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Legal Issues New Guidance

In March, our legal division issued guidance on two important issues. The first, Legal Division Guidance 2012-03-01, Federal Conformity, was intended to supersede Legal Division Guidance 2011-­06‐01, which was subsequently withdrawn by 2011‐07‐01. This guidance on the research and development credit answered the following questions:

  1. Does California fully conform to the Internal Revenue Code section 41(c)(6) definition of "gross receipts" with respect to California service receipts?
  2. Can a taxpayer with California Qualified Research Expenses and zero California Gross Receipts under RT&C Sections 17052.12, subdivision (g), paragraph (3), or Section 23609, subdivision (h), paragraph (3), claim the regular incremental Research and Development credit?
  3. What does this mean for a taxpayer with California Qualified Research Expenses and Gross Receipts from the sale of tangible property, such as manufacturers?

The second, Legal Division Guidance 2012-03-02 Large Corporate Understatement Penalty, answered the question “Can a taxpayer make a valid single sales factor (SSF) election and also report tax computed without the election in order to avoid the large corporate understatement penalty in the event the taxpayer is later determined to be ineligible to use the SSF formula?”

Our Legal Division routinely provides informal advice to external specialty publishers and non-legal staff in a form that is not generally reduced to formal written guidance such as technical advice memoranda or similar types of written guidance. It should be noted that items published under "Legal Division Guidance" are not considered "written advice" that may be relied upon within the meaning of RT&C Section 21012 and FTB Notice 2009-09.

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