You are on page 1of 30

California

Forms & Instructions This booklet contains:

100-WE
Form 100-FEE-A, Amended Water’s-Edge Election Fee
Supplemental Schedule
Form 100-FEE-X, Amended Water’s-Edge Election Fee
Form 100-WE, Water’s-Edge Contract
FTB 1116, Notice of Nonrenewal of Water’s-Edge Contract
FTB 1117, Request to Terminate Water’s-Edge Election
FTB 2416, Retained Earnings of Controlled Foreign Corporations
1997
Water’s-Edge Booklet
FTB 2424, Water’s-Edge Foreign Investment Interest Offset
FTB 2426, Water’s-Edge Cover Sheet

Members of the Franchise Tax Board Taxpayers that elect to file their California return on a water’s-edge basis
Kathleen Connell, Chair under Revenue and Taxation Code Section 25110 must attach form
Ernest J. Dronenburg, Jr., Member FTB 2426, Water’s-Edge Cover Sheet, to the front of the Form 100 or
Craig L. Brown, Member Form 100S.

State of California
Franchise Tax Board
Table of Contents
Page
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Water’s-Edge Combined Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Water’s-Edge Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Foreign Dividend Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Investment Interest Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Retained Earnings of Controlled Foreign Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Key Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Return Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FTB 2426, Water’s-Edge Cover Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Form 100-WE, Water’s-Edge Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
FTB 1116, Notice of Nonrenewal of Water’s-Edge Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FTB 1117, Request to Terminate Water’s-Edge Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FTB 2416, Retained Earnings of Controlled Foreign Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FTB 2424, Water’s-Edge Foreign Investment Interest Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Form 100-FEE-X, Amended Water’s-Edge Election Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Form 100-FEE-A, Amended Water’s-Edge Election Fee Supplemental Schedule. . . . . . . . . . . . . . . . . . . . . . . 27
How to Get California Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 30

Other Publications
Other publications prepared by the Franchise Tax Board include:
• FTB Pub. 1038, Guide for Corporations Dissolving, Surrendering (Withdrawing) or Merging
• FTB Pub. 1050, Application and Interpretation of Public Law 86-272
• FTB Pub. 1060, Guide for Corporations Starting Business in California
• FTB Pub. 1061, Guidelines for Corporations Filing a Combined Report
• FTB Pub. 1063, Guide for Corporations that May be Subject to the Provisions of the California Bank and Corporation
Tax Law

• FTB Pub. 1071, Guidelines for Voluntary Disclosure Agreements

These publications may be obtained by writing to:

TAX FORMS REQUEST UNIT


FRANCHISE TAX BOARD
PO BOX 307
RANCHO CORDOVA CA 95741-0307

Page 2 Form 100-WE Booklet 1997


Instructions for Taxpayers Making a Water’s-Edge Election
References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1997, and to the California Revenue and Taxation Code (R&TC).

Introduction Information Return of U.S. Taxpayers Who 4. Any export trade corporation as defined in
Have Ownership in a Foreign Corporation IRC Section 971.
For income years beginning on or after
January 1, 1988, taxpayers may elect to com- For income years beginning on or after Janu- 5. Any controlled foreign corporation, as
pute income attributable to California on the ary 1, 1997, a corporation that is a California defined in IRC Section 957, that has Sub-
basis of a water’s-edge combined report. In taxpayer and is required to file federal Form(s) part F income as defined in IRC Section
general, under a water’s-edge election, affili- 5471, Information Return of U.S. Persons 952. The income and apportionment fac-
ated foreign corporations are excluded from With Respect to Certain Foreign Corporations, tors of such corporations are included in
the combined report. Note: For purposes of with the federal return, must attach copy(s) to the combined report based on the ratio of
these instructions, the word ‘‘taxpayer’’ the California return. The penalty for failing to the total Subpart F income of such entity
means a corporation in the combined include copy(s) of federal Form 5471 as for the year to its current year earnings
group that has a California filing require- required is $1,000 per required form. The and profits (E&P). The ratio cannot exceed
ment. penalty applies to income years beginning on 100% or be less than 0%. If the current
or after January 1, 1998. year E&P are zero or less, none of the
The statute allowing the election to file on a income and factors of the entity are
water’s-edge basis does not supersede the Significant Changes to included in the combined report. Subpart F
concept of unity; however, it merely limits the income defined in IRC Sections 955, 956
unitary entities included in the combined Water’s-Edge Provisions
and 956A is not included.
report. (For a discussion of the concepts of For income years beginning on or after Janu-
the unitary method of taxation and its applica- ary 1, 1996, R&TC Section 25110 was 6. Any foreign organized bank, or any corpo-
tion by the State of California, get FTB Pub. amended with respect to the entities required ration not described in items 1 through 5
1061, Guidelines for Corporations Filing a to be included in the water’s-edge combined with less than 20% of its average property,
Combined Report.) Once the taxpayer has report. Entities which are incorporated and payroll and sales in the U.S., and has
computed its income attributable to California maintained in Canada or Mexico solely to income attributable to sources within the
on the water’s-edge combined report basis, comply with local laws and which are owned U.S. Such entities are included in the com-
the taxpayer can either file a separate return 100% by a United States incorporated mem- bined report only to the extent of their U.S.
or can elect to file a single return with the ber of the water’s-edge group, are no longer located income and factors. In general,
other taxpayers in the water’s-edge group includable in the water’s-edge combined U.S. located income includes both of the
(See Schedule R-7, Election to File a Unitary report regardless of whether or not they are following:
Taxpayers’ Group Return and List of Affiliated included in a federal consolidated return. • Income that is effectively connected
Corporations, which is included in Schedule There were significant changes to the (ECI) with a U.S. trade or business, or
R, Apportionment and Allocation of Income). water’s-edge provisions effective for income is treated as effectively connected,
This booklet explains how the water’s-edge years beginning on or after January 1, 1994. under the provisions of the IRC.
election is made, which entities must be For information regarding these changes, get Because the State of California is not a
included in the water’s-edge combined report FTB Notice 93-7 and Legal Ruling 95-4. party to the federal tax treaties, the ECI
and other key features of the law. This book- immunity provisions of the federal tax
let should be used in conjunction with Form Water’s-Edge Combined Report treaties do not apply for California pur-
100, California Corporation Franchise or poses. Any income satisfying the defini-
Entities Included tion of ECI, that is excluded from
Income Tax Return, or Form 100S, California
S Corporation Franchise or Income Tax For income years beginning on or after Janu- federal taxable income due to a tax
Return. ary 1, 1996, the water’s-edge combined report treaty, is included for California pur-
includes only the income and apportionment poses; and
Tax Law Changes factors of the members of the unitary group • U.S.-sourced income that is business
that meet the criteria listed below. If an entity income described under R&TC Section
Foreign Investment Interest Offset meets any one of these criteria and is unitary, 25120, regardless of whether or not
For income years beginning on or after Janu- it must be included in the combined report. If such income is considered ECI for fed-
ary 1, 1997, the amount of interest expense an entity does not meet any of these criteria, eral purposes.
that must be offset against deductible foreign it must be excluded from the combined report. For more information, see R&TC Sec-
dividends is 75% of the interest expense 1. Any domestic international sales corpora- tion 25110(a) and the regulations thereunder.
attributable to foreign investments or the for- tion, as defined in IRC Section 992 and
eign dividend deduction, whichever is less. Intercompany Transactions
any foreign sales corporation, as defined
Water’s-Edge Dividend Deduction in IRC Section 922. FTB Notice 89-601, dated September 20,
1989, states that the Franchise Tax Board
For income years beginning on or after Janu- 2. Any corporation, regardless of where it is (FTB) will issue proposed regulations prescrib-
ary 1, 1996, R&TC Section 24411 generally incorporated, if the average of its property, ing the treatment of transactions between 2 or
allows for a 75% deduction of the qualified payroll and sales factors within the U.S. is more entities engaged in a single unitary busi-
foreign dividends received and included in the 20% or more. This rule does not apply to ness, and it provides interim guidance for the
water’s-edge return. Form FTB 2411, foreign incorporated banks. R&TC treatment of certain intercompany transactions
Water’s-Edge Dividend Deduction has been Section 25128, requiring the double in water’s-edge combined reports. The hear-
eliminated. To compute your water’s-edge div- weighting of the sales factor, does not ing process for these draft regulations will
idend deduction, refer to the Schedule H apply for purposes of this inclusion test. begin during 1998. If adopted, these regula-
instructions in the Form 100, California Corpo- For more information, get FTB Notice 95-5. tions are expected to apply prospectively. The
ration Franchise or Income Tax Return Book- 3. Any bank or corporation incorporated in interim water’s-edge treatment can be
let or Form 100S, California S Corporation the U.S., more than 50% of whose stock is summarized as:
Franchise or Income Tax Return Booklet. owned or controlled directly or indirectly by 1. If a combined group has deferred gain or
the same interests, except for corporations loss from intercompany transactions, a
making an election under IRC Section 936.

Form 100-WE Booklet 1997 Page 3


water’s-edge election under R&TC For more information, see R&TC by the first income year of the election and
Section 25111 will cause certain previously Section 25110(b) and the regulations does not change. The automatic renewal pro-
deferred gains or losses to be taxed over thereunder. vision extends the 84-month period of the
a 60-month period beginning with the first Taxpayers Covered by Election contract for an additional 12 months. The con-
day of the election period. This applies tract period will automatically renew each
only to transactions where either the trans- For the election to be effective, all affiliated annual anniversary date, unless the taxpayer
feree, the transferor, or both, are to be taxpayers engaged in a single unitary busi- files form FTB 1116, Notice of Nonrenewal of
excluded from a combined report by rea- ness must file on a water’s-edge basis. A tax- Water’s-Edge Contract, at least 90 days prior
son of the water’s-edge election. It does payer or an affiliated group of taxpayers that to an anniversary date.
not apply if both the transferor and the is engaged in more than one unitary business
may make a water’s-edge election with Notice of Nonrenewal
transferee are included in the water’s-edge
combination. respect to any one or more of its businesses, A taxpayer may file form FTB 1116 at any
but need not elect for all of its businesses. time during the contract period. To prevent
2. Generally, such gains or losses will be For example, a taxpayer engaged in two uni- the automatic renewal provisions, form
apportioned using the percentage used in tary businesses may elect water’s-edge for FTB 1116 must be filed with the FTB at least
the last worldwide combined report which one of the businesses and may remain sub- 90 days prior to the anniversary date of the
preceded the first water’s-edge year. FTB ject to worldwide combined reporting treat- contract. Form FTB 1116 must be filed sep-
Notice 89-601 provides that the percent- ment for the other business. In addition, each arately from any other form.
age of the year of the original transaction taxpayer should be in good standing with the
can be used in certain circumstances. Mail form FTB 1116 to:
Franchise Tax Board (FTB) and the California
The above treatment of deferred gains and Secretary of State (SOS). FRANCHISE TAX BOARD
losses is applicable to intercompany transac- PO BOX 1779
The common parent of a controlled group that RANCHO CORDOVA CA 95741-1779
tions involving fixed assets and capitalized files a consolidated federal return, or the com-
items. Certain other types of intercompany mon parent wherever domiciled or organized, Example:
transactions, including intercompany sales of may file an election on behalf of all members Corporation A, a calendar year taxpayer,
inventory and intangible assets, are required of the controlled group that are part of the makes a water’s-edge election with its return
to be reported under the elimination/carryover water’s-edge combined report group. The filed October 15, 1998. The contract covers
basis method. When members of a combined common parent need not be a California income years 1997 through 2003. If Corpora-
group use the elimination/carryover basis taxpayer. tion A does not file form FTB 1116 at least 90
method, the transferor’s basis will carryover to days prior to its anniversary date on
the transferee. A subsequent water’s-edge In cases where the water’s-edge election is
not entered into by a common parent, each October 15, 1999, the contract automatically
election will have no effect on the recognition renews and extends the election through the
of profit under this method. Any profit elimi- taxpayer included in the combined report must
enter into a separate contract. 2004 income year. If Corporation A, files form
nated as a result of using this method would FTB 1116 at least 90 days prior to
be recognized by the transferee when the Time of Making the Contract October 15, 1999, the contract period will end
asset is sold outside the combined reporting The contract must be entered into by all uni- on December 31, 2003.
group. tary taxpayers at the time the original return is All members of the water’s-edge group must
Taxpayers may wish to review the treatment filed for the first income year the contract is to consent to the notice of nonrenewal. Similar
of intercompany transactions prescribed in be effective. The contract may not be entered to the water’s-edge contract, the common
FTB Pub. 1061 and the federal rules under into through an amended return. parent of a controlled group may file form
Treas. Reg. Section 1.1502-13. CAUTION: The contract must be attached FTB 1116 for all taxpayers in the water’s-edge
to the original return for the election to be combined group.
Water’s-Edge Election valid. Form FTB 1116 prevents the automatic
Contract Requirement A copy of the original contract must be renewal provision that extends the contract
To make the water’s-edge election, each tax- attached to all subsequent returns filed during period. Once form FTB 1116 is filed, the tax-
payer must enter into a contract with the FTB the election period. payer must continue to file on a water’s-edge
by signing and filing Form 100-WE, Taxpayers With Different Fiscal-Year Ends basis until the contract period expires.
Water’s-Edge Contract. In consideration for Effect of Changes in Affiliations
Taxpayers engaged in a unitary business with
being allowed to file on a water’s-edge basis,
different fiscal-year ends will make the elec- In general, taxpayers are bound by any con-
the taxpayer must:
tion on each individual return. For each mem- tract they enter into, or by any contract
• Agree to file on a water’s-edge basis for a ber of the group, the election period will begin entered into by a unitary affiliate, for the entire
period of 84 months; on the first day of the income year of the last term of the contract. For example, a bank or
• Agree to business income treatment of div- member of the water’s-edge group to file its corporation that is subject to California tax
idends received from: (1) over 50% owned return and make the election. Each taxpayer and becomes a member of an electing
entities engaged in the same general line that has an income year earlier than the last water’s-edge group subsequent to an election
of business as the members of the member of the group, will compute its tax lia- having been made by the group, or a unitary
water’s-edge group, or (2) entities that are bility on its initial return using a hybrid affiliate of an electing taxpayer that becomes
a significant source of supply to, or a sig- worldwide/water’s-edge combination method. subject to California tax subsequent to the
nificant purchaser of the output of the election, is deemed to have consented to and
For more information see Title 18 Cal. Code
members of the water’s-edge group. Sig- is bound by the original election and contract
Reg. Section 25111-1(g).
nificant means an amount equal to 15% or for the remaining term of the contract. A
more; and Automatic Renewal water’s-edge election is a tax attribute that
• Consent to the taking of depositions from Once the contract period starts, it will auto- carries over to the surviving entity in a reorga-
key employees or officers of the members matically renew on the anniversary date of the nization or liquidation. When a taxpayer
of the water’s-edge group and to the contract. The anniversary date of the contract ceases to be a member of the water’s-edge
acceptance of subpoenas duces tecum is the later of the original due date of the group, the taxpayer must continue to file on a
requiring the reasonable production of return or the due date of the return as water’s-edge basis until the contract period
documents. extended. The anniversary date is determined expires.

Page 4 Form 100-WE Booklet 1997


If an electing taxpayer is acquired by and is Water’s-Edge Election Fee example, assume that a dividend is paid by a
unitary with a non-electing entity or group, the corporation partially included in the
unitary non-electing entity or group must be Effective for income years beginning on or water’s-edge combined report to the extent of
included in the water’s-edge combined report after January 1, 1994, the water’s-edge elec- the ratio of its Subpart F income over its cur-
of the electing taxpayer until the water’s-edge tion fee was repealed. rent year E&P (the ‘‘partial inclusion ratio’’). If
contract period expires. If however, the Form 100-FEE-X, Amended Water’s-Edge the dividend was paid entirely out of current
water’s-edge taxpayer meets certain criteria, it Election Fee, and Form 100-FEE-A, Amended year E&P, then the partial inclusion ratio for
may request termination of its water’s-edge Water’s-Edge Election Fee Supplemental the current year should be applied to deter-
election. See Termination of Election below. Schedule, are included in this booklet if the mine the portion of the dividend eligible for
A nonelecting bank or corporation that is sub- taxpayer finds it necessary to amend a prior R&TC Section 25106 elimination. To the
sequently proven to be unitary with a year’s water’s-edge election fee. extent that the dividend was paid from E&P
water’s-edge group pursuant to an audit accumulated in prior years, then the E&P
determination of the FTB is deemed to have Electronic Funds Transfer (EFT) attributable to business income included in the
made a water’s-edge election. Corporations that remit a bank or corporation combined report must be determined by refer-
estimated tax or extension payment in excess ence to the partial inclusion ratios for each of
Under certain circumstances, taxpayers those years.
adversely affected by the above rules may of $20,000 or that have a total tax liability in
terminate their election. excess of $80,000 must pay through EFT. Dividends are subject to the provisions of
Corporations that meet the threshold must R&TC Sections 24402, 24410 and 25106 prior
When an affiliation change occurs, a state- remit all payments, including water’s-edge fee to the application of R&TC Section 24411.
ment should be attached to the return payments, through EFT rather than by paper
identifying which affiliates were included in the Subpart F Income
check. The FTB will notify corporations that
original group, the appropriate California cor- are subject to this requirement. Those that Since California does not conform to IRC Sub-
poration numbers and what changes have wish to participate on a voluntary basis may part F provisions, Subpart F income is not
occurred. do so. For more information, call FTB’s EFT treated as a deemed dividend for California
For more information, see Title 18 Cal. Code Section at (916) 845-4025, or get FTB purposes and is not subject to a dividend
Reg. Section 25111-1(d)(2). Pub. 3817, Electronic Funds Transfer Pro- deduction. California does not follow the fed-
gram Information Guide. eral rules set forth in IRC Section 959 as to
Termination of Election the sources of distributions from an entity with
A taxpayer may terminate its water’s-edge Foreign Dividend Deduction Subpart F income.
election prior to the expiration of the contract
R&TC Section 24411 provides a 75% deduc- Definitions
period only if:
tion of qualifying dividends received and Current year qualifying dividends
• The taxpayer is acquired by an unrelated, included in the water’s-edge return. Dividends
nonelecting entity or group of entities that These are dividends received by any current
received from banks do not qualify for the member of the water’s-edge group from a cor-
has larger equity capital than the taxpayer; water’s-edge dividend deduction. A deduction
or poration (regardless of the place of incorpora-
of 100% is provided for dividends from certain
• The FTB grants the taxpayer written foreign construction projects.
tion) if:
permission to terminate the election. A tax- • The average of the payer’s property, pay-
payer may request permission to change Both business and nonbusiness dividends roll and sales factors within the U.S. is less
its election at any time. In general, the qualify for the dividend deduction. The allow- than 20%; and
request will be granted only if the taxpayer able business dividend deduction is deter- • More than 50% of the total combined vot-
demonstrates to the satisfaction of the mined by multiplying the total dividend ing power of all classes of voting stock is
FTB that filing on a water’s-edge basis deduction (business and nonbusiness) by the owned directly or indirectly by a member of
instead of a worldwide basis results in a ratio of qualifying business dividends to total the water’s-edge group at the time the divi-
significant disadvantage to the taxpayer, qualifying dividends. The remaining dividend dend is received.
and that such disadvantage is the result of deduction is the nonbusiness dividend
deduction. The payer need not be in a unitary relation-
an extraordinary and significant event that ship with the recipient or any other member of
could not have been reasonably antici- Intercompany dividends received within the the water’s-edge group.
pated at the time the election was origi- current year by the water’s-edge group should
nally made. be eliminated pursuant to R&TC Construction project
In general, the effective date of any request Section 25106, before computing the dividend A construction project is defined as an activity
that is granted by the FTB will be for the deduction. attributable to an addition to real property or
income year immediately following the income In no event will a R&TC Section 24411 to an alteration of land or any improvement
year in which the qualifying event occurs. deduction be allowed with respect to a divi- thereto. The construction project, the location
Form FTB 1117, Request to Terminate dend for which a deduction was allowed of which is not subject to the taxpayers’ con-
Water’s-Edge Election, must be filed no later under R&TC Section 24402 or Section 24410 trol, must be undertaken for an entity, includ-
than the due date of the return for the income or which was eliminated under R&TC ing a governmental entity, that is not affiliated
year the termination is effective. Section 25106. with the water’s-edge group.
A taxpayer must timely file form FTB 1117, For more information, see R&TC
Sources of Distributions
separately from any other form to terminate Section 24411 and the regulations thereunder.
In general, dividends will be considered to be
its water’s-edge election. Mail form FTB 1117 paid first out of current earnings and profits To compute your water’s-edge dividend
to: (E&P) and then out of accumulated E&P in deduction refer to the Schedule H instructions
FRANCHISE TAX BOARD reverse order of accumulation (LIFO method). in the Form 100, California Corporation Fran-
PO BOX 1779 chise or Income Tax Return Booklet or
For dividends paid by an entity that is partially Form 100S, California S Corporation Fran-
RANCHO CORDOVA CA 95741-1779 included in the combined report, only the por- chise or Income Tax Return Booklet.
For more information, see R&TC Sec- tion of the dividend paid from E&P attributable
tion 25111 and the regulations thereunder. to business income included in the
water’s-edge combined report is eligible for
elimination under R&TC Section 25106. For

Form 100-WE Booklet 1997 Page 5


Foreign Investment Interest Offset (defined in IRC Section 957) that has Subpart maintain records and make available upon
F income, as defined in IRC Section 952, request the following:
R&TC Section 24344(c) provides that interest
expense incurred for purposes of foreign
must be included in the combined report of a • Any records as may be appropriate in
taxpayer making a water’s-edge election. See determining the correct treatment of items
investment is offset against the dividends form FTB 2416, Retained Earnings of Con-
deductible under R&TC Section 24411. The reported on the worldwide or water’s-edge
trolled Foreign Corporations, on page 17 to combined report for purposes of determin-
offset can not be greater than the deduction compute the income and apportionment fac-
allowed pursuant to R&TC Section 24411. ing the income attributable to California;
Complete and attach form FTB 2424,
tors to be included in the combined report. • Any records as may determine the treat-
Water’s-Edge Foreign Investment Interest Off- ment of items as nonbusiness or business
set, to the return. For these purposes, foreign
Key Corporation income;
investment means stock or other equity A key corporation must be designated if the • Any records as may be appropriate to
investment, including accumulated E&P, in a California taxpayers elect to file a single return determine the apportionment factors; and
foreign entity owned by a member of the on a combined basis. The key corporation • Documents and information, to determine
water’s-edge group. must be a California taxpayer, and is gener- the proper attribution of income to the U.S.
ally either the parent corporation or the corpo- or foreign jurisdictions under IRC Subpart
In general, the amount of interest expense ration with the largest value of assets in F, IRC Section 882, or other similar provi-
incurred for purposes of foreign investment is California. In addition, the key corporation sions of the IRC.
determined by multiplying the total interest should be in good standing with both the FTB
expense of the water’s-edge group by the A corporation may be required to authorize an
and California SOS. Once a corporation is agent to act on its behalf in response to
ratio of the group’s total foreign investments designated as the key corporation, it must
to its total assets. However, direct tracing of requests for information or records pursuant to
continue to be the key corporation as long as R&TC Section 19504. For more information
interest expense to specific assets is required the water’s-edge contract remains in effect
if: refer to R&TC Section 19141.6.
and the corporation is a taxpayer in the
• The underlying debt was incurred in con- water’s-edge group. The key corporation must Instructions for Completing Form 100-WE,
nection with a specific property; be a California taxpayer. Water’s-Edge Contract
• The proceeds of the borrowing were actu- Example: Enter the corporation name, California corpo-
ally applied to the specific property; and ration number and address as they appear on
• The creditor’s only security is the specific Corporation A, the common parent of the fed- Form 100 or Form 100S.
property. eral controlled group A, B, C, D and E, is not
a California taxpayer. Corporation A elects Enter the name of the corporation making the
In addition, interest expense paid with respect water’s-edge treatment for the unitary group election in the space provided described as
to debt incurred on or after January 1, 1988, B, C and E, which are all California taxpayers. elector.
will not be considered incurred for purposes of Since corporation A is not a California tax- Be sure to check the box if a common parent
foreign investment if the proceeds of the debt payer, then B, C or E, depending on which is electing on behalf of members of the con-
are paid into an account that is restricted to has the largest value of assets in California, trolled group included in the water’s-edge
preclude its use for foreign investment and will be designated as the key corporation if combined report. For more information see
the account is not in fact used for foreign the taxpayers file a single tax return on a Title 18 Cal. Code Reg. Section 25111-1(c).
investment. combined basis. List all taxpayers covered by the common par-
Total amounts of interest, foreign investment If the key corporation is changed, a statement ent’s election on Side 2 of Form 100-WE.
and assets are reduced by any items qualify- should be attached to the return identifying Enter the beginning date of the water’s-edge
ing for specific tracing before the application the original key corporation with its California contract in the space provided. This date is
of the apportionment formula based on corporation number and the new key corpora- generally the same as the beginning date for
assets. tion with its California corporation number. the income year that appears on Form 100 or
The offset is limited to the lesser of: For more information get Schedule R-7, Elec- Form 100S for the first year of the election. If
• Interest expense specifically assigned and tion to File a Unitary Taxpayers’ Group Return the corporation is a member of a water’s-
allocated to foreign investment; or and List of Affiliated Corporations, which is edge combined group that has different fiscal-
• The foreign dividend deduction. included in Schedule R, Apportionment and year ends, the contract beginning date is the
Allocation of Income. beginning date of the income year of the last
For income years beginning on or after Janu- member of the group to file its return and
ary 1, 1997, this amount is multiplied by the make the election.
same percentage used to determine the for- Return Filing Requirements
eign dividend deduction under R&TC Section Any year a corporation files a return determin- An officer of the electing corporation must
24411 (75%) to arrive at the foreign invest- ing its California taxable income on a sign and date the contract.
ment interest offset. water’s-edge basis, it is required to attach the
The remaining interest expense, after the following:
amount of interest expense offset against divi- • A copy of the filed Form 100-WE,
dends deductible under R&TC Section 24411, Water’s-Edge Contract, effective for the
is subject to the provisions of R&TC current year; and
Section 24344(b). • Form FTB 2426, Water’s-Edge Cover
For more information, see R&TC Sec- Sheet.
tion 24344(c) and the regulations thereunder Corporations must attach form FTB 2426 to
and the instructions to form FTB 2424. the front of their Form 100 or Form 100S
return.
Retained Earnings of Controlled
Foreign Corporations Records Maintenance
R&TC Section 25110(a)(6) provides that a Requirements
portion of the income and apportionment fac- Any taxpayer filing on a water’s-edge or
tors of any controlled foreign corporation worldwide basis, is required to keep and

Page 6 Form 100-WE Booklet 1997


INCOME YEAR CALIFORNIA FORM

1997 Water’s-Edge Cover Sheet 2426


For calendar year 1997 MONTH DAY YEAR MONTH DAY YEAR

or fiscal year beginning 1997 , and ending 1 9 .

Attach this form to the face of Form 100 or Form 100S.


Corporation and Contract Information
Corporation name California corporation number

MONTH DAY YEAR MONTH DAY YEAR

THE WATER’S-EDGE CONTRACT PERIOD BEGINS AND ENDS .

Indicate which of the following forms are included with this return by checking all applicable boxes:

FTB 2416 FTB 2424 Form 100-FEE-A Form 100-FEE-X Form 100-WE Copy of Form 100-WE
from prior year election

THIS FORM MUST BE ATTACHED TO THE FRONT OF FORM 100 OR FORM 100S
Signature of officer Date

Please Print or type name of signing officer Telephone


Sign
( )
Here Print or type title

General Information General Instructions water’s-edge should be in good standing


with both the Franchise Tax Board (FTB)
Purpose Form FTB 2426 should be attached to
and California Secretary of State (SOS).
the front of Form 100 or Form 100S.
Use form FTB 2426 as a cover sheet A copy of the contract must be attached
whenever a corporation files a return Do not attach form FTB 1116, Notice of
to all subsequent returns filed during the
determining its California income on a Nonrenewal of Water’s-Edge Contract, or
contract period.
water’s-edge basis. form FTB 1117, Request to Terminate
Water’s-Edge Election, to this form. Mail California Corporation Number for
each form separately from any other Unitary Group Single Return
form.
Enter the California corporation number
Form 100-WE, Water’s-Edge Contract, of the key corporation designated in the
must be attached to the original return election to file a Unitary Group Single
to be valid. Any taxpayer electing Return.
*2426971*

FTB 2426 C2 1997


THIS PAGE LEFT BLANK FOR NOTES

Page 8 Form 100-WE Booklet 1997


INCOME YEAR CALIFORNIA FORM

1997 Water’s-Edge Contract 100-WE


Attach this form to the back of Form 100 or Form 100S.
Corporation name California corporation number

Number and street

City State ZIP code

WATER’S-EDGE CONTRACT
Pursuant to Revenue and Taxation Code (R&TC) Section 25111 and subject to the representations and conditions set forth
herein and in the R&TC, the parties agree and contract as follows:

I The Franchise Tax Board (FTB) shall allow the ELECTOR to determine the amount of income derived from or attributable
to sources within this state pursuant to R&TC Section 25110 and related provisions (including incorporated federal
provisions, as may be amended during the contract period); and
II The ELECTOR consents to the taking of depositions from key domestic corporate individuals, wherever located, and
acceptance of subpoenas duces tecum, both as provided in R&TC Section 25110(b)(2)(A), and agrees that the dividends
described in R&TC Section 25110(b)(2)(B) are functionally related and presumed to be business income.

PARTIES: The parties to this Contract shall be the FTB and , ELECTOR.

This contract shall be effective only if each and every bank and corporation that is or was required to file a return under the
R&TC which is or was a member of the water’s-edge group at any time during the income year joins in the election.

Check here if the common parent is electing on behalf of the water’s-edge group. List each bank or corporation
covered by this contract on Side 2. As the common parent of a controlled group, the bank or corporation hereby
contracts for all members of the controlled group which are includable in the water’s-edge combined report.

Any taxpayer that subsequently becomes a member of the water’s-edge group or is subsequently proved to be a
member of the water’s-edge group will be deemed to have consented to the election subject to the provisions of R&TC
Section 25111 and the regulations thereunder.
MONTH DAY YEAR

PERIOD: The contract shall begin on , the first day of the income year for which the
election can be made and shall, except as otherwise provided by statute or herein, continue for seven years (84 calendar
months) from that date.

RENEWAL: Unless a notice of nonrenewal is filed at least ninety (90) days prior to the anniversary date, the contract
shall automatically be extended for one year (12 calendar months). The ‘‘anniversary date’’ shall be defined as the later of
the original due date or the due date as extended for the income year for which the election was initially made.

TERMINATION: If the ELECTOR requests, the FTB may, subject to conditions as provided by statute or regulation, allow
this contract to be terminated prior to the expiration of its term.

JURISDICTION: This is a legally binding contract. Any disputes arising under this contract shall be subject to the
jurisdiction of the Superior Court of the State of California.
*100WE971*

Electing Corporation Name/Electing Corporation Number

Date Signature of Officer of Electing Corporation

Print or type name and title of signing Officer

SIGN FORM 100-WE AND ATTACH TO FORM 100 OR FORM 100S


KEEP A COPY FOR YOUR RECORDS
Form 100-WE C1 1997 Side 1
Corporations Covered by the Water’s-Edge Contract
Key California corporation name * Key California corporation number

Common parent name FEIN (if applicable)


List of corporations covered by the election California corporation number
*100WE972*

* See page 6 for definition of Key Corporation. Attach additional sheets if necessary.

Side 2 Form 100-WE C1 1997


INCOME YEAR CALIFORNIA FORM

19 Notice of Nonrenewal of Water’s-Edge Contract 1116


Key corporation name (as filed on original water’s-edge return) Key California corporation number

Number and street Federal employer identification number (FEIN)


City, state, ZIP code

■ INDIVIDUAL TAXPAYER NOTICE OF NONRENEWAL

hereby notifies the Franchise Tax Board (FTB) of its intention not to renew its water’s-edge contract with the beginning
MONTH DAY YEAR
date of providing for a water’s-edge election pursuant to Revenue and Taxation
Code (R&TC) Section 25110. The last day of the income year for which the contract shall continue in effect is
MONTH DAY YEAR
______________________________ .

In order for nonrenewal of the water’s-edge contract to be effective, each taxpayer making a water’s-edge election
within the group must file a separate notice of nonrenewal of water’s-edge contract.

Date Signature of Officer

Print or type name and title of signing Officer

■ COMMON PARENT NOTICE OF NONRENEWAL

a common parent hereby notifies the FTB of its intention not to renew its contract with the beginning date of
MONTH DAY YEAR
, providing for a water’s-edge election pursuant to R&TC Section 25110.
MONTH DAY YEAR
The last day of the income year for which the contract shall continue in effect is .
*1116971*

Date Signature of Officer

Print or type name and title of signing Officer

Affiliated taxpayers included in the water’s-edge group must be listed on the back of this form.
THIS FORM MUST BE FILED SEPARATELY FROM THE TAX RETURN
Mail separately to: FRANCHISE TAX BOARD
PO BOX 1779
RANCHO CORDOVA CA 95741-1779

FTB 1116 C1 1997 Side 1


Notice of Nonrenewal of Water’s-Edge Contract
Key corporation name * Key California corporation number

Common parent name FEIN (if applicable)


List of corporations covered by the election California corporation number
*1116972*

* See page 6 for definition of Key Corporation. Attach additional sheets if necessary.

Side 2 FTB 1116 C1 1997


INCOME YEAR CALIFORNIA FORM

19 Request to Terminate Water’s-Edge Election 1117


For use only by taxpayers filing on a water’s-edge basis. Note: Parts I, II, III and VII must be completed in all cases.
Part I Complete in all cases.
Corporation name (as reflected on original water’s-edge return) California corporation number

Address (number and street)

City State ZIP code

Do not change the method of filing until it has been approved by the Franchise Tax Board (FTB).
Request to terminate the water’s-edge MONTH DAY YEAR
election effective for income year ending
MONTH DAY YEAR
Current expiration date of the water’s-edge election
Part II Complete in all cases.

1. This is a request to terminate the water’s-edge election ■ ; or


2. This is a request for FTB’s permission to terminate the water’s-edge election ■.
3. Basis for request to terminate the election (attach additional sheets if necessary).

Part III Complete in all cases.

List Taxpayers Currently Covered by Original Contract List Taxpayers Requesting to Terminate Election
*1117971*

THIS FORM MUST BE FILED SEPARATELY FROM THE TAX RETURN

See instructions on page 15 for more information.


FTB 1117 C1 1997 Side 1
Parts IV, V and VI apply only if you are requesting permission to terminate the election. Otherwise, go to Part VII.
Part IV Complete only by taxpayers requesting permission to terminate the election.
Provide a list of all gains or losses on stock or assets during the water’s-edge election period of any affiliated banks or corporations
included in the combined report prior to the water’s-edge election. See Part VI.
Bank or Corporation Name Item Disposed Of Date Sold/Disposed Of Gain/Loss

Part V Complete only by taxpayers requesting permission to terminate the election.


Tax As Computed
Income Year Ended Water’s-Edge Method Worldwide Method Difference

Attach a statement showing computations, estimates and assumptions made.


Part VI Applies only to taxpayers requesting permission to terminate the election.
Conditions:
A request for permission to terminate an election is subject to the following.
1. Dividends received during the remain- the contract from affiliated banks or that was excluded from the
ing period of the contract from affiliated corporations not included in the water’s-edge combined report will be
banks or corporations not included in water’s-edge combined report will not included in income in the first return
the water’s-edge combined report will be deferred or eliminated. Loss(es) filed after permission is granted.
be considered to have been paid first from the sale or worthlessness of stock Loss(es) will only be included to the
out of the earnings and profits not or from the sale or other disposition of extent of gain(s) recognized as a result
included in the combined report of a assets of affiliated banks or corpora- of the change in election.
unitary business for purposes of com- tions not included in the water’s-edge 4. The books and records with respect to
puting any allowable dividend exclusion combined report will be allowed only to the gain(s) and loss(es) listed above,
under R&TC Section 25106. To the the extent of dividend income or other earnings and profits of affiliated banks
extent the dividends exceed such earn- gain(s) recognized as a result of the and corporations, the nature of the
ings and profits, they may be subject to change in election. event giving rise to the request, the
the exclusion. 3. Gain(s) or loss(es) on the disposition of consequences of such event, and such
2. Gain(s) on distribution with respect to stock or assets of an affiliated bank or other relevent matters must be made
stock that is not a dividend or from the corporation that was included in a com- available upon request of the FTB.
sale or other disposition of assets bined report prior to the election and
received during the remaining period of

By signing this form the taxpayers requesting permission to terminate the water’s-edge election agree to the four conditions listed above.
Part VII Signature and Verification. Complete in all cases.

1. I attest to the accuracy of factual statements.


2. I attest to the belief that the termination of the water’s-edge election is permitted by law.
3. I agree to the terms and conditions for all affected taxpayers.
*1117972*

Under penalties of perjury, I declare that I have examined this form, including accompanying schedules and statements,
and to the best of my knowledge, it is true, correct and complete.

Signature of officer Title Date

Print or type name of person to contact Telephone

Mail separately to:


FRANCHISE TAX BOARD
PO BOX 1779
RANCHO CORDOVA CA 95741-1779

Side 2 FTB 1117 C1 1997


Instructions for form FTB 1117
Request to Terminate Water’s-Edge Election
General Information The basis for permission to terminate the Effective Date
water’s-edge election must be in writing and
The effective date of a terminated election
Purpose must state the reason(s) for the request. In
varies depending on whether the taxpayer is
addition, the statement should explain why
Use form FTB 1117 to request to terminate filing on the water’s-edge combined basis requesting to terminate or requesting permis-
the water’s-edge election or to request the results in a significant disadvantage to the sion to terminate and on the basis for the
FTB’s permission to terminate the taxpayer and how such disadvantage is the change. A terminated election, based on
water’s-edge election. consequence of an extraordinary and signifi- acquisition by a larger entity, is effective for
R&TC Section 25111 provides how and when cant event that could not have been reasona- the succeeding income year.
the water’s-edge election is to be made. In bly anticipated at the time the original election In general, requests for permission to termi-
addition, this section provides the manner in was made. nate the water’s-edge election are effective for
which the water’s-edge election may be termi- A significant disadvantage includes a material the first succeeding income year after the
nated at any time prior to the expiration of the difference that is unfavorable to the taxpayer income year in which the qualifying event
contract period. The election may be termi- between the tax under the water’s-edge occurred.
nated if the taxpayer requests: reporting and the tax under worldwide report- The FTB may grant the change effective for a
• To terminate the election; or ing for the remaining life of the election. Any later income year. However, requests will not
• The FTB’s permission to terminate the assumptions, estimates, and computations be allowed retroactively.
election. made to determine such material difference For additional information, refer to R&TC Sec-
The taxpayer should clearly state under must be included with the request for permis- tion 25111 and the regulations thereunder.
which criteria it is requesting the termina- sion to terminate the election.
tion and the specific facts involved. Taxpayers requesting permission to terminate Due Date of form FTB 1117
must complete Part IV and Part V of form Any request to terminate an election
FTB 1117. described in Part II, line 1 and any request for
Specific Instructions permission to terminate an election by reason
Basis for Request to Terminate of change in ownership or affiliation, must be
Request to Terminate Part II, Line 3 filed with the FTB no later than the due date,
Part II, Line 1 Provide a detailed explanation of the basis for including extensions, of the return for which
requesting permission to terminate. the termination would be effective. Other
An electing water’s-edge taxpayer may termi-
requests for permission to terminate an elec-
nate its water’s-edge election if it is acquired
Changing an Election tion described in Part II, line 2 may be filed at
directly or indirectly by an unrelated nonelect-
any time.
ing entity that is larger in terms of equity A request for permission to terminate an elec-
capital than the taxpayer. tion under Part II, line 2 of this form is subject Where to Mail
In the case of termination by reason of acqui- to the conditions outlined in Part VI of form
FTB 1117. A taxpayer must file form FTB 1117, Request
sition by a larger entity, the request to termi-
to Terminate Water’s-Edge Election, sepa-
nate an election will affect only the member of
Action on Request rately from any other form. Form FTB 1117
the water’s-edge group making the request.
filed with a return is not valid, and will not
Within 90 days of receipt of a request to ter- terminate a taxpayer’s water’s-edge election.
Permission to Terminate minate the water’s-edge election, the FTB will Mail form FTB 1117 to:
Part II, Line 2 either act on the request or advise the tax-
payer what additional information is needed to FRANCHISE TAX BOARD
In general, the request for permission to termi- PO BOX 1779
nate the water’s-edge election will be granted consider the request. Upon receipt of the
additional information requested, the FTB will RANCHO CORDOVA CA 95741-1779
only if the taxpayer demonstrates that the
act on the request within 90 days. For more information, see R&TC Sec-
requirement to file returns on a water’s-edge
If the FTB takes no action or requests no tion 25111 and the regulations thereunder.
basis, rather than on a worldwide combined
basis, for the unexpired term of the contract additional information, the request to termi-
will result in a significant disadvantage to the nate the water’s-edge election under Part II,
taxpayer and that such disadvantage is the line 1 of this form is deemed allowed upon
consequence of an extraordinary and signifi- expiration of the 90-day period unless this
cant event that could not have been reasona- time period is specifically extended by the
bly anticipated at the time the original election taxpayer.
was made. If the FTB takes no action or requests no
An example of an event that could be consid- additional information, the request for permis-
ered extraordinary and significant includes, sion to terminate the water’s-edge election
but is not limited to, change in ownership or under Part II, line 2 of this form is deemed
affiliation. disallowed upon expiration of the 90-day
A taxpayer requesting permission to terminate period unless this time period is specifically
the water’s-edge election by reason of change extended by the taxpayer.
in ownership or affiliation must request per- The taxpayer may withdraw its request at any
mission to terminate no later than the due time prior to the FTB’s taking action on such
date of the return for the income year immedi- request.
ately succeeding the income year in which the
change in ownership or affiliation occurred.

Form 100-WE Booklet 1997 Page 15


THIS PAGE LEFT BLANK FOR NOTES

Page 16 Form 100-WE Booklet 1997


*2416971*
INCOME YEAR CALIFORNIA FORM

1997 Retained Earnings of Controlled Foreign Corporations 2416


Corporation name California corporation number

(b) (c) (d)


(a) Country of Country of pri- Principal bus. (e) (f) (g)
Corporation name incorporation mary bus. activity activity code Subpart F income Current year earnings and profits Percentage (e) ÷ (f)

1
2
3
4
5
6
7
8
(j) (l)
(h) (i) Average property (k) Rent expense (m) (n) (o) (p) (q)
Net income (g) x (h) everywhere (g) x (j) Capitalized (x 8) (g) x (l) Payroll everywhere (g) x (n) Sales everywhere (g) x (p)

1
2
3
4
5
FTB 2416 1997

6
7
8
9 TOTAL
Side 1

Attach additional sheets if necessary. ATTACH TO FORM 100 OR FORM 100S


Alphabetic Listing of Countries and Codes for form FTB 2416
A Equatorial Guinea . . . . . . EK L S
Afghanistan . . . . . . . . AF Eritrea . . . . . . . . . . . ER Laos . . . . . . . . . . . . LA Saint Christopher - Nevis . . SC
Albania . . . . . . . . . . AL Estonia. . . . . . . . . . . EN Latvia. . . . . . . . . . . . LG Saint Helena Island . . . . . SH
Algeria . . . . . . . . . . AG Ethiopia . . . . . . . . . . ET Lebanon . . . . . . . . . . LE St. Lucia. . . . . . . . . . ST
American Samoa . . . . . . AQ Europa Island . . . . . . . . EU Lesotho . . . . . . . . . . . LT St. Vincent & Grenadines . . VC
Andorra . . . . . . . . . . AN Liberia . . . . . . . . . . . LI Sao Tome and Principe . . . TP
Angola . . . . . . . . . . AO F Libya . . . . . . . . . . . . LY Saint Pierre and Miguelon . . SB
Anguilla . . . . . . . . . . AV Falkland Islands Liechtenstein . . . . . . . . LS San Marino . . . . . . . . SM
Antarctica . . . . . . . . . AY (Islas Malvinas) . . . . . . . FA Lithuania . . . . . . . . . . LH Saudi Arabia . . . . . . . . SA
Antigua and Barbuda . . . . AC Faroe Islands . . . . . . . . FO Luxembourg . . . . . . . . . LU Senegal . . . . . . . . . . SG
Argentina . . . . . . . . . AR Fiji Island . . . . . . . . . . FJ Seychelles . . . . . . . . . SE
Armenia . . . . . . . . . . AM Finland . . . . . . . . . . . FI M Sierra Leone . . . . . . . . SL
Aruba . . . . . . . . . . . AA France . . . . . . . . . . . FR Macau (Macao) . . . . . . MC Singapore . . . . . . . . . SN
Ashmore and Cartier Island . AT French Guiana . . . . . . . FG Macedonia . . . . . . . . MK Slovakia . . . . . . . . . . LO
Australia . . . . . . . . . . AS French Polynesia . . . . . . FP Madgascar . . . . . . . . MA Slovenia . . . . . . . . . . . SI
Austria . . . . . . . . . . AU French Southern and Malawi . . . . . . . . . . . MI Solomon Islands . . . . . . SP
Azerbaijan . . . . . . . . . AJ Antarctic Lands . . . . . . . FS Malaysia . . . . . . . . . MY Somalia (Somali Republic) . . SO
Azores . . . . . . . . . . PO Maldive Islands . . . . . . MV South Africa, Republic of. . . SF
G Mali . . . . . . . . . . . . ML South Georgia and South
B Gabon . . . . . . . . . . . GB Malta . . . . . . . . . . . MT Sandwich Island . . . . . . SX
Bahamas . . . . . . . . . BF Gambia . . . . . . . . . . GA Marshall Islands . . . . . . RM Spain . . . . . . . . . . . SP
Bahrain . . . . . . . . . . BA Gaza Strip . . . . . . . . . GZ Martinique . . . . . . . . . MB Spratty Island . . . . . . . PG
Baker Island . . . . . . . . FQ Georgia . . . . . . . . . . GG Mauritania . . . . . . . . . MR Sri Lanka . . . . . . . . . CE
Bangladesh . . . . . . . . BG Germany . . . . . . . . . . GM Mauritius . . . . . . . . . MP Sudan . . . . . . . . . . . SU
Barbados . . . . . . . . . BB Ghana . . . . . . . . . . . GH Mayotte . . . . . . . . . . MR Suriname . . . . . . . . . NS
Bassas de India . . . . . . BS Gibraltar . . . . . . . . . . GI Mexico . . . . . . . . . . MX Svalbard . . . . . . . . . . SV
Belgium . . . . . . . . . . BE Glorioso Islands . . . . . . . GO Micronesia, Federated Swaziland . . . . . . . . . WZ
Belize . . . . . . . . . . . BH Great Britian, States of . . . . . . . . . FM Sweden . . . . . . . . . . SW
Benin (formerly People’s United Kingdom of . . . . . . UK Midway Island . . . . . . . MQ Switzerland. . . . . . . . . SZ
Republic of Dahomey) . . . . BN Greece . . . . . . . . . . . GR Moldova. . . . . . . . . . MD Syria . . . . . . . . . . . SY
Bermuda. . . . . . . . . . BD Greenland . . . . . . . . . GL Monaco . . . . . . . . . . MN
Bhutan . . . . . . . . . . BT Grenada . . . . . . . . . . GJ Mongolia . . . . . . . . . MG T
Bolivia . . . . . . . . . . . BL Guadeloupe. . . . . . . . . GP Montenegro . . . . . . . . MW Taiwan . . . . . . . . . . TW
Bosnia-Herzegovina . . . . . BK Guam . . . . . . . . . . . GQ Montserrat. . . . . . . . . MH Tajikistan . . . . . . . . . . TI
Botswana . . . . . . . . . BC Guatemala . . . . . . . . . GT Morocco . . . . . . . . . MO Tanzania. . . . . . . . . . TZ
Bouvet Island. . . . . . . . BV Guinea . . . . . . . . . . . GV Mozambique . . . . . . . . MZ Thailand . . . . . . . . . . TH
Brazil . . . . . . . . . . . BR Guinea Bissau . . . . . . . PU Tokelau (Union). . . . . . . TL
British Indian Ocean Guyana . . . . . . . . . . GY N Tonga . . . . . . . . . . . TN
Territory . . . . . . . . . . . IO Namibia . . . . . . . . . . WA Trinidad and Tobago . . . . TD
Brunei . . . . . . . . . . . BX H Nauru Island. . . . . . . . NR Tromelin Island . . . . . . . TE
Bulgaria . . . . . . . . . . BU Haiti . . . . . . . . . . . . HA Nepal . . . . . . . . . . . . NP Trust Territory of the Pacific
Burkina Faso . . . . . . . . UV Heard Island and Netherlands (Holland) . . . . . NL Islands . . . . . . . . . . PS
Burma . . . . . . . . . . . BM McDonald Islands . . . . . . HM Netherlands Antilles . . . . . NT Tunisia . . . . . . . . . . TS
Burundi . . . . . . . . . . BR Honduras . . . . . . . . . . HO New Caledonia. . . . . . . NO Turkey (in Europe and Asia) . TU
Hong Kong . . . . . . . . . HK New Zealand . . . . . . . . NZ Turks and Calicos Islands . . TK
C Howland Island . . . . . . . HQ Nicaragua . . . . . . . . . NU Tuvalu. . . . . . . . . . . TV
Cambodia Hungary . . . . . . . . . . HU Niger . . . . . . . . . . . NG
(formerly Kampuchea) . . . . CB Nigeria . . . . . . . . . . . NI U
Cameroon, Federal Republic of CM I Niue Islands . . . . . . . . . NE Uganda . . . . . . . . . . UG
Canada . . . . . . . . . . CA Iceland . . . . . . . . . . . IC Norfolk Island . . . . . . . . NF Ukraine . . . . . . . . . . UP
Canary Islands . . . . . . . SP India . . . . . . . . . . . . IN Northern Ireland (comprising the coun- United Arab Emirates . . . . TC
Calpe Verde, Republic of . . CV Indonesia . . . . . . . . . . ID ties of Londonderry, Antrim, Down, United Kingdom of Great Britain
Cayman Islands . . . . . . CJ Iran . . . . . . . . . . . . IR Tyrone, Armagh, and Fermanagh) UK and Northern Ireland . . . . UK
Central African Republic . . . CT Iraq . . . . . . . . . . . . IZ Northern Marian Island . . . CQ Uruguay . . . . . . . . . . UY
Chad . . . . . . . . . . . CO Iraq-Saudi Arabia Norway . . . . . . . . . . NO Uzbekistan . . . . . . . . . UZ
Chile . . . . . . . . . . . . CI Neutral Zone . . . . . . . . IY
China . . . . . . . . . . . CH Ireland (Eire) except six counties O V
Christmas Island . . . . . . KT of Northern Ireland. . . . . . EI Oman. . . . . . . . . . . MU Vanuatu (formerly New Hebrides) NH
Clipperton Islands . . . . . . . IP Isle of Mann . . . . . . . . IM Vatican City . . . . . . . . VT
Cocos Islands . . . . . . . CK Israel . . . . . . . . . . . IS P Venezuela . . . . . . . . . VE
Colombia . . . . . . . . . CO Italy . . . . . . . . . . . . IT Pakistan . . . . . . . . . . PH Vietnam . . . . . . . . . . VM
Comoros Palmyra Atoll . . . . . . . . LQ Virgin Islands (British) . . . . . VI
(formerly Comoro Islands) . . CN J Panama. . . . . . . . . . PM Virgin Islands (U.S.) . . . . . VQ
Congo, Democratic Republic of Jamaica . . . . . . . . . . JM Papua New Guinea. . . . . . PP
(Zaire) . . . . . . . . . . . CF Jan Mayen Island . . . . . . JN Paracel Islands . . . . . . . PF W
Cook Islands . . . . . . . . CW Japan . . . . . . . . . . . JA Paraquay . . . . . . . . . . PA Wake Island . . . . . . . . WQ
Coral Sea Island Jersey . . . . . . . . . . . JE Peru . . . . . . . . . . . . PE Wallis and Futuna. . . . . . WF
Territory . . . . . . . . . . CR Johnston Atoll . . . . . . . . JQ Philippines. . . . . . . . . . RP West Bank . . . . . . . . . WE
Costa Rica . . . . . . . . . CS Jordan . . . . . . . . . . . JO Pitcairn Island . . . . . . . . PC Western Sahara . . . . . . WI
Cuba . . . . . . . . . . . CU Juan de Nova Island . . . . . JU Poland . . . . . . . . . . . PL Western Samoa . . . . . . WS
Cyprus . . . . . . . . . . CY Portugal. . . . . . . . . . PO
Czechoslovakia . . . . . . . CZ K Puerto Rico . . . . . . . . RQ Y
Kazakhstan . . . . . . . . . KZ Yemen . . . . . . . . . . YM
D Kenya . . . . . . . . . . . KR Q
Denmark (except Greenland) . DA Kingman Reef. . . . . . . . KQ Qatar . . . . . . . . . . . QA Z
Djibouti . . . . . . . . . . DJ Kiribati . . . . . . . . . . . KR Zaire . . . . . . . . . . . CG
Dominica . . . . . . . . . DO Korea, Democratic People’s R Zambia . . . . . . . . . . ZA
Dominican Republic . . . . . DR Republic of (North). . . . . . KN Reunion Island. . . . . . . . RE Zimbabwe (formerly Rhodesia) . ZI
Korea, Republic of (South) . . KS Romania . . . . . . . . . RQ
E Kuwait . . . . . . . . . . . KU Rwanda . . . . . . . . . . RW
Ecuador . . . . . . . . . . EC Kyrgyzetan . . . . . . . . . KG Russia . . . . . . . . . . . RS
Egypt . . . . . . . . . . . EG
El Salvador . . . . . . . . ES

Side 2 FTB 2416 1997


Instructions for Form FTB 2416
Retained Earnings of Controlled Foreign Corporations
General Instructions Return Instruction booket and on page 22
of the 1997 California S Corporation Fran-
A Purpose chise or Income Tax Return Instruction
booklet.
R&TC Section 25110(a)(6) provides that
the income and apportionment factors of Column (e) – Subpart F income
any controlled foreign corporation (CFC) In determining whether a bank or corpora-
(as defined in IRC Section 957) that has tion has Subpart F income for purposes of
Subpart F income (defined in IRC Sec- R&TC Section 25110(a)(6) and the regula-
tion 952) are to be included in the com- tions thereunder, the limitation and exclu-
bined report of a taxpayer making a sions provided for in IRC Section 954(b)
water’s-edge election. For these purposes, shall apply and IRC Section 952(c) shall
Subpart F income does not include income not apply.
defined in IRC Sections 955, 956 or 956A. Include both business and nonbusiness
Use form FTB 2416 to compute the net income as defined under R&TC Sec-
income and apportionment factors required tion 25120 for the current year.
to be included in the water’s-edge com- Column (f) – Current year earnings and
bined report. profits (E&P)
B Controlled Foreign Corporation E&P, as defined in IRC Section 964,
includes both business and nonbusiness
In general, a foreign corporation is a corpo- income for the current year. In most cases,
ration that is not created or organized in this figure can be taken from federal
the U.S. or under the laws of the U.S. or Form 5471, Information Return of U.S. Per-
any state. sons with Respect to Certain Foreign Cor-
A CFC is any foreign corporation if more porations, Schedule H, line 5d.
than 50% is owned or considered to be If there is no E&P, STOP. None of the
owned (per IRC Section 958(b)) by U.S. income or factors of this corporation will be
shareholders. included in the water’s-edge combined
report.
C Apportionment Column (g) – Percentage
The amounts included in income and the
apportionment factors are determined by The percentage may not exceed one hun-
multiplying the total income and each com- dred or be less than zero.
ponent of the apportionment factors by a Column (h) –- Net income
fraction. The numerator of the fraction is Report the total net income as reflected on
the current year total Subpart F income the corporation’s books and records,
defined in IRC Section 952 and the denom- adjusted to conform to California tax law.
inator is the current year E&P as defined in
IRC Section 964. Columns (j), (l), (n) and (p) – Apportion-
ment factors
See R&TC Section 25110(a)(6) and the
regulations thereunder for more Determine the apportionment factors for the
information. foreign corporation to be included in the
water’s-edge combined report including
total average property everywhere, rent
Specific Instructions expense everywhere, payroll everywhere
and sales everywhere based on the appor-
Column (b) – Country of incorporation tionment factor rules set forth in R&TC
Enter the country of incorporation in col- Sections 25129 through 25137. See
umn (b). Use the list of country codes on Schedule R, Apportionment and Allocation
page 18. of Income, for more information.
Column (c) – Country of primary busi-
ness activity
Enter the country in which the CFC con-
ducts its primary trade or business in col-
umn (c). Use the country codes listed on
page 18. This country may be different
from the country of incorporation.
Column (d) – Principal business activity
(PBA) code
Enter the principal business activity code of
the CFC. The PBA codes are listed on
page 32 of the 1997 Form 100, California
Corporation Franchise or Income Tax

Form 100-WE Booklet 1997 Page 19


THIS PAGE LEFT BLANK FOR NOTES

Page 20 Form 100-WE Booklet 1997


INCOME YEAR CALIFORNIA FORM

1997 Water’s-Edge Foreign Investment Interest Offset 2424


Attach this form to the back of Form 100 or Form 100S.
Key Corporation name Key California corporation number

1 R&TC Section 24411 dividend deduction from Form 100, Side 1, line 11; or Form 100S, Side 1, line 10.
See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
If line 1 is zero, this offset is zero. Do not complete this form.
2 Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3 Interest expense specifically assignable to foreign investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

4 Interest expense specifically assignable to domestic investment or other property . . . . . . . . . . . . . . . . . . . . 4

5 Unassigned interest expense, add line 3 and line 4, and subtract from line 2 . . . . . . . . . . . . . . . . . . . . . . . 5

6 Unassigned interest expense from line 5, paid on debt incurred prior to January 1, 1988. . . . . . . . . . . . . . . . 6

7 Unassigned interest expense from line 5, paid on new debt incurred on or after January 1, 1988 . . . . . . . . . . . 7

8 Interest expense included in line 7, paid with respect to debt proceeds deposited in restricted accounts. . . . . . . 8

9 Subtract line 8 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

10 Unassigned interest expense subject to allocation. Add line 6 and line 9 . . . . . . . . . . . . . . . . . . . . . . . . . 10

11 Unassigned foreign investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

12 Unassigned total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

13 Percentage. Divide line 11 by line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

14 Interest expense assigned to foreign investment. Multiply line 10 by line 13 . . . . . . . . . . . . . . . . . . . . . . . 14

15 Interest expense attributable to foreign investment. Add line 3 and line 14 . . . . . . . . . . . . . . . . . . . . . . . . 15

16 Enter the amount from line 1 or line 15, whichever is less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16


17 Multiply the amount from line 16 by 75% (.75). Enter here and on Schedule R, Side 1, line 1(b) and
Schedule R-5, line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Note: The remaining interest expense is subject to the provisions of R&TC Section 24344(b).
*2424971*

FTB 2424 1997 Side 1


Instructions for Form FTB 2424
Water’s-Edge Foreign Investment Interest Offset
General Instructions • The creditor can look only to the spe- For more information see R&TC
cific property (or any lease or other Section 24344(c) and the regulations
R&TC Section 24344(c) provides that interest interest therein) as security for payment thereunder.
expense incurred for purposes of foreign of the principal and interest of the loan
investment (as defined below) may be offset and, thus, has no secured interest in
against the foreign dividend deduction allowed any other property of the borrower or
Specific Instructions
under R&TC Section 24411. The foreign the borrower itself with respect to
investment interest offset may not exceed the Line 1
repayment of the loan. Enter the Water’s-Edge Dividend Deduction
total foreign dividend deduction allowed for
the income year. Even though the above facts and circum- claimed on Form 100, line 11; or Form 100S,
stances are present in substance as well as line 10.
The amount of interest expense subject to the form, a deduction for interest will not be con-
foreign investment interest offset is equal to sidered definitely related to a specific property Line 2
the amount of interest expense specifically where the motive for structuring the transac- Total interest expense for all entities included
assigned to foreign investment plus the tion in the manner described above was in the water’s-edge combined report filed pur-
amount of unassigned interest expense allo- without any economic significance. suant to R&TC Section 25110, net of inter-
cated to foreign investment. Unassigned inter- company interest expense.
est expense is allocated by formula. 3. Unassigned interest expense
Interest expense paid that does not meet Line 3
The amount of the offset is limited to the
the above conditions is unassigned inter- Enter the interest expense specifically assign-
lesser of:
est expense. able to foreign investments. See R&TC
• Interest expense specifically assigned and Section 24344(c) and the regulations
allocated to foreign investment; or 4. Interest expense on restricted accounts thereunder for further information.
• The foreign dividend deduction. Interest expense on restricted accounts is
interest expense paid on new debt Line 4
For income years beginning on or after Janu-
incurred on or after January 1, 1988, if the Enter the interest expense specifically
ary 1, 1997, this amount is multiplied by the
proceeds of the debt are deposited into an assignable to domestic investments or other
same percentage used to determine the for-
account that prevents its use for foreign property.
eign dividend deduction, 75% to arrive at the
foreign investment interest offset. Interest investment and the account is not, in fact, Line 6
expense which exceeds the offset amount will used for foreign investment. However, debt Enter unassigned interest expense included
be subject to the usual interest offset compu- shall not be treated as incurred on or after in line 5 that is for debt incurred prior to
tation of R&TC Section 24344(b). January 1, 1988, if the majority of the pro- January 1, 1988.
ceeds were used to refinance debt
Note: If there is no foreign dividend deduc- incurred prior to January 1, 1988, or the Line 7
tion, then no foreign interest offset computa- debt arises pursuant to a line of credit or Enter unassigned interest expense included in
tion will be necessary. similar arrangement. line 5 that is for debt incurred on or after
A Definitions 5. Total assets January 1, 1988.
1. Foreign investment Total assets means all of the assets of a Line 8
Foreign investment is stock or other equity bank or corporation included in a Enter interest expense paid on restricted
investment, regardless of when it was water’s-edge combined report by reason accounts.
made, in: of R&TC Section 25110, after the elimina- Line 11
tion of intercompany accounts of assets.
• An entity whose dividends would be Unassigned foreign investment is the average
qualifying dividends for purposes of 6. Average values of assets value of all foreign investment to which inter-
R&TC Section 24411; and/or An average of values shall be computed est is not specifically assigned.
• A nonaffiliated bank or corporation that for the year on the basis of values of Line 12
is organized under the laws of a coun- assets at the beginning and the end of
the year. Unassigned total assets is the average value
try or political subdivision of a country of all assets to which interest is not assigned.
other than the U.S. B Asset Values Line 13
2. Interest expense assigned to specific Assets other than stock or other equity
property In calculating the ratio, foreign investment and
investments are taken into account at federal assets to which interest expense has been
If the existence of all of the facts and cir- tax book value (original cost for federal tax specifically assigned are not to be considered.
cumstances described below is estab- purposes less depreciation, amortization or
lished, interest expense is considered to depletion). Note: If the taxpayer reported the foreign divi-
be related solely to specific property. dend deduction for dividends received from
Stock or other equity investments are taken foreign investments and foreign construction
Specific property may be either a foreign into account at adjusted basis for federal
investment, domestic investment or other projects, the taxpayer must calculate a sepa-
tax purposes: rate foreign investment interest offset for each
property.
• Increased by the amount of the E&P of component. The two separately calculated
• The indebtedness on which the interest such bank or corporation attributable to amounts are then added together and entered
was paid was specifically incurred for such stock or other equity investment and on Schedule R, Side 1, line 1b; and Schedule
the purpose of purchasing, maintaining accumulated during the period the stock or R-5, Side 3, line 2.
or improving the specific property; other equity investment was owned by
• The proceeds of the borrowing were another affiliated bank or corporation; and
actually applied to the specified • Reduced (but not below zero) by any defi-
purpose; and cit in E&P of such bank or corporation
attributable to such stock or other equity
investment for such period.

Side 2 FTB 2424 1997


INCOME YEAR CALIFORNIA FORM

19 Amended Water’s-Edge Election Fee 100-FEE-X


MONTH DAY YEAR MONTH DAY YEAR

For income year beginning , and ending .


Please Type or Print Corporation Name and Address
Corporation name California corporation number

Number and street


Was the original Form 100-FEE paid
on a single return? ■ YES ■ NO
City State ZIP code
Has Form 100 or Form 100S
been amended? ■ YES ■ NO
Part I Election Fee
On line 1, enter the DIFFERENCE between the amount reported on your original Form 100-FEE-A and the amount reported on the attached
Amended Form 100-FEE-A. Use brackets to indicate negative amounts.

1 Election fee (net change) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■ 1


Part II Payments and Credits
2 Overpayments from prior year allowed as credit . . . . . . . . . . . . . . . . . . . . . . 2
3 Estimated election fee payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Amount paid with form FTB 3539 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Payment with original Form 100-FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Amount credited from franchise or income tax . . . . . . . . . . . . . . . . . . . . . . . 6
7 Other payments (explain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Total payments. Add line 2 through line 7. . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Overpayment, if any, shown on original Form 100-FEE. . . . . . . . . . . . . . . . . . 9
10 Balance. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Part III Election Fee Due or Refund
11 Total correct election fee (from Amended Form 100-FEE-A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

12 Additional election fee due. Subtract line 10 from line 11 . . . . . . . . . . . . 12 $ •

13 Refund. Subtract line 11 from line 10 . . . . . . . . . . . . . . . . . . . . . . . ■ 13 $ •

Part IV Explanation of Changes to Property, Payroll, Sales, etc. (see General Instruction C)
*100FX971*

THIS FORM MUST BE ATTACHED TO THE FRONT OF FORM 100-FEE-A

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and
to the best of my knowledge and belief, it is true, correct and complete. Declaration of preparer (other than taxpayer) is based
Please on all information of which preparer has any knowledge.
Sign
Signature of officer Title Date Telephone
Here
P ( )
Preparer’s signature Date Preparer’s social security no.
Check if self-
Paid
P employed ■
Preparer’s
FEIN
Use Only Firm’s name (or yours, if P
self-employed) and address Telephone ( )

Form 100-FEE-X C1 1997 Side 1


Instructions for Form 100-FEE-X
Amended Water’s-Edge Election Fee
General Instructions Replacement Property Write ‘‘Form 100-FEE-X’’ and the California
If new investment in California, used in a prior corporation number on the check or money
For corporations that are taxed under year to reduce the election fee base, subse- order and mail with Form 100-FEE-X to:
Chapter 3 of the R&TC, the term ‘‘income quently becomes replacement property, do FRANCHISE TAX BOARD
year,’’ as used in these instructions, means not file Form 100-FEE-X. Refer to PO BOX 942857
taxable year. Form 100-FEE-A, Specific Line Instructions, SACRAMENTO CA 94257-4091
Use Form 100-FEE-X, Amended line 24 - Investment Property Recalculation. Note: If Form 100X is also being filed, attach
Water’s-Edge Election Fee to amend the a separate check for any additional tax due.
Form 100-FEE, Water’s-Edge Election Fee for A When to File
any income year prior to January 1, 1994. Electronic Funds Transfer (EFT)
Form 100-FEE-X may be filed only after the
Form 100-FEE-X must be used as a cover original Form 100-FEE is filed. Generally, a Corporations that remit a bank or corporation
form and attached to the front of the revised claim for refund may be filed within four years estimated tax or extension payment in excess
Form 100-FEE-A, Amended Water’s-Edge from the original due date, or within one year of $20,000 or that have a total tax liability in
Election Fee Supplemental Schedule. from the date the fee was paid, whichever excess of $80,000 must pay through EFT.
First complete Form 100-FEE-A for the is later. Original Form 100-FEE and Corporations that meet the threshold must
income year you wish to amend. Then clearly Form 100-FEE-A filed before the due date are remit all payments, including water’s-edge
mark the word ‘‘REVISED’’ on the top of that considered to be filed on the due date. payments, through EFT rather than by paper
form and attach it and any supporting sched- check. The FTB will notify corporations that
ules to the Form 100-FEE-X. Form 100-FEE-X B Where to File are subject to this requirement. Those that
must be attached to the face of the package. wish to participate on a voluntary basis may
Mail Form 100-FEE-X with a refund or an do so. For more information, call the FTB’s
For corporations filing on a water’s-edge basis election fee due to the address listed to the EFT Section at (916) 845-4025, or get FTB
that wish to amend their tax return, refer to right. When an election fee is due, attach a Pub. 3817, Electronic Funds Transfer Pro-
Form 100X, Amended Corporation Franchise separate check or money order payable to the gram Information Guide.
or Income Tax Return. Franchise Tax Board.
C Explanation of Changes to
Property, Payroll, Sales, etc.
A detailed explanation of changes to the elec-
tion fee must be shown in Part IV. Show line
number references and any needed computa-
tions. Attach additional sheets if necessary.

Side 2 Form 100-FEE-X 1997


1997 Instructions for Form 100-FEE-A, Amended Water’s-Edge Election
Fee Supplemental Schedule
General Information construction.’’ ‘‘Newly constructed’’ and • Any land, improvement or fixture that is
‘‘new construction’’ include: restored, reconstructed or repaired in a
Effective for income years beginning on or • Any substantial addition (including fix- timely manner following a disaster and
after January 1, 1994, the annual tures) to land or the improvements on that is substantially equivalent to that
water’s-edge election fee was repealed. the land. For purposes of R&TC Sec- which existed prior to the disaster. Any
Form 100-FEE-A, Amended Water’s-Edge tion 70, ‘‘fixtures’’ are improvements to reconstruction of real property that is
Election Fee Supplemental Schedule, should property, the use or purpose of which not substantially equivalent to the dam-
only be used when amending the election fee directly applies to or augments the pro- aged or destroyed property is deemed
for an income year beginning prior to Janu- cess or function of a trade, industry or to be ‘‘new construction,’’ unless the
ary 1, 1994. Form 100-FEE-A should be profession. exception noted above applies. How-
attached to Form 100-FEE-X, Amended ever, a new plant or facility may not be
Water’s-Edge Election Fee. Examples: The construction of a new a replacement, in whole or in part, of
building; a swimming pool, retaining wall, an existing plant or facility in California.
Definitions or sewer; or the addition of square-footage
to an existing building. New investment in California that meets
1. Base Year the definition of replacement property can-
• For purposes of R&TC Section 70, not reduce the fee base.
A. The base year used to calculate prop- ‘‘major rehabilitation’’ is any rehabilita-
erty and payroll for purposes of the tion, renovation or modernization that 4. Replacement Property
election fee is an income year of 12 full converts an improvement or fixture to A plant or facility which includes both cer-
months ending in the calendar year the substantial equivalent of a new tain tangible personal property and real
1986. If there is no income year of 12 improvement or fixture. This includes property as described in R&TC Section 70
full months ending in the calendar year the substitution of a new fixture for an will be deemed a replacement if the tax-
1986, property and payroll for the first old one. ‘‘Substantial equivalency’’ is payer, or an affiliated bank or corporation
immediately preceding income year of ascertained by comparing the produc- closes, takes out of service, sells or leases
12 full months must be used if it exists. tive capacity, normally expressed in to an unrelated party, a plant or facility
B. The base year used to calculate sales units per hour, of the rehabilitated fix- with a cost basis equal to 25% or more of
for purposes of the fee shall be the ture to its original productive capacity. the cost basis of the new plant or facility.
current income year. Such income year The replacement property test must be
Examples: Alteration to a warehouse applied to the 3 calendar years immedi-
need not be 12 full months. making it usable as a retail store or a res- ately preceding and the 3 calendar years
2. Short Period Return taurant; preparation of a vacant lot for use immediately succeeding the date the new
If a taxpayer files a short period return on as a parking facility; alteration of rolling, plant or facility is first included in the prop-
a water’s-edge basis, the fee shall be grazing land to level irrigated crop land; erty factor for apportionment purposes.
based on: (1) sales for the current period; and site development of rural land for the
and (2) the base year amounts for Califor- purpose of establishing a residential 5. California Work Years
nia property and payroll, multiplied by a subdivision. For purposes of computing work years in
fraction, the numerator of which is the California (Form 100-FEE-A, line 6, line 7,
The term ‘‘newly constructed’’ or ‘‘new line 8 and line 10), a work year means:
number of months in the short period and construction’’ does not include:
the denominator of which is 12. • 2,000 paid hours in the case of
• Any active solar energy system employees who are paid an hourly
3. New Investment in California constructed or added before
For purposes of computing the election fee wage; or
January 1, 1991;
using the .0003 calculation, new invest- • The portion of reconstruction or • A total of 12 paid months in the case of
ment (a new plant or facility) in California improvement to a structure constructed salaried employees.
can be used to reduce the fee base. A of unreinforced masonry bearing wall To determine the total amount ‘‘paid’’ to
new plant or facility is both certain tangible construction, necessary to comply with employees, see the instructions for
personal property and real property, as a local seismic safety ordinance for the Schedule R, Apportionment and Allocation
described in R&TC Section 70, acquired first 15 years after the reconstruction or of Income.
during the income year. The annual new improvement;
investments acquired since January 1, • The construction or installation of any Specific Line Instructions for Form
1987, to the last day of the income of the following fire protection improve-
year that is being amended are then ments that are constructed or installed 100-FEE-A
accumulated. in an existing building on or after
Certain tangible personal property includes November 7, 1984: Side 1
any new tangible personal property 1. Fire sprinkler systems; Line 1 – Base Year California Property
acquired by the taxpayer during the 2. Other fire extinguishing systems; Enter the total amount of California property
income year, when the original use com- 3. Fire detection systems; and for the base year. See General Information
mences in this state. 4. Fire-related egress improvements; Definitions. See the instructions for Schedule
Examples: New machinery and equipment • Ordinary maintenance and repair. R for the definition of California property.
for industry, profession and trade; new Examples: Routine annual preparation
of agricultural land; interior or exterior Note: Intangibles included in the factor pursu-
tools, molds, dies and jigs; or new comput- ant to R&TC Section 25137 are not includible
ers and related equipment. painting; replacement of roof coverings;
the addition of aluminum siding for in the property factor for determining the fee
R&TC Section 70 defines a new plant or improvements; or the replacement of base regardless of the fact that they may be
facility as ‘‘newly constructed’’ and ‘‘new work machine parts; or included in the apportionment formula. Intan-
gible drilling costs included in the factor pursu-

Form 100-WE Booklet 1997 Page 25


ant to R&TC Section 25130 are included in Line 16 – Total Adjusted California
the fee base. Property, Payroll and Sales
Line 2 – Base Year California Payroll The total adjusted California property, payroll
Enter the total amount of California payroll for and sales is determined by adding the new
the base year. See General Information Defi- investment in California property (line 5) and
nitions. See the instructions for Schedule R the increase in the California payroll (line 15)
for the definition of California payroll. and subtracting the result from the total of
base year California property and payroll and
Note: If a taxpayer files a short period return, amended income year California sales
modifications must be made. The base year (line 4).
amounts on line 1 and line 2, respectively,
must be multiplied by a fraction, the numera- Line 18 – California Property for the
tor of which is the number of months in the Income Year Being Amended
short period and the denominator of which Enter the total amount of California property
is 12. for the income year being amended.
Line 3 – California Sales for the Income If a taxpayer files a short period return, multi-
Year Being Amended ply the California property by a fraction, in
Enter the total amount of California sales for which the numerator is the number of months
the income year that is being amended. See in the short period and the denominator is 12.
the instructions for Schedule R for the defini- Line 19 and Line 20 – California Payroll
tion of California sales. and Sales for the Income Year Being
Note: If a taxpayer files a short period return, Amended
no proration to line 3 is required. Enter the total amount of California payroll
and sales for the income year being
Line 5 – New Investment in California amended.
Property
Enter the cumulative amount expended from Note: If a taxpayer files a short period return,
January 1, 1987, to the last day of the income no modification to line 19 or line 20 is
year that is being amended, for investment in required.
new plants or facilities located in California. Line 24 – Investment Property
See General Information Definitions for the Recalculation
definition of ‘‘new investment in California.’’ If a plant or facility considered to be new
If a taxpayer files a short period return, enter investment property in a prior year becomes
the cumulative amount expended since replacement property in the current year, the
January 1, 1987 on new investment in prior year’s fee(s) must be recalculated to
California property through the end of the exclude the new investment now considered
short period income year. to be replacement property. Enter the differ-
ence between the prior year’s fee(s) as filed
Line 6, Line 7 and Line 8 – 1985, 1986 and and the prior year’s fee(s) recalculated to
1987 California Work Years exclude any investment property deemed to
Enter the total number of California work be replacement property.
years for income years 1985, 1986 and 1987,
respectively. See General Information Line 25 – Total Amended Election Fee
Definitions for the definition of a California Enter the amount on Form 100, Side 1,
work year. line 33, total tax, identifying the amount as a
water’s-edge fee recalculation.
Line 10 – California Work Years for the
Income Year Being Amended
Enter the total number of California work
years for the income year being amended.
Line 12 – New California Employees
The number of new employees in California is
determined by comparing the total number of
California work years for the income year to
the greater of the average of the total number
of California work years for income years
1985, 1986 and 1987, or the total number of
California work years for income year 1987.
Line 13 – California Payroll for the Income
Year Being Amended
Enter the total amount of California payroll for
the income year being amended.
Line 15 – Increase in California Payroll
The increase in California payroll is deter-
mined by multiplying the number of new
California employees by the average
California payroll for the income year being
amended.

Page 26 Form 100-WE Booklet 1997


INCOME YEAR CALIFORNIA FORM
Amended Water’s-Edge Election Fee
19 Supplemental Schedule 100-FEE-A
Corporation name California corporation number

Key California corporation number

1 Base year California property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1


2 Base year California payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 California sales for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Total California property, payroll and sales. Add line 1 through line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 New investment in California property (amount expended since January 1, 1987, on new plants or facilities
located in California). See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 1985 California work years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 1986 California work years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 1987 California work years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Average California work years. Add line 6 through line 8 and divide the result by 3 . . . . . . . . . . . . . . . . . . . . . 9
10 California work years for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Greater of average or 1987 California work years. Enter the greater of line 8 or line 9 . . . . . . . . . . . . . . . . . . . 11
12 New California employees. Subtract line 11 from line 10. If less than zero, enter -0- . . . . . . . . . . . . . . . . . . . . 12
13 California payroll for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 Average California payroll for the income year being amended. Divide the amount on line 13 by the amount on line 10 14
15 Increase in California payroll. Multiply the amount on line 12 by the amount on line 14 . . . . . . . . . . . . . . . . . . . 15
16 Total adjusted California property, payroll and sales. Add line 5 and line 15 and subtract the result from line 4 . . . . . 16
17 Multiply line 16 by 0.03% (.0003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 California property for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 California payroll for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20 California sales for the income year being amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
21 Total. Add line 18 through line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22 Multiply line 21 by 0.01% (.0001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23 Amended Election Fee. Enter the greater of line 17 or line 22. Enter -0- if no tax liability is owed under Revenue
and Taxation Code Sections 25101 and 25110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
24 Amount of investment property recalculation. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25 Add line 23 and line 24. Total Amended Election Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Complete one form for each taxpayer.


*100FA971*

THIS FORM MUST BE COMPLETED AND ATTACHED


TO THE BACK OF FORM 100-FEE-X.

Form 100-FEE-A 1997


THIS PAGE LEFT BLANK FOR NOTES

Page 28 Form 100-WE Booklet 1997


How To Get California Tax Information
Where By Internet – If you have Internet access, you may In person – Most libraries, post offices and banks
view, download, and print 1994, 1995, 1996 and 1997 provide free California tax booklets during the filing
To Get California income tax forms and publications. Our season. Many libraries and some quick print businesses
Income Internet address is: have forms and schedules for you to photocopy (you
http://www.ftb.ca.gov may have to pay a nominal fee). Note that employees at
Tax libraries, post offices, banks and quick print businesses
By phone – Use F.A.S.T. to order the 1997 California
Forms tax forms listed to the right. To order a form on the list: cannot provide tax information or assistance.
• Call 1-800-338-0505, from within the United By mail – Write to: TAX FORMS REQUEST UNIT,
States; or FRANCHISE TAX BOARD, PO BOX 307, RANCHO
• 1-916-845-6600, from outside the United States CORDOVA CA 95741-0307.
(not toll-free)
• Select bank and corporations income tax form California Tax Forms and Publications
requests. ■ 817 California Corporation Tax Forms and Instructions.
• Enter the three-digit code shown to the left of the This booklet contains:
form title when you are instructed to do so. Form 100, California Corporation Franchise or Income
We will send you two copies of each tax form and one Tax Return
copy of each set of instructions. Please allow two weeks ■ 821 Schedule P (100), Alternative Minimum Tax and Credit
to receive your order. If you live outside California Limitations — Corporations
please allow three weeks to receive your order.
■ 822 FTB 3885, Depreciation/Amortization
■ 807 FTB 3805Q, Net Operating Loss (NOL) Computation
For prior year California tax forms, call our toll-free and NOL and Disaster Loss Limitations — Corporations
number listed under ‘‘General Toll-Free Phone Service.’’ ■ 816 California S Corporation Tax Forms and Instructions.
This booklet contains:
Letters We can serve you by phone if you call us for informa- Form 100S, California S Corporation Franchise or
tion to complete your California income tax return, or to Income Tax Return
find out about your tax refund. However, you may want ■ 823 Schedule B(100S), S Corporation Depreciation and
to write to us if you are replying to a notice we sent Amortization
you, or to get a written reply. If you write to us, be sure Schedule C (100S), S Corporation Tax Credits
to include your California Corporation number or federal Schedule H (100S), Dividend Income
employer identification number, your daytime and eve- ■ 824 Schedule D (100S), Capital Gains and Losses and
ning telephone numbers and a copy of the notice with Built-In Gains
your letter. Send your letter to: ■ 825 Schedule K-1 (100S), Shareholder’s Share of Income,
FRANCHISE TAX BOARD Deductions, Credits
PO BOX 942857 ■ 826 FTB 3830, S Corporation’s List of Shareholders
and Consents
SACRAMENTO CA 94257-0540 ■ 814 Form 109, Exempt Organization Business Income
We will acknowledge receipt of your letter within eight to Tax Return
ten weeks. In some cases, we may need to call you for ■ 818 Form 100-ES, Corporation Estimated Tax
additional information. ■ 813 Form 100X, Amended Corporation Return
■ 815 Form 199, Exempt Organization Return
Your Our goal at the FTB is to make certain that your rights ■ 819 Schedule R, Apportionment and Allocation of Income
are protected so that you will have the highest confi- ■ 812 FTB Pub. 1038, Guide for Corporations Dissolving,
Rights dence in the integrity, efficiency and fairness of our Withdrawing or Merging
As A state tax system. FTB Pub. 4058, California Taxpayers’ ■ 809 FTB Pub. 1060, Guide for Corporations Starting Business
Bill of Rights, includes information on your rights as a in California
Taxpayer California taxpayer, the Taxpayers’ Rights Advocate ■ 810 FTB Pub. 1061, Guidelines for Corporations Filing a
Program and how you can request written advice from Combined Report
the FTB on whether a particular transaction is taxable. ■ 827 Form 100-WE, Water’s-Edge Booklet
You can order FTB Pub. 4058 by calling or writing the ■ 829 FTB 3564, Authorization of Agent Under Revenue and
Taxation Code Section 19141.6
FTB using the address above for letters. ■ 820 FTB Pub. 1068, Exempt Organizations Requirements for
Filing Returns and Paying Filing Fees
General Our general toll-free phone service is available from ■ 802 FTB 3500, Exemption Application
7:00 a.m. until 8:00 p.m. Monday through Friday from ■ 808
Toll-Free January 2 through April 15, 1998. The best times to
FTB 3539, Payment Voucher for Automatic Extension for
Corporations and Exempt Organizations
Phone call are between 7:00 a.m. and 10:00 a.m. and between ■ 803 FTB 3555, Request for Tax Clearance
6:00 p.m. and 8:00 p.m. Service is also available on ■ 804 FTB 3557, Application for Revivor
Service Saturday, April 4 and April 11, from 8:00 a.m. until 5:00 ■ 811 FTB 3560, S Corporation Election or
p.m. After April 15, service is available Monday through Termination/Revocation
Friday, from 8:00 a.m. until 5:00 p.m. ■ 806 FTB 5806, Underpayment of Estimated Tax by Corporations
From within the United States. . . . . 1-800-852-5711 ■ 800 FTB Pub. 1028, Guidelines for Homeowners’ Associations
From outside the United States . . . . 1-916-845-6500 ■ 801 FTB Pub. 1075, Exempt Organizations – Guide for Political
(not toll-free) Organizations
For hearing impaired with TDD . . . . 1-800-822-6268 ■ 805 FTB 3833, Application for Transfer of S Corporation
Overpayments to Shareholders
For federal tax questions, ■ 830 FTB Pub. 1062, Guide for K-1 (565), Filing Electronic Data
call the IRS at . . . . . . . . . . . . . . 1-800-829-1040 ■ 831 FTB 565, Partnership Return of Income
Asistencia Bilingüe en Español ■ 832 FTB 3555A, Request for Tax Clearance for Exempt
Para obtener servicios en Español y asistencia para Organizations
completar su declaración de impuestos/formularios,
llame al número de teléfono (anotado arriba) que le
corresponde.

Form 100-WE Booklet 1997 Page 29


& F.A.S.T. Toll-Free Phone Service
Call Fast Answers about State Taxes, the F.A.S.T. toll-free phone Exempt Organizations
service you can use to: 709 – How do I get tax exempt status?
• Get recorded answers to many of your questions about California 710 – Does an exempt organization have to file Form 199?
taxes; and 735 – How can an exempt organization incorporate without
• Order current year California tax forms. paying corporation fees and costs?
736 – I have exempt status. Do I need to file Form 100 or Form 109
F.A.S.T. is available in English and Spanish to callers with touch-tone in addition to Form 199?
telephones.
Minimum Tax and Estimate Tax
When Is F.A.S.T. Available? 711 – Why can’t I claim my prepayment tax as credit or estimate
To answer your questions, F.A.S.T. is available 24 hours a day, seven payment on my return?
days a week. To order forms F.A.S.T. is available from 6:00 a.m. to 712 – What is the minimum franchise tax?
10:00 p.m., seven days a week, except state holidays. 714 – I’m not doing business; do I have to pay the minimum
franchise tax?
How To Use F.A.S.T. 716 – When are my estimate payments due?
Have paper and pencil handy to take notes. Billings and Miscellaneous Notices
Call from within the United States . . . . . . . . . . . 1-800-338-0505 723 – I received a bill for $250. What is this for?
Call from outside the United States (not toll-free) . . 1-916-845-6600 728 – Why was my corporation suspended?
729 – Why is my subsidiary getting a request for a return when we
Follow the recorded instructions and enter the three-digit code when file a combined report?
you are instructed to do so.
Tax Clearance
To Order Forms 724 – How do I dissolve my corporation?
Refer to Where to Get Tax Forms on page 29. 725 – What do I have to do to get a tax clearance?
726 – How long will it take to get a tax clearance certificate?
727 – My corporation was suspended/forfeited. Can I still get a
To Get Information tax clearance?
If you need an answer to any of the following questions, call
1-800-338-0505, select general tax information, follow the recorded Miscellaneous
instructions and enter the three-digit code when you are instructed to 700 – Who do I need to contact to start a business?
do so. 701 – I need a state ID number for my business. Who do I contact?
702 – Can you send me an employer’s tax guide?
Code- Filing Assistance:
703 – How do I incorporate?
715 – If my actual tax is less than the minimum franchise tax, 719 – How do I properly identify my corporation when dealing with
what figure do I put on line 23 of Form 100? the Franchise Tax Board?
717 – What are the tax rates for corporations? 720 – How do I change my corporation name?
718 – How do I get an extension of time to file? 721 – How do I change my accounting period?
722 – When do I have to file a short-period return? 732 – What is the water’s-edge election?
730 – May I claim net operating losses in the first year? 737 – Where do I send my payment?
731 – Are corporations allowed to use MACRS/ACRS or 738 – What is electronic funds transfer?
Section 179 expensing? 739 – How do I get a copy of my state corporate tax return?
733 – Can the prepayment to the Secretary of State be applied to
my last year of business?
734 – What is the difference between franchise tax and income tax?
S Corporations
704 – Is an S corporation subject to the minimum franchise tax?
705 – Are S corporations required to file estimate payments?
706 – What forms do S corporations file?
707 – The tax for my S corporation is less than the minimum
franchise tax. What figure do I put on line 22 of Form 100S?
708 – Where do S corporations make the state tax adjustment on
Schedule K-1(100S)?

Page 30 Form 100-WE Booklet 1997