Louisiana Administrative Code › Title 61 - REVENUE AND TAXATION › Part I - Taxes Collected and Administered by the Secretary of Revenue › Chapter 3 - Corporation Franchise Tax › Section I-305 - Surplus and Undivided Profits

Current through Register Vol. 50, No. 6, June 20, 2024
A. Determination of Value-Assets
1. For the purpose of determining the tax
				imposed by
				R.S.
				47:601, there are statutory limitations on
				both the maximum and minimum amounts which shall be included in the taxable
				base with respect to surplus and undivided profits. The minimum amount which
				shall be included in the taxable base shall be no less than the amount
				reflected on the books of the taxpayer. Irrespective of the reason for any book
				entry which increases the franchise tax base, such as, but not limited to,
				entries to record asset appreciation, entries to reflect equity accounting for
				investments in affiliates or subsidiaries, and amounts credited to surplus to
				record accrual of anticipated future tax refunds created by accounting timing
				differences, the amount reflected on the books must be included in the tax
				base.
2. Entries to the books of
				any corporation to record the decrease in value of any investment through the
				use of equity accounting will be allowed as a reduction in taxable surplus and
				its related asset account for property factor purposes. This is only in those
				cases in which all investments are recorded under the principles of equity
				accounting, and such reductions in the value of any particular investment below
				cost thereof to the taxpayer will not be allowed. The exception is in those
				instances in which the taxpayer can show that such reduction is in the nature
				of a bona fide valuation adjustment based on the fair value of the investment.
				In no case will a reduction below zero value be recognized. Corresponding
				adjustments shall in all instances be made to the value of assets for property
				factor purposes.
3. In any instance
				in which an asset is required to be included in the property factor under the
				provisions of R. S. 47:606 and the regulations issued thereunder, the
				acquisition of which resulted in the establishment of a contra account, such
				as, but not limited to, an account to record unrealized gain from an
				installment sale, all such contra accounts shall be included in the taxable
				base, except to the extent such contra accounts constitute a reserve permitted
				to be excluded under the provisions of
				R.S.
				47:605(A) and the
				regulations issued under §305. A See §306. A for required adjustments to
				assets with respect to any contra account or reserve which is not included in
				the taxable base.
4. The minimum
				value under the statute is subject to examination and revision by the secretary
				of revenue and taxation. The recorded book value of surplus and undivided
				profits may be increased, but not in excess of cost, as the result of such
				examination to the extent found necessary by the secretary to reflect the true
				value of surplus and undivided profits. The secretary is prohibited from making
				revisions which would reflect any value below the amount reflected on the books
				of the taxpayer. A taxpayer may, in his own discretion, reflect values in
				excess of cost; that option is not extended to the secretary in any examination
				of recorded cost.
5. In determining
				cost to which the revisions limitation applies, the fair market value of any
				asset received in an exchange of properties shall be deemed to constitute the
				cost of the asset to the taxpayer under the generally recognized concept that
				no prudent person will exchange an article of value for one of lesser value. In
				application of that concept, the secretary of revenue and taxation shall,
				except as provided in the following Paragraphs, construe cost of any asset to
				be fair market value of the asset received in exchange therefor.
6. Exception to the rules stated above will
				be made only in those instances in which the exchange resulted in a fully
				tax-free exchange under provisions of the Louisiana income tax law, in which
				case cost shall be construed to be the income tax basis of the properties
				received for purposes of calculating depreciation and the determination of gain
				or loss on any subsequent disposition of the assets. Limitation of the
				valuation of the cost of any asset to the income tax basis will be considered
				only in the case of fully tax-free exchanges and will not be considered if the
				transaction was taxable to any extent under the provisions of the Louisiana
				income tax law contained in
				R.S.
				47:131, 132, 133, 134, 135, 136, and
				138.