California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 7 - Net Income › Article 1 - Deductions › Section 24365-24368(c) - Treatment as Expenses

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(1)
					 In General. Research or experimental expenditures paid or incurred by a
					 taxpayer during the income year in connection with its trade or business are
					 deductible as expenses, and are not chargeable to capital account, if the
					 taxpayer adopts the method provided in Section
					 24365. See subsection (2) of this
					 regulation. If adopted, the method shall apply to all research and experimental
					 expenditures paid or incurred in the income year of adoption and all subsequent
					 income years, unless a different method is authorized by the Franchise Tax
					 Board under Section
					 24365(c) with
					 respect to part or all of the expenditures. See subsection (2) (C) of this
					 regulation. Thus, if a change to the deferred expense method under Section
					 24366 is authorized by the
					 Franchise Tax Board with respect to research or experimental expenditures
					 attributable to a particular project or projects, the taxpayer, for the income
					 year of the change and for subsequent income years, must apply the deferred
					 expense method to all such expenditures paid or incurred during any of those
					 income years in connection with the particular project or projects, even though
					 all other research and experimental expenditures are required to be deducted as
					 current expenses under this regulation. In no event will the taxpayer be
					 permitted to adopt the method described in this regulation as to part of the
					 expenditures relative to a particular project and adopt for the same income
					 year a different method of treating the balance of the expenditures relating to
					 the same project.
(2) Adoption and
					 Change of Method.
(A) Adoption Without
					 Consent. The method described in this regulation may be adopted for any income
					 year beginning after December 31, 1960, and ending after June 23, 1961. The
					 consent of the Franchise Tax Board is not required if the taxpayer adopts the
					 method for the first such income year in which it pays or incurs research or
					 experimental expenditures. The taxpayer may do so by claiming in its tax return
					 for such year a deduction for its research or experimental expenditures. If the
					 taxpayer fails to adopt the method for the first income year in which it incurs
					 such expenditures, it cannot do so in subsequent income years unless it obtains
					 the consent of the Franchise Tax Board under Section
					 24365(b)(2) and
					 paragraph (B) of this subsection. See, however, paragraph (D) of this
					 subsection, relating to extensions of time.
(B) Adoption With Consent. A taxpayer may,
					 with the consent of the Franchise Tax Board, adopt at any time the method
					 provided in Section
					 24365. The method adopted in this
					 manner shall be applicable only to expenditures paid or incurred during the
					 income year for which the request is made and in subsequent income years. A
					 request to adopt this method shall be in writing and shall be addressed to the
					 Franchise Tax Board, P.O. Box 1468, Sacramento, CA 95812-1468. The request
					 shall set forth the name and address of the taxpayer, the first income year for
					 which the adoption of the method is requested, and a description of the project
					 or projects with respect to which research or experimental expenditures are to
					 be, or have already been, paid or incurred. The request shall be signed by a
					 principal officer of the corporation or its duly authorized representative and
					 shall be filed not later than the last day of the first income year for which
					 the adoption of the method is requested. See, however, paragraph (D) of this
					 subsection, relating to extensions of time.
(C) Change of Method. An application for
					 permission to change to a different method of treating research or experimental
					 expenditures shall be in writing and shall be addressed to the Franchise Tax
					 Board, P.O. Box 1468, Sacramento, CA 95812-1468. The application shall include
					 the name and address of the taxpayer, shall be signed by a principal officer of
					 the corporation or its duly authorized representative, and shall be filed not
					 later than the last day of the first income year for which the change in method
					 is to apply. See, however, paragraph (D) of this subsection, relating to
					 extensions of time. The application shall--
(i) State the first year to which the
					 requested change is to be applicable;
(ii) State whether the change is to apply to
					 all research or experimental expenditures paid or incurred by the taxpayer, or
					 only to expenditures attributable to a particular project or
					 projects;
(iii) Include such
					 information as will identify the project or projects to which the change is
					 applicable;
(iv) Indicate the
					 number of months (not less than 60) selected for amortization of the
					 expenditures, if any, which are to be treated as deferred expenses under
					 Section 24366;
(v) State that, upon approval of the
					 application, the taxpayer will make an accounting segregation on its books and
					 records of the research or experimental expenditures to which the change in
					 method is to apply; and
(vi) State
					 the reasons for the change. If permission is granted to make the change, the
					 taxpayer shall attach a copy of the letter granting permission to its income
					 tax return for the first income year in which the different method is
					 effective.