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 23663-2 - Assignor Has Less Credits than Assigned

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) In General. Pursuant to Regulation
					 23663-5(a), no assignor, assignee, or any other taxpayer shall claim, assign or
					 otherwise benefit from a credit which was assigned in a defective assignment,
					 unless that credit is allocated to the assignor or assignee under Regulations
					 23663-2 through 23663-5. This regulation provides default rules for the
					 allocation of credits in defective assignments when an assignor assigns more
					 credits than it has, and also includes alternative allocation rules that are
					 available before first contact. This regulation shall apply after any
					 correction made under Regulation 23663-4.
(b) Rules for Aggregating Defective
					 Assignments. If, in a single taxable year, an assignor makes multiple
					 assignments of the same type of identical credit, these multiple assignments
					 shall be aggregated for purposes of determining whether the assignments were
					 defective assignments. If the assignor has less identical credits available
					 than the aggregate amount assigned, then all assignments made in a single
					 taxable year of that type of identical credit shall be defective assignments.
Example 1: X reported that it has $200 of 2010 R & D
						credits. On its original tax return for the 2010 taxable year, X elects to
						assign $100 of the 2010 R & D credits to Y and $100 of the 2010 R & D
						credits to Z. Subsequently, X discovers that it only had $120 of 2010 R & D
						credits. The assignments to Y and Z will be aggregated for purposes of
						determining whether both are defective assignments because both assignments
						involved the same type of identical credit and were made in the same taxable
						year. Both assignments will be treated as being defective assignments because X
						did not have the $200 of 2010 R & D credits which were assigned to Y and Z
						in the taxable year of the assignment.
Example 2: Assume the same facts as in Example 1, except
						that the assignment to Z was made on X's 2011 original tax return. While the
						assignments to X and Y deal with the same type of identical credit, the
						assignments were made in different taxable years and so are not aggregated for
						purposes of applying subsection (b). (See also Regulation
						23663-5(d)(1).)
Example 3: Assume the same facts as in Example 1, except
						that instead of assigning $100 of 2010 R & D credits to Z in 2010, X
						assigned $100 of 2009 R & D credits to Z on its 2010 tax return. The
						assignments to Y and Z are not aggregated under this section because the 2009 R
						& D credits and 2010 R & D credits are not identical credits.
Example 4: Assume the same facts as in Example 3, except
						that instead of assigning $100 of 2009 R & D credits to Z, X assigned $100
						of 2010 low income housing credits to Z. The assignments to Y and Z are not
						aggregated under this section because the 2010 R & D credits and 2010 low
						income housing credits are not identical credits.
(c) Default Allocation. For an assignment
					 which is a defective assignment because an assignor's amount of identical
					 credits available for assignment is less than the amount of those identical
					 credits assigned, such identical credits shall be allocated according to the
					 following rules as of an adjustment date:
(1)
					 The assignor's identical credits, or remaining credits after adjusted by
					 paragraph (2) if applicable, shall be allocated to the aggregated eligible
					 assignees pro rata pursuant to the ratio of the identical credits assigned in
					 the original defective assignments.
(2) If the assignor or any aggregated
					 eligible assignees claimed credits in a closed year, then subparagraphs (A) and
					 (B) shall apply.
(A) First, the assignor's
					 identical credits shall be allocated to the assignor and any aggregated
					 eligible assignees to the extent they claimed such credits in a closed year;
					 except that if the amount of identical credits claimed in closed years by the
					 assignor and aggregated eligible assignees exceeds the assignor's amount of
					 such identical credits available for assignment, then the credits shall be
					 allocated to the assignor and aggregated eligible assignees pro rata based on
					 the aggregate amount of credits each claimed in closed years.
(B) Second, any credits remaining after
					 application of subparagraph (A) shall be allocated to the aggregated eligible
					 assignees with the lowest pro rata allocation of credits until all aggregated
					 eligible assignees have been allocated a pro rata portion of credits pursuant
					 to the ratio of the identical credits assigned in the original defective
					 assignments.
(3)
					 Examples.
Example 5: X reported that it has $350 of 2010 R & D
						credits. On its original tax return for the 2010 taxable year, X elects to
						assign $200 of the 2010 R & D credits to Y and $100 of the 2010 R & D
						credits to Z. Therefore, X retained $50 of the 2010 R & D credits.
						Subsequently, X discovers that it only had $150 of R & D credits in 2010.
						Pursuant to subsection (c)(1), as of the adjustment date, X's actual $150 of
						2010 R & D credits will be allocated to the aggregated eligible assignees
						(Y and Z) as follows: for Y - $200 ($200 is the total 2010 R & D credits
						assigned to Y) / $300 ($300 is the total 2010 R & D credits assigned to
						eligible assignees) x $150 ($150 is X's actual amount of 2010 R & D
						credits) = $100 and for Z - $100 / $300 x $150 = $50. Therefore, under this
						regulation, X is treated as having retained no 2010 R & D credits, Y is
						treated as having received $100 of 2010 R & D credits, and Z is treated as
						having received $50 of 2010 R & D credits.
Example 6: Assume the same facts as in Example 5, except
						that X has claimed $30 of 2010 R & D credits in a closed year as of the
						adjustment date. Pursuant to subsection (c)(2)(A), the first $30 of 2010 R
						& D credits are allocated to X. Pursuant to subsection (c)(1), the
						remaining $120 of 2010 R & D credits ($150 less $30) will be allocated to
						the aggregated eligible assignees as follows: for Y - $200 ($200 is the total
						2010 R & D credits assigned to Y) / $300 ($300 is the total 2010 R & D
						credits assigned to eligible assignees) x $120 ($120 is X's remaining amount of
						2010 R & D credits) = $80 and for Z - $100 / $300 x $120 = $40. Therefore,
						under this regulation, X is treated as having retained $30 of 2010 R & D
						credits (the $30 claimed in a closed year), Y is treated as having received $80
						of 2010 R & D credits, and Z is treated as having received $40 of 2010 R
						& D credits.
Example 7: Assume the same facts as in Example 6, except
						that Y has also claimed $40 of 2010 R & D credits in a closed year as of
						the adjustment date. Pursuant to subsection (c)(2)(A), $30 of 2010 R & D
						credits are first allocated to X and $40 of 2010 R & D credits to Y. Next,
						pursuant to subsection (c)(2)(B), of the remaining $80 of 2010 R & D
						credits ($150 less $70), $20 of 2010 R & D credits will be allocated to Z
						so that Y and Z end up with a pro rata allocation of credits using the original
						defective assignment amounts. $40 ($40 is the 2010 R & D credits already
						allocated to Y) / $200 ($200 is the total 2010 R & D credits assigned to Y)
						= 20% x $100 ($100 is the total 2010 R & D credits assigned to Z) = $20.
						Finally, pursuant to subsection (c)(1), the remaining $60 of 2010 R & D
						credits ($150 less $70 less $20) will be allocated as follows: for Y - $200
						($200 is the total 2010 R & D credits assigned to Y) / $300 ($300 is the
						total 2010 R & D credits assigned to aggregated eligible assignees) x $60
						($60 is X's remaining amount of 2010 R & D credits) = $40 and for Z - $100
						/ $300 x $60 = $20. Therefore, under this regulation, X is treated as having
						retained $30 of 2010 R & D credits, Y is treated as having received $80 of
						2010 R & D credits and Z is treated as having received $40 of R & D
						credits.
Example 8: Assume the same facts as in Example 5, except
						that instead of assigning credits to Y and Z in the amounts listed, X assigns
						$150 of the 2010 R & D credits to Y, $100 of the 2010 R & D credits to
						Z, and $50 of the 2010 R & D credits to T. As of the adjustment date, Y has
						claimed $90 of 2010 R & D credits in a closed year and Z has also claimed
						$10 of 2010 R & D credits in a closed year. Pursuant to subsection
						(c)(2)(A), as of the adjustment date, X's actual $150 of 2010 R & D credits
						will be allocated to the aggregated eligible assignees (Y, Z and T) as follows:
						$90 of 2010 R & D credits are first allocated to Y and $10 of 2010 R &
						D credits to Z. Therefore, after this first step, Y, Z and T have received the
						following percentage of the credits assigned to them in the original defective
						assignments: Y - 60% ($90 / $150), Z - 10% ($10 / $100) and T - 0% ($0 /
						$50).
Next, pursuant to subsection (c)(2)(B), $5 of 2010 R
						& D credits (10% x 50 credits assigned to T) will be allocated to T so that
						T has the same 10% allocation as Z. Z and T now both have a 10% allocation of
						the 2010 R & D credits assigned to them in the original defective
						assignments. The remaining $45 of 2010 R & D credits ($150 less $100 less
						$5) will be allocated to Z and T until they both have received a 60% allocation
						of 2010 R & D credits. The credits to be allocated to Z and T are
						calculated as follows:
(i) for Z - 60%
					 x $100 = $60 less the $10 already allocated to Z = $50, and
(ii) for T - 60% x $50 = $30 less the $5
					 already allocated to Z = $25. Therefore, a total of $75 of 2010 R & D
					 credits are to be allocated to Z and T.
However, because X only has $45 of 2010 R & D credits
						remaining to be allocated to the aggregate eligible assignees after the earlier
						adjustments (instead of $75), the $45 of 2010 R & D credits are allocated
						pro rata between Z and T as follows:
(iii) for Z - $45 x $100 (the amount of
					 credits assigned to Z in the original assignment) / $150 (total credits
					 assigned to Z and T on the original assignment) = $30 of 2010 R & D credits
					 to go to Z, and
(iv) for T - $45 x
					 $50 / $150 = $15 of 2010 R & D credits to go to T. Therefore, under this
					 regulation, X is treated as having retained $0 of 2010 R & D credits, Y is
					 treated as having received $90 of 2010 R & D credits, Z is treated as
					 having received $40 of 2010 R & D credits and T is treated as having
					 received $20 of 2010 R & D credits.