California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 1 - General Provisions and Definitions › Article 2 - Definitions › Section 23038(b)-1 - Classification of Organizations for California Income and Franchise Tax Purposes

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Organizations for California income and franchise tax purposes -- (1) In
					 general. The Revenue and Taxation Code prescribes the classification of various
					 organizations for California income and franchise tax purposes. Whether an
					 organization is an entity separate from its owners for California income and
					 franchise tax purposes is a matter of California income and franchise tax law
					 and does not depend on whether the organization is recognized as an entity
					 under local law.
(2) Certain joint
					 undertakings give rise to entities for California income and franchise tax
					 purposes. A joint venture or other contractual arrangement may create a
					 separate entity for California income and franchise tax purposes if the
					 participants carry on a trade, business, financial operation, or venture and
					 divide the profits therefrom. For example, a separate entity exists for
					 California income and franchise tax purposes if co-owners of an apartment
					 building lease space and in addition provide services to the occupants either
					 directly or through an agent. Nevertheless, a joint undertaking merely to share
					 expenses does not create a separate entity for California income and franchise
					 tax purposes. For example, if two or more persons jointly construct a ditch
					 merely to drain surface water from their properties, they have not created a
					 separate entity for California income and franchise tax purposes. Similarly,
					 mere co-ownership of property that is maintained, kept in repair, and rented or
					 leased does not constitute a separate entity for California income and
					 franchise tax purposes. For example, if an individual owner, or tenants in
					 common, of farm property lease it to a farmer for a cash rental or a share of
					 the crops, they do not necessarily create a separate entity for California
					 income and franchise tax purposes.
(3) Certain local law entities not
					 recognized. An entity formed under local law is not always recognized as a
					 separate entity for California income and franchise tax purposes. For example,
					 an organization wholly owned by a State is not recognized as a separate entity
					 for California income and franchise tax purposes if it is an integral part of
					 the State. Similarly, tribes incorporated under section
					 17 of the Indian Reorganization
					 Act of 1934, as amended, 25
					 U.S.C. §
													477, or under section
					 3 of the Oklahoma Indian Welfare
					 Act, as amended, 25 U.S.C.
					 §
													503, are not recognized as separate
					 entities for California income and franchise tax purposes.
(4) Single owner organizations. Under Regs.
					 §
												23038(b) -
					 2 and §
												23038(b) -
					 3, certain organizations that have
					 a single owner can choose to be recognized or disregarded as entities separate
					 from their owners, subject to certain statutory provisions which recognize the
					 existence of otherwise disregarded entities for certain purposes including the
					 tax and fee of a limited company under Sections
					 17941
					 and
					 17942
					 of the Revenue and Taxation Code, the return filing requirements of a limited
					 liability company under Section
					 18633.5
					 of the Revenue and Taxation Code, and the credit limitations of a disregarded
					 entity under Sections
					 17039
					 and
					 23036
					 of the Revenue and Taxation Code.