to an election. Either subsection (c)(2)(A)1. or 2. of
					 this regulation would constitute a common parent election.