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Changes to 2008 Forms

Updates to the Schedule D (540NR) Instructions on 02/12/2014 –– Instructions for 540NR Schedule D, California Capital Gain or Loss Adjustment

We replaced text on Page 1, in:

  1. Column 1, Purpose, above Installment Sales paragraph
  2. Column 1, Specific Line Instructions, Line 1
  3. Column 2, Specific Line Instructions, Qualified Small Business Stock paragraph
  4. Column 2, Specific Line Instructions, above Line 2

Previous Version

  1. Note: new text added.
  2. 1
  3. Qualified Small Business Stock - California does not conform to the qualified small business stock deferral and gain exclusion under IRC Section 1045 and IRC Section 1202. Enter the entire gain realized in column (e).
  4. Note: new text added.

Revised Version

  1. California law does not conform to federal law changes regarding the increase in the percentage of the gain exclusion for the sales of qualified small business stock acquired after February 17, 2009. California law allows an exclusion of 50% of any gain from the sale or exchange of qualified small business stock held for more than 5 years. For California purposes, 80% of the issuing corporation’s payroll must be attributable to employment located within California (at time of issuance) Also, at least 80% of the value of the corporation’s assets must be used by the corporation to actively conduct one or more qualified trades or businesses.

    R&TC Section 18038.5 also provides for the deferral of gain from the sale of small business stock that has been held for six months or more, if qualified replacement stock is purchased within 60 days after the sale giving rise to the gain. Report gain deferred from the sale of qualified small business stock in accordance with the instructions contained in Revenue Procedure 98-48.

    For more information, go to ftb.ca.gov and search for qsbs.
  2. 1a
  3. Note: text deleted.
  4. Line 1b – R&TC Section 18152.5 Exclusion. If the gain qualifying for the IRC Section 1202 exclusion also qualifies for the California exclusion under R&TC Section 18152.5: Enter in column (a) “Section 18152.5 Exclusion.” Complete column (b) and column (c) according to the instructions for line 1a. Enter in column (d) the amount of gain that qualifies for the California exclusion. Enter in column (e) the entire gain realized. If the gain qualifying for the IRC Section 1202 exclusion does not qualify for the California exclusion: Complete column (a), column (b), and column (c) according to the instructions for line 1a. Enter -0- in column (d) and enter the entire gain realized in column (e).

Reason for the changes

AB 1412 (Stats. 2013, ch. 546), signed by the Governor on October 4, 2013, retroactively allows the Qualified Small Business Stock (QSBS) deferral and 50 percent gain exclusion for tax years 2008 through 2012.

Impact

This revision may decrease the tax liability for taxpayers who did not report a QSBS exclusion or deferral for taxable years beginning on or after January 1, 2008.

Back to Tax Form Changes for 2008


Updates to the Schedule D (540NR) Instructions on 02/27/2013 –– Instructions for 540NR Schedule D, California Capital Gain or Loss Adjustment

We replaced text on Page 1, in:

  1. Column 1, Purpose, Exclusion of Gain on Sale on Qualified Small Business Stock
  2. Column 2, Specific Line Instructions, Line 1a
  3. Column 2, Specific Line Instructions, below Special Credits
  4. Column 2, Specific Line Instructions, Line 1b

Previous Version

  1. Exclusion of Gain on Qualified Small Business Stock. California law (R&TC Section 18152.5) provides an exclusion (similar to the federal exclusion under IRC Section 1202) of 50% of the gain on the sale of qualifying small business stock originally issued after 8/10/93 that was held for more than five years. However, for California purposes, at least 80% of the issuing corporation’s payroll must be attributable to employment located within California, and at least 80% of the value of the corporation’s assets must be used by the corporation to actively conduct one or more qualified trades or businesses in California.

    If you have gain on the sale of qualified small business stock that qualifies for the federal Section 1202 exclusion, go to the specific line instructions for line 1b.
  2. 1a
  3. Note: new text added.
  4. Line 1b – R&TC Section 18152.5 Exclusion. If the gain qualifying for the IRC Section 1202 exclusion also qualifies for the California exclusion under R&TC Section 18152.5: Enter in column (a) “Section 18152.5 Exclusion.” Complete column (b) and column (c) according to the instructions for line 1a. Enter in column (d) the amount of gain that qualifies for the California exclusion. Enter in column (e) the entire gain realized. If the gain qualifying for the IRC Section 1202 exclusion does not qualify for the California exclusion: Complete column (a), column (b), and column (c) according to the instructions for line 1a. Enter -0- in column (d) and enter the entire gain realized in column (e).

Revised Version

  1. Note: text deleted.
  2. 1
  3. Qualified Small Business Stock - California does not conform to the qualified small business stock deferral and gain exclusion under IRC Section 1045 and IRC Section 1202. Enter the entire gain realized in column (e).
  4. Note: text deleted.

Reason for the changes

The Court of Appeal’s held in Cutler v. Franchise Tax Board (2012) 208 Cal. App. 4th 1247, that the qualified small business stock exclusion and deferral statutes under California Revenue and Taxation Code (R&TC) Sections 18152.5 and 18038.5 are unconstitutional. These sections are now invalid and unenforceable.

Impact

This revision increases the tax liability for taxpayers who reported a qualified small business stock exclusion or deferral for taxable years beginning on or after January 1, 2008.

Back to Tax Form Changes for 2008