California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 3 - Corporation Income Tax › Article 3 - Tax Credits › Section 23663-6 - Corporate Reorganizations and Other Corporate Restructurings

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
In
					 general
. The purpose of this regulation is to provide rules regarding
					 the assignment of credits following corporate reorganizations and other
					 corporate restructurings.
(b)
Eligible Credit
. For purposes of Revenue and Taxation Code
					 section
					 23663(b)(2),
					 "any credit earned by the taxpayer" includes any credit allowed to the taxpayer
					 for any reason other than that the credit was sold or assigned to the taxpayer
					 pursuant to Revenue and Taxation Code section
					 23663,
					 or any other section which permits the sale or assignment of credits.
(c)
Eligible Assignee
. In
					 addition to the requirements set forth in Revenue and Taxation Code section
					 23663(b)(3),
					 an eligible assignee is a taxpayer that:
(1)
					 In the case of credits earned in taxable years beginning before July 1, 2008,
					 was a member of the same combined reporting group as the taxpayer that was
					 allowed the credit as of June 30, 2008; or
(2) In the case of credits earned in taxable
					 years beginning on or after July 1, 2008, was a member of the same combined
					 reporting group as the taxpayer that originally earned the credit as of the
					 last day of the taxable year in which the credit was originally earned.
Example 1--Assignor acquired by another combined
						reporting group.
In 2010, A, B and C are members of the same combined
						reporting group, with A owning 100 percent of B, and B owning 100 percent of C.
						X, Y and Z are members of an unrelated combined reporting group, with X owning
						100 percent of Y, and Y owning 100 percent of Z. The ownership structures of A,
						B and C, as well as X, Y, and Z, are illustrated by the following
						diagram:
Click
						here to view image
B earns credits in 2010, which are neither used against
						its tax, nor assigned in either 2010 or 2011. In 2012, B and C are acquired by
						the X-Y-Z group in a tax-free "B" reorganization so that thereafter B is wholly
						owned by Y. The ownership structure of remaining entity A, and entities X, Y
						(with acquired entities B and C), and Z, is illustrated by the following
						diagram:
Click
						here to view image
In 2013, B wants to assign its credits that it earned in
						2010. C is the only eligible assignee for B's 2010 credits because C is the
						only entity that was in B's combined reporting group both in 2010 (the year the
						credits were earned) and in 2013 (the year of the assignment).
Example 2--
Spin-off.
B and C are members of the same combined reporting group,
						with B owning 100 percent of C. C earns credits in 2010, which are neither
						allowed against its tax nor assigned in either 2010 or 2011. The ownership
						structure of B and C is illustrated by the following diagram:
Click
						here to view image
In 2012, D was formed and spun off from B, with B
						contributing assets to D in exchange for D stock, which qualified as a "D"
						reorganization under Internal Revenue Code section
						368(a)(1)(D). D's
						stock was distributed to B's shareholders in a tax-free Internal Revenue Code
						section 355 transaction. The ownership
						structure of B, C and D thereafter is illustrated by the following
						diagram:
Click
						here to view image
In 2013, C wants to assign the credits that it earned in
						2010 to D. However, because D did not exist in 2010, D was not in the same
						combined reporting group as C when C earned the credits, and so, D is not an
						eligible assignee.
Example
						3--
Split-off
.
A, B and C are members of the same combined reporting
						group, with A owning 100 percent of B, and A and B each owning 50 percent of C.
						B earns credits in 2010, which are neither allowed against its tax nor assigned
						in either 2010 or 2011. The ownership structure of A, B and C is illustrated by
						the following diagram:
Click
						here to view image
In 2012, D is formed and is split off of C, with C
						contributing assets to D for D's shares in a D reorganization under Internal
						Revenue Code section
						368(a)(1)(D). C
						distributes D's shares to B in complete redemption of B's interest in C in a
						transaction that qualified under Internal Revenue Code section
						355. As a result, A owns 100
						percent of B and C, and B owns 100 percent of D. The ownership structure of A,
						B, C and D thereafter, is illustrated by the following diagram:
Click
						here to view image
In 2013, B wants to assign the credits it earned in 2010
						to D. However, since D was not in B's combined reporting group in 2010 because
						it was not in existence, D is not an eligible assignee.
Example 4--
Split-up
.
A, B and C are part of the same combined reporting group
						in 2010, with A owning 100 percent of B and 100 percent of C. A and B earn
						credits in 2010. The ownership structure of A, B and C is illustrated by the
						following diagram:
Click
						here to view image
In 2012, A distributes B and C's shares to A's
						shareholders in complete redemption of their A shares. As a result, A ceases to
						exist, and any credits it owned from prior years are extinguished because
						Internal Revenue Code section
						381 does not apply. The ownership
						structure of remaining entities B and C, is illustrated by the following
						diagram:
Click
						here to view image
B and C continue to be in the same combined reporting
						group because they retain the same ownership and meet all other unitary
						requirements. C is an eligible assignee of the credits B earned in 2010 because
						C was part of B's combined reporting group at the end of the taxable year that
						the credits were allowed, and at the end of the taxable year that the credits
						were assigned.