Section 24407-24409 - Election to Amortize Organizational Expenditures(a) In General. (1) Section 24407 provides that a bank or corporation may elect for any income year beginning after December 31, 1960, to treat its organizational expenditures, as defined in Section 24408 and in subsection (b) of this regulation, as deferred expenses. A bank or corporation which exercises such election must, at the time it makes the election, select a period of not less than 60 months, beginning with the month in which it began business, over which it will amortize its organizational expenditures. The period selected by the bank or corporation may be equal to or greater, but not less, than 60 months, but in any event it must begin with the month in which the corporation began business. The organizational expenditures of the bank or corporation which are treated as deferred expenses under the provisions of Section 24407 and this regulation shall then be allowed as a deduction in computing net income ratably over the period selected by the taxpayer. The period selected by the taxpayer in making its election may not be subsequently changed but shall be adhered to in computing net income for the income year for which the election is made and all subsequent income years.(2) If a bank or corporation exercises the election provided in Section 24407, such election shall apply to all of its expenditures which are organizational expenditures within the meaning of Section 24408 and subsection (b) of this regulation. The election shall apply, however, only with respect to expenditures incurred before the end of the income year in which the bank or corporation begins business (without regard to whether the bank or corporation files its returns on the accrual or cash method of accounting or whether the expenditures are paid in the income year in which they are incurred), and if such expenditures are paid or incurred on or after June 23, 1961.(3) The deduction allowed under Section 24407 must be spread over a period beginning with the month in which the bank or corporation begins business. The determination of the date the bank or corporation begins business presents a question of fact which must be determined in each case in light of all the circumstances of the particular case. The words "begins business," however, do not have the same meaning as "in existence." Ordinarily, a bank or corporation begins business when it starts the business operations for which it was organized; a bank or corporation comes into existence on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business. If the activities of the bank or corporation have advanced to the extent necessary to establish the nature of its business operations, however, it will be deemed to have begun business. For example, the acquisition of operating assets which are necessary to the type of business contemplated may constitute the beginning of business.(b) Organizational Expenditures Defined. (1) Section 24408 defines the term "organization expenditures." Such expenditures for purposes of Section 24408 and this regulation, are those expenditures which are directly incident to the creation of the bank or corporation. An expenditure, in order to qualify as an organizational expenditure, must be (i) incident to the creation of the bank or corporation, (ii) chargeable to the capital account of the bank or corporation, and (iii) of a character which, if expended incident to the creation of a bank or corporation having a limited life, would be amortizable over such life. An expenditure which fails to meet each of these three tests may not be considered an organizational expenditure for purposes of Section 24407 and this regulation.(2) The following are examples of organizational expenditures within the meaning of Section 24408 and this regulation: legal services incident to the organization of the bank or corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, and the like; necessary accounting services; expenses of temporary directors and of organizational meetings of directors or stockholders; and fees paid to State of incorporation.(3) The following expenditures are not organizational expenditures within the meaning of Section 24408 and this regulation: (A) Expenditures connected with issuing or selling shares of stock or other securities, such as commissions, professional fees, and printing costs. This is so even where the particular issues of stock to which the expenditures relate is for a fixed term of years;(B) Expenditures connected with the transfer of assets to a bank or corporation.(4) Expenditures connected with the reorganization of a bank or corporation, unless directly incident to the creation of a bank or corporation, are not organizational expenditures within the meaning of Section 24408 and this regulation.(c) Time and Manner of Making Election. The election provided by Section 24407 and subsection (a) of this regulation shall be made in a statement attached to the taxpayer's return for the income year in which it begins business. Such income year must be one which begins after December 31, 1960. The return and statement must be filed not later than the date prescribed by law for filing the return (including any extensions of time) for the income year in which the taxpayer begins business. The statement shall set forth the description and amount of the expenditures involved, the date such expenditures were incurred, the month in which the bank or corporation began business, and the number of months (not less than 60 and beginning with the month in which the taxpayer began business) over which such expenditures are to be deducted ratably.Cal. Code Regs. Tit. 18, §§ 24407-24409
1. New section filed 12-22-69; effective thirtieth day thereafter (Register 69, No. 52).[FN*]
This regulation is substantially the same as Section 26 CFR 1.248-1. Note: Authority cited: Section 26422, Revenue and Taxation Code.
1. New section filed 12-22-69; effective thirtieth day thereafter (Register 69, No. 52).