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Changes to 2010 Forms

Updates to the Publication 1001 on 02/24/2014 –– Supplemental Guidelines to California Adjustments

We replaced text on Page 9, Item 6.

Previous Version

DIFFERENCES BETWEEN FEDERAL AND CALIFORNIA LAW

Federal law allows deferral and exclusion under IRC Section 1045 and IRC Section 1202 of 100% of the gain on sale of qualifying small business stock originally issued after August 10, 1993, that was held for more than five years. California does not conform.

Revised Version

DIFFERENCES BETWEEN FEDERAL AND CALIFORNIA LAW

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.

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 2010


Updates to the Publication 1001 on 02/15/2013 –– Supplemental Guidelines to California Adjustments

We replaced text on Page 9, Item 7.

Previous Version

DIFFERENCES BETWEEN FEDERAL AND CALIFORNIA LAW

Federal law allows an exclusion under IRC Section 1202 of 50% of the gain on the sale of qualifying small business stock originally issued after 08/10/93, that was held for more than five years. California law provides a similar exclusion (under R&TC Section 18152.5); however, for California purposes, 80% of the issuing corporation’s payroll must be attributable to employment located within California, and at least 80% of the value of the issuing corporation’s assets must be used by the corporation to actively conduct one or more qualified trades or businesses in California.

WHAT TO DO FOR CALIFORNIA

Use California Schedule D (540 or 540NR) if you claim the federal IRC Section 1202 exclusion on your federal return.

Revised Version

DIFFERENCES BETWEEN FEDERAL AND CALIFORNIA LAW

Federal law allows deferral and exclusion under IRC Section 1045 and IRC Section 1202 of 100% of the gain on sale of qualifying small business stock originally issued after August 10, 1993, that was held for more than five years. California does not conform.

WHAT TO DO FOR CALIFORNIA

Use California Schedule D (540 or 540NR) if you claim the federal IRC Section 1045 deferral or IRC Section 1202 exclusion on your federal return.

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 2010