Cal. Code Regs. Tit. 18, §§ 23663-1

Current through Register 2024 Notice Reg. No. 40, October 4, 2024

Section 23663-1 - Definitions

Definitions. For purposes of Regulations 23663-1 through 23663-6, inclusive, the following definitions shall apply:

(a) Adjustment Date. The term "adjustment date" shall mean the calendar date on which any adjustment under Regulations 23663-2 through 23663-5 is made by either the mailing by the Franchise Tax Board of a notice of corrected credit adjustments under Regulations 23663-2 through 23663-5, including a notice of proposed assessment under Revenue and Taxation Code section 19033, or the date on which the FTB receives a request which is later approved for either a correction of an error under Regulation 23663-4 or to apply Regulation 23663-2 or 23663-3. To the extent a final determination of a notice mailed by the FTB modifies, in whole or in part, the allocations reflected in that notice, then such modifications are treated as if made on the adjustment date on which that notice was mailed.

(b) Affiliated Corporation. The term "affiliated corporation" shall mean any corporation that is a member of the same commonly controlled group within the meaning of Revenue and Taxation Code section 25105 as the assignor.

(c) Aggregated Eligible Assignees. The term "aggregated eligible assignees" shall mean all eligible assignees assigned the same type of identical credits in the same taxable year.

(d) Assignee. The term "assignee" shall mean any corporation (including a successor in interest) to whom an assignor has made an election to assign a credit under Revenue and Taxation Code section 23663, and shall also include any affiliated corporation (including a successor in interest) whose identifying information is listed on the defective assignment.

(e) Assignment. The term "assignment" shall mean any election by an assignor to assign a credit to an assignee under the provisions of Revenue and Taxation Code section 23663. For purposes of Regulations 23663-1 through 23663-5, each election by an assignor to assign any credit to an assignee shall be treated as a separate assignment.

(f) Assignor. The term "assignor" shall mean any taxpayer (including any successor in interest) who made an election to assign any credit to an assignee.

(g) Closed Year. The term "closed year" shall mean any taxable year for which the Franchise Tax Board determines that it is precluded by law from mailing a notice of proposed deficiency assessment.

(h) Defective Assignment.

(1) The term "defective assignment" shall mean any assignment under Revenue and Taxation Code section 23663 which does not comply with the requirements of Revenue and Taxation Code section 23663, including, but not limited to, any assignment which:

(A) fails to clearly identify the taxable year from which the credit to be assigned was earned by the assignor;

(B) fails to clearly identify the amount of any credit to be assigned;

(C) fails to clearly identify the type of credit intended to be assigned;

(D) assigns an amount of credit, or when aggregated with other assignments of the same credit in the same taxable year, which exceeds the amount of the assignor's eligible credits for that taxable year;

(E) assigns a credit that is not an eligible credit; or

(F) assigns a credit to an assignee who is not clearly identified or who is not an eligible assignee.

(2) An assignor's intent or purpose in making an assignment is not relevant in determining whether an assignment is a defective assignment.

(3) Examples.

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. Subsequently, X discovers that it only had $120 of 2010 R & D credits. The assignment to Y is a not a defective assignment because X had the $100 of 2010 R & D credits assigned to Y. The fact that X retained less 2010 R & D credits than it expected does not make the assignment to Y a defective assignment. Therefore, X retained $20 of 2010 R & D credits and Y received $100 of 2010 R & D credits.

Example 2: Assume the same facts as in Example 1, except that X elects to assign all $200 of the 2010 R & D credits to Y. Subsequently, X discovers that it had $300 of 2010 R & D credits. The assignment to Y is a not a defective assignment because X had all $200 of the 2010 R & D credits assigned to Y. Even if X can demonstrate that X intended to assign all of its 2010 R & D credits to Y, the assignment of 2010 R & D credits to Y will be limited to $200 of 2010 R & D credits because this is the amount assigned in the valid assignment.

Example 3: Assume the same facts as in Example 1, except that X discovers that X has no credits and the election to assign credits to Y was meant to have been made by its affiliate, E, the entity that had $200 of 2010 R & D credits. No credits are transferred because the assignment of credits from X to Y was a defective assignment, and E did not elect to assign any credits. Therefore, E retained all $200 of 2010 R & D credits, and Y received no 2010 R & D credits.

Example 4: Assume the same facts as in Example 1, except that X can demonstrate with contemporaneous evidence, such as emails, correspondence, memos and tax preparation workpapers, that X intended to assign no credits to Y and, instead, meant to assign the $100 of 2010 R & D credits to M. Pursuant to paragraph (2), X's intent to assign to M is not relevant in determining whether the assignment is a defective assignment. Accordingly, the assignment of credits to Y is not a defective assignment. Therefore, X retained $20 of 2010 R & D credits, Y received $100 of 2010 R & D credits, and M received no credits.

Example 5: Assume the same facts as in Example 1, except that on X's original tax return for the 2010 taxable year, X did not elect to assign any credits, but Y's Form 3544A states that Y received $100 of 2010 R & D credits from X in 2010. An assignment of credits in 2010 did not occur because X did not make an election to assign credits on its original tax return. Therefore, X retained $200 of 2010 R & D credits and Y received no credits.

(i) Effective Date of the Adjustment. The term "effective date of the adjustment" shall mean the date an allocation or reduction pursuant to Regulations 23663-2 through 23663-5 is treated as having occurred, which date shall be the same date that an assignor or eligible assignee would otherwise have retained or received the credits if the original assignment had reflected such an allocation.

(j) Election. The term "election" shall mean an irrevocable election by an assignor to assign to an assignee a credit under the rules of Revenue and Taxation Code section 23663, in the form and manner specified by the FTB in forms and instructions, including FTB Form 3544 (and any successor form thereto).

(k) Eligible Assignee. The term "eligible assignee" shall mean any affiliated corporation that is properly treated as a member of the same combined reporting group under Revenue and Taxation Code sections 25101 or 25110 as the assignor, determined as of (i) in the case of credits earned in taxable years beginning before July 1, 2008, June 30, 2008 and the last day of the taxable year of the assignor in which the eligible credit is assigned, or (ii) in the case of credits earned in taxable years beginning on or after July 1, 2008, the last day of the first taxable year in which the credit was allowed to the assignor and the last day of the taxable year of the assignor in which the eligible credit is assigned.

(l) Eligible Credit. The term "eligible credit" shall mean any credit earned by a taxpayer (i) in a taxable year beginning on or after July 1, 2008, or (ii) in a taxable year beginning before July 1, 2008, provided that such pre-July 1, 2008 credit is eligible to be carried forward to the taxpayer's first taxable year beginning on or after July 1, 2008 under the provisions of Part 11 of the Revenue and Taxation Code.

(m) FTB. The term "FTB" shall mean Franchise Tax Board.

(n) First Contact. The term "first contact" shall mean the date the initial audit contact as defined in Regulation 19032 occurs for any assignor or assignee with respect to any taxable year in which an assignment of credits is made or in which credits which were the subject of an assignment are claimed.

(o) Identical Credit. The term "identical credit" shall mean any credit that:

(1) is allowed under the same section of the Revenue and Taxation Code as any other credit,

(2) is originally allowed in the same taxable year, and

(3) in the case of certain credits, such as credits for activities in enterprise zones, program areas or similar geographic-based credits, is a credit based on activity in the same enterprise zone or program area.

(p) Parties to a Defective Assignment. The term "parties to a defective assignment" shall mean the assignor and each potential assignee for all defective assignments the assignor made of the same type of identical credit in the same taxable year as the defective assignment.

Cal. Code Regs. Tit. 18, §§ 23663-1

1. New section filed 9-18-2018; operative 9-18-2018 pursuant to Government Code section 11343.4(b)(3) (Register 2018, No. 38).
2. Amendment of first paragraph filed 12-7-2021; operative 1-1-2022 pursuant to Government Code section 11343.4(b)(3) (Register 2021, No. 50). Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20.

Note: Authority cited: Sections 19503 and 23663, Revenue and Taxation Code. Reference: Section 23663, Revenue and Taxation Code.

1. New section filed 9-18-2018; operative 9/18/2018 pursuant to Government Code section 11343.4(b)(3) (Register 2018, No. 38).
2. Amendment of first paragraph filed 12-7-2021; operative 1/1/2022 pursuant to Government Code section 11343.4(b)(3) (Register 2021, No. 50). Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20.