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Conformity-related impacts of Assembly Bill 115

Conformity-related Impacts of Assembly Bill 115 (Stats. 2005, Ch. 691)

Assembly Bill 115 (Stats. 2005, Ch. 691) as enacted, changed the date California law conforms to the IRC from January 1, 2001 to January 1, 2005. By changing this date, California automatically conforms state law to all changes from January 1, 2001, through December 31, 2004 to IRC sections that have been previously incorporated by reference. In addition, this bill made numerous changes to specifically not conform to or modify certain items in the IRC. Specific provisions of conformity and non-conformity are listed below by taxpayer type. The lists are not intended to be all inclusive of the federal and state conformities and differences. For more information, please refer to the California Revenue and Taxation Code (R&TC).

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Individuals

California law conforms to federal law for the following provisions for taxable years beginning on or after January 1, 2005:

  • For purposes of the Child and Dependent Care Expenses Credit, compensation received by a member of the armed forces for active service shall be considered earned income whether or not the member is domiciled in this state;
  • The exclusion for qualified foster care payments;
  • The uniform definition of a child;
  • Qualifying expenses associated with the adoption of children with special needs;
  • Charitable contribution deduction for certain expenses incurred in support of native Alaskan subsistence whaling;
  • Disclosures relating to terrorist activities;
  • Certain expenses of rural letter carriers;
  • Exclusion for payments to individuals under National Health Service Corps loan repayment program and certain State loan repayment programs;
  • Modification of depreciation allowance for aircraft;
  • Modification of class life for certain track facilities;
  • Certain Alaska natural gas pipeline property treated as seven-year property;
  • Limitation on transfer or importation of built-in-losses;
  • Denial of deduction for interest on underpayments attributable to nondisclosed reportable transactions;
  • Prevention of mismatching of interest and original issue discount deductions and income inclusions in transactions with related foreign persons;
  • Increased reporting for noncash charitable contributions;
  • Donations of motor vehicles, boats, and airplanes;
  • Extension of amortization of intangibles to sports franchises;
  • Modification of straddle rules;
  • Recognition of cancellation of indebtedness income realized on satisfaction of debt with partnership interest;
  • Denial of installment sale treatment for all readily tradable debt;
  • Modification of treatment of transfers to creditors in divisive reorganizations;
  • Clarification of definition of nonqualified preferred stock;
  • Consistent amortization of periods for intangibles;
  • Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements; and
  • Limitation of employer deduction for certain entertainment expenses.
  • IRC Section 121 (d) (10) - Property acquired in like-kind exchange (revised 03-06)

California law does not conform to federal law for the following provisions:

  • IRC Section 139A - Exclusion from gross income of certain federal subsidies for prescription drug plans;
  • Expansion of the exclusion of survivor benefits attributable to service by a public safety officer who is killed in the line of duty before January 1, 1997;
  • Recovery period for depreciation of certain leasehold improvements and restaurant property;
  • Deduction relating to income attributable to domestic production activities;
  • 2 year extension of increased expensing for small business;
  • Modification of application of income forecast method of depreciation;
  • Special rules for certain film and television productions;
  • Modification of depreciation allowance for aircraft; and
  • Sales or dispositions to implement FERC or State electric restructuring policy.

Corporations

California law conforms to federal law for the following provisions for taxable years beginning on or after January 1, 2005:

  • IRC Section 179 - Corporation small business expense deductions;
  • Modification to the S corporation and its shareholders qualification requirements;
  • Modification of unrelated business income limitation on investment in certain small business investment companies;
  • Special rules for livestock sold on account of weather-related conditions;
  • Payment of dividends on stock of cooperatives without reducing patronage dividends;
  • Capital gain treatment under IRC Section 631(b) to apply to outright sales by landowners;
  • Improvements related to real estate investment trusts (REITs);
  • Modification of safe harbor rules for timber REITs;
  • Expensing of certain reforestation expenditures;
  • Net income from publicly traded partnerships treated as qualifying income of regulated investment companies;
  • Exclusion of gain or loss on sale or exchange of certain Brownfield sites from unrelated business taxable income;
  • Modification of class life for certain track facilities;
  • Certain Alaska natural gas pipeline property treated as seven-year property;
  • Method of accounting for naval shipbuilders;
  • Reportable transactions and tax shelters;
  • Treatment of stripped interests in bond and preferred stock funds, etc.;
  • Limitation on transfer or importation of built-in losses;
  • Denial of deduction for interest on underpayments attributable to nondisclosed reportable transactions;
  • Clarification of rules for payment of estimated tax for certain deemed asset sales;
  • Deposits made to suspend running of interest on potential underpayments;
  • Expanded disallowance of deduction for interest on convertible debt;
  • Reform of tax treatment of certain leasing arrangements;
  • Treatment of charitable contributions of patents and similar property;
  • Extension of amortization of intangibles to sports franchises;
  • Modification of straddle rules;
  • Recognition of cancellation of indebtedness income realized on satisfaction of debt with partnership interest;
  • Denial of installment sale treatment for all readily tradable debt;
  • Modification of treatment of transfers to creditors in divisive reorganizations;
  • Clarification of definition of nonqualified preferred stock;
  • Consistent amortization of periods for intangibles;
  • Freeze of provisions regarding suspension of interest where Secretary fails to contact taxpayer;
  • Treatment of sale of stock acquired pursuant to exercise of stock options to comply with conflict-of-interest requirements;
  • Limitation of employer deduction for certain entertainment expenses; and
  • Modification to the treatment of startup and organizational expenditures.

California law does not conform to federal law for the following provisions:

  • IRC Section 139A - Exclusion from gross income of certain federal subsidies for prescription drug plans;
  • Extension of expiring provision that allow deduction for corporate donation of scientific property and computer technology;
  • Extension of expiring provision that allow expensing of environmental remediation costs;
  • Extension of expiring provision regarding the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties;
  • Deduction relating to income attributable to domestic production activities;
  • 2-year extension of increased expensing for small business;
  • Recovery period for depreciation of certain leasehold improvements and restaurant property;
  • Modification of application of income forecast method of depreciation;
  • Special rules for certain film and television productions;
  • Modification of depreciation allowance for aircraft;
  • Clarification of treatment of certain transfers of intangible property; and
  • Sales or dispositions to implement Federal or State electric restructuring policy.

Partnerships/Limited Liability Companies

California law conforms to federal law for the following provisions for taxable years beginning on or after January 1, 2005:

  • Modification of unrelated business income limitation on investment in certain small business investment companies;
  • Expensing of certain reforestation expenditures;
  • Disallowance of certain partnership loss transfers (partnerships only); and
  • No reduction in basis under Section 734 of stock held by partnership in corporate partner (partnerships only).

California law does not conform to federal law for the following provisions:

  • Deduction relating to income attributable to domestic production activities;
  • 2-year extension of increased expensing for small business;
  • Recovery period for depreciation of certain leasehold improvements and restaurant property;
  • Modification of application of income forecast method of depreciation;
  • Special rules for certain film and television productions; and
  • Extension of expiring provisions - Expensing of environmental remediation costs.