Tax News August 2026

July Tax News Flash

July 7, 2026 – FTB is issuing Legal Ruling 2026-01

July 30, 2026 – Los Angeles County Disaster Relief Reminder

FTB Publishes Legal Ruling 2026-01 – Contingent Beneficiaries of Discretionary Trusts Under California Revenue and Taxation Code (R&TC) section 17742 

Pursuant to R&TC section 17742, the accumulated income of a trust is taxable to the trust. The tax applies to the entire taxable income of a trust, if the fiduciary or beneficiary (other than a beneficiary whose interest in such trust is contingent) is a resident, regardless of the residence of the settlor. Thus, whether a resident beneficiary whose interest in a trust is contingent or non-contingent impacts whether the trust is taxable under R&TC section 17742.

Legal Ruling 2026-01 provides clarity to situations involving contingent beneficiaries of discretionary trusts under R&TC section 17742. More specifically, the Legal Ruling sets forth three fact patterns involving distributions to the resident beneficiary of a discretionary trust and addresses whether the resident beneficiary has a contingent or non-contingent interest for purposes of R&TC section 17742. The Legal Ruling also includes the tax consequences for the trust under R&TC section 17742.

Senate Bill 122 and Senate Bill 180

Recent legislative actions in California include changes affecting business tax incentives, and changes that align state law with recent changes to federal tax-advantage saving and investment accounts, among other changes. Senate Bill 122 and Senate Bill 180 are the current fiscal year budget trailer bills that impact the Franchise Tax Board (FTB). These bills make the following changes to the Revenue and Taxation Code (RTC):

• Temporary Business Credit Limitation Extension to 2030: The sunset date for the business tax credit limitation and annual refundable credit election periods were extended by three years to taxable years beginning before January 1, 2030.  
• Permanent Business Credit Limitation: For taxable years beginning or after January 1, 2030, specified tax credits can only reduce a taxpayer’s tax liability by no more than 70% of tax or net tax, as applicable, or $5 million, whichever is greater. The amount of credit not allowed due to the credit limitation will remain as a credit carryover amount.    
• First Year Annual or Minimum Tax Reduction: For taxable years beginning on or after January 1, 2027, and before January 1, 2030, for Limited Partnership (LPs), Limited Liability Companies (LLCs) not classified as corporations, and Limited Liability Partnerships (LLPs) the annual tax is reduced from $800 to $400 for their first taxable year. 
• ABLE Account Conformity: Generally aligns California law with federal changes for 530A and ABLE (Achieving a Better Life Experience) accounts.
• Other Provisions: Extends the existing California Competes Tax Credit five years to taxable years beginning before January 1, 2035. Imposes a tax equal to 100% of any anti-weaponization settlement fund payment received by a taxpayer during the taxable year, as specified.  

California Competes Tax Credit (CCTC)

The CCTC is an income tax credit available to businesses that want to locate in California or stay and grow in California. The CCTC agreements are negotiated by the Governor's Office of Business and Economic Development (GO-Biz) and approved by a statutorily created CCTC Committee. 

Businesses are encouraged to apply for an allocation of the CCTC in one of the three separate application periods. For Fiscal Year 2026/2027, the CCTC applications are available as follows: 

• July 20, 2026, through August 10, 2026 
• January 4, 2027, through January 25, 2027 
• March 1, 2027, through March 15, 2027 

During the initial application period, a total of $350 million in tax credits will be available for allocation.

Applications for the credit will be accepted at calcompetes.ca.gov between July 20, 2026, through August 10, 2026.  

For more information, go to California Competes Tax Credit. 

Prediction Markets

Prediction markets are online platforms where people can make predictions about future events. In some cases, participants may earn income from their activity on these platforms.

California residents generally must report all taxable income they receive, including income earned through prediction markets. This reporting requirement applies even if the taxpayer doesn’t receive a Form 1099 or any other tax document. Anyone participating in prediction markets should keep detailed records of their transactions and consider speaking with a qualified tax professional to understand any reporting obligations that may apply to their situation. 

Voluntary Administrative Dissolution/Cancelation

This may be an appropriate time to remind your small business clients - who may have registered a business entity but did not properly dissolve or cancel it - that a qualified domestic corporation or qualified domestic limited liability company may request a voluntary administrative dissolution or cancellation.

Upon receipt of a written request from a qualified entity, the Franchise Tax Board may abate unpaid qualified taxes, penalties, fess, and interest for the taxable years for which the entity provides the required certification. To qualify, the entity must certify - under penalty of perjury - that it is not actively conducting any transactions for the purpose of financial or monetary gain or profit, that it has ceased doing business or never conducted business, and that it holds no remaining assets in the entity’s name.

It is important to note that this relief does not exempt the entity from its obligation to file and fully pay all tax liabilities for any taxable year in which it conducted business.

Only an officer, owner, member, director, or an authorized POA can request Voluntary Administrative Dissolution/Cancelation. 

The request forms to submit by entity are: 

• Corporations: Domestic Corporation Request for Voluntary Administrative Dissolution (FTB 3715 PC) 

• Limited liability companies (LLC): Domestic Limited Liability Company Request for Voluntary Administrative Cancelation (FTB 3716 PC)

Applying for Voluntary Administrative Dissolution/Cancelation does not legally terminate a business. The entity is still required to submit the proper dissolution/cancellation forms to the Secretary of State (SOS) to close their business entity.

The business entity may qualify if it:

• Is a domestic corporation or domestic LLC registered for more than 12 months with the SOS.
• Is not actively engaging in any transaction for the purpose of financial or monetary gain or profit.
• Has stopped doing business or never did business.
• Has no assets.

For more information, go to Voluntary administrative dissolution/cancelation.

Internal Revenue Service Updates

We partnered with the IRS to provide monthly articles to assist our tax professional and small business communities and are excited to share this information; however, questions about the content should be directed to the IRS.  

IRS simplifies penalty relief, introduces automatic process for eligible taxpayers 

IR-2026-83, July 8, 2026 — The IRS announced a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time, reducing the need for them to request assistance. 

Treasury, IRS issue final regulations naming certain charitable remainder annuity trust transactions as listed transactions 

IR-2026-82, July 8, 2026 —The Department of the Treasury and the IRS issued final regulations identifying certain arrangements purporting to be Charitable Remainder Annuity Trusts as listed transactions. 

IRS, Security Summit launch summer series to help tax pros protect clients from identity theft 

IR-2026-81, July 7, 2026 — The IRS and Security Summit partners launched the summer “Protect Your Clients; Protect Yourself” campaign, a five-week series highlighting practical steps tax professionals can take to protect client data, their businesses, and themselves from evolving tax-related identity theft threats.