24661-24679
REVENUE AND TAXATION CODE
SECTION 24661-24679
24661. Section 451 of the Internal Revenue Code, relating to the
general rule for taxable year of inclusion, shall apply, except as
otherwise provided.
24661.3. (a) (1) The options under Sections 112(d)(2) and 112(d)(3)
of the Federal Agriculture Improvement and Reform Act of 1996 (7
U.S.C. Sec. 7212(d)(2) and (3)), as in effect on October 12, 1998,
shall be disregarded in determining the taxable year for which any
payment under a production flexibility contract under Subtitle B of
Title I of that act (as so in effect) is properly includable in gross
income for purposes of this part, Part 10 (commencing with Section
17001), or Part 10.2 (commencing with Section 18401).
(2) In order to provide farmers with the same tax treatment for
all payments in years beginning before January 1, 2002, with respect
to production flexibility contract payments as provided under federal
law as modified by Public Law 105-277, this subdivision shall apply
to taxable years ending after December 31, 1995.
(b) Any option to accelerate the receipt of any payment under a
production flexibility contract entered into on or after January 1,
2002, that is payable under the Federal Agriculture Improvement and
Reform Act of 1996 (7 U.S.C. Sec. 7200 et seq.) as in effect on
December 17, 1999, shall be disregarded in determining the taxable
year for which that payment is properly includable in gross income
for purposes of this part, Part 10 (commencing with Section 17001),
or Part 10.2 (commencing with Section 18401).
24661.3. (a) (1) The options under Sections 112(d)(2) and 112(d)(3)
of the Federal Agriculture Improvement and Reform Act of 1996 (7
U.S.C. Sec. 7212(d)(2) and (3)), as in effect on October 12, 1998,
shall be disregarded in determining the taxable year for which any
payment under a production flexibility contract under Subtitle B of
Title I of that act (as so in effect) is properly includable in gross
income for purposes of this part, Part 10 (commencing with Section
17001), or Part 10.2 (commencing with Section 18401).
(2) In order to provide farmers with the same tax treatment for
all payments in years beginning before January 1, 2002, with respect
to production flexibility contract payments as provided under federal
law as modified by Public Law 105-277, this subdivision shall apply
to taxable years ending after December 31, 1995.
(b) Any option to accelerate the receipt of any payment under a
production flexibility contract entered into on or after January 1,
2002, that is payable under the Federal Agriculture Improvement and
Reform Act of 1996 (7 U.S.C. Sec. 7200 et seq.) as in effect on
December 17, 1999, shall be disregarded in determining the taxable
year for which that payment is properly includable in gross income
for purposes of this part, Part 10 (commencing with Section 17001),
or Part 10.2 (commencing with Section 18401).
24661.5. Section 451(e)(3) of the Internal Revenue Code, relating
to special election rule, is modified by substituting the phrase
"subdivision (b) of Section 24949.1" in lieu of the phrase "section
1033(e)(2)" contained therein.
24661.6. Section 451(i) of the Internal Revenue Code, relating to
special rule for sales or dispositions to implement Federal Energy
Regulatory Commission or state electric restructuring policy, shall
not apply.
24667. (a) (1) Sections 453, 453A, and 453B of the Internal Revenue
Code, relating to installment method, special rules for nondealers,
and gain or loss on disposition of installment obligations,
respectively, shall apply, except as otherwise provided.
(2) Sections 811(c)(4), 811(c)(6), and 811(c)(7) of Public Law
99-514, as modified by Section 1008(f) of Public Law 100-647, shall
apply to each taxable year beginning on or after January 1, 1988.
(3) Section 812 of Public Law 99-514, relating to the disallowance
of use of the installment method for certain obligations, as
modified by Section 1008(g) of Public Law 100-647, shall apply to
each taxable year beginning on or after January 1, 1988.
(b) For purposes of subdivision (a), any references in the
Internal Revenue Code to sections that have not been incorporated
into this part by reference shall be deemed to refer to the
corresponding section, if any, of this part.
(c) In the case of any taxpayer who made sales under a revolving
credit plan and was on the installment method under former Section
24667 or 24668 for the taxpayer's last taxable year beginning before
January 1, 1988, the provisions of this section shall be treated as a
change in method of accounting for the first taxable year beginning
after December 31, 1987, and all of the following shall apply:
(1) That change shall be treated as initiated by taxpayer.
(2) That change shall be treated as having been made with the
consent of the Franchise Tax Board.
(3) The period for taking into account adjustments under Article 6
(commencing with Section 24721) by reason of that change shall not
exceed four years.
(d) The repeal of Section 453C of the Internal Revenue Code by
Section 10202(a) of Public Law 100-203, relating to repeal of the
proportionate disallowance of the installment method, shall apply to
dispositions on or after January 1, 1990, in taxable years beginning
on or after January 1, 1990.
(e) (1) In the case of any installment obligations to which
Section 453(l)(2)(B) of the Internal Revenue Code applies, in lieu of
the provisions of Section 453(l)(3)(A) of the Internal Revenue Code,
the "tax" (as defined by subdivision (a) of Section 23036) for any
taxable year for which payment is received on that obligation shall
be increased by the amount of interest determined in the manner
provided under Section 453(l)(3)(B) of the Internal Revenue Code.
(2) Sections 10202 and 10204 of Public Law 100-203, are modified
to provide for each of the following:
(A) Section 10202 shall apply to dispositions in taxable years
beginning on or after January 1, 1990.
(B) Section 10204 shall apply to costs incurred in taxable years
beginning on or after January 1, 1990.
(C) Any adjustments required by Section 481 of the Internal
Revenue Code shall be included in gross income as follows:
(i) Fifty percent in the first taxable year beginning on or after
January 1, 1990.
(ii) Fifty percent in the second taxable year beginning on or
after January 1, 1990.
(f) (1) The amendments to Section 453A of the Internal Revenue
Code made by Section 2004 of Public Law 100-647, relating to special
rules for nondealers, shall apply to each taxable year beginning on
or after January 1, 1990.
(2) In the case of any installment obligation to which Section
453A of the Internal Revenue Code applies and which is outstanding as
of the close of the taxable year, in lieu of the provisions of
Section 453A(c)(1) of the Internal Revenue Code, the "tax" (as
defined by subdivision (a) of Section 23036) for the taxable year
shall be increased by the amount of interest determined in the manner
provided under Section 453A(c)(2) of the Internal Revenue Code.
(3) The provisions of Section 453A(c)(3)(B) of the Internal
Revenue Code, relating to the maximum rate used in calculating the
deferred tax liability, are modified to refer to the maximum rate of
tax imposed under Section 23151, 23186, or 23802, whichever applies,
in lieu of the maximum rate of tax imposed under Section 1 or 11 of
the Internal Revenue Code.
24668.1. Any taxpayer who disposes of property as a result of the
exercise of the power of requisition or condemnation may, at his or
her election, have the income derived from that disposition taken
into account pursuant to Section 24667, if the taxpayer and the
acquiring entity have, in conformity with Section 1263.015 of the
Code of Civil Procedure or Section 15854.1 of the Government Code,
contracted for the payment of compensation for the acquisition in a
manner which satisfies the requirements of Section 24667.
24672. (a) Where a taxpayer reports income arising from the sale or
other disposition of property as provided in this article, and the
entire income therefrom has not been reported prior to the year that
the taxpayer ceases to be subject to the tax imposed by Chapter 2
(commencing with Section 23101) or Chapter 3 (commencing with Section
23501), the unreported income shall be included in the measure of
the tax for the last year in which the taxpayer is subject to the tax
imposed by Chapter 2 (commencing with Section 23101) or Chapter 3
(commencing with Section 23501).
(b) Subdivision (a) shall not be applicable where the installment
obligation is transferred pursuant to a reorganization (as defined in
Section 368(a) of the Internal Revenue Code) to another taxpayer
that is a party to the reorganization (as defined in Section 368(b)
of the Internal Revenue Code) subject to tax under the same chapter
as the transferor, or is transferred to any exempt nonprofit cemetery
corporation as defined in Section 23701c of this code.
(c) The determination of any deficiency resulting from this
section shall be made under Article 3 (commencing with Section 19032)
of Chapter 4 of Part 10.2, but the period of limitation under that
article, and the accrual of interest under Article 6 (commencing with
Section 19101) of Chapter 4 of Part 10.2, shall commence on the date
the taxpayer ceases to be subject to the tax imposed by Chapter 2
(commencing with Section 23101) or Chapter 3 (commencing with Section
23501).
24673. Where a corporation subject to the tax imposed by Chapter 2
is engaged in the performance of a contract in this State which will
require more than a year to complete, the Franchise Tax Board may
require that the income from the contract be reported on the basis of
percentage of completion unless the corporation furnishes bond or
other security guaranteeing the payment of a tax measured by the
income received on the completion of the contract even though the
corporation is not doing business in this State in the year
subsequent to the year of completion.
24673.2. (a) Section 460 of the Internal Revenue Code, relating to
special rules for long-term contracts, shall apply, except as
otherwise provided.
(b) (1) Section 804(d) of Public Law 99-514, relating to the
effective date of modifications in the method of accounting for
long-term contracts, shall apply to taxable years beginning on or
after January 1, 1987.
(2) In the case of a contract entered into after February 28,
1986, during a taxable year beginning before January 1, 1987, an
adjustment to income shall be made upon completion of the contract,
if necessary, to correct any underreporting or overreporting of
income, for purposes of this part, resulting from differences between
state and federal law for the taxable year in which the contract
began.
(c) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 10203 of Public Law 100-203, relating to a reduction
in the percentage of items taken into account under the completed
contract method, shall apply to each taxable year beginning on or
after January 1, 1990.
(2) In the case of a contract entered into after October 13, 1987,
during a taxable year beginning before January 1, 1990, an
adjustment to income shall be made upon completion of the contract,
if necessary, to correct any underreporting or overreporting of
income, for purposes of this part, resulting from differences between
state and federal law for each taxable year beginning prior to
January 1, 1990.
(d) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 5041 of Public Law 100-647, relating to a reduction
in the percentage of items taken into account under the completed
contract method, shall apply to each taxable year beginning on or
after January 1, 1990.
(2) In the case of a contract entered into after June 20, 1988,
during a taxable year beginning before January 1, 1990, an adjustment
to income shall be made upon completion of the contract, if
necessary, to correct any underreporting or overreporting of income,
for purposes of this part, resulting from differences between state
and federal law for each taxable year beginning prior to January 1,
1990.
(e) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 7621 of Public Law 101-239, relating to the repeal
of the completed contract method of accounting for long-term
contracts, shall apply to each taxable year beginning on or after
January 1, 1990.
(2) In the case of a contract entered into after July 10, 1989,
during a taxable year beginning on or before January 1, 1990, an
adjustment to income shall be made upon completion of the contract,
if necessary, to correct any underreporting or overreporting of
income, for purposes of this part, resulting from differences between
state and federal law for each taxable year beginning prior to
January 1, 1990.
(f) For purposes of applying paragraphs (2) to (6), inclusive, of
Section 460(b) of the Internal Revenue Code, relating to the
look-back method, any adjustment to income computed under paragraph
(2) of subdivision (b), (c), (d), or (e) shall be deemed to have been
reported in the taxable year from which the adjustment arose, rather
than the taxable year in which the contract was completed.
24674. (a) If, in the case of a taxpayer owning any
non-interest-bearing obligation issued at a discount and redeemable
for fixed amounts increasing at stated intervals the increase in the
redemption price of such obligation occurring in the taxable year
does not (under the method of accounting used in computing its
income) constitute income to it in such year, such taxpayer may, at
its election made in its return for any taxable year, treat such
increase as income received in such taxable year. If any such
election is made with respect to any such obligation, it shall apply
also to all such obligations owned by the taxpayer at the beginning
of the first taxable year to which it applies and to all such
obligations thereafter acquired by it and shall be binding for all
subsequent taxable years, unless on application by the taxpayer the
Franchise Tax Board permits it, subject to such conditions as the
Franchise Tax Board deems necessary, to change to a different method.
(b) In the case of any obligation--
(1) Of the United States; or
(2) Of a state, a territory, or a possession of the United
States, or any political subdivision of any of the foregoing, or of
the District of Columbia,
which is issued on a discount basis and payable without interest at a
fixed maturity date not exceeding one year from the date of issue,
the amount of discount at which such obligation is originally sold
shall not be considered to accrue until the date on which such
obligation is paid at maturity, sold, or otherwise disposed of.
24675. If an amount representing compensatory damages is received
or accrued by a taxpayer during a taxable year as the result of an
award in a civil action for infringement of a patent issued by the
United States, then the tax attributable to the inclusion of such
amount in gross income for the taxable year shall not be greater than
the aggregate of the increases in taxes which would have resulted if
such amount had been included in gross income in equal installments
for each month during which such infringement occurred.
24676. (a) Prepaid subscription income to which this section
applies shall be included in gross income for the taxable years
during which the liability described in subsection (d)(2) exists.
(b) In the case of any prepaid subscription income to which this
section applies--
(1) If the liability described in subsection (d)(2) ends, then so
much of such income as was not includable in gross income under
subsection (a) for preceding taxable years shall be included in gross
income for the taxable year in which the liability ends.
(2) If the taxpayer ceases to be subject to tax measured by net
income imposed under Chapter 2 (commencing at Section 23101) or
Chapter 3 (commencing at Section 23501) of this part, then so much of
such income as was not includable in gross income under subsection
(a) for preceding taxable years shall be included in the measure of
tax for the last year in which the taxpayer is subject to the tax
measured by net income imposed under Chapter 2 or Chapter 3 of this
part.
(c) (1) This section shall apply to prepaid subscription income if
and only if the taxpayer makes an election under this section with
respect to the trade or business in connection with which such income
is received. The election shall be made in such manner as the
Franchise Tax Board may by regulations prescribe. No election may be
made with respect to a trade or business if in computing net income
the cash receipts and disbursements method of accounting is used with
respect to such trade or business.
(2) An election made under this section shall apply to all prepaid
subscription income received in connection with the trade or
business with respect to which the taxpayer has made the election;
except that the taxpayer may, to the extent permitted under
regulations prescribed by the Franchise Tax Board, include in gross
income for the taxable year of receipt the entire amount of any
prepaid subscription income if the liability from which it arose is
to end within 12 months after the date of receipt. An election made
under this section shall not apply to any prepaid subscription income
received before the first taxable year for which the election is
made.
(3) (A) A taxpayer may, with the consent of the Franchise Tax
Board, make an election under this section at any time.
(B) A taxpayer may, without the consent of the Franchise Tax
Board, make an election under this section for his first taxable year
(i) which begins after December 31, 1960, and (ii) in which it
receives prepaid subscription income in the trade or business. Such
election shall be made not later than the time prescribed by law for
filing the return for the taxable year (including extensions thereof)
with respect to which such election is made.
(4) An election under this section shall be effective for the
taxable year with respect to which it is first made and for all
subsequent taxable years, unless the taxpayer secures the consent of
the Franchise Tax Board to the revocation of such election. For
purposes of this part, the computation of net income under an
election made under this section shall be treated as a method of
accounting.
(d) For purposes of this section--
(1) The term "prepaid subscription income" means any amount
(includable in gross income) which is received in connection with,
and is directly attributable to, a liability which extends beyond the
close of the taxable year in which such amount is received, and
which is income from a subscription to a newspaper, magazine, or
other periodical.
(2) The term "liability" means a liability to furnish or deliver a
newspaper, magazine, or other periodical.
(3) Prepaid subscription income shall be treated as received
during the taxable year for which it is includable in gross income
under Section 24661 (without regard to this section).
(e) Notwithstanding the provisions of this section, any taxpayer
who has, for taxable years prior to the first taxable year to which
this section applies, reported his income under an established and
consistent method or practice of accounting for prepaid subscription
income (to which this section would apply if an election were made)
may continue to report his income for taxable years to which this
part applies in accordance with such method or practice.
24676.5. (a) A taxpayer who is on an accrual method of accounting
may elect not to include in the gross income for the taxable year the
income attributable to the qualified sale of any magazine,
paperback, or record which is returned to the taxpayer before the
close of the merchandise return period.
(b) For purposes of this section--
(1) The term "magazine" includes any other periodical.
(2) The term "paperback" means any book which has a flexible outer
cover and the pages of which are affixed directly to such outer
cover. Such term does not include a magazine.
(3) The term "record" means a disc, tape, or similar object on
which musical, spoken, or other sounds are recorded.
(4) If a taxpayer makes qualified sales of more than one category
of merchandise in connection with the same trade or business, this
section shall be applied as if the qualified sales of each such
category were made in connection with a separate trade or business.
For purposes of the preceding sentence, magazines, paperbacks, and
records shall each be treated as a separate category of merchandise.
(5) A sale of a magazine, paperback, or record is a qualified sale
if--
(A) At the time of sale, the taxpayer has a legal obligation to
adjust the sales price of such magazine, paperback, or record if it
is not resold, and
(B) The sales price of such magazine, paperback, or record is
adjusted by the taxpayer because of a failure to resell it.
(6) The amount excluded under this section with respect to any
qualified sale shall be the lesser of--
(A) The amount covered by the legal obligation described in
paragraph (5)(A), or
(B) The amount of the adjustment agreed to by the taxpayer before
the close of the merchandise return period.
(7) (A) Except as provided in subparagraph (B), the term
"merchandise return period" means, with respect to any taxable year--
(i) In the case of magazines, the period of 2 months and 15 days
first occurring after the close of the taxable year, or
(ii) In the case of paperbacks and records, the period of 4 months
and 15 days first occurring after the close of the taxable year.
(B) The taxpayer may select a shorter period than the applicable
period set forth in subparagraph (A).
(C) Any change in the merchandise return period shall be treated
as a change in the method of accounting.
(8) As prescribed by the Franchise Tax Board, the taxpayer may
substitute, for the physical return of magazines, paperbacks, or
records required by subdivision (a), certification or other evidence
that the magazine, paperback, or record has not been resold and will
not be resold if such evidence--
(A) Is in the possession of the taxpayer at the close of the
merchandise return period, and
(B) Is satisfactory to the Franchise Tax Board.
(9) A repurchase by the taxpayer shall be treated as an adjustment
of the sales price rather than as a resale.
(c) (1) This section shall apply to qualified sales of magazines,
paperbacks, or records, as the case may be, if and only if the
taxpayer makes an election under this section with respect to the
trade or business in connection with which such sales are made. An
election under this section may be made without the consent of the
Franchise Tax Board. The election shall be made in such manner as the
Franchise Tax Board may prescribe and shall be made for any taxable
year not later than the time prescribed by law for filing the return
for such taxable year (including extensions thereof).
(2) An election made under this section shall apply to all
qualified sales of magazines, paperbacks, or records, as the case may
be, made in connection with the trade or business with respect to
which the taxpayer has made the election.
(3) An election under this section shall be effective for the
taxable year for which it is made and for all subsequent taxable
years, unless the taxpayer secures the consent of the Franchise Tax
Board to the revocation of such election.
(4) Except to the extent inconsistent with the provisions of this
section, for purposes of this subtitle, the computation of taxable
income under an election made under this section shall be treated as
a method of accounting.
(d) In applying Section 24723 with respect to any election under
this section which applies to magazines, the period of taking into
account any decrease in taxable income resulting from the application
of subdivision (b) of Section 24721 shall be the taxable year for
which the election is made and the four succeeding taxable years.
(e) (1) In the case of any election under this section which
applies to paperbacks or records, in lieu of applying Sections 24721
through 24725, the taxpayer shall establish a suspense account for
the trade or business for the taxable year for which the election is
made.
(2) The opening balance of the account described in paragraph (1)
for the first taxable year to which the election applies shall be the
largest dollar amount of returned merchandise which would have been
taken into account under this section for any of the three
immediately preceding taxable years if this section had applied to
such preceding three taxable years. This paragraph and paragraph (3)
shall be applied by taking into account only amounts attributable to
the trade or business for which such account is established.
(3) At the close of each taxable year the suspense account shall
be--
(A) Reduced by the excess (if any) of--
(i) The opening balance of the suspense account for the taxable
year, over
(ii) The amount excluded from gross income for the taxable year
under subdivision (a), or
(B) Increased (but not in excess of the initial opening balance)
by the excess (if any) of--
(i) The amount excluded from gross income for the taxable year
under subdivision (a), over
(ii) The opening balance of the account for the taxable year.
(4) (A) In the case of any reduction under paragraph (3)(A) in the
account for the taxable year, an amount equal to such reduction
shall be excluded from gross income for such taxable year.
(B) In the case of any increase under paragraph (3)(B) in the
account for the taxable year, an amount equal to such increase shall
be included in gross income for such taxable year.
If the initial opening balance exceeds the dollar amount of
returned merchandise which would have been taken into account under
subdivision (a) for the taxable year preceding the first taxable year
for which the election is effective if this section had applied to
such preceding taxable year, then an amount equal to the amount of
such excess shall be included in gross income for such first taxable
year.
(5) The application of this subdivision with respect to a taxpayer
which is a party to any transaction with respect to which there is
nonrecognition of gain or loss to any party to the transaction by
reason of Chapter 8 shall be determined as prescribed by the
Franchise Tax Board.
(6) The amendments to this section made by the 1979-80 Regular
Session of the Legislature shall apply to taxable years beginning on
or after October 1, 1979.
24677. (a) If an amount representing damages is received or accrued
by a corporation during a taxable year as a result of an award in a
civil action for breach of contract or breach of a fiduciary duty or
relationship, then the tax attributable to the inclusion in gross
income for the taxable year of that part of the amount that would
have been received or accrued by the corporation in a prior taxable
year or years but for the breach of contract, or breach of a
fiduciary duty or relationship, shall not be greater than the
aggregate of the increases in taxes that would have resulted had that
part been included in gross income for that prior taxable year or
years.
(b) A corporation in computing the tax shall be entitled to deduct
all credits and deductions for depletion, depreciation, and other
items to which it would have been entitled, had the income been
received or accrued by the corporation in the year during which it
would have received or accrued it, except for the breach of contract
or for the breach of fiduciary duty or relationship. The credits,
deductions, or other items referred to in the prior sentence,
attributable to property, shall be allowed only with respect to that
part of the award which represents the corporation's share of income
from the actual operation of the property.
(c) Subdivision (a) shall not apply unless the amount representing
damage is three thousand dollars ($3,000) or more.
24678. (a) If an amount representing damages is received or accrued
during a taxable year as a result of an award in, or settlement of,
a civil action brought under Section 4 of the act entitled "An act to
supplement existing laws against unlawful restraints and monopolies,
and for other purposes," approved October 15, 1914 (commonly known
as the Clayton Act), for injuries sustained by a corporation in its
business or property by reason of anything forbidden in the antitrust
laws, then the tax attributable to the inclusion of that amount in
gross income for the taxable year shall not be greater than the
aggregate of the increases in taxes which would have resulted if that
amount had been included in gross income in equal installments for
each month during the period in which the injuries were sustained by
the corporation.
(b) This section shall apply to taxable years ending after June
23, 1961, but only with respect to amounts received or accrued after
that date as a result of awards or settlements made after that date.
24679. For purposes of Sections 24675 through 24678, a fractional
part of a month shall be disregarded unless it amounts to more than
half a month, in which case it should be considered as a month.