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 23663-3 - Other Defective Assignments

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 rules for the allocation of
					 credits in all defective assignments not covered by Regulation 23663-2,
					 relating to situations where an assignor assigns more credits than it has, and
					 also includes additional restrictions for certain types of defective
					 assignments. This regulation shall apply after any correction made under
					 Regulation 23663-4.
(b) Default
					 Allocation. For an assignment which is a defective assignment for any reason
					 other than that listed in Regulation 23663-2(c), relating to situations where
					 an assignor assigns more credits than it has, or in subsection (c) of this
					 regulation, the following allocation rules shall apply as of an adjustment
					 date:
(1) The identical credits listed as
					 assigned in the defective assignment, or remaining credits after reduction by
					 paragraphs (2) and (3), if applicable, shall be allocated to the
					 assignor.
(2) The identical credits
					 listed as assigned in the defective assignment shall be reduced by the amount
					 of such identical credits claimed in a closed year by the assignee.
(3) If a defective assignment has multiple
					 potential assignees:
(A) Subsection (b)(2)
					 shall apply to each potential assignee, and
(B) If the application of subparagraph (A)
					 would reduce an assignor's identical credits by an amount in excess of the
					 identical credits listed as being assigned on the defective assignment, the
					 assignor's other identical credits shall be reduced as of the taxable year of
					 the defective assignment.
(4) Examples.
Example 1: 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 2010 R & D credits. Further
						assume that Y was not an eligible assignee. Also, Y has claimed $30 of 2010 R
						& D credits in a closed year as of the adjustment date. Pursuant to
						subsection (b)(2), as of the adjustment date, the $200 of 2010 R & D
						credits assigned to Y will be reduced by the $30 which Y claimed in a closed
						year and the remainder of $170 will be allocated to X. Therefore, assuming any
						additional restrictions under this regulation have been satisfied, X is treated
						as having retained $220 of 2010 R & D credits ($50 plus $170), Y is treated
						as having received no 2010 R & D credits, and Z received $100 of 2010 R
						& D credits.
Example 2: 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. However, X's assignment lists the
						name of Y but FEIN of Z. Subsequently, the FTB mails a notice of proposed
						assessment to X at which time Y has claimed $150 of 2010 R & D credits in
						closed years and Z has claimed $60 of 2010 R & D credits in closed years.
						The 2010 assignment is a defective assignment because it is not clear if Y or Z
						is the assignee. Under subsection (b)(3), X's $350 of 2010 R & D credits
						are reduced by the $210 ($150 + $60) of 2010 R & D credits claimed by Y and
						Z in closed years. Therefore, X is treated as having retained $140 of 2010 R
						& D credits ($350 less $210), and Y and Z are treated as having received no
						2010 R & D credits.