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California

Forms & Instructions This booklet contains copies of:


Form 100S, California S Corporation Franchise or Income Tax

100S Return, page 29


Schedule B (100S), S Corporation Depreciation and Amortization,
page 33
Schedule C (100S), S Corporation Tax Credits, page 33
Schedule D (100S), S Corporation Capital Gains and Losses and
Built-In Gains, page 34
Schedule H (100S), S Corporation Dividend Income Deduction,
1998
S Corporation Tax Booklet
page 35
FTB 2426, Water’s-Edge Cover Sheet, page 28
Schedule K-1 (100S), Shareholder’s Share of Income, Deductions,
Credits, etc., page 39
FTB 3539, Payment Voucher for Automatic Extension for
Corporations and Exempt Organizations, page 45
FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and
Disaster Loss Limitations — Corporations, page 25
FTB 3830, S Corporation’s List of Shareholders and Consents,
page 37

Do you need help? (800) 338-0505 & F.A.S.T


Most of your questions can be answered by reading the instructions in this
Members of the Franchise Tax Board booklet. If you need additional help, use our F.A.S.T. (Fast Answers about State
Kathleen Connell, Chair Taxes) toll-free phone service available 24 hours a day. Or, if you have Internet
Dean Andal, Member access, our website address is http://www.ftb.ca.gov. If you cannot get the
Craig L. Brown, Member answer you need, call our general toll-free phone service listed on page 47.

Permit No. 312


Sacramento, CA
U.S. Postage Paid State of California
Bulk Rate Franchise Tax Board
Instructions for Form 100S
California S Corporation Franchise or Income Tax Return
References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

What’s New • Temporary suspension of income limita- or after January 1, 1987, a corporation
tions on percentage depletion for produc- failed to qualify as an S corporation solely
California has implemented the new federal tion from marginal wells. The percentage because it did not file federal Form 2553,
Principal Business Activity (PBA) code chart depletion deduction, which may not Election by a Small Business Corporation
that is based on the North American Industrial exceed 65% of the taxpayer’s taxable timely, the S corporation shall be treated
Classification System (NAICS). The new PBA income, is no longer restricted to not as an S corporation for California purposes
codes are 6-digits not 4-digits. See pages exceed 100% of the net income derived for the income year in which the federal
21-23 for a listing of the PBA codes. from the oil or gas well property. election was originally made and for each
Form FTB 2426, Water’s-Edge Cover Sheet is • Required recognition of gain on certain subsequent income year if both the follow-
now available in this booklet on page 28. appreciated financial positions in personal ing conditions are met:
Tax Law Changes property. 1. The corporation and all of its share-
• Election of mark-to-market for securities holders reported their income for
In general, California tax law conforms to the and commodities traders. Allows securities
IRC as of January 1, 1998. However, there California tax purposes on original
traders and commodities traders and deal- returns consistent with S corporation
are continuing differences between California ers to elect to use mark-to-market account-
and federal law. California law has not con- status for the year the S corporation
ing similar to what is currently required for election should have been made, and
formed to any of the corporate provisions of securities dealers. Commodities would
the Internal Revenue Service Restructuring for each subsequent income year (if
include only commodities of a kind that are any) until terminated; and
and Reform Act of 1998 (Public Law 105-206) dealt with in the organized commodities
or the Tax and Trade Relief Extension Act of exchange. An election to use the mark-to- 2. The corporation and its shareholders
1998 (Public Law 105-277). market method for federal purposes is con- filed a federal Form 2553 with the IRS
California law conforms to federal law for sidered an election for state purposes and requesting automatic relief with respect
the following provisions for income years a separate election is not allowed. to the late S corporation election in full
beginning on or after January 1, 1998: • Limitation on exception for investment compliance with federal Rev. Proc.
1997-48 I.R.B. 1997-43 and the S cor-
• Tax-exempt organizations may be share- companies under IRC Section 351.
holders in an S corporation. • Contributions of property. For certain con- poration received notification of accep-
tance of the untimely filed S corporation
• Deferral of gain on involuntary conversion. tributions of ordinary income and capital
election from the IRS. The S
For livestock sold after December 31, gain property, the IRC Section 170(e)(1)
limitation is modified so that, in the case of corporation shall provide a copy of the
1996, an election may be made to defer notification to the FTB upon request.
the recognition of gain or treat the sale as charitable contribution of stock in an S cor-
an involuntary conversion, if the sale was poration, rules similar to IRC Section 751 California law does not conform to federal
due to drought, floods, or other weather (relating to unrealized receivables and law for the following:
related conditions. inventory items) apply in determining • Decreased capital gains tax rate.
• Deferral of income recognition of suspense whether gain on the stock was long-term, if • Special tax rules for ESOPs. Certain spe-
accounts. Family farm corporations with stock was sold by the S corporation. cial tax rules relating to employee owner-
income over $25 million may defer tax on • S corporations with Employee Stock ship plans (ESOPs) will not apply with
income that was a result of changes in Option Plan (ESOP) shareholders. If an respect to S corporation stock held by the
accounting methods required of these cor- ESOP is an S corporation shareholder, ESOP. These include rules relating to cer-
porations. For calendar year taxpayers, the items of income or loss of the S corpora- tain contributions to ESOPs, the deduction
suspense account for these deferrals must tion that flow through to the ESOP are not for dividends paid on employer securities
be recaptured starting with income years treated as unrelated business taxable and the rollover of gain on the sale of
beginning on or after January 1, 1998. For income (UBTI). Previously, such items stock to an ESOP. See IRC Sections
fiscal year taxpayers, the suspense were treated as UBTI. 404(a)(9) and 404(k) for more information.
account should be recaptured starting in • ESOPs and employees of S corporations. • Accelerated depreciation for property on
income years beginning after June 8, S corporations which establish and main- Indian reservations.
1997, if the fiscal year taxpayer’s income tain ESOPs are not required to give partici- • The elimination of the deduction for club
year ends on or after December 31, 1997. pants the right to demand distributions in membership fees. Also, California law
• Expensing of Environmental Remediation the form of employer securities, if the parti- does not conform to the disallowance of
Costs. Certain environmental remediation cipants have the right to receive such dis- the deduction for employee remuneration
expenditures that would otherwise be tributions in cash. in excess of $1 million.
chargeable to capital accounts may be • IRC 338 elections. An IRC Section 338 • The federal provisions disallowing the
expensed and taken as a deduction in the election, relating to stock purchases deduction for lobbying expenses. The
year the expense was paid or incurred. An treated as asset acquisitions, is treated as expense is still deductible for California
election to expense environmental reme- an election for state purposes. A separate purposes.
diation costs for federal purposes is con- election for state purposes is not allowed. • The treatment of Subpart F and Sec-
sidered to be an election for state • Expansion of deduction for certain interest tion 936 income.
purposes and a separate election is not and premiums paid for company-owned life
insurance. California law changes effective for income
allowed.
• Shrinkage Estimates for Inventory • Modification of holding period applicable to years beginning on or after Janu-
dividends received deduction. ary 1, 1998:
Accounting. For purposes of inventory
accounting, an adjustment for shrinkage, • Repeal of special installment sales rule for • Dividends received from banks now qualify
based on an estimate, may be made. Tax- manufacturers of tangible personal prop- for the water’s-edge dividend deduction.
payers can voluntarily change their method erty. • The applicable percentage for estimate
of accounting if the method currently being • Required registration for abusive tax shel- basis is 100%. Get Form 100-ES instruc-
used does not utilize estimates of inven- ters. tions, for more information.
tory shrinkage and the taxpayer now • Perfection of untimely S corporation elec- • The qualified subchapter S subsidiary
wishes to use that method. tion. If for any income year beginning on (QSSS) annual tax is subject to the esti-

Page 2 Form 100S Booklet 1998


mated tax rules and penalties. See Gen- fies the S corporation of the failure, a penalty (i.e., corporations that are not doing business
eral Information DD, for more information. of $10,000 may be assessed for each addi- within California but derive income from
• New Manufacturing Enhancement Areas tional 30-day period of continued failure. For sources within California) of the Bank and
(MEAs) provide incentives for businesses income years beginning on or after January 1, Corporation Tax Law.
located in a MEA. Get form FTB 3808, for 1996, there is no maximum amount of penalty The term ‘‘doing business’’ means actively
more information. that may be assessed. See General Informa- engaging in any transaction for the purpose of
• A new Targeted Tax Area (TTA) Hiring tion M, for more information. financial gain or profit.
and Sales or Use Tax Credit is available. Note: A corporation that makes a valid elec-
Get form FTB 3809 for more information. Corporation income tax
tion to be treated as an S corporation for
• Newly generated credits and NOLs for the California purposes is not allowed to be
The corporation income tax is imposed on all
Los Angeles Revitalization Zone (LARZ) S corporations that derive income from
included in a combined report of a unitary sources within California but are not doing
are not allowed. LARZ credit and NOL car- group, except as provided by R&TC
ryovers may still be utilized. business in California.
Section 23801(d)(1).
• A number of Legal Rulings that the Fran- For purposes of the corporation income tax,
chise Tax Board (FTB) has issued are no the term ‘‘corporation’’ is not limited to
longer applicable due to subsequent court General Information incorporated entities, but also includes:
decisions and legislative changes. Get Form 100S is used if a corporation has • Associations;
Legal Ruling 98-2, issued on May 12, elected to be a California small business • Massachusetts or business trusts;
1998, for a list of Legal Rulings that have corporation (S corporation). • Real estate investment trusts; and
been withdrawn. • Other business entities classified as asso-
• The FTB will follow IRS Rev. Proc. 97-44 All federal S corporations subject to California ciations under Title 18 Cal. Code Regs.
which grants relief to certain automobile laws that did not make a California Sections 23038(b)-1 through 23038(b)-3.
dealers that elect the last-in, first-out C corporation election must file Form 100S
(LIFO) inventory method of accounting. and pay the greater of the minimum franchise B Tax Rate and Minimum
FTB will permit those taxpayers who qual- tax or the 1.5% income or franchise tax. The
ify for relief to continue to use the LIFO tax rate for financial S corporations is 3.5%. Franchise Tax
method if a copy of the memorandum fur- In addition, if an S corporation has one or Tax rate
nished to the IRS is attached to the more shareholders who are nonresidents of The tax rate for S corporations that are sub-
Form 100S. See FTB Notice 98-10, for California or trusts with nonresident fiduciar- ject to either the franchise or the income tax
more information. ies, the S corporation must file form is 1.5%. The tax rate for certain capital gains,
FTB 3830, S Corporation’s List of Sharehold- built-in gains and excess net passive income
Important Information ers and Consents (included in this booklet). is 8.84%.
California Tax Forms on the Internet! This list must include the names and social Financial S corporations are required to use a
Do you need a California franchise or income security numbers or federal employer identifi- rate of 2% above the S corporation rate (cur-
tax form or publication? Do you have Internet cation numbers (FEIN) of all shareholders and rently 1.5% or 8.84% for certain capital gains,
access? If so, you may download, view and each nonresident shareholder’s or fiduciary’s built-in gains and excess net passive income).
print 1994 through 1998 California tax forms, signed consent to be subject to California’s See R&TC Section 23186(f).
instructions and publications. Legal Notices jurisdiction to tax the shareholder’s pro rata Minimum franchise tax
and Rulings numbered 96-1 and later are also share of income attributable to California All S corporations subject to the corporation
available. Our Internet Website address is: sources. franchise tax and any S corporation ‘‘qual-
http://www.ftb.ca.gov R&TC Section 23801(b)(3) authorizes the FTB ified’’ to do business in California must file
Records Maintenance Requirements to retroactively revoke the S corporation sta- Form 100S and pay at least the minimum
Any taxpayer filing on a water’s-edge or tus if the S corporation fails to file form franchise tax as required by law. The mini-
worldwide basis is required to keep and main- FTB 3830 and meet the requirements outlined mum franchise tax is $800 and must be paid
tain records and make available upon request above. whether the S corporation is active, inactive,
the following: The taxable income of the S corporation is operates at a loss or files a return for a short
• Any records needed to determine the cor- calculated two different ways for two different period of less than 12 months.
rect treatment of items reported on the purposes. First, it is calculated in the same There is no minimum franchise tax for:
worldwide or water’s-edge combined report manner as for C corporations, with certain • Corporations that derive income from
for purposes of determining the income modifications, for purposes of computing the sources within California but are subject
attributable to California; 1.5% income or franchise tax. Second, it is only to income tax because they are not
• Any records needed to determine the calculated using federal rules for the pass- ‘‘doing business’’ in California, and are not
treatment of items as nonbusiness or busi- through of income and deductions, etc. for incorporated or qualified under the laws of
ness income; purposes of pass-through to the shareholders. California (get FTB Pub. 1050, FTB
• Any records needed to determine the Pub. 1060, or FTB Pub. 1063 for more
apportionment factor; and A Franchise or Income Tax information regarding ‘‘doing business’’);
• Documents and information needed to Corporation franchise tax • Credit unions;
determine the attribution of income to the Entities subject to the corporation franchise • Exempt homeowners’ associations;
U.S. or foreign jurisdictions under IRC tax include all S corporations that are: • Exempt political organizations;
Subpart F, IRC Section 882, or other • Incorporated in California; or • Qualified non-profit farm cooperative
similar provisions of the IRC. • Qualified to do business in California; or associations;
See R&TC Section 19141.6 and the regula- • Doing business in California, whether or • Exempt organizations; and
tions thereunder for more information. A cor- not incorporated or qualified under • Corporations that are not incorporated
poration may be required to authorize an California law. under the laws of California; whose sole
agent to act on its behalf in response to The tax must be prepaid for the privilege of activities in this state are engaging in con-
requests for information or records pursuant to doing business. It is measured by the income vention and trade show activities for seven
R&TC Section 19504. The penalty for failure of the preceding income year for the privilege or fewer days during the income year; and
to maintain the above required records is of doing business in the following taxable do not derive more than $10,000 of gross
$10,000 for each income year for which the year. For purposes of these instructions, the income reportable to this state during the
failure applies. In addition, if the failure contin- term ‘‘income year’’ means taxable year for income year. These S corporations are not
ues for more than 90 days after the FTB noti- S corporations that are taxed under Chapter 3

Form 100S Booklet 1998 Page 3


‘‘doing business’’ in California. Get FTB Form 100S consistent with the change for the tax payment or extension payment in excess
Pub. 1060, for more information. 1st year the change is effective, and (2) the of $20,000 or has a total tax liability in excess
S corporations are not subject to the alterna- change is consistent with California law. A of $80,000 in any income year beginning on
tive minimum tax. copy of federal Form 3115, Application for or after January 1, 1995, the FTB will notify
Change in Accounting Method, and a copy of the corporation that all future payments must
C Elections and Terminations the federal consent to the change must be be made by EFT. Those that wish to partici-
Elections attached to Form 100S for the 1st year the pate on a voluntary basis may do so. For
Corporations that elect federal S corporation change becomes effective. The FTB may more information, call the FTB EFT Section at
status and that have a California filing require- modify requested changes if the adjustments (916) 845-4025, or get FTB Pub. 3817,
ment, are deemed to have made a California would distort income for California purposes. Electronic Funds Transfer Program
S election on the same date as the federal If the corporation is a bank, savings and loan Information Guide.
election. These corporations must report the association or financial corporation, it can no
federal S election to the FTB using form longer use the bad debt reserve method of
H Where to File
FTB 3560, S Corporation Election or accounting and elect to be, or continue to be, If tax is due, and the corporation is not
Termination/Revocation. an S corporation for income years beginning required to use EFT, make the check or
on or after January 1, 1997. However, the S money order payable to the Franchise Tax
If a federal S corporation wants to be a Board. Write the California corporation num-
California C corporation, it must elect such corporation status can be maintained or
elected if the corporation changes its account- ber and ‘‘1998 Form 100S’’ on the check or
treatment using form FTB 3560. Only corpora- money order. Mail the return and payment to:
tions incorporated or qualified to do business ing method from the bad debt reserve method
in California may make this election. Such an to the specific write-off method. Get FTB FRANCHISE TAX BOARD
election is treated as a revocation of the Notice 98-3, for more information. PO BOX 942857
California election and will be disregarded if Note: California is not following the automatic SACRAMENTO CA 94257-0501
not filed when due. Get form FTB 3560 for consent procedure for a change of accounting Mail all other returns, including those with
information on filing deadlines. method involving previously unclaimed allow- payment by EFT to:
A federal S corporation that previously elected able depreciation or amortization of Federal FRANCHISE TAX BOARD
to be a California C corporation may elect to Revenue Procedure 96-31. Get FTB Notice PO BOX 942857
become a California S corporation unless the 96-3, for more information. SACRAMENTO CA 94257-0500
California S corporation status was terminated E When to File Private Delivery Services
within the past 5 years. Use form FTB 3560 to California law conforms to federal law regard-
make this election. File Form 100S by the 15th day of the 3rd
month after the close of the income year ing the use of certain designated private deliv-
Terminations unless the return is for a short period as ery services to meet the ‘‘timely mailing as
A corporation may terminate its S corporation required under R&TC Section 24634. See timely filing/paying’’ rule for tax returns and
status by: R&TC Section 18601(c) for the due date of payments. See federal Form 1120S, U.S.
• Revoking the election (federal or state); or the short period return. Generally, the due Income Tax Return for an S Corporation, for a
• Ceasing to qualify as an S corporation; or date of a short period return is the same as list of designated delivery services. If a private
• Violating the passive investment income the due date of the federal short period return. delivery service is used, address the return to:
restrictions on corporations with earnings Farmer’s cooperative associations must file FRANCHISE TAX BOARD
and profits. Form 100S by the 15th day of the 9th month SACRAMENTO CA 95827
An S corporation may terminate its S election after the close of the income year. Caution: Private delivery services cannot
for California, by revocation, without terminat- See General Information O and General Infor- deliver items to PO boxes. If using one of
ing its federal S election. (R&TC mation P, for information on final returns. these services to mail any item to the FTB,
Sections 23801(a)(4)(A)(ii) or DO NOT use an FTB PO box.
23801(a)(4)(F)(i)). However, terminating the F Extension of Time to File
taxpayer’s federal S election simultaneously If an S corporation cannot file its California I Net Income Computation
terminates its California S election. return by the 15th day of the 3rd month after The computation of net income from trade
If the taxpayer terminates its S corporation the close of the income year, it may file on or and business activities generally follows the
status, short period returns are required for before the 15th day of the 10th month, without determination of taxable income as provided
the S corporation short year and the C corpo- filing a written request for an extension. If the in the IRC. However, there are differences
ration short year, if applicable. S corporation is suspended on the original that must be taken into account when com-
due date, the automatic extension will not pleting Form 100S. There are two ways to
During the 5 years after the termination of the complete Form 100S, the federal reconcilia-
apply. An automatic extension does not
S corporation status, the taxpayer may not tion method or the California computation
extend the time for payment. The full amount
make another California S election unless the method.
of tax must be paid by the original due date of
FTB consents.
Form 100S. If there is an unpaid tax liability 1. Federal reconciliation method
For more information about elections and on the original due date, get form FTB 3539, a. Attach a copy of federal Form 1120S,
terminations, get form FTB 3560. Payment Voucher for Automatic Extension for Page 1, U.S. Income Tax Return for an
Corporations and Exempt Organizations (in- S Corporation, and all pertinent sup-
D Accounting Period and Method cluded in this booklet) and send it with the porting schedules, or transfer the infor-
The income year of the S corporation must payment by the original due date of the mation from federal Form 1120S,
not be different from the taxable year used for Form 100S. Page 1, to Schedule F and attach all
federal purposes, unless initiated or approved Note: If the corporation must pay its tax liabil- pertinent supporting schedules;
by the FTB (R&TC Section 24632). ity using Electronic Funds Transfer (EFT), all b. Enter the amount of federal ordinary
A change in accounting method requires con- taxes due must be remitted by EFT to avoid income (loss) from trade or business
sent from the FTB. However, an S corporation penalties. Do not send form FTB 3539. activities before any net operating loss
that obtains federal approval to change its (NOL) on Form 100S, Side 1, line 1;
accounting method, or that is permitted or G Electronic Funds Transfer (EFT) and
required by federal law to make a change in Corporations that meet certain requirements c. Enter the state adjustments (including
its accounting method without prior approval, must remit all of their payments through EFT any adjustments necessary to report
and does so, is deemed to have the FTB’s rather than by paper checks to avoid penal- items not included in ordinary trade or
approval if: (1) the S corporation files a timely ties. Once a corporation remits an estimated business income or loss) on line 2

Page 4 Form 100S Booklet 1998


through line 14, to arrive at net income than 4 years. However, see the instructions that this payment may not be less than the
after state adjustments, Side 1, line 15. for federal Form 1120S, Schedule D, for rules minimum franchise tax, and any QSSS
See the specific line instructions for more applicable to certain carryover basis assets. annual tax if applicable); and
information. Built-in gains under current IRC • The 2nd, 3rd and 4th installments are due
Section 1374 and payable on the 15th day of the 6th,
2. Schedule F – California computation 9th and 12th months, respectively, of the
method For those S corporations that made the initial
federal S election after December 31, 1986, income year.
If the S corporation has no federal filing
requirement, or if the S corporation main- certain income items reported by the Note for first-time filers: The prepayment of
tains separate records for state purposes, S corporation are taxed at 8.84% (or the tax made to the California SOS at the time of
complete Form 100S, Schedule F, Compu- financial C corporation tax rate). This provi- incorporation or qualification is for the privi-
tation of Trade or Business Income, to sion applies for a period of 10 years following lege of ‘‘doing business’’ during the S corpo-
determine state ordinary income. If ordi- the C corporation’s election to become an ration’s 1st taxable year. Do not claim this
nary income is computed under California S corporation. The amount of built-in gain that payment as an estimated tax payment or
laws, generally no state adjustments are is taxed at 8.84% (or the financial C corpora- credit against the tax liability shown on the
necessary. Transfer the amount from tion tax rate) is the excess of recognized return for the S corporation’s 1st year.
Schedule F, line 22, to Side 1, line 1. built-in gains over recognized built-in losses, The 1st tax return the corporation files reports
Complete Form 100S, Side 1, line 2 limited by taxable income as determined the income of its 1st income year. The tax
through line 14, only if applicable. under IRC Section 1374(d)(2)(A). The follow- shown on that return is the tax for the privi-
ing items are treated as built-in gains subject lege of doing business in the corporation’s
Note: Regardless of the net income computa- to this tax:
tion method used, the corporation must attach 2nd taxable year.
any form, schedule or supporting document • Accounts receivable of cash basis taxpay- California law has conformed to the federal
referred to on the return, schedules or forms ers from C corporation years; expanded annualization periods for the com-
filed with FTB. • Long-term contract deferred income from putation of estimate payments. For income
C corporation years; years beginning on or after January 1, 1998,
Substitution of federal schedules • Deferred income from installment sales the applicable percentage for estimate basis
S corporations may not substitute federal made in C corporation years; is 100%.
schedules for California schedules. • Recapture of depreciation from C corpora-
tion years; Get the instructions for Form 100-ES, for
J Certain Capital Gains/Built-in • Income from unreplaced LIFO inventory more information.
Gains from C corporation years; and Note: If the corporation must pay its tax liabil-
For California purposes, when a C corporation • Any other income item that is attributable ity using EFT, all estimate payments due
elects to be an S corporation, certain items of to C corporation years. must be remitted by EFT to avoid penalties.
gain or loss recognized in S corporation years Note: For purposes of current IRC
are subject to the C corporation 8.84% tax Section 1374, the effective date of any Cali-
L Commencing S Corporations
rate instead of the S corporation 1.5% tax rate fornia S election made in 1987 and 1988 The tax measured by the income in the 1st
(financial S corporations add 2%). reverts back to the date of the federal S elec- year of business (1st income year) is for the
tion if the corporation was previously a federal privilege of ‘‘doing business’’ during the 2nd
Former IRC Section 1374 allowed a threshold
S corporation. year.
amount in determining if the S corporation
was subject to the 8.84% tax. However, for- Transitional rules under IRC Section 1374 Even if the 1st income year is for a period of
mer IRC Section 1374 was replaced by cur- The Tax Reform Act of 1986, Act Section less than 12 months or if the S corporation is
rent IRC Section 1374, which does not allow 633(d)(8), to which California conforms, pro- inactive during the 1st income year, the S cor-
the threshold amount and is applicable to vides special transitional relief from the built-in poration must pay at least the minimum fran-
other items of income in addition to capital gains tax for qualified S corporations. A ‘‘qual- chise tax by the 1st estimate installment due
gains. ified S corporation’’ is any S corporation that date, and file Form 100S by the due date.
Capital gains under former IRC has an applicable value of $10 million or less Get FTB Pub. 1060, Guide for Corporations
Section 1374 on August 1, 1986, all times thereafter and Starting Business in California, for more infor-
Generally, S corporations that made the before the corporation is completely liqui- mation.
federal S election before January 1, 1987, or dated, and is more than 50% owned by 10 or
during 1987 or 1988, and are under the tran- fewer qualified persons. A ‘‘qualified person’’ M Penalties
sitional relief rules applicable to built-in gains is an individual, an estate or a trust that is Failure to file a timely return
may be subject to a tax on capital gains described in IRC Section 1361(c)(2)(A)(ii) or Any S corporation that fails to file Form 100S
(under former IRC Section 1374) for California (iii). on or before the extended due date is
purposes for certain sales or dispositions. This transitional relief applies to qualified cor- assessed a penalty. The penalty is 5% of the
Based on former IRC Section 1374, a tax is porations that elected S corporation status unpaid tax for each month, or part of the
imposed at 8.84% (or the financial C corpora- after December 31, 1986, and before month, the return remains unfiled from the
tion tax rate) if: January 1, 1989. The relief is not available to due date of the return until filed. The penalty
an otherwise qualified S corporation in the may not exceed 25% of the unpaid tax. If the
• The S corporation is not subject to tax on case of the sale or distribution of capital S corporation does not file its return by the
the gain under the new built-in gains rules extended due date, the automatic extension
assets held 6 months or less or in the case of
(see below); will not apply and the late filing penalty will be
the sale or distribution of assets which results
• The excess of the net long-term capital in ordinary income (loss). assessed from the original due date of the
gain over the net short-term capital loss is return.
more than $25,000; K Estimated Tax
• The excess is more than 50% of the Every S corporation, must pay estimated tax
Failure to pay total tax by the due date
corporation’s taxable income; and Any S corporation that fails to pay the total
• The taxable income is more than $25,000. using Form 100-ES, Corporation Estimated tax shown on Form 100S by the original due
Tax. date is assessed a penalty. The penalty is 5%
The capital gains tax under former IRC Sec- of the unpaid tax, plus 0.5% for each month,
tion 1374 does not apply if the corporation Estimated tax is generally due and payable in
4 installments: or part of the month (not to exceed 40
was an S corporation during each of the pre- months) the tax remains unpaid. This penalty
ceding 3 years or for the entire period in the • The 1st payment is due on the 15th day of may not exceed 25% of the unpaid tax.
case of new corporations in existence for less the 4th month of the income year (note

Form 100S Booklet 1998 Page 5


Note: If an S corporation is subject to both Record maintenance penalties minimum franchise tax for the corporation’s
the penalty for failure to file a timely return The penalty for failure to maintain certain first full 12 months of doing business and the
and the penalty for failure to pay the total tax records is $10,000 for each income year for total tax paid for the same period.
by the due date, a combination of the two which the failure applies. In addition, if the To claim this credit, enter the amount on
penalties may be assessed, but the total will failure continues for more than 90 days after line 33. To the left of line 33, write ‘‘Dis-
not exceed 25% of the unpaid tax. the FTB notifies the S corporation of the fail- solving/ Withdrawing.’’
Underpayment of estimated tax ure, in general, a penalty of $10,000 may be
assessed for each additional 30-day period of The return for the final taxable period is due
Any S corporation that fails to pay, pays late on or before the 15th day of the 3rd full month
or underpays an installment of estimated tax continued failure. For income years beginning
on or after January 1, 1996, there is no maxi- after the month during which the S corpora-
is assessed a penalty. The penalty is a per- tion formally dissolved or withdrew.
centage of the underpayment for the under- mum amount of penalty that may be
payment period. assessed. Get FTB Pub. 1038, Guide for Corporations
See the Important Information section for a Dissolving, Surrendering (Withdrawing) or
Get form FTB 5806, Underpayment of Esti- Merging, for more information.
mated Tax by Corporations, to determine both discussion of the records required to be main-
the amount of underpayment and the amount tained. See R&TC Section 19141.6 and the Samples and/or forms for a dissolution, sur-
of penalty. regulations thereunder, for more information. render or merger agreement filing may be
Accuracy and fraud related penalties obtained by addressing your request to:
Note: If the S corporation uses Exception B
or Exception C to compute or eliminate any of California conforms to IRC Sections 6662 CALIFORNIA SECRETARY OF STATE
the 4 installments, form FTB 5806 must be through 6665 that authorize the imposition of ATTN: LEGAL REVIEW
attached to the front of Form 100S. an accuracy-related penalty equal to 20% of 1500 11TH ST 3RD FLOOR
the related underpayment and the imposition SACRAMENTO CA 95814-5701
EFT Penalty of a fraud penalty equal to 75% of the related
If the S corporation must pay its tax liability underpayment. See R&TC Section 19164, for P Ceasing Business
using EFT, all payments must be remitted by more information. Because the corporation franchise tax is a
EFT to avoid penalties. The EFT penalty is prepaid tax, a special tax computation is nec-
10% of the amount not paid by EFT. See Secretary of State penalty
The California Corporations Code requires the essary when an S corporation ceases to do
R&TC Section 19011 and General Information business in California. The tax for the final
G, for more information. FTB to assess a penalty for failure to file an
annual statement of corporate officers with the year in which the S corporation does business
Information reporting penalties California SOS. See R&TC Section 19141. in California is:
For income years beginning on or after
For more information, contact the: • The tax measured by the income of the
January 1, 1997, U.S. taxpayers who have an preceding year; PLUS
ownership interest in (directly or indirectly) a CALIFORNIA SECRETARY OF STATE • The tax measured by the income of the
foreign corporation and were required to file PO BOX 944230 year in which the corporation ceases to do
federal Form(s) 5471, Information Return of SACRAMENTO CA 94244-2300 business; PLUS
U.S. Persons With Respect to Certain Foreign Telephone: (916) 657-3537 • The tax due on unreported income attribut-
Corporations, with the federal return, must Other penalties able to installment obligations.
attach a copy(s) to the California return. A Other penalties may be imposed for a check
penalty for failure to include a copy of federal The tax due must be at least the minimum
returned for insufficient funds, non-U.S. for- franchise tax. Generally, the S corporation will
Form(s) 5471, as required, is $1,000 per eign corporations operating while forfeited or
required form for each year the failure occurs. remain subject to the minimum franchise tax
without qualifying to do business in California for each year it is in existence until it files a
The penalty applies for income years begin- and domestic corporations operating while
ning on or after January 1, 1998. The penalty certificate of dissolution or withdrawal with the
suspended in California. See R&TC Sections California SOS. See General Information O
will not be assessed if the taxpayer provides a 19134 and 19135, for more information.
copy of the form(s) within 90 days of request and R&TC Sections 23331 through 23335 for
from the FTB and the taxpayer agrees to N Interest more information.
attach a copy(s) of Form 5471 to all returns
filed for subsequent years.
Interest is due and payable on any tax due if Q Suspension/Forfeiture
not paid by the original due date of If an S corporation fails to file Form 100S
Certain domestic corporations that are 25% or Form 100S. Interest is also due on some pen- and/or fails to pay any tax, penalty or interest
more foreign-owned and foreign corporations alties. The automatic extension of time to file due, its powers, rights and privileges may be
engaged in a U.S. trade or business, must Form 100S does not stop interest from accru- suspended (in the case of a domestic S cor-
attach federal Form(s) 5472, Information ing. California follows federal rules for the cal- poration) or forfeited (in the case of a foreign
Return of a 25% Foreign-Owned U.S. Corpo- culation of interest. Get FTB Pub. 1138, S corporation).
ration or a Foreign Corporation Engaged in a Refund/Billing Information, for more
U.S. Trade or Business, to Form 100S. The information. S corporations that operate while suspended
penalty for failing to include Form(s) 5472, as or forfeited are subject to a $2,000 penalty
required, is $10,000 per required form for O Dissolution/Withdrawal per income year, which is in addition to any
each year the failure occurs. See R&TC The franchise tax for the period in which the tax, penalties and interest already accrued.
Section 19141.5. S corporation formally dissolves or withdraws Also, any contracts entered into during sus-
is measured by the income of the year in pension or forfeiture are voidable at the
If the S corporation does not file the
which it ceased doing business in California, request of any party to the contract other than
Form 100S by the due date or extended due
unless such income has already been taxed the suspended or forfeited corporation.
date, whichever is later, copies of federal
Form(s) 5472 must still be filed on time or the at the rate prescribed for the taxable year of Such contracts will remain voidable and
penalty will be imposed. Attach a cover letter dissolution or withdrawal. unenforceable unless the S corporation
to the copies indicating the taxpayer’s name, An S corporation that is a successor to a cor- applies for relief from contract voidability and
California corporation number and income poration that commenced doing business in the FTB grants relief.
year. Mail to the same address used for California before January 1, 1972, is allowed See R&TC Sections 19135, 19719, 23301,
returns without payments. See General Infor- a credit that may be refunded in the year of 23305.1 and 23305.2, for more information.
mation H. When the S corporation files dissolution or withdrawal. The amount of the
Form 100S, also attach copies of the federal refundable credit is the difference between the R Apportionment of Income
Form(s) 5472. S corporations with business income attribut-
able to sources both within and outside of

Page 6 Form 100S Booklet 1998


California are required to apportion such U Amended Return FRANCHISE TAX BOARD
income. To calculate the apportionment per- PO BOX 942857
centage, use Schedule R, Apportionment and To correct or change Form 100S, file the most SACRAMENTO CA 94257-0500
Allocation of Income. Be sure to answer current Form 100X, Amended Corporation
Question P on Form 100S, Side 2. Franchise or Income Tax Return. Using the W Net Operating Loss (NOL)
incorrect form may delay processing of the
Note: A corporation that has made a valid Carryover periods varying from 5 to 15 years
amended return. If the IRS examined and
election to be treated as an S corporation is and carryover deductions varying from 50% to
changed the S corporation’s federal return or
generally not included in a combined report. 100% are allowed for NOLs sustained by
if the S corporation filed an amended federal
However, in some cases, the FTB may use qualified corporations.
return, file Form 100X within 6 months of the
combined reporting methods to clearly reflect final federal determination. R&TC Sections 24416 through 24416.6 and
income of an S corporation (R&TC 25108 provide for NOL carryovers incurred in
Section 23801(d)(1)). V Information Returns the conduct of a trade or business.
S Excess Net Passive Investment Every S corporation engaged in a trade or R&TC Section 24347.5 provides special treat-
business and making or receiving certain pay- ment for the carryover of disaster losses
Income ments in the course of the trade or business incurred in an area designated by the Presi-
California conforms to IRC Section 1375 for is required to file information returns which dent of the United States or the Governor of
income years beginning on or after January 1, report the amount of these payments. California as a disaster area.
1987. If an S corporation does not have Payments that must be reported include, but For more information, see form FTB 3805Q,
excess net passive investment income for fed- are not limited to, compensation for services Net Operating Loss (NOL) Computation and
eral purposes, then the S corporation will not not subject to withholding, commissions, fees, NOL and Disaster Loss Limitations — Corpo-
have excess net passive investment income prizes and awards, payments to independent rations (included in this booklet), or get form
for California purposes. contractors, rents, royalties and pensions FTB 3805Z, Enterprise Zone Business Book-
If at the close of the income year, an S corpo- exceeding $600 annually, interest and divi- let, form FTB 3806, Los Angeles Revitalization
ration has undistributed earnings and profits dends exceeding $10 annually, and cash pay- Zone Booklet and form FTB 3807, Local
(defined in IRC Section 1362(d)(3)) from pre- ments over $10,000 received in a trade or Agency Military Base Recovery Area Booklet
vious years as a C corporation and has pas- business. Payments of any amount by a bro- or form FTB 3809, Targeted Tax Area Busi-
sive investment income that represents more ker or barter exchange must also be reported. ness Booklet.
than 25% of total gross receipts, then the S corporations must report payments made to
S corporation may be subject to a tax on the California residents by providing copies of fed-
X At-Risk Rules
excess net passive investment income (R&TC eral Form 1099. Reports must be made for California S corporations are subject to IRC
Section 23811). the calendar year and are due to the IRS no Section 465 relating to the at-risk rules. For
If an S corporation has an 80% or greater later than February 28th of the year following more information, see federal Form 6198,
ownership stake in a C corporation, dividends payment. S corporations must also submit At-Risk Limitations. Losses from passive activ-
received from that C corporation are not federal Form 8300, Report of Cash Payments ities are first subject to the at-risk rules and
treated as passive investment income, for pur- Over $10,000 Received in a Trade or Busi- then to the passive activity rules.
poses of IRC Sections 1362 and 1375, if the ness, within 15 days after the date of the
dividends are attributable to the earnings and transaction. Y Qualified New Corporations
profits of the C corporation derived from the S corporations must report interest paid on (QNCs)
active conduct of a trade or business. municipal bonds held by California taxpayers SOS prepayment tax
and issued by a state other than California, or
T Water’s-Edge Reporting a municipality other than a California munici-
Effective for income years beginning on or
after January 1, 1997, and before January 1,
To make the water’s-edge election, an S cor- pality. Entities paying interest to California res- 1999, the minimum tax prepaid to the Califor-
poration must enter into a contract with the idents on these types of bonds are required to nia SOS for the 1st income year is $600 for a
FTB by filing Form 100-WE, Water’s-Edge report interest payments aggregating $10 or QNC. For purposes of the $600 prepaid mini-
Contract. For the election to be valid for any more and paid after January 1, 1998. Informa- mum tax a QNC is a corporation that reasona-
income year, Form 100-WE must be signed tion returns are due June 1, 1999. Get form bly estimates it will:
and attached to the original Form 100S. A FTB 4800, Federally Tax Exempt Non-
copy must be attached to all subsequent California Bond Interest and Interest-Dividend • Have gross receipts, less returns and
returns filed during the contract period. Payment, for more information. allowances, reportable to California of $1
million or less;
In consideration for being allowed to file on a California conforms to the information report- • Have tax liability that does not exceed
water’s-edge basis, the S corporation must, ing requirements of IRC Section 6045(f) for $800; and
among other things: certain payments made to attorneys. If the • Not have 50% or more of its stock owned,
• File returns on a water’s-edge basis for a S corporation has complied with the require- upon initial issuance, by another corpora-
period of 84 months; ments for federal purposes, the S corporation tion.
• Agree to business income treatment of div- will be treated as having complied with the
Gross receipts includes the gross receipts of
idends received from certain corporations; requirements for California purposes and no
penalty will be imposed. each member of the commonly controlled
and group, as defined in R&TC Section 25105, of
• Consent to the taking of certain deposi- California conforms to the information report- which the bank or corporation is a member.
tions and the acceptance of subpoenas ing requirements imposed under IRC Sections
duces tecum requiring the reasonable pro- 6038, 6038A and 6038B. Any information For income years beginning on or after Janu-
duction of documents. returns required to be filed for federal pur- ary 1, 1999, the prepaid minimum tax for a
poses under these IRC Sections are also QNC is $300. For purposes of the $300 pre-
Water’s-edge returns must have form paid minimum tax, a QNC is a corporation
FTB 2426, Water’s-Edge Cover Sheet, (in- required to be filed for California purposes.
Required federal information returns should be that meets the criteria listed above and also
cluded in this booklet) attached to the front of must:
Form 100S. attached to the Form 100S when filed. If
these information returns are not provided, • Begin operations at or after the time of its
Get Form 100-WE, Water’s-Edge Booklet for penalties may be imposed under R&TC Sec- incorporation; and
more information. tions 19141.2 and 19141.5. • Not have begun business prior to its incor-
Mail all information returns required to be filed poration as a single proprietorship, partner-
separate from the tax return to: ship or other form of business entity.

Form 100S Booklet 1998 Page 7


If during the 1st income year, the corpora- holder. Treatment at the shareholder level is Credits and credit carryovers may not reduce
tion’s gross receipts exceed $1 million or tax the same as the federal treatment prior to the minimum franchise tax, the QSSS annual
liability exceeds $800, the corporation must January 1, 1994. tax, built-in gains tax, excess net passive
pay an additional amount of: The passive activity loss rules apply to the income tax, credit recaptures, the increase in
• $200, if the corporation prepaid the $600 S corporation as if it were an individual (i.e., tax imposed for the deferral of installment sale
minimum tax to the SOS; or losses from passive activities may not be income, or an installment of LIFO recapture
• $500, if the corporation prepaid the $300 used to offset other income, except for tax.
minimum tax to the SOS. $25,000 in losses from rental real estate).
CC Group Nonresident Shareholder
The corporation must pay the additional tax However, when determining whether the
on or before the original due date of its 1st S corporation materially participates in the Return
required return without regard to extension. activity, the material participation rules that Nonresident shareholders of an S corporation
See R&TC Section 23221, for more apply to a ‘‘closely held C corporation’’ should doing business in California may elect to file a
information. be applied to the S corporation. For more group nonresident return on Form 540NR,
information, see IRC Section 469(h)(4). California Nonresident or Part-Year Resident
Minimum franchise tax
For income years beginning on or after Janu- S corporations must use form FTB 3801, Pas- Income Tax Return. Get FTB Pub. 1067,
ary 1, 1999, the minimum franchise tax for a sive Activity Loss Limitations, to figure the Guidelines for Filing a Group Form 540NR, for
QNC for the 1st return required to be filed is allowable net loss and credits from passive more information.
$500. The minimum franchise tax for the 1st activities.
return is due as an estimate payment on the
DD Qualified Subchapter S
15th day of the 4th month of the QNC’s 1st
AA Passive Activity Credits Subsidiary (QSSS)
income year. For purposes of the QNC mini- S corporation credits subject to the passive California has conformed to the sections of
mum franchise tax, the corporation must meet activity credit limitation rules include: the IRC that allow S corporations to own a
the following criteria: • Research credit; QSSS. A QSSS is a domestic corporation that
• Incorporate on or after January 1, 1999; • Orphan drug credit carryover; and is not an ineligible corporation (i.e., it must be
• Begin business operations at or after the • Low-income housing credit. eligible to be an S corporation as defined by
time of incorporation; Get form FTB 3801-CR, Passive Activity IRC Section 1361(b)(2)). In addition, 100% of
• Reasonably estimate that it will have gross Credit Limitations, for more information. the stock of the subsidiary must be held by
receipts, less returns and allowances, the S corporation parent and the parent must
reportable to California of $1 million or BB Tax Credits elect to treat the subsidiary as a QSSS. A
less; If a C corporation had unused credit carry- QSSS is not treated as a separate entity and
• Reasonably estimate it will not have a tax overs when it elected S corporation status, all assets, liabilities and items of income,
liability that exceeds the minimum fran- the carryovers were reduced to 1/3 and trans- deduction and credit of the QSSS are treated
chise tax of $800; and ferred to the S corporation. The remaining 2/3 as belonging to the parent S corporation. The
• Did not begin business as a single proprie- were disregarded. The allowable carryovers activities of the QSSS are treated as activities
torship, partnership or other form of busi- may be used to offset the 1.5% tax on net of the parent S corporation. An election made
ness entity prior to its incorporation. income in accordance with the respective car- by the parent S corporation under IRC Sec-
Gross receipts includes the gross receipts of ryover rules. These C corporation carryovers tion 1361(b)(3) to treat the corporation as a
each member of the commonly controlled may not be passed through to shareholders. qualified subchapter S subsidiary for federal
group, as defined in R&TC Section 25105, of Refer to Schedule C (100S), S Corporation purposes is treated as a binding election for
which the bank or corporation is a member. Tax Credits, included in this booklet. California purposes. A separate election may
not be filed for California.
If during the income year, the corporation’s S corporations may generate credits from both
gross receipts exceed $1 million or the tax lia- the Bank and Corporation Tax Law and the The federal election is made on federal
bility exceeds the minimum franchise tax of Personal Income Tax Law. Follow the guide- Form 966, Corporate Dissolution or Liquida-
$800, the corporation must pay an additional lines below: tion. For information on making the election,
get IRS Notice 97-4, 1997-1 C.B. 351. Califor-
amount of $300. The corporation must pay • If a credit listed on page 12 is allowed only nia requires that an S corporation parent
the additional amount on or before the original under the Bank and Corporation Tax Law,
due date of its 1st required return without attach a copy of the Form 966 for each QSSS
1/3 of the credit may be used to offset the doing business or qualified to do business in
regard to extension. See R&TC Section S corporation tax or may be carried over, if
23153, for more information. California to the return for the income year
allowed. The remaining 2/3 must be disre- during which the QSSS election was made.
garded and may not be carried over. No
Z Passive Activity Loss Limitation part of the credit may be passed through
California follows the federal transitional relief
procedures for perfecting a QSSS election.
California S corporations generally follow IRC to the shareholders.
Section 469 and the regulations thereunder • If the credit is allowed only under Personal A QSSS is subject to an $800 annual tax
that allow losses from passive activities to be Income Tax Law, the full credit may be which is paid by the S corporation parent. The
applied only against income from passive passed through to the shareholders. No QSSS annual tax is due and payable when
activities. part of the credit may be used by the the S corporation’s first estimated tax payment
S corporation to offset the S corporation is due. If the QSSS is acquired, or a QSSS
California differs from federal law in that rental
tax or to be carried over. election is made, during the income year, the
real estate activities of taxpayers engaged in
a real property business are still treated as a • If a credit is allowed under both the Bank QSSS annual tax is due with the S corpora-
and Corporation Tax Law and Personal tion’s next estimated tax payment after the
passive activity.
Income Tax Law, the S corporation may date of the QSSS election or acquisition. The
California law also differs from federal law in use 1/3 of the credit to offset the S corpo- QSSS annual tax is subject to the estimated
that the passive activity loss rules are applied ration tax or it may be carried over, if tax rules and penalties.
at both the S corporation level and at the allowed. The remaining 2/3 must be disre- An S corporation that owns a QSSS does not
shareholder level. The passive activity loss garded and may not be carried over. The file a combined return. Instead, the QSSS is
rules must be applied in determining the net full amount of the credit, as calculated disregarded, and the activities, assets, liabili-
income of the S corporation that will be taxed under the Personal Income Tax Law, may ties, income, deductions and credits of the
using the 1.5% tax rate. Subsequent to the also be passed through to the sharehold- QSSS are considered to be the assets, liabili-
income and deductions flowing through to the ers. ties, income and credits of the S corporation.
shareholders, the rules are again applied in
If the QSSS is not unitary with the S corpora-
determining the net income of the share-

Page 8 Form 100S Booklet 1998


tion, then it is treated as a separate division • The percentage of outstanding voting onto Side 2, Schedule F and transfer the
and separate computations must be made to shares of this S corporation or its subsidi- amount from Schedule F, line 22, to line 1.
compute business income and apportionment ary(ies) owned by one person or one • Then, complete Form 100S, Side 1, line 2
factors for the QSSS and the S corporaiton, entity cumulatively surpassed 50% during through line 14, State Adjustments.
and to apportion to California the business this year; or S corporations using the California computa-
income of each. • The total percentage of voting shares tion to figure ordinary income (see General
An S corporation parent must complete the transferred to one irrevocable trust cumu- Information I) must transfer the amount from
Qualified Subchapter S Subsidiary Information latively surpassed 50% this year; or Side 2, Schedule F, line 22, to line 1. Com-
Worksheet on page 24 and attach it to the • One or more irrevocable proxies trans- plete Form 100S, Side 1, line 2 through line
Form 100S for each income year in which a ferred voting rights to more than 50% of 14, only if applicable.
QSSS is acquired or a QSSS election is the outstanding shares to one person or
one entity during this year; or Line 2 through Line 14 – State adjustments
made.
• This S corporation’s cumulative ownership To figure net income for California purposes,
or control of the stock or other ownership corporations using the federal reconciliation
Specific Line Instructions interest in any legal entity surpassed 50% method (see General Information I) must enter
during this year; or California adjustments to the federal net
Filing Form 100S without errors will expedite
processing. Before mailing Form 100S, make
• Cumulatively more than 50% of the total income on line 2 through line 14. If a specific
outstanding shares of this S corporation line for the adjustment is not on Form 100S,
sure entries have been made for: enter the adjustment on line 7, Other Addi-
have been transferred or changed owner-
• California corporation number (7 digits); ship or control this year. tions, or line 13, Other Deductions, and attach
• Federal employer identification number R&TC Section 64(e) requires this information a schedule.
(FEIN) (9 digits); and
• Corporation name and address. for use by the California State Board of
Equalization.
Line 2 – Taxes not deductible
California law does not permit a deduction for
File the 1998 Form 100S for calendar year California corporation franchise or income
1998 and fiscal years that begin in 1998. Question C – Principal business activity
code taxes or any other taxes on, according to, or
Enter income year beginning and ending measured by income or profits. Add these
All S corporations must answer Question C.
dates only if the return is for a short year or a taxes to income on line 2. Examples of these
fiscal year. If the S corporation reports its Include the 6 digit PBA code from the chart taxes are California’s minimum franchise tax,
income using a calendar year, leave blank. If found on page 21 through page 23 of this the 1.5% income or franchise tax and the
the return is filed for a short period (less than booklet. environmental taxes imposed by IRC
12 months), write ‘‘short year’’ in red in the The code should be the number for the spe- Section 59A.
top margin. cific industry group from which the greatest Line 3 – Interest on government
Note: The 1998 Form 100S may also be percentage of California ‘‘total receipts’’ is obligations
used if: derived. ‘‘Total receipts’’ means gross receipts
plus all other income. The California code S corporations subject to the California fran-
• The corporation has an income year of number may be different from the federal chise tax must report interest received on gov-
less than 12 months that begins and ends ernment obligations even though it may be
code number.
in 1999; and exempt from state or federal individual income
• The 1999 Form 100S is not available at If, as its principal business activity, the corpo- tax. This interest must be added to income on
the time the corporation is required to file ration: (1) purchases raw material; (2) subcon- line 3. See line 13 instructions for S corpora-
its return. The S corporation must show its tracts out for labor to make a finished product tions subject to the California corporation
1999 income year on the 1998 Form 100S from the raw materials; and (3) retains title to income tax.
and incorporate any tax law changes that the goods, the corporation is considered to be
a manufacturer and must enter one of the Line 4 – Net capital gain
are effective for income years beginning
after December 31, 1998. codes under ‘‘Manufacturing.’’ Also, write in Enter on this line any net capital gain subject
the business activity and principal product or to the 1.5% tax rate (3.5% for financial
Convert all foreign monetary amounts to U. S. S corporations) shown on Schedule D (100S),
service on the lines provided.
dollars. Section B, and any gains subject to the 8.84%
Caution: California law is different from fed- Question D – Does this return include tax rate (10.84% for financial S corporations)
eral law. California taxes S corporations under Qualified Subchapter S Subsidiaries shown on Schedule D (100S), Section A,
Chapter 2 (commencing with Section 23101) (QSSSs)? line 3a and line 6a.
or Chapter 3 (commencing with Section Answer yes if the S corporation owns a
QSSS. Refer to the instructions for line 22 Line 5 – Depreciation and amortization
23501) of the Bank and Corporation Tax Law.
and line 35 to report the QSSS annual tax. Be Depreciation for S corporations follows the
Questions A through Q sure to complete the worksheet on page 24 of depreciation rules provided under California
this booklet and attach the worksheet to Personal Income Tax Law. Unlike other corpo-
Answer all applicable questions. Be sure to rations, an S corporation is allowed to com-
answer questions E through Q on Side 2. Form 100S when filed.
pute depreciation using the Modified
Note the following instructions when Question E – 1999 tax forms Accelerated Cost Recovery System (MACRS).
answering: If the S corporation’s return is prepared by Complete Schedule B (100S) for assets sub-
Question B – Transfer or acquisition of someone else, or if the S corporation does ject to depreciation and for assets subject to
voting stock not need Form 100S mailed to it next year, amortization. Enter the total of Schedule B,
All S corporations must answer Question B. If check the box at Question E. Part I, line 4 and Part II, line 4, on Form 100S
the answer is ‘‘Yes,’’ a ‘‘Statement of Change Line 1 – Ordinary income (loss) from trade Side 1, line 5.
in Control and Ownership of Legal Entities’’ or business Line 6 – Portfolio income
(BOE-100-B) must be filed with the State S corporations using federal reconciliation to Enter on this line net portfolio income not
Board of Equalization, or substantial penalties figure net income (see General Information I) included in line 1 but that must be included in
may result. Forms and information may be must: the S corporation’s net income for computing
obtained from the Board of Equalization at
(916) 323-5685.
• Transfer the amount from federal the 1.5% tax. Include interest, dividends and
Form 1120S, line 21 to line 1 and attach a royalties. Do not include any passive activity
Answer ‘‘yes’’ to Question B on Side 1 if: copy of the federal return and all pertinent amounts on this line. Instead, include passive
supporting schedules; or copy the informa- activity amounts on line 7 or line 13.
tion from federal Form 1120S, Page 1,

Form 100S Booklet 1998 Page 9


Line 7 – Other additions If any federal contribution deduction was 1.5% rate. See the ‘‘Excess Net Passive
Include on this line other items not added on taken in arriving at the amount entered on Income and Income Tax Worksheet,’’ to deter-
any other line to arrive at California net Side 1, line 1, enter that amount as an addi- mine if the S corporation is subject to the tax
income. Attach a schedule that clearly shows tion on line 7. on excess net passive investment income. If a
how each item was computed and explain the Get Schedule R, Apportionment and Alloca- tax is shown on this worksheet, enter the
basis for the adjustment. tion of Income, to figure the contribution com- amount of excess net passive income from
If a federal contribution deduction was taken putation for apportioning corporations. line 8 of the worksheet on Form 100S, Side 1,
in arriving at the amount entered on line 1, line 17.
Line 12 – EZ, LARZ, LAMBRA or TTA busi-
include that amount in the computation of ness expense and/or net interest deduction For purposes of the built-in gains tax, enter
line 7. See line 11. the smaller amount of line 11 or line 13 from
Businesses conducting a trade or business Section A, Part III of Schedule D, or line 20
Enter any passive activity income on line 7. within an EZ, LARZ, LAMBRA or TTA may from Section A, Part IV of Schedule D.
California ordinary net gain or loss elect to treat a portion of the cost of qualified
Before entering the amount from property as a business expense rather than a Line 18, Line 19 and Line 20
Schedule D-1, line 18, determine whether the capital expense. For the year the property is NOTE: The order in which line 18, line 19 and
gain is subject to built-in gains tax. If the gain placed in service, the business may deduct a line 20 appear is not meant to imply that this
is subject to built-in gains tax, enter the percentage of the cost in that year rather than is the order in which any type of NOL carry-
amount on Schedule D (100S), Part IV so the depreciate it over the life of the asset. For over deduction or disaster loss deduction be
built-in gains tax can be computed, and enter more information, get form FTB 3805Z, form taken if more than one type of deduction is
the difference between the amount on Sched- FTB 3806, form FTB 3807 or form FTB 3809. available. See form FTB 3805Q for more
ule D-1, line 18 and the amount subject to Also, a deduction may be claimed on this line information.
built-in gains tax on 100S, Side 1, line 7. for the amount of net interest on loans made Line 18 – Net operating loss (NOL) carry-
Note: Business expense deductions are not to an individual or company doing business over deduction
allowed with respect to payments to a club inside an EZ or LARZ. For more information, The NOL deduction is the amount of the NOL
that restricts membership or the use of its get form FTB 3805Z or form FTB 3806. carryover from prior years that may be
services or facilities on the basis of age, sex, Be sure to attach form FTB 3805Z, form deducted from income in this income year.
race, religion, color, ancestry or national ori- FTB 3806, form FTB 3807 or form FTB 3809 However, the loss may not reduce the
gin. ‘‘Club’’ means a club as defined in the if any of these benefits are claimed. If the S corporation’s current year income below
Business and Professions Code, Div. 9, Ch. 3, proper form is not attached, these tax benefits zero. Any excess loss must be carried
Art. 4, beginning with Section 23425. Add may be disallowed. forward.
back such deductions on this line. If line 16 less line 17 is a positive amount,
Line 13 – Other deductions
Line 9 and Line 10 – Dividends Include on this line deductions not claimed on enter the NOL carryover (but not more than
See Schedule H, Dividend Income Deduction, any other line. Attach a schedule that clearly line 16 less line 17) from the S corporation’s
instructions. shows how each deduction was computed 1998 form FTB 3805Q, Part III, line 3 on
and explain the basis for the deduction. Form 100S, Side 1, line 18. Attach a copy of
Line 11 – Contributions the 1998 form FTB 3805Q to Form 100S. If
For income years beginning on or after Include in the computation for line 13 any the full amount of the NOL carryover may not
January 1, 1996, the contribution deduction is passive activity loss. Also enter any IRC Sec- be deducted this year, complete and attach a
10% of California net income, without regard tion 179 expense from Schedule B (100S), 1998 form FTB 3805Q showing the computa-
to charitable contributions and special deduc- line 5a. tion of the NOL carryover to future years.
tions (e.g., the deduction for dividends For S corporations subject to income (and not
received). The definition of California net If line 16 less line 17 is a negative amount,
franchise) tax, interest received on obligations enter -0- on this line and see form
income differs from federal taxable income for of the federal government and on obligations
computing the contribution deduction. FTB 3805Q instructions for the computation of
of the State of California and its political sub- the NOL carryover to future years.
Five-year carryover provisions per IRC divisions is exempt from income tax. If such
Section 170(d)(2) shall apply for excess con- interest is reported on line 3, deduct it on this No NOL carryover arising from a year in
tributions made during income years begin- line. which an S corporation was a C corporation
ning on or after January 1, 1996. may be applied against the 1.5% tax. See
Federal ordinary net gain or loss. Enter any IRC Section 1371(b)(1) and R&TC
On a separate worksheet, using the federal ordinary net gain or loss from federal Section 23802(d). However, if the corporation
Form 100S format, complete Form 100S, Side Form 4797, Sales of Business Property, terminates its S election, thus becoming a
1, through line 15 (without regard to line 11). line 18, if the amount is included in income on C corporation, then the prior year NOL carry-
Then complete the worksheet below to deter- line 1. over may be used to the extent it has not
mine the contribution deduction to enter on Line 16 – Net income (loss) for state expired.
this line. purposes Note: NOL carryovers arising from a year in
1. Net income after state adjust- If all the S corporation income is derived from which the S corporation was a C corporation
ments from Side 1, line 15. . California sources, transfer the amount from may be used in computing the tax on built-in
2. Deduction for dividends line 15 to this line. gains.
received . . . . . . . . . . . . If only a portion of income is derived from Line 19 – EZ, LARZ or LAMBRA NOL carry-
3. Net income for contribution cal- California sources, complete Schedule R, over deduction
culation purposes. Add line 1 before entering any amount on this line. An NOL generated by a business that oper-
and line 2. . . . . . . . . . . . Transfer the amount from Schedule R, line 24, ates or invests within an EZ, the LARZ or a
4. Allowable contributions. Multiply to this line. Be sure to answer ‘‘Yes’’ to Ques- LAMBRA may receive special tax treatment.
line 3 by 10% (.10) . . . . . . tion P on Form 100S, Side 2. 100% of the NOL generated can be carried
5. Enter the amount actually If this line is a net loss, complete and attach forward for up to 15 years. Get form
contributed . . . . . . . . . . . the 1998 form FTB 3805Q, to Form 100S. FTB 3805Z, form FTB 3806 or form
Line 17 – R&TC Section 23802(e) deduction FTB 3807, for more information.
6. Enter the smaller of line 4 or
line 5 here and on Side 1, If the S corporation has a tax imposed on Enter the EZ, LARZ or LAMBRA NOL carry-
line 11 . . . . . . . . . . . . . excess net passive investment income, certain over deduction from the S corporation’s form
capital gains and built-in gains, a deduction is FTB 3805Z, form FTB 3807 or form FTB
allowed against the net income taxed at the 3806, on Form 100S, line 19. Attach a copy of

Page 10 Form 100S Booklet 1998


the form FTB 3805Z, form FTB 3807 or form Summary. See page 12 for a list of available Line 32 – Additional SOS prepayment tax
FTB 3806 to the Form 100S. credits. For income years beginning on or after
Line 20 – Disaster loss carryover Transfer the credit(s) from the respective January 1, 1997 and before January 1, 1999,
deduction credit forms to Schedule C to compute the the corporation must pay an additional $200
If the S corporation has a disaster loss carry- amount of credit to claim on Form 100S. Then on the original due date of the 1st required
over deduction, enter the total amount from transfer the credit(s) from Schedule C to return if it:
Part III, line 2 of the 1997 FTB 3805Q only if Form 100S. Each credit is identified by a code • Incorporated as a qualified new corpora-
the corporation has income in the current number. To claim one, two or three credits, tion with the California SOS;
year. enter the credit name, code number and the • Paid the $600 prepaid minimum tax to the
amount of the credit on line 23, line 24 and California SOS; and
Line 22 – Tax line 25. Enter the total of any remaining cred- • Had gross receipts, less returns and allow-
S corporations must use a tax rate of 1.5%. its from Schedule C on line 26. Do not make ances, exceeding $1 million or tax on net
Financial S corporations must use the finan- an entry on line 26 unless line 23 through line income exceeding $800, during the 1st
cial tax rate of 3.5%. The tax on this line may 25 are complete. income year.
not be less than the sum of the minimum fran-
Attach all credit forms, schedules and If the corporation is required to pay the addi-
chise tax and QSSS annual tax, if applicable.
Schedule C to Form 100S. tional SOS prepayment tax, enter $200 on
See General Information B.
Line 29 – Tax from Schedule D (100S) this line. If the SOS prepayment tax is not
If the S corporation is the parent of a QSSS required, enter -0-. See General Information
and paid the $800 annual tax on behalf of S corporations must enter the tax from
Y, for more information.
each QSSS, add the total amount of QSSS Schedule D (100S) (included in this booklet).
annual tax to the tax on net income or the See General Information J for more Line 33 – Adjusted total tax
minimum franchise tax, whichever is applica- information. Add line 31 and line 32. Enter the result on
ble, and enter the result on line 22. Use the Line 30 – Excess net passive income tax this line.
QSSS information worksheet on page 24 of If the corporation has always been an S cor- Line 35 – 1998 estimated tax payments and
this booklet. poration for California purposes or has no fed- excess SOS prepayment tax
Example 1: Corporation A, an S corporation, eral excess net passive investment income, Enter the total amount of estimated tax pay-
is the parent of two QSSS’s. Corporation A the excess net passive investment income tax ments made during the 1998 income year on
reports net income for tax purposes on line 21 does not apply. See General Information S for this line. If the S corporation is the parent of a
of $50,000. Tax on net income is $750 more information. QSSS and made payments for the QSSS
($50,000 X 1.5%). Since tax on net income is To determine if the S corporation owes this annual tax, include the total amount of QSSS
$750, Corporation A is subject to at least the tax, complete line 1 through line 3 and line 9 annual tax payment made during 1998 on this
minimum franchise tax. Corporation A is also of the ‘‘Excess Net Passive Income and line along with the total estimated tax pay-
liable for the $800 annual tax for each of its Income Tax Worksheet’’ on page 13. If line 2 ments. See General Information DD, for more
two QSSSs. On line 22, Corporation A will is greater than line 3 and the S corporation information. Be sure to complete the schedule
report tax of $2,400. has taxable income, it must pay the tax. Com- on page 24 of this booklet and attach it to the
Example 2: Corporation B, an S corporation, plete a separate schedule using the format of return.
is the parent of four QSSSs. Corporation B line 1 through line 11 of the worksheet to fig- If the S corporation prepaid an $800 minimum
reports net income for tax purposes on line 21 ure the tax. Enter the tax from line 11 of the tax to the SOS, but met the QNC criteria dur-
of $500,000. Tax on net income is $7,500. On worksheet on Form 100S, Side 1, line 30. ing its 1st income year, the S corporation is
line 22, Corporation B will report tax of Attach the schedule showing the computation. entitled to a refund of the excess prepaid tax.
$10,700. The $10,700 includes tax on net Reduce each item of passive income passed Include an additional $200 on this line. See
income of $7,500 plus $3,200 of QSSS through to shareholders by its portion of the General Information Y, for more information.
annual tax payment for the four QSSSs. tax on line 30. See IRC Section 1366(f)(3)
and R&TC Section 23803(b)(2). Line 38 and Line 39 – Tax due or
Line 23 through Line 26 – Tax credits overpayment
Credits may be used to reduce the California R&TC Section 23811(e) provides a deduction In addition to any amount entered on line 38
tax liability but may not be used to reduce the for C corporation earnings and profits attribut- or line 39, tax due or overpayment, also
tax on line 22 to an amount less than the sum able to California sources for any income year include any amounts required to be included
of the minimum franchise tax and the QSSS by the amount of a consent dividend paid from Schedule J, Add-On Taxes or Recapture
annual taxes, if applicable. Also, the S corpo- after the close of the income year. The of Tax Credits. See Schedule J instructions,
ration is allowed to claim only 1/3 of the total amount of the consent dividend is limited to for more information.
credit generated against the 1.5% franchise the difference between the C corporation
tax. See General Information AA and BB. earnings and profits attributable to California Line 42 – Penalties and interest
sources and the C corporation earnings and Complete and attach form FTB 5806, Under-
Complete the applicable credit form for each profits for federal purposes. payment of Estimated Tax by Corporations, to
credit claimed. For any carryover only credits, the front of Form 100S only if Exception B or
complete form FTB 3540, Credit Carryover Exception C is used to compute or eliminate
the penalty.

Form 100S Booklet 1998 Page 11


CREDIT NAME CODE DESCRIPTION
Community Development Financial Institution Deposits – 209 20% of a qualified deposit made into a community development financial institution
Obtain certification from:
CALIFORNIA ORGANIZED INVESTMENT
NETWORK (COIN)
DEPARTMENT OF INSURANCE
300 CAPITOL MALL, SUITE 1460
SACRAMENTO CA 95814
Disabled Access for Eligible Small Businesses – 205 Similar to the federal credit, but limited to $125 per eligible small business, and based on 50% of
FTB 3548 qualified expenditures that do not exceed $250
Donated Agricultural Products Transportation – 204 50% of the costs paid or incurred for the transportation of agricultural products donated to nonprofit
FTB 3547 charitable organizations
Employer Child Care Contribution – FTB 3501 190 Employer: 30% of contributions to a qualified plan.
Employer Child Care Program – FTB 3501 189 Employer: Cost of establishing a child care program or constructing a child care facility
Enhanced Oil Recovery – FTB 3546 203 1/3 of the similar federal credit but limited to qualified enhanced oil recovery projects located within
California
Enterprise Zone Hiring & Sales or Use Tax – 176 Business incentives for enterprise zone businesses
FTB 3805Z
Farmworker Housing – Construction 207 50% of qualified costs paid or incurred to construct or rehabilitate qualified farmworkers housing
Farmworker Housing – Loan 208 Banks and financial corporations: 50% of foregone interest income on qualified farmworker housing
Obtain certification from: loans
FARMWORKER HOUSING ASSISTANCE PROGRAM
CALIFORNIA TAX CREDIT ALLOCATION
COMMITTEE
916 CAPITOL MALL, ROOM 485
SACRAMENTO CA 95814
Local Agency Military Base Recovery Area 198 Business incentives for LAMBRAs
(LAMBRA) Hiring & Sales or Use Tax –
FTB 3807
Low-Income Housing – FTB 3521 172 Similar to the federal credit but limited to low-income housing in California
Manufacturing Enhancement Area – FTB 3808 211 Hiring Credit for Manufacturing Enhancement Area
Manufacturers’ Investment – FTB 3535 199 6% of the cost of qualified property
Prior Year Alternative Minimum Tax – FTB 3510 188 Must have paid alternative minimum tax in a prior year and have no alternative minimum tax liability
in 1998
Prison Inmate Labor – FTB 3507 162 10% of wages paid to prison inmates
Research – FTB 3523 183 Similar to the federal credit but limited to costs for research activities in California
Rice Straw 206 $15 per ton of rice straw grown in California
Obtain certification from:
DEPARTMENT OF FOOD AND AGRICULTURE
1220 N STREET, ROOM 409
SACRAMENTO CA 95814
Salmon & Steelhead Trout Habitat Restoration – 200 The lesser of 10% of qualified costs or other amount determined by the Department of Fish and
Obtain certification from: Game
DEPARTMENT OF FISH AND GAME
C/O FISH TIMBER TAX CREDITS PROGRAM
PO BOX 944209
SACRAMENTO CA 95244-2090
Targeted Tax Area (TTA) Hiring & Sales or Use Tax – 210 Business incentives for TTAs
FTB 3809
Agricultural Products 175
Commercial Solar Electric System 196
Commercial Solar Energy 181 The expiration dates for these credits have passed. However, these credits had carryover features.
Contribution of Computer Software 202 You may claim these credits if there is a carryover available
Employer Child Care Contribution – FTB 3501 190 from prior years. If you are not required to complete Schedule P (100),
Employer Child Care Program – FTB 3501 189 get form FTB 3540, Credit Carryover Summary, to figure your credit
Employer Ridesharing – Large employer 191 carryover to future years.
Employer Ridesharing – Small employer 192
Employer Rideshare – Transit 193
Energy Conservation 182
Los Angeles Revitalization Zone (LARZ) Hiring & Sales
or Use Tax 159
Low Emission Vehicles 160
Orphan Drug 185
Recycling Equipment 174
Ridesharing 171
Solar Energy 180
Solar Pump 179
Technology Property Contributions 201

Page 12 Form 100S Booklet 1998


Excess Net Passive Income and Income Tax Worksheet
1 Enter gross receipts for the income year (see IRC Section 1362(d)(3)(B) for gross receipts from the sale of capital assets)*. 1
2 Enter passive investment income as defined in IRC Section 1362(d)(3)(C)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Enter 25% (.25) of line 1. If line 2 is less than line 3, the corporation is not liable for this tax . . . . . . . . . . . . . . . . . . 3
4 Excess passive investment income. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Enter expenses directly connected with the production of income on line 2 (see IRC Section 1375(b)(2))* . . . . . . . . . . . 5
6 Net passive income. Subtract line 5 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Divide the amount on line 4 by the amount on line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Excess of net passive income. Multiply line 6 by line 7 (see instructions on line 11 below) . . . . . . . . . . . . . . . . . . . 8
9 Enter taxable income** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10 Enter the smaller of line 8 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Excess net passive income tax. Enter 8.84% (financial S corporations must use 10.84%) of line 10 here and on Form 100S,
Side 1, line 30. (If an amount is entered here, go to line 8 above and carry the line 8 amount to Form 100S, line 17.) . . . 11
* Income and expenses on line 1, line 2 and line 5 are from total operations for the income year. This includes applicable income and expenses from
Form 100S, Side 1. See IRC Sections 1362(d)(3)(C) and 1375(b)(4) for exceptions regarding line 2 and line 5.
** Taxable income is defined in federal Treas. Regulations Section 1.1374-1A(d). Figure taxable income by completing line 1 through line 17 of Form 100,
California Corporation Franchise or Income Tax Return. Clearly mark ‘‘ENPI Taxable Income’’ on the Form 100 computation and attach it to Form 100S.

Schedules Schedule C (100S) Side 1, line 30) or the built-in gains tax (see
Part IV below), and capital gain or loss was
Use Schedule C (100S) to determine the
Schedule B (100S) allowable amount of credits to claim on the
included in the computation of either tax, fig-
ure the amount to enter on line 9 as follows:
Effective January 1, 1998, California law con- 1998 Form 100S and the credit carryover to
forms to federal law regarding the income future years. For more information, see Gen- Step 1: Refigure line 1, line 2, and line 4
forecast method and the exemption of limits eral Information Z, AA and BB. through line 6c in column (f) and line 7 of
on depreciation for incremental costs of clean Schedule D (100S) by:
Column (a)
fuel vehicles. The amount entered in column (a) must be • Excluding the portion of any recognized
California generally conforms to the provisions limited to 1/3 the amount of the total credit. built-in capital gain or loss that does not
of IRC Section 197 for amortization of intan- qualify for transitional relief; and
gibles for income years beginning on or after Schedule D (100S) • Reducing any capital gain taken into
January 1, 1994. However, there may be dif- Schedule D (100S) is divided into Section A account in determining passive investment
ferences in the federal and California amounts and Section B. Use Section A to report all income (line 2 of the Excess Net Passive
for intangible assets acquired in income years built-in gains and certain capital gains subject Income and Income Tax Worksheet on
beginning prior to January 1, 1994. See to the 8.84% tax rate (10.84% for financial page 13) by the portion of excess net pas-
R&TC Section 24355.5 for more information. S corporations). Use Section B to report all sive income attributable to such gain. The
other capital gains subject to the 1.5% tax attributable portion is figured by multiplying
California did not allow depreciation under the
rate (3.5% for financial S corporations). See excess net passive income by a fraction,
federal accelerated cost recovery system
General Information J, for more information. the numerator of which is the capital gain
(ACRS) for years prior to 1987. California also
(less any expenses attributable to such
does not allow depreciation under MACRS for Note: Use California amounts when comput- gain), and the denominator of which is net
assets placed in service while the corporation ing gain from like-kind exchanges on federal passive income.
was taxable as a C corporation. Form 8824.
Step 2: Refigure line 3a, line 6a, line 8 and
S corporations must continue calculating the Section A line 9 of Schedule D (100S) using the
California depreciation deduction for assets
Part I and Part II amounts determined in Step 1. See General
placed in service before January 1, 1987, in
Information J, for more information.
the same manner as in prior years. Get form S corporations use Part I to report and sum-
FTB 3885, Corporation Depreciation and marize gains and losses attributable to: Part IV
Amortization, to determine how to continue (1) sale or exchange of capital assets; and (2) Line 16
depreciating these assets. The following were gains on distributions to shareholders of To determine if the S corporation is subject to
the most common methods used to calculate appreciated assets that are capital assets. Be tax on built-in gains, see the instructions for
depreciation for years prior to 1987: sure to use the California basis for all assets federal Schedule D (Form 1120S) and Gen-
• Straight-line; when computing the gain or loss. See the eral Information J.
• Declining balance; and instructions for federal Schedule D
Apportioning corporations only: All recog-
• Sum-of-the-years digits. (Form 1120S) for more information.
nized built-in gains and all recognized built-in
For assets placed in service in 1987 and Line 2 and Line 5 losses apportioned and allocated to California
after, S corporations may use the same Use California numbers when figuring the must be included on line 16.
method for California as was used for federal amount to enter for short- or long-term capital
purposes. S corporations conducting a trade gains or losses from like-kind exchanges from Line 18
or business inside an EZ, the LARZ, a federal Form 8824. If the S corporation:
LAMBRA or a TTA may elect to treat a por- Part III • Filed its election to be an S corporation
tion of the cost of qualified property as a busi- after 1986;
ness expense in the first year it is placed in To determine if the S corporation is subject to • Was a C corporation before it elected to
service. This expense deduction is in lieu of the tax on certain capital gains, see the be an S corporation, or acquired an asset
the IRC Section 179 expense deduction. For instructions for federal Schedule D with a basis determined by reference to its
more information, get form FTB 3805Z, form (Form 1120S) and General Information J. basis (or the basis of any other property)
FTB 3806, form FTB 3807 or form FTB 3809. Line 9 in the hands of a C corporation; and
If the S corporation is liable for the tax on • Has a California net unrealized built-in gain
excess net passive income (Form 100S, as defined in IRC Section 1374(d)(1), that

Form 100S Booklet 1998 Page 13


is in excess of the California net recog- Complete Schedule H, Part I. Enter the total 4. Multiply the amount in column (e) by the
nized built-in gain from prior years; of Part I, column (d) on Form 100S, Side 1, amount in column (f) and enter the result
Then compute the California net unrealized line 9. in column (g).
built-in gain reduced by the California net rec- Part II and Part III Total the amounts on Schedule H, Part II, col-
ognized built-in gain from prior years. Other Dividends umn (g), line 7 and Part III, column (g), line 7.
On line 18, enter the smaller of line 16, To determine the deductible percentage of a Enter the result on Part III, column (g), line 8
line 17 or the amount computed above. dividend (Schedule H, Part II, column (f)) send and on Form 100S, Side 1, line 9.
Line 19 a written request showing the complete name Dividends received from a corporation, in
of the dividend paying corporation to: which the S corporation owns less than 80%
Enter on this line the amount from form of the stock, are considered passive invest-
FTB 3805Q that reflects NOLs from the years DEDUCTIBLE DIVIDENDS
FRANCHISE TAX BOARD ment income.
the corporation was a C corporation. Reduce
future NOL carryovers from C corporation PO BOX 1468 Part IV
years by the amount applied on this line. SACRAMENTO CA 95812-1468 Water’s-Edge Dividends
Section B Or call the FTB at the phone numbers listed California R&TC Section 24411 allows for a
on page 47 of this booklet. Allow 6 to 8 weeks 75% deduction of a portion of the dividends
S corporations use Part I and Part II to report for a written reply. Enter this percentage received and included in the water’s-edge
the sale or disposition of all capital assets amount on Schedule H, Part II, column (f). return. For income years beginning on or after
acquired as an S corporation or which are not January 1, 1998, dividends received from
reported in Section A. For more information, To figure the amount of dividends to enter on
Form 100S, line 9, fill out Part II and Part III banks qualify for the water’s-edge dividend
see the instructions for federal Schedule D deduction. Both business and nonbusiness
(Form 1120S). of Schedule H.
dividends qualify for the dividend deduction.
To complete Part II: The allowable business dividend deduction is
Schedule F 1. Fill in columns (a) through (c) determined by multiplying the total dividend
See General Information I for information on deduction (business and nonbusiness) by the
net income computation methods. For Part II, column (b), if any portion of a
dividend also qualifies for the intercom- ratio of business dividends to total dividends.
Line 7 – Compensation of Officers pany elimination in Part I, enter the bal- The remaining dividend deduction is the non-
If the S corporation’s total receipts are ance from Part I, column (g) in Part II, business dividend deduction.
$150,000 or more, complete and attach a column (b). In no event will a R&TC Section 24411
schedule showing the compensation of offi- 2. Enter the corporation’s percentage of own- deduction be allowed with respect to a divi-
cers. On the schedule list: ership of the dividend paying corporation dend for which a deduction was allowed
• Name of officer; on Schedule H, Column (d). under R&TC Sections 24402 or 24410 or
• Social security number of officer; 3. Determine the limitation percentage and which was eliminated under R&TC
• Percentage of time devoted to the enter it on Schedule H, Part II, column (e). Section 25106.
business; Refer to the ownership percentages in col- Current year qualifying dividends are divi-
• Percentage of stock owned; and umn (d) and the limitation percentages dends received by any current member of the
• Amount of compensation. below to determine the applicable limitation water’s-edge group from a corporation (re-
Also show the calculation of compensation of percentage. gardless of the place of incorporation) if:
officers deducted: If the dividend then the limitation • The average of the payer’s property, pay-
• Total compensation of officers, minus paying corporation is: percentage is: roll and sales factors within the U.S. is less
• Compensation of officers claimed in the Less than 20% owned . . . . . . . . 70% than 20%; and
cost of goods sold schedule and else- At least 20% but • More than 50% of the total combined vot-
where on the return. not more than 50% owned . . . . 80% ing power of all classes of voting stock is
More than 50% owned . . . . . . . 100% owned directly or indirectly by a member of
Line 8 – Salaries and wages
4. Multiply the dividend received (column (b)) the water’s-edge group at the time the divi-
Gain from the exercise of California Qualified by the limitation percentage (column(e)). dend is received.
Stock Options (CQSOs) issued and exercised 5. Multiply the result of line 4 by the deduct-
after 1996 and before 2002, can be excluded Interest Expense Deduction
ible percentage (column (f)). For income years beginning on or after Janu-
from gross income if the individual’s earned 6. Enter the result of line 5 in column (g).
income is $40,000 or less. The exclusion from ary 1, 1997, the amount of interest expense
gross income is subject to the alternative mini- To complete Part III: incurred for purposes of foreign investments
mum tax and the S corporation is not allowed 1. Follow steps 1 and 2 above. that must be offset against deductible foreign
a deduction for the compensation excluded dividends must be computed by multiplying
For Part III, column (e), if any portion of a the amount of interest expense by the same
from the employee’s gross income. dividend also qualifies for the intercom- percentage used to compute the deductible
Schedule H pany elimination in Part I, enter the bal- portion of the qualifying foreign dividends.
ance from Part I, column (g) in Part III,
S corporations may claim a deduction for divi- column (e). The payer need not be in a unitary relation-
dends paid by a corporation taxed by 2. Enter in column (e) the amount of qualified ship with the recipient or any other member of
California on earnings from which the divi- insurance dividends received from Sched- the water’s-edge group.
dends are paid. ule H, Part I, column (g) for which a Intercompany dividends received within the
Part I deduction under Part I and Part II has not current year’s water’s-edge group should be
been claimed. eliminated pursuant to R&TC Section 25106
Intercompany Dividends
3. Enter the apportionment factors for the before computing the dividend deduction.
Dividends paid to an electing S corporation
insurance corporation in column (f). A deduction of 100% is provided for dividends
from earnings and profits accumulated during
any income year in which the dividend payer Note: The apportionment factors used in derived from certain foreign construction proj-
was included in the combined report, which this computation are different from the ects. A construction project is defined as an
included the dividend payee, qualify for the apportionment factors used for Schedule R activity attributable to an alteration of land or
100% intercompany dividend elimination. apportionment. See R&TC Section 24410 any improvement thereto. The construction
for more information. project, the location of which is not subject to
the taxpayers’ control, must be undertaken for
an entity, including a governmental entity, that

Page 14 Form 100S Booklet 1998


is not affiliated with the water’s-edge group. putation. For the applicable interest rates, get described in IRC Sections 401(a) and
For more information, see R&TC Section FTB Pub. 1138, Refund/Billing Information. 501(c)(3) (qualified tax-exempt shareholder)
24411 and Form 100-WE, Water’s-Edge IRC Section 197(f)(9)(B)(ii) election. Com- may be shareholders in an S corporation. For
Booklet and instructions. plete Schedule J, line 4 if the corporation purposes of determining the number of share-
Complete Form 100S, Schedule H, Part IV elected to pay tax on the gain from the sale of holders of an S corporation, a qualified tax-
and enter the total of column (g) on an intangible under the related person excep- exempt shareholder will count as one
Form 100S, Side 1, line 10. For Part IV, col- tion to the anti-churning rules. shareholder. Items of income (loss) will pass-
umn (d), if any portion of a dividend also qual- through to the qualified tax-exempt share-
Credit recaptures. Complete Schedule J, line holder as unrelated business taxable income
ifies for the intercompany elimination in Part I, 5, if the S corporation completed the credit
enter the balance from Part I, column (g) in (UBTI) regardless of the source or nature of
recapture portion of: the income.
Part IV, column (d).
• FTB 3501, Employer Child Care Pro- If a husband and wife each had a separate
Schedule J gram/Contribution Credit; or interest in the S corporation, the S corporation
Complete Schedule J if the S corporation has • FTB 3805Z, Part VI, Hiring Credit — Enter- must prepare a separate Schedule K-1 (100S)
credit amounts to recapture or is required to prise Zone Recapture of Deduction and for each spouse.
include installment payments of ‘‘add-on’’ Credits; or
taxes for: • FTB 3806, Los Angeles Revitalization If a husband and wife held an interest
Zone Recapture of Deduction and Credits; together, prepare one Schedule K-1 (100S) if
• LIFO recapture resulting from an S corpo- or the two are considered one shareholder.
ration election; • FTB 3807, Part VI, Local Agency Military On each Schedule K-1 (100S), enter the
• Interest computed under the look-back Base Recovery Area Recapture of Deduc- name, address and identifying number of the
method for completed long-term contracts; tion and Credits; or shareholder and the S corporation and the
• Interest on tax attributable to installment • FTB 3535, Manufacturers’ Investment shareholder’s distributive share for each item.
sales of certain property or use of the Credit. For an individual shareholder, enter the share-
installment method for non-dealer install- holder’s social security number. For all other
ment obligations; or Schedule K and Schedule K-1 shareholders, enter their federal employer
• IRC Section 197(f)(9)(B)(ii) election to rec- Shareholders’ share of income, deduc- identification number (FEIN).
ognize gain on the disposition of an IRC tions, credits, etc. In column (b) on Schedules K and K-1
Section 197 intangible.
Purpose of schedules (100S), enter the corresponding amounts from
Revise the tax due or overpayment on Schedule K (100S) is a summary schedule of federal Schedules K and K-1 (Form 1120S).
Form 100S, line 38 or line 39, as appropriate, all the shareholders’ shares of the S corpora- In column (c), enter adjustments resulting
by the amount from Schedule J, line 6. tion’s income, deductions, credits, etc. Sched- from differences between California and fed-
LIFO recapture tax. If the S corporation com- ule K-1 (100S) shows each shareholder’s eral law for each of the specific line items. In
puted the LIFO recapture tax in the final year separate share of pass-through items and column (d), enter the California amount, which
as a C corporation, include on Schedule J, adjusted basis. Use federal Schedule K and is the result of combining column (b) and
line 1, any LIFO installment due this income Schedule K-1 (Form 1120S) as a basis for column (c).
year. preparing California Schedule K and Reminder: When entering California adjust-
Long-term contracts. If the S corporation Schedule K-1 (Form 100S). ments in column (c) of Schedule K (100S) or
must compute interest under the look-back Note: Amounts on Schedule K-1 (100S) may Schedule K-1 (100S), be sure to adjust for dif-
method for completed long-term contracts, not add up to amounts reflected on ferences between federal and California
complete form FTB 3834, Interest Computa- Form 100S, Side 1 amounts because Side 1 amounts (or taxes), as applicable to
tion Under the Look-Back Method for Com- calculates tax at the S corporation level while individuals, for:
pleted Long-Term Contracts, and include the Schedule K-1 amounts are calculated using • Built-in gains tax (Schedule D (100S));
amount of interest the S corporation owes or different rules. • Capital gains tax (Schedule D (100S)); and
the amount of interest to be credited or Attach one copy of each Schedule K-1 (100S) • Excess net passive income tax
refunded to the S corporation on Schedule J, to the Form 100S filed with the FTB. Keep (Form 100S, Side 1, line 30).
line 2. Attach form FTB 3834 to Form 100S. If one copy of each Schedule K-1 (100S) for the This column must not be used to adjust for
interest is to be credited or refunded, enter as S corporation’s records, and give each share- apportionment or allocation of income.
a negative amount. holder a copy of Schedule K-1 (100S) on or
before the due date of Form 100S. Column (d) of Schedule K-1 (100S) reflects
Interest on tax attributable to payments
the shareholder’s share of S corporation items
received on installment sales of certain Note: Be sure to give each shareholder a under California law. Column (e) of Schedule
timeshares and residential lots. If the S cor- copy of either the Shareholder’s Instructions K-1 (100S) reflects income that is taxable to
poration elected to pay interest on the amount for Schedule K-1 (100S) (included in this California based on the sourcing and appor-
of tax attributable to payments received on booklet) or specific instructions for each item tioning rules of California. The computation of
installment obligations arising from the dispo- reported on the shareholder’s Schedule K-1 these amounts is a matter of law and regula-
sition of certain timeshares and residential lots (100S). tion, and the residency of the shareholders is
under IRC Section 453(l)(3) (R&TC Section
Substitute forms not a factor in the computations of column (d)
24667), it must include the interest due on
You need approval from the FTB to use a and column (e). For an S corporation that is
Schedule J, line 3a. For the applicable inter-
substitute Schedule K-1 (100S). The substi- doing business only in California, column (e)
est rates, get FTB Pub. 1138, Refund/Billing
tute schedule must include the Shareholder’s will generally be the same as column (d),
Information. Attach a schedule showing the
Instructions for Schedule K-1 (100S) or other except for nonbusiness intangible income (for
computation.
prepared specific instructions. For more infor- example, nonbusiness interest, dividends, and
Interest on tax deferred under the install- mation, get FTB Pub. 1098, Guidelines for the gain or loss from sales of securities). For an
ment method for certain nondealer install- Development and Use of Substitute, Scan- S corporation that is doing business within
ment obligations. If an obligation arising from nable and Reproduced Tax Forms. and outside California, the amounts in column
the disposition of property to which IRC (d) and column (e) will be different, even for
Section 453A (R&TC Section 24667) applies General Instructions California residents. When the S corporation
is outstanding at the close of the income year, is uncertain of the residency status of any
the corporation must include the interest due What’s New shareholder, the S corporation must complete
under IRC Section 453A(c) on Schedule J, For income years beginning on or after column (d) and column (e) for the shareholder
line 3b. Attach a schedule showing the com- January 1, 1998, tax-exempt organizations as and Table 1 and if appropriate, Table 2. The

Form 100S Booklet 1998 Page 15


final determination of residency is made at the from more than one activity are reported on Line 4a, Line 4b and Line 4c – Interest,
shareholder level. If the S corporation is cer- Schedule K-1 (100S), the S corporation must dividend and royalty income
tain that a shareholder is a resident of Califor- attach a statement to Schedule K-1 (100S) for Enter only taxable interest, dividend and roy-
nia and the S corporation is nonapportioning, each activity that is a passive activity to the alty income that is portfolio income.
the S corporation should answer ‘‘No’’ to shareholder. Rental activities are passive
Question E on Schedule K-1 and complete activities to all shareholders. Trade or busi- Line 4d and Line 4e – Net capital
column (d) only. Apportioning S corporations ness activities are passive activities to share- gain (loss)
must always complete column (d), column (e), holders who do not materially participate in Enter on line 4d and line 4e the amount of
and Table 1 (if the S corporation has nonbusi- the activity. capital gains and losses that is portfolio
ness intangible income) and if appropriate, income (loss). If any of the income (loss) is
The attachment must include all the informa- not portfolio income (loss), include it on line 6.
Table 2. tion explained in the instructions for federal
Column (e) of Schedule K-1 (100S) is used to Schedule K-1 (Form 1120S). Line 4f – Other portfolio income (loss)
report California source income amounts and Enter any other portfolio income (loss) not
credits. Include the following items in Specific Line Instructions entered on line 4a through line 4e.
column (e): Line 5 – Net gain (loss) under IRC
• Gross income less allowable deductions Item A through Item E (Schedule K-1 Section 1231
from separate businesses, trades or pro- (100S) only) The amount for line 5 comes from Schedule
fessions conducted wholly within California To insure correct processing of Schedule K-1 D-1, Sales of Business Property. Do not
(see Title 18 Cal. Code Reg. Section (100S), answer all items that are appropriate. include specially allocated ordinary gains and
17951-4 (a)); Item A and Item B (Schedule K-1 (100S) losses or net gains or losses from involuntary
• Business income from unitary businesses, only) conversions due to casualties or thefts on this
trades or professions of the S corporation See the instructions for Item A and Item C of line. Instead, report these gains or losses on
apportioned to California determined by federal Schedule K-1 (Form 1120S). line 6.
application of R&TC Sections 25128
through 25137, inclusive (see Title 18 Cal. Income If the S corporation has more than one activity
Code Reg. Section 17951-4 (c)). Gener- and the amount on line 5 is a passive activity
Line 1 – Ordinary income (loss) from trade amount to the shareholder, attach a statement
ally, income will be apportioned using or business activities
either a 3 or 4 factor formula. If more than to Schedule K-1 (100S) (or use Schedule K-1
Enter in column (c) any California adjustments (100S), line 23) to identify to which activity the
50% of the business receipts of the appor-
to ordinary income that do not need to be IRC Section 1231 gain (loss) relates.
tioning activity are from agricultural, extrac-
separately stated. Include in this column the Line 6 – Other income (loss)
tive, savings and loan, or bank or financial
adjustment to add back the minimum fran-
activities, the 3 factor formula is used; oth- Enter any other item of income or loss not
chise tax or the 1.5% tax deducted for federal
erwise, the 4 factor formula is used. In included on line 1 through line 5, such as:
purposes.
most cases, the determination of whether
or not the 3 or 4 factor apportionment Line 2 – Net income (loss) from rental real a. Wagering gains and losses. See IRC
applies is made by reference to the gross estate activities Section 165(d).
business receipts of the S corporation b. Recovery of tax benefit items. See IRC
Enter the net of income and expenses of any Section 111.
itself. Apply the apportionment factors from rental real estate activity of the S corporation.
Schedule R, Apportionment and Allocation c. Any gain or loss where the S corporation
If the S corporation has more than one rental was a trader or dealer in IRC Section 1256
of Income, to the business income portion real estate activity reported on these lines,
of each line item. However, if the share- contracts or property related to such con-
attach a separate schedule or use Schedule tracts. See IRC Section 1256(f).
holder conducts a trade or business that is K-1 (100S), line 23 to list the income or loss
unitary with the S corporation, the determi- d. Net gain (loss) from involuntary conver-
from each activity, plus any other information sions due to casualty or theft.
nation of whether the 3 or 4 factor appor- required under the rules for passive activities.
tionment applies must be determined at e. Loss(es) from qualified low-income hous-
Attach form FTB 3801, Passive Activity Loss ing projects for shareholders that are quali-
the shareholder level. In such cases, the Limitations, to Form 100S.
apportionment items on Schedule K-1 fied investors.
(100S), Table 2 will be used by the share- Line 3a, Line 3b and Line 3c – Net income f. Eligible gain from the sale or exchange of
holder in making that determination. (loss) from other rental activities (Schedule qualified small business stock (defined in
Amounts in column (e) will only be used if K (100S) only) R&TC Section 18152.5). Also report on an
the shareholder is not unitary with the Enter the net of income and expenses of attachment to Schedule K (100S) and
S corporation (For more information, see other rental activities not listed on line 2 Schedule K-1 (100S) the name of the cor-
Total amounts using California law on above. If the S corporation has more than one poration that issued the stock and the
page 42). Note: A 4 factor formula is rental activity reported on these lines, attach a adjusted basis of that stock.
defined as property, payroll and a double- separate schedule listing the income or loss Note: The exclusion allowed under R&TC
weighted sales factor; from each activity, plus any other information Section 18152.5 for small business stock is
• Nonbusiness income allocated to California required under the rules for passive activities. not allowed for an S corporation but is
under the provisions of R&TC Sections Line 4a through Line 4f – Portfolio income allowed for the shareholder.
25124 through 25127 (see Title 18 Cal. (loss)
Code Reg. Sections 17951-3, 17951-4 (c) Portfolio income (loss) is any gross income
Deductions
and 17952). Do not enter nonbusiness from interest, dividends, annuities or royalties Line 7 – Charitable contributions
items whose source is based on the resi- that is not derived in the ordinary course of Enter the total amount of charitable contribu-
dency or commercial domicile of the share- business. Portfolio income must be separately tions made by the S corporation during its
holder. Enter these amounts on the accounted for as such. Portfolio income also income year on Schedule K (100S) and each
applicable lines on Schedule K-1 (100S), includes gains or losses from the sale or other shareholder’s distributive share on
Table 1 (attach a schedule if necessary); disposition of property (other than an interest Schedule K-1 (100S). On an attachment to
and in a passive activity) producing portfolio each schedule, separately show the dollar
• California tax credits. income or held for investment. amount of contributions subject to each of the
Special reporting requirements for passive 50%, 30% and 20% of adjusted gross income
activities limits.
If items of income (loss), deduction or credit

Page 16 Form 100S Booklet 1998


A resident shareholder is allowed a deduction If there are items of investment income or • Local Agency Military Base Recovery Area
for contributions to a qualified organization as expense included in the amounts that are (LAMBRA) hiring & sales or use tax credit
provided in IRC Section 170. required to be passed through separately to (get form FTB 3807);
Line 8 – Expense deduction for recovery the shareholder on Schedule K-1 (100S), • Employer child care program/contribution
property such as net short-term capital gain or loss, credit (get form FTB 3501);
net long-term gain or loss and other portfolio • Research credit (get form FTB 3523);
The amount of expense deduction for recov- gains or losses, give each shareholder a • Manufacturers’ investment credit (get form
ery property that can be claimed from all schedule identifying these amounts. See the FTB 3535);
sources will vary depending on the type of Form 1120S instructions for more information • Targeted tax area (TTA) hiring and sales
property and the year of designation. For on portfolio income. or use tax credit (get form FTB 3809); or
more information, see IRC Section 179 and
Investment income includes gross income • Manufacturing enhancement area (MEA)
R&TC Sections 17201, 17266, 17267.2, hiring credit.
17267.6 and 17268. from property held for investment, gain attrib-
utable to the disposition of property held for Adjustments and Tax Preference
Line 9 – Deductions related to portfolio investment and other amounts that are gross
income (loss) portfolio income. Investment income and Items
Enter on this line the deductions allocable to investment expenses do not include any Line 14a through Line 14e
portfolio income (loss) other than interest income or expenses from a passive activity.
expenses. Generally, these deductions are Enter the items of income and deductions that
Property subject to a net lease is not treated enter into each shareholder’s computation of
IRC Section 212 expenses and are subject to as investment property because it is subject
IRC Section 212 limitations at the shareholder adjustments and tax preference items. A
to the passive loss rules. Do not reduce shareholder with alternative minimum tax
level. However, interest expense related to investment income by losses from passive
portfolio income (loss) is generally investment items may be required to file Schedule P
activities. (540, 540NR or 541), Alternative Minimum
interest expense and is reported on line 11a.
Investment expenses are deductible expenses Tax and Credit Limitations.
Investment Interest (other than interest) directly connected with Get the instructions for federal Schedules K
Line 11a through Line 11b(2) the production of investment income. and K-1 (Form 1120S), Adjustments and Tax
Get form FTB 3526 for more information. Preference Items, line 14a through line 14e
These lines must be completed whether or
for more information,
not a shareholder is subject to the investment Tax Credits
interest rules.
Line 12a – Low-income housing credit
Other State Taxes
Line 11a – Interest expense on investment Line 15a through Line 15e
debts R&TC Section 23610.5 provides a credit that
may be claimed by owners of residential Subject to certain conditions, shareholders
Include on this line interest paid or accrued to rental projects providing low-income housing. may claim a credit against their individual tax
purchase or carry property held for invest- The credit is generally effective for buildings for net income taxes paid by the S corporation
ment. Property held for investment includes placed in service after 1986. If the sharehold- to another state that either taxes the corpora-
property that produces portfolio income (in- ers are eligible to claim the low-income hous- tion as an S corporation or does not recog-
terest, dividends, annuities, royalties, etc.). ing credit, attach a copy of form FTB 3521, nize S corporation status. For purposes of this
Therefore, interest expense allocable to port- Low-Income Housing Credit, to Form 100S credit, net income taxes include the share-
folio income should be reported on Sched- and to each shareholder’s Schedule K-1 holder’s share of taxes on, according to, or
ules K and K-1 (100S), line 11a rather than (100S). measured by income. Enter the name of the
Schedules K and K-1 (100S), line 9. Invest- other state(s), the income reported to the
ment interest does not include interest Line 12b – Credits related to rental real other state(s) and the amount of tax paid.
expense allocable to a passive activity. A pas- estate activities Attach a copy of the return filed with the other
sive activity is a rental activity or a trade or Report any information that the shareholder state.
business activity in which the shareholder needs to figure credits related to a rental real
estate activity other than the low-income Residents are taxable on all their pro rata
does not materially participate.
housing credit. Attach to each shareholder’s share of income and generally receive a credit
Property held for investment includes a share- for taxes paid to other states. Nonresidents
holder’s interest in a trade or business activity Schedule K-1 (100S) a schedule showing the
amount to be reported and the form on which must use the amounts shown in column (e).
that is not a passive activity to the share- See R&TC Sections 18001, 18002 and 18006
holder and in which the shareholder does not the amount should be reported.
for more information.
materially participate. An example would be a Line 12c – Credits related to other rental
shareholder’s working interest in oil and gas activities Other Items
property (i.e., the shareholder’s interest is not Use this line to report information that the Line 16a through Line 19
limited) if the shareholder does not materially shareholder needs to figure credits related to
participate in the oil and gas activity. Refer to the instructions for federal Schedules
a rental activity other than a rental real estate K and K-1 (Form 1120S).
The amount on line 11a will be reflected (after activity. Attach to each shareholder’s Sched-
applying the investment interest expense limi- ule K-1 (100S) a schedule showing the Line 20 (Schedule K only)
tations) by individual shareholders on their amount to be reported and the form on which Enter total distributions made to shareholders
Schedule CA (540 or 540NR), California the amount should be reported. other than dividends reported on line 22 of
Adjustments. Line 13 – Other credits Schedule K. Noncash distributions of appreci-
ated property are valued at fair market value.
For more information, get form FTB 3526, Enter on an attached schedule each share- Refer to the instructions for federal
Investment Interest Expense Deduction. holder’s allocable share of any credit or credit Form 1120S for the ordering rules on distribu-
Line 11b(1) and Line 11b(2) – Investment information reported on Schedule C (100S) tions.
income and expenses that is related to a trade or business activity.
Line 21 (Schedule K only)
Enter on line 11b(1) only the investment The following are examples of credits that
may apply to each shareholder: The S corporation may need to report supple-
income included on Schedules K and K-1 mental information separately to each share-
(100S), line 4a, line 4b, line 4c and line 4f. • Enterprise zone hiring & sales or use tax holder that is not specifically requested on the
Enter on line 11b(2) only the investment credit (get form FTB 3805Z); Schedule K-1 (100S).
expense included on Schedules K and K-1
(100S), line 9. Attach a schedule to the Schedule K showing
the computation of those items that must be

Form 100S Booklet 1998 Page 17


reported separately to shareholders including Schedule K-1 (100S), line 23. See the instruc- other adjustments account, and other retained
any credit recapture reported by shareholders tions above for line 21, Schedule K (100S). earnings.
on line 23 of Schedule K-1. Refer to the Report the credit recapture amount on line 23
instructions for line 21 of the federal Sched- if the S corporation completed the credit
Schedule M-1
ule K (1120S). recapture portion of: Schedule M-1 is used to reconcile the differ-
ence between book and tax accounting for an
Shareholders may need to obtain the amount • FTB 3501, Employer Child Care Program/ income or expense item. The S corporation
of their proportionate interest of aggregate Contribution Credit; or
must complete Schedule M-1 if total assets of
gross receipts, less returns and allowances, • FTB 3805Z, Part VI, Hiring Credit Enter- the entity are at least $25,000. The federal
from the S corporation. As a result of legisla- prise Zone or
and state Schedule M-1 may be the same
tion enacted in 1996, alternative minimum tax- • FTB 3806, Los Angeles Revitalization when you use the federal reconciliation
able income shall not include income, Zone (LARZ) Hiring Credit & Sales or Use
adjustments and items of tax preference method for net income computation. See Gen-
Tax Credit; or
eral Information I, for more information. The
related to any trade or business of a qualified • FTB 3807, Local Agency Military Base Schedule M-1 will be different if using the
taxpayer who has gross receipts, less returns Recovery Area (LAMBRA) Hiring
and allowances, during the taxable year of California computation method for net income.
Credit/Sales or Use Tax Credit;
The California computation method is gener-
less than $1,000,000 from all trades or busi- • FTB 3535, Manufacturers’ Investment ally used when the S corporation has no fed-
nesses. The S corporation can provide the Credit; or
eral filing requirement, or if the S corporation
shareholder’s proportionate interest of aggre- • FTB 3809, Targeted Tax Area (TTA) Hiring maintains separate records for state purposes.
gate gross receipts on Schedule K-1 (100S), Credit & Sales or Use Tax Credit.
line 23. For purposes of R&TC Section
17062(b)(4), ‘‘gross receipts’’ means the sum Also show on line 23 a statement showing Schedule M-2
of gross receipts from the production of busi- each of the following: The computation of the California AAA and
ness income (within the meaning of subdivi- 1. Each shareholder’s share of business other adjustments account (OAA) is similar to
sions (a) and (c) of R&TC Section 25120) and income apportioned to an enterprise zone, the federal computation applying California
the gross receipts from the production of non- LARZ, LAMBRA, MEA or TTA; and amounts. Get the instructions for federal
business income (within the meaning of subdi- 2. Each shareholder’s pro rata share of busi- Form 1120S and IRC Section 1368 for addi-
vision (d) of R&TC Section 25120). ness capital gain or loss included in 1 tional information.
‘‘Proportionate interest’’ includes an interest in above. Column (a) – The AAA is an account of the
a pass-through entity. See R&TC Table 1 and Table 2 S corporation that generally reflects the accu-
Section 17062 for more information. See mulated undistributed net income of the cor-
Table 1 – Enter the shareholder’s pro rata
Schedule K-1 (100S) instructions for more poration for the corporation’s post-1986 years.
share of nonbusiness income from intangibles.
information. S corporations with accumulated E&P from
Because the source of this income must be
Line 22 (Schedule K only) determined at the shareholder level, do not C corporation years must maintain the AAA to
Report the distribution amount made out of enter income in this category in column (e). If determine the tax effect of distributions during
prior C corporation years accumulated earn- the income (loss) for an income item is a mix- S years and the post-termination transition
ings and profits (E&P). The corporation should ture of income (loss) in different subclasses period. An S corporation without accumulated
issue a federal Form 1099-DIV to each of the (for example, short and long term capital E&P does not need to maintain the AAA in
shareholders reporting their proportionate dis- gain), attach a supplemental schedule provid- order to determine the tax effect of distribu-
tribution amounts. ing a breakdown of income in each subclass. tions. However, if an S corporation without
accumulated E&P engages in certain transac-
Line 20 (Schedule K-1 only) Nonbusiness income is all income other than tions to which IRC Section 381(a) applies,
Report the distribution amount for each share- business income. See definition of business such as a merger into an S corporation with
holder that was paid out of prior C corporation income below. accumulated E&P, the S corporation must be
years accumulated earnings and profits Table 2 – In Part A, enter the shareholder’s able to calculate its AAA at the time of the
(E&P). Each shareholder should receive a pro rata share of the S corporation’s business merger for purposes of determining the tax
federal Form 1099-DIV reporting the propor- income. The shareholder will then add that effect of post-merger distributions. Therefore,
tionate distribution amount shown on line 20 income to its own business income and it is recommended that all S corporations
of Schedule K-1 (100S). apportion the combined business income. maintain the AAA.
Line 21 (Schedule K-1 only) Business income is defined by Title 18 Cal. At the end of the income year the AAA is
Report the distribution amount for each share- Code Regs. Section 25120(a) as income aris- determined by taking into account all items of
holder for distributions other than dividends ing in the regular course of the taxpayer’s income, loss and deductions for the income
reported on line 20 of Schedule K-1 (100S). trade or business. Business income includes year (including nondeductible losses and
Noncash distributions of appreciated property income from tangible and intangible property if expenses that are not capitalized but exclud-
are valued at fair market value. Refer to the the acquisition, management and disposition ing certain exempt income and state taxes
instructions for federal Form 1120S for the of the property constitutes integral parts of the attributable to C years). After the year-end
ordering rules on distributions. taxpayer’s regular trade or business. income and expense adjustments are made,
In Part B, enter the shareholder’s pro rata the account is reduced by distributions made
Line 22 (Schedule K-1 only) during the income year. The AAA should be
share of nonbusiness income from real and
Report the amount of loan repayments the tangible property that is located in California. reduced by the California built-in gains tax
S corporation has made to each shareholder Because this income has a California source, amount and the minimum franchise tax.
who has loaned the S corporation money. this income should also be included on the Note: The amount on Form 100S, Side 1,
Supplemental Information appropriate line in column (e). line 2, should be included as an other addition
In Part C, enter the shareholder’s pro rata on Schedule M-2, line 3, and as an other
Line 23 (Schedule K-1 only) reduction on Schedule M-2, line 5. Also
share of the S corporation’s payroll, property
The S corporation will provide supplemental and sales factors. include any other adjustments to arrive at
information required to be reported to each California income.
shareholder on this line. Schedule L Note: The AAA may have a negative balance
The S corporation should provide an amount Line 23 at year end as a result of losses from the
showing each shareholder’s proportionate Retained earnings include balances in the S corporation.
interest in the S corporation’s aggregate gross accumulated adjustments account (AAA), the Column (b) – The other adjustments account
receipts, less returns and allowances, on
is adjusted for tax-exempt income (and related

Page 18 Form 100S Booklet 1998


expenses) of the S corporation. After adjust- a. Reductions for dividend distributions; holders, and immediately contributed back
ing for tax-exempt income, the account is and to the corporation all on the last day of the
reduced for any distributions made during the b. Adjustments for redemptions, liquida- tax year. This election is irrevocable and
year. tions, reorganizations, etc. applies only for the tax year for which it is
Note: Cancellation of debt income excluded 3. Reduce the other adjustment account. made.
from gross income is not considered tax 4. Reduce any remaining shareholders’ Statement Regarding Elections
exempt income for purposes of determining equity account. To make any of the above elections, the cor-
AAA or OAA. Note: Shareholders’ previously taxed income poration must attach a statement to a timely
Column (c) – Other retained earnings include (PTI) (Column (c), federal Form 1120S, filed original Form 100S or amended
appropriated and unappropriated retained Schedule M-2, 1120S) — California S corpo- Form 100S for the year in which the election
earnings accumulated in prior years when the rations will never have undistributed PTI. The is made. The corporation must identify the
S corporation was a C corporation. Line 1, federal code section that created PTI was election it is making and state that each
column (c) for the first S corporation return will removed from the IRC before California incor- shareholder consents to the election. A
be the sum of the ending balances of appro- porated the federal S corporation provisions corporate officer must sign the statement
priated and unappropriated retained earnings into the R&TC. under penalties of perjury on behalf of the
for the previous year. corporation. The statement of election to
Elections relating to the order of make a deemed dividend must include the
Distributions distributions
Generally, property distributions (including amount of the deemed dividend distributed to
The corporation may modify the ordering rules each shareholder.
cash) are applied in the following order to by making one or more of the following
reduce accounts of the S corporation that are elections: When making either of the above elections,
used to compute the tax effect of distributions the corporation must prepare copies of federal
made by the S corporation to its shareholders: • Election to distribute accumulated E&P Form 1099-DIV for shareholders to report this
first. If the corporation has accumulated dividend as taxable income.
1. Reduce the AAA determined without E&P and wants to distribute E&P before
regard to any net negative adjustment for making distributions from the AAA, it may Note: The corporation may file the election for
the income year (but not below zero). If elect to do so with the consent of all its California purposes only. It is not necessary
distributions during the income year affected shareholders (IRC for the corporation to have the same election
exceed the AAA at the close of the income Section 1368(e)(3)(B)). This election is for federal purposes in order to make a
year determined without regard to any net irrevocable and applies only for the tax California election. However, regardless of
negative adjustment for the income year, year for which it is made. For more infor- whether or not the corporation makes the
the AAA is allocated pro rata to each dis- mation regarding this election, see State- same election on the federal return, the cor-
tribution made during the income year. ment Regarding Elections. poration must attach a separate election
See IRC Section 1368(c). The term ‘‘net • Election to make a deemed dividend. If the statement to the California return.
negative adjustment’’ means the excess, if corporation wants to distribute all or part of C corporation E&P
any, of the reductions in the AAA for the its C corporation accumulated E&P Check the box below Schedule M-2, line 9, if
income year (other than distributions) over through a deemed dividend, it may elect to the S corporation was a C corporation in a
the increases in the AAA for the income do so with the consent of all its affected prior year(s) and has C corporation E&P at
year. shareholders (IRC Section 1368(e)(3)(B)). the end of the income year. For this purpose,
2. Reduce accumulated E&P. Generally, the Under this section, the corporation will be C corporation E&P means the remaining bal-
S corporation has accumulated E&P only if treated as also having made the election ance of E&P of any S corporation for any
it has not distributed E&P accumulated in to distribute E&P first. The amount of the income year when it was not an S corpora-
prior years when the S corporation was a deemed dividend cannot exceed the accu- tion. If the S corporation has C corporation
C corporation (IRC Section 1361(a)(2)), or mulated E&P at the end of the income E&P, it may be liable for excess net passive
when the S corporation merged with year reduced by any actual distributions of income tax and the distributions to sharehold-
another corporation that has C corporation accumulated E&P made during the income ers may have different tax consequences for
accumulated E&P. The only adjustments year. A deemed dividend is treated as if it federal and California purposes. See instruc-
that can be made to the accumulated E&P were a pro rata distribution of money to tions for Form 100S, Side 1, line 29 and
of an S corporation are: the shareholders, received by the share- line 30, for details on these taxes.

Form 100S Booklet 1998 Page 19


Form 100S Code Code
315230 Women’s & Girls’ Cut & Sew 332900 Other Fabricated Metal
Codes for Principal Business Activity Apparel Mfg Product Mfg
This list of principal business activities and their associated codes is 315290 Other Cut & Sew Apparel Mfg Machinery Manufacturing
designed to classify an enterprise by the type of activity in which it is 315990 Apparel Accessories & Other 333100 Agriculture, Construction, &
Apparel Mfg Mining Machinery Mfg
engaged to facilitate the administration of the California Revenue and
Taxation Code. For income years beginning after 1997, these principal Leather and Allied Product 333200 Industrial Machinery Mfg
Manufacturing 333310 Commercial & Service
business activity codes are based on the North American Industry
Classification System. 316110 Leather & Hide Tanning & Industry Machinery Mfg
Finishing 333410 Ventilation, Heating,
Using the list of activities and codes below, determine from which activity 316210 Footwear Mfg (including Air-Conditioning, &
the company derives the largest percentage of its ‘‘total receipts.’’ Total rubber & plastics) Commercial Refrigeration
receipts is defined as the sum of gross receipts or sales (Side 2, 316990 Other Leather & Allied Equipment Mfg
Schedule F, line 1a) plus all other income (Side 2, Schedule F, lines 4 and Product Mfg 333510 Metalworking Machinery Mfg
5). If the company purchases raw materials and supplies them to a Wood Product Manufacturing 333610 Engine, Turbine & Power
subcontractor to produce the finished product, but retains title to the product, 321110 Sawmills & Wood Transmission Equipment Mfg
the company is considered a manufacturer and must use one of the Preservation 333900 Other General Purpose
manufacturing codes (311110-339900). 321210 Veneer, Plywood, & Machinery Mfg
Engineered Wood Product Computer and Electronic Product
Once the principal business activity is determined, entries must be made Mfg Manufacturing
on Form 100S, Question C. For the business activity code number, enter the 321900 Other Wood Product Mfg 334110 Computer & Peripheral
six digit code selected from the list below. On the next line enter a brief Paper Manufacturing Equipment Mfg
description of the company’s business activity. Finally, enter a description of 322100 Pulp, Paper, & Paperboard 334200 Communications Equipment
the principal product or service of the company on the next line. Mills Mfg
322200 Converted Paper Product Mfg 334310 Audio & Video Equipment Mfg
Agriculture, Forestry, Fishing Construction Printing and Related Support 334410 Semiconductor & Other
Electronic Component Mfg
and Hunting Code Activities
334500 Navigational, Measuring,
Code 323100 Printing & Related Support
Building, Developing, and General Activities Electromedical, & Control
Crop Production Contracting Instruments Mfg
233110 Land Subdivision & Land Petroleum and Coal Products 334610 Manufacturing & Reproducing
111100 Oilseed & Grain Farming Manufacturing
111210 Vegetable & Melon Farming Development Magnetic & Optical Media
233200 Residential Building 324110 Petroleum Refineries
(including potatoes & yams) (including integrated) Electrical Equipment, Appliance, and
111300 Fruit & Tree Nut Farming Construction Component Manufacturing
233300 Nonresidential Building 324120 Asphalt Paving, Roofing, &
111400 Greenhouse, Nursery, & Saturated Materials Mfg 335100 Electric Lighting Equipment
Floriculture Production Construction Mfg
324190 Other Petroleum & Coal
111900 Other Crop Farming (including Heavy Construction Products Mfg 335200 Household Appliance Mfg
tobacco, cotton, sugarcane, 234100 Highway, Street, Bridge, & 335310 Electrical Equipment Mfg
Tunnel Construction Chemical Manufacturing
hay, peanut, sugar beet & all 335900 Other Electrical Equipment &
other crop farming) 234900 Other Heavy Construction 325100 Basic Chemical Mfg
Component Mfg
325200 Resin, Synthetic Rubber, &
Animal Production Special Trade Contractors Artificial & Synthetic Fibers & Transportation Equipment
112111 Beef Cattle Ranching & 235110 Plumbing, Heating, & Filaments Mfg Manufacturing
Farming Air-Conditioning Contractors 325300 Pesticide, Fertilizer, & Other 336100 Motor Vehicle Mfg
112112 Cattle Feedlots 235210 Painting & Wall Covering Agricultural Chemical Mfg 336210 Motor Vehicle Body & Trailer
112120 Dairy Cattle & Milk Production Contractors 325410 Pharmaceutical & Medicine Mfg
112210 Hog & Pig Farming 235310 Electrical Contractors Mfg 336300 Motor Vehicle Parts Mfg
112300 Poultry & Egg Production 235400 Masonry, Drywall, Insulation, 325500 Paint, Coating, & Adhesive 336410 Aerospace Product & Parts
112400 Sheep & Goat Farming & Tile Contractors Mfg Mfg
112510 Animal Aquaculture (including 235500 Carpentry & Floor Contractors 325600 Soap, Cleaning Compound, & 336510 Railroad Rolling Stock Mfg
shellfish & finfish farms & 235610 Roofing, Siding, & Sheet Toilet Preparation Mfg 336610 Ship & Boat Building
hatcheries) Metal Contractors 325900 Other Chemical Product & 336990 Other Transportation
112900 Other Animal Production 235710 Concrete Contractors Preparation Mfg Equipment Mfg
Forestry and Logging 235810 Water Well Drilling Plastics and Rubber Products Furniture and Related Product
113110 Timber Tract Operations Contractors Manufacturing Manufacturing
113210 Forest Nurseries & Gathering 235900 Other Special Trade 326100 Plastics Product Mfg 337000 Furniture & Related Product
of Forest Products Contractors 326200 Rubber Product Mfg Manufacturing
113310 Logging Manufacturing Nonmetallic Mineral Product Miscellaneous Manufacturing
Fishing, Hunting and Trapping Manufacturing 339110 Medical Equipment &
Food Manufacturing 327100 Clay Product & Refractory Mfg Supplies Mfg
114110 Fishing 311110 Animal Food Mfg
114210 Hunting & Trapping 339900 Other Miscellaneous
311200 Grain & Oilseed Milling 327210 Glass & Glass Product Mfg Manufacturing
Support Activities for Agriculture 311300 Sugar & Confectionery
and Forestry 327300 Cement & Concrete Product
Product Mfg Mfg Wholesale Trade
115110 Support Activities for Crop 311400 Fruit & Vegetable Preserving
Production (including cotton 327400 Lime & Gypsum Product Mfg Wholesale Trade, Durable Goods
& Specialty Food Mfg 327900 Other Nonmetallic Mineral 421100 Motor Vehicle & Motor Vehicle
ginning, soil preparation, 311500 Dairy Product Mfg
planting, & cultivating) Product Mfg Parts & Supplies Wholesalers
311610 Animal Slaughtering and 421200 Furniture & Home Furnishing
115210 Support Activities for Animal Processing Primary Metal Manufacturing
Production 331110 Iron & Steel Mills & Ferroalloy Wholesalers
311710 Seafood Product Preparation 421300 Lumber & Other Construction
115310 Support Activities For Forestry & Packaging Mfg
331200 Steel Product Mfg from Materials Wholesalers
311800 Bakeries & Tortilla Mfg 421400 Professional & Commercial
Purchased Steel
Mining 311900 Other Food Mfg (including Equipment & Supplies
coffee, tea, flavorings & 331310 Alumina & Aluminum
211110 Oil & Gas Extraction Production & Processing Wholesalers
seasonings) 421500 Metal & Mineral (except
212110 Coal Mining 331400 Nonferrous Metal (except
Beverage and Tobacco Product Aluminum) Production & Petroleum) Wholesalers
212200 Metal Ore Mining Manufacturing Processing 421600 Electrical Goods Wholesalers
212310 Stone Mining & Quarrying 312110 Soft Drink & Ice Mfg 331500 Foundries 421700 Hardware, & Plumbing &
212320 Sand, Gravel, Clay, & 312120 Breweries Heating Equipment &
Ceramic & Refractory Fabricated Metal Product
312130 Wineries Manufacturing Supplies Wholesalers
Minerals Mining & Quarrying
312140 Distilleries 332110 Forging & Stamping 421800 Machinery, Equipment, &
212390 Other Nonmetallic Mineral Supplies Wholesalers
Mining & Quarrying 312200 Tobacco Manufacturing 332210 Cutlery & Handtool Mfg
421910 Sporting & Recreational
213110 Support Activities for Mining Textile Mills and Textile Product 332300 Architectural & Structural Goods & Supplies
Mills Metals Mfg Wholesalers
Utilities 313000 Textile Mills 332400 Boiler, Tank, & Shipping 421920 Toy & Hobby Goods &
221100 Electric Power Generation, 314000 Textile Product Mills Container Mfg Supplies Wholesalers
Transmission & Distribution Apparel Manufacturing 332510 Hardware Mfg 421930 Recyclable Material
221210 Natural Gas Distribution 315100 Apparel Knitting Mills 332610 Spring & Wire Product Mfg Wholesalers
221300 Water, Sewage & Other 315210 Cut & Sew Apparel 332700 Machine Shops; Turned 421940 Jewelry, Watch, Precious
Systems Contractors Product; & Screw, Nut, & Bolt Stone, & Precious Metal
315220 Men’s & Boys’ Cut & Sew Mfg Wholesalers
Apparel Mfg 332810 Coating, Engraving, Heat 421990 Other Miscellaneous Durable
Treating, & Allied Activities Goods Wholesalers

Form 100S Booklet 1998 Page 21


Code Code Code Code
Wholesale Trade, Nondurable Goods Clothing and Clothing Accessories Support Activities for Transportation 523210 Securities & Commodity
422100 Paper & Paper Product Stores 488100 Support Activities for Air Exchanges
Wholesalers 448110 Men’s Clothing Stores Transportation 523900 Other Financial Investment
422210 Drugs & Druggists’ Sundries 448120 Women’s Clothing Stores 488210 Support Activities for Rail Activities (including portfolio
Wholesalers 448130 Children’s & Infants’ Clothing Transportation management & investment
422300 Apparel, Piece Goods, & Stores 488300 Support Activities for Water advice)
Notions Wholesalers 448140 Family Clothing Stores Transportation Insurance Carriers and Related
422400 Grocery & Related Product 448150 Clothing Accessories Stores 488410 Motor Vehicle Towing Activities
Wholesalers 448190 Other Clothing Stores 488490 Other Support Activities for 524140 Direct Life, Health, & Medical
422500 Farm Product Raw Material 448210 Shoe Stores Road Transportation Insurance & Reinsurance
Wholesalers 488510 Freight Transportation Carriers
448310 Jewelry Stores
422600 Chemical & Allied Products Arrangement 524150 Direct Insurance &
448320 Luggage & Leather Goods Reinsurance (except Life,
Wholesalers Stores 488990 Other Support Activities for
422700 Petroleum & Petroleum Transportation Health & Medical) Carriers
Products Wholesalers Sporting Goods, Hobby, Book, and 524210 Insurance Agencies &
Music Stores Couriers and Messengers
422800 Beer, Wine, & Distilled Brokerages
451110 Sporting Goods Stores 492110 Couriers
Alcoholic Beverage 524290 Other Insurance Related
451120 Hobby, Toy, & Game Stores 492210 Local Messengers & Local Activities
Wholesalers Delivery
422910 Farm Supplies Wholesalers 451130 Sewing, Needlework, & Piece Funds, Trusts, and Other Financial
422920 Book, Periodical, & Goods Stores Warehousing and Storage Vehicles
Newspaper Wholesalers 451140 Musical Instrument & Supplies 493100 Warehousing & Storage 525100 Insurance & Employee Benefit
422930 Flower, Nursery Stock, & Stores (except lessors of Funds
Florists’ Supplies Wholesalers 451211 Book Stores miniwarehouses & self-
storage units) 525910 Open-End Investment Funds
422940 Tobacco & Tobacco Product 451212 News Dealers & Newsstands (Form 1120-RIC)
Wholesalers 451220 Prerecorded Tape, Compact Information 525920 Trusts, Estates, & Agency
422950 Paint, Varnish, & Supplies Disc, & Record Stores Accounts
Wholesalers Publishing Industries
General Merchandise Stores 525930 Real Estate Investment Trusts
422990 Other Miscellaneous 511110 Newspaper Publishers (Form 1120-REIT)
452110 Department stores
Nondurable Goods 511120 Periodical Publishers 525990 Other Financial Vehicles
452900 Other General Merchandise
Wholesalers Stores 511130 Book Publishers
Miscellaneous Store Retailers
511140 Database & Directory Real Estate and Rental and
Retail Trade Publishers Leasing
453110 Florists 511190 Other Publishers
Motor Vehicle and Parts Dealers Real Estate
453210 Office Supplies & Stationery 511210 Software Publishers
441110 New Car Dealers Stores 531110 Lessors of Residential
441120 Used Car Dealers 453220 Gift, Novelty, & Souvenir Motion Picture and Sound Recording Buildings & Dwellings
441210 Recreational Vehicle Dealers Stores Industries 531120 Lessors of Nonresidential
441221 Motorcycle Dealers 453310 Used Merchandise Stores 512100 Motion Picture & Video Buildings (except
441222 Boat Dealers Industries (except video Miniwarehouses)
453910 Pet & Pet Supplies Stores rental)
441229 All Other Motor Vehicle 453920 Art Dealers 531130 Lessors of Miniwarehouses &
Dealers 512200 Sound Recording Industries Self-Storage Units
453930 Manufactured (Mobile) Home
441300 Automotive Parts, Dealers Broadcasting and 531190 Lessors of Other Real Estate
Accessories, & Tire Stores Telecommunications Property
453990 All Other Miscellaneous Store
Furniture and Home Furnishings Retailers (including tobacco, 513100 Radio & Television 531210 Offices of Real Estate Agents
Stores candle, & trophy shops) Broadcasting & Brokers
442110 Furniture Stores 513200 Cable Networks & Program 531310 Real Estate Property
Nonstore Retailers Distribution Managers
442210 Floor Covering Stores 454110 Electronic Shopping &
442291 Window Treatment Stores 513300 Telecommunications 531320 Offices of Real Estate
Mail-Order Houses (including paging, cellular, Appraisers
442299 All Other Home Furnishings 454210 Vending Machine Operators satellite, & other
Stores 531390 Other Activities Related to
454311 Heating Oil Dealers telecommunications) Real Estate
Electronics and Appliance Stores 454312 Liquefied Petroleum Gas Information Services and Data Rental and Leasing Services
443111 Household Appliance Stores (Bottled Gas) Dealers Processing Services 532100 Automotive Equipment Rental
443112 Radio, Television, & Other 454319 Other Fuel Dealers 514100 Information Services & Leasing
Electronics Stores 454390 Other Direct Selling (including news syndicates, 532210 Consumer Electronics &
443120 Computer & Software Stores Establishments (including libraries, & on-line information Appliances Rental
443130 Camera & Photographic door-to-door retailing, frozen services)
food plan providers, party 532220 Formal Wear & Costume
Supplies Stores 514210 Data Processing Services Rental
plan merchandisers, &
Building Material and Garden coffee-break service 532230 Video Tape & Disc Rental
Equipment and Supplies Dealers Finance and Insurance 532290 Other Consumer Goods
providers)
444110 Home Centers Depository Credit Intermediation Rental
444120 Paint & Wallpaper Stores Transportation and 522110 Commercial Banking 532310 General Rental Centers
444130 Hardware Stores Warehousing 522120 Savings Institutions 532400 Commercial & Industrial
444190 Other Building Material Air, Rail, and Water Transportation 522130 Credit Unions Machinery & Equipment
Dealers 522190 Other Depository Credit Rental & Leasing
481000 Air Transportation
444200 Lawn & Garden Equipment & Intermediation Lessors of Nonfinancial Intangible
Supplies Stores 482110 Rail Transportation
483000 Water Transportation Nondepository Credit Intermediation Assets (except copyrighted works)
Food and Beverage Stores 522210 Credit Card Issuing 533110 Lessors of Nonfinancial
445110 Supermarkets and Other Truck Transportation Intangible Assets (except
522220 Sales Financing
Grocery (except 484110 General Freight Trucking, copyrighted works)
Local 522291 Consumer Lending
Convenience) Stores 522292 Real Estate Credit (including
445120 Convenience Stores 484120 General Freight Trucking, Professional, Scientific, and
Long-distance mortgage bankers &
445210 Meat Markets
484200 Specialized Freight Trucking
originators) Technical Services
445220 Fish & Seafood Markets 522293 International Trade Financing Legal Services
445230 Fruit & Vegetable Markets Transit and Ground Passenger 522294 Secondary Market Financing
Transportation 541110 Offices of Lawyers
445291 Baked Goods Stores 522298 All Other Nondepository Credit 541190 Other Legal Services
445292 Confectionery & Nut Stores 485110 Urban Transit Systems Intermediation
485210 Interurban & Rural Bus Accounting, Tax Preparation,
445299 All Other Specialty Food Activities Related to Credit Bookkeeping, and Payroll Services
Stores Transportation
Intermediation 541211 Offices of Certified Public
445310 Beer, Wine, & Liquor Stores 485310 Taxi Service
522300 Activities Related to Credit Accountants
485320 Limousine Service Intermediation (including loan
Health and Personal Care Stores 541213 Tax Preparation Services
485410 School & Employee Bus brokers)
446110 Pharmacies & Drug Stores Transportation 541214 Payroll Services
446120 Cosmetics, Beauty Supplies, Securities, Commodity Contracts, 541219 Other Accounting Services
485510 Charter Bus Industry and Other Financial Investments and
& Perfume Stores
485990 Other Transit & Ground Related Activities Architectural, Engineering, and
446130 Optical Goods Stores Passenger Transportation Related Services
446190 Other Health & Personal Care 523110 Investment Banking &
Pipeline Transportation Securities Dealing 541310 Architectural Services
Stores
486000 Pipeline Transportation 523120 Securities Brokerage 541320 Landscape Architecture
Gasoline Stations Services
447100 Gasoline Stations (including Scenic & Sightseeing Transportation 523130 Commodity Contracts Dealing
541330 Engineering Services
convenience stores with gas) 487000 Scenic & Sightseeing 523140 Commodity Contracts
Transportation Brokerage 541340 Drafting Services
541350 Building Inspection Services

Page 22 Form 100S Booklet 1998


Code Code Code Code
541360 Geophysical Surveying & 561500 Travel Arrangement & Other Ambulatory Health Care Food Services and Drinking Places
Mapping Services Reservation Services Services 722110 Full-Service Restaurants
541370 Surveying & Mapping (except 561600 Investigation & Security 621900 Other Ambulatory Health Care 722210 Limited-Service Eating Places
Geophysical) Services Services Services (including 722300 Special Food Services
541380 Testing Laboratories 561710 Exterminating & Pest Control ambulance services & blood (including food service
Specialized Design Services Services & organ banks) contractors & caterers)
541400 Specialized Design Services 561720 Janitorial Services Hospitals 722410 Drinking Places (Alcoholic
(including interior, industrial, 561730 Landscaping Services 622000 Hospitals Beverages)
graphic, & fashion design) 561740 Carpet & Upholstery Cleaning Nursing and Residential Care
Computer Systems Design and Services Facilities Other Services
Related Services 561790 Other Services to Buildings & 623000 Nursing & Residential Care Repair and Maintenance
541511 Custom Computer Dwellings Facilities 811110 Automotive Mechanical &
Programming Services 561900 Other Support Services Social Assistance Electrical Repair &
541512 Computer Systems Design (including packaging & Maintenance
labeling services, & 624100 Individual & Family Services
Services 811120 Automotive Body, Paint,
convention & trade show 624200 Community Food & Housing, Interior, & Glass Repair
541513 Computer Facilities organizers) & Emergency & Other Relief
Management Services Services 811190 Other Automotive Repair &
541519 Other Computer Related Waste Management and Remediation Maintenance (including oil
Services 624310 Vocational Rehabilitation change & lubrication shops &
Services Services
562000 Waste Management & car washes)
Other Professional, Scientific, and Remediation Services 624410 Child Day Care Services 811210 Electronic & Precision
Technical Services Equipment Repair &
541600 Management, Scientific, & Educational Services Arts, Entertainment, and Maintenance
Technical Consulting Services
611000 Educational Services
Recreation 811310 Commercial & Industrial
541700 Scientific Research & Performing Arts, Spectator Sports, Machinery & Equipment
Development Services (including schools, colleges, &
universities) and Related Industries (except Automotive &
541800 Advertising & Related 711100 Performing Arts Companies Electronic) Repair &
Services Health Care and Social 711210 Spectator Sports (including Maintenance
541910 Marketing Research & Public 811410 Home & Garden Equipment &
Opinion Polling Assistance sports clubs & racetracks)
711300 Promoters of Performing Arts, Appliance Repair &
541920 Photographic Services Offices of Physicians and Dentists Maintenance
Sports, & Similar Events
541930 Translation & Interpretation 621111 Offices of Physicians (except 811420 Reupholstery & Furniture
mental health specialists) 711410 Agents & Managers for
Services Artists, Athletes, Entertainers, Repair
541940 Veterinary Services 621112 Offices of Physicians, Mental & Other Public Figures 811430 Footwear & Leather Goods
541990 All Other Professional, Health Specialists Repair
711510 Independent Artists, Writers,
Scientific, & Technical 621210 Offices of Dentists & Performers 811490 Other Personal & Household
Services Offices of Other Health Practitioners Goods Repair & Maintenance
Museums, Historical Sites, and
621310 Offices of Chiropractors Similar Institutions Personal and Laundry Services
Management of Companies 621320 Offices of Optometrists 812111 Barber Shops
712100 Museums, Historical Sites, &
(Holding Companies) 621330 Offices of Mental Health Similar Institutions 812112 Beauty Salons
551111 Offices of Bank Holding Practitioners (except 812113 Nail Salons
Physicians) Amusement, Gambling, and
Companies Recreation Industries 812190 Other Personal Care Services
551112 Offices of Other Holding 621340 Offices of Physical, (including diet & weight
Occupational & Speech 713100 Amusement Parks & Arcades
Companies reducing centers)
Therapists, & Audiologists 713200 Gambling Industries
713900 Other Amusement & 812210 Funeral Homes & Funeral
Administrative and Support 621391 Offices of Podiatrists Services
Recreation Industries
and Waste Management and 621399 Offices of All Other
(including golf courses, skiing 812220 Cemeteries & Crematories
Remediation Services Miscellaneous Health 812310 Coin-Operated Laundries &
Practitioners facilities, marinas, fitness
Administrative and Support Services centers, & bowling centers) Drycleaners
Outpatient Care Centers 812320 Drycleaning & Laundry
561110 Office Administrative Services
561210 Facilities Support Services
621410 Family Planning Centers Accommodation and Food Services (except
561300 Employment Services
621420 Outpatient Mental Health & Services Coin-Operated)
Substance Abuse Centers 812330 Linen & Uniform Supply
561410 Document Preparation Accommodation
621491 HMO Medical Centers 812910 Pet Care (except Veterinary)
Services 721110 Hotels (except casino hotels)
621492 Kidney Dialysis Centers & Motels Services
561420 Telephone Call Centers
621493 Freestanding Ambulatory 721120 Casino Hotels 812920 Photofinishing
561430 Business Service Centers Surgical & Emergency
(including private mail centers 721191 Bed & Breakfast Inns 812930 Parking Lots & Garages
Centers 812990 All Other Personal Services
& copy shops) 721199 All Other Traveler
621498 All Other Outpatient Care Religious, Grantmaking, Civic,
561440 Collection Agencies Centers Accommodation
561450 Credit Bureaus 721210 RV (Recreational Vehicle) Professional, and Similar
Medical and Diagnostic Laboratories Parks & Recreational Camps Organizations
561490 Other Business Support
Services (including 621510 Medical & Diagnostic 721310 Rooming & Boarding Houses 813000 Religious, Grantmaking, Civic,
repossession services, court Laboratories Professional, & Similiar
reporting, & stenotype Home Health Care Services Organizations
services) 621610 Home Health Care Services

Form 100S Booklet 1998 Page 23


INCOME YEAR
Qualified Subchapter S Subsidiary (QSSS) CALIFORNIA SCHEDULE

1998 Information Worksheet QS


Part I
Name of parent corporation California corporation number Federal employer identification number (FEIN)

Part II
(a) (b) (c) (d) (e) (f)
Name of QSSS California Federal Employer Effective Date of Date of QSSS Amount of
Corporation Identification Federal QSSS Annual Tax QSSS Annual
Number Number Election Payment Tax Paid
(MM/DD/YY) (MM/DD/YY)

General Information Specific Instructions Enter the effective date of the federal QSSS
election made for the subsidiary, in column
For income years beginning on or after Janu- Part I (d). An election made by the parent S corpo-
ary 1, 1997, California law has conformed to ration under IRC Section 1361(b)(3) to treat a
Enter in Part I the name of the parent S cor-
the federal treatment of Qualified Subchapter corporation as a qualified subchapter S sub-
poration, the S corporation’s California corpo-
S Subsidiaries (QSSS), with certain excep- sidiary for federal purposes is treated as a
ration number (7 digits) and the Federal
tions. The QSSS is subject to an annual tax binding election for California purposes. A
Employer Identification Number (FEIN) (9 dig-
of $800 which is paid by the S corporations separate election cannot be filed for Califor-
its).
parent. See General Information DD, for more nia. If the effective date falls on a date other
information. Part II than the first day of the subsidiary’s income
Enter in Part II the information for each QSSS year, the subsidiary must file a short period
Purpose required to be included in the California S return if it was subject to tax in California prior
The Qualified Subchapter S Subsidiary Infor- Corporation Franchise or Income Tax Return. to the effective date.
mation Worksheet is used by the S corpora- In column (a), enter the name of each QSSS The S corporation parent is required to pay
tion parent of a QSSS to inform the Franchise included in this return. If the QSSS has or had $800 annual tax for each QSSS it owns. The
Tax Board (FTB) of the QSSS(s) it owns. This a California corporation number, enter the QSSS annual tax is due and payable when
will notify the FTB that the QSSS items of number in column (b). If the QSSS has or had the S corporation’s first estimated tax payment
income, deductions and credits will be a FEIN, enter the number in column (c). If the is due. If the QSSS is acquired during the
included in the parent’s return and the QSSS corporation does not have a California corpo- income year, the QSSS annual tax is due with
will not be filing a separate California fran- ration number and/or a FEIN, enter ‘‘none.’’ the S corporation’s next estimated tax install-
chise or income tax return. ment. Enter the date of payment in column (e)
and amount of QSSS annual tax paid in
column (f).

Schedule QS 1998 QS98109


INCOME YEAR
Net Operating Loss (NOL) Computation and NOL CALIFORNIA FORM

1998 and Disaster Loss Limitations – Corporations 3805Q


Attach to your California tax return.
Corporation name as shown on the return California corporation number

During the year the corporation incurred the NOL the corporation was a(n): ■ C Corporation ■ S Corporation ■ Exempt Organization
■ Limited Liability Company (corporations only)
If the corporation previously filed California returns under another corporate name, enter the corporation name and California corporation number:

Note: If the corporation is included in a combined report of a unitary group, see instructions, General Information C.

PART I Computation of current year NOL. If you do not have a current year NOL, go to Part II.
1 Net loss for state purposes from Form 100, line 18; Form 109, line 2; or Form 100S, line 16.
Enter as a positive number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 1998 disaster loss included in line 1. Enter as a positive number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Subtract line 2 from line 1. If zero or less enter -0- and see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 a Enter the amount of the loss incurred by a new business included in line 3 . . . . . . . . . . 4a
b Enter the amount of the loss incurred by an eligible small business included in line 3. . . . . 4b
c Add line 4a and line 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c
5 Subtract line 4c from line 3. If zero skip to line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 General NOL. Multiply line 5 by 50% (.50) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 1998 NOL carryover. Add line 2, line 4c and line 6. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

PART II NOL carryover and disaster loss carryover limitations. See Instructions.
(g)
1 Net income (loss) – Enter the amount from Form 100, line 18; Form 109, line 2; Available Balance
or Form 100S, line 16 less line 17 (but not less than -0-) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior Year NOLs
(a) (b) (c) (d) (e) (f) (h)
Year of Code (See instructions for Type of NOL Initial loss Carryover Amount used Carryover to 1999
loss Part II, Column (b)) (See below) from 1997 in 1998 (col. (e) – col. (f) )

Current Year NOLs


(col. (d) – col. (f) )
3 1998 18 DIS

4 1998

1998

1998

1998
Type of NOL: General (GEN), New Business (NB), Eligible Small Business (ESB), Title 11 (T11), or Disaster (DIS).

PART III 1998 NOL deduction


1 Total the amounts in column (f) for Part II, line 2, except current year disaster losses. . . . . . . . . . . . . . . . . . . . . . . 1
2 Enter the total amount from column (f) that represents disaster loss carryover deduction here and on Form 100,
line 21; or Form 100S, line 20. For Form 109, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Subtract line 2 from line 1. Enter this amount on Form 100, line 19; Form 109, line 4; or Form 100S, line 18 . . . . . . . . . 3

3805Q98109 FTB 3805Q 1998 Side 1


1998 Instructions for Form FTB 3805Q
Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Corporations
References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

General Information Note: If the corporation has a current year NOL D Water’s-Edge
under R&TC Section 24416.2, 24416.5 and 24416.6
(relating to EZ, LAMBRA or TTA NOLs), it must Each taxpayer’s NOL carryover is limited to the
In general, California tax law conforms to the Internal
elect on its return for the income year in which the amount determined by recomputing the income and
Revenue Code (IRC) as of January 1, 1998.
loss is incurred, to carry over the loss either under factors of the original worldwide combined reporting
However, there are continuing differences between
that section or the loss under R&TC Section 24416 group as if the water’s-edge election had been in
California and federal tax law. California has not
(relating to general NOLs). The election is force for the year of the loss. The NOL carryover
conformed to the changes made to the IRC by the
irrevocable. Get form FTB 3805Z, form FTB 3807 or may not be increased as a result of the
federal Internal Revenue Service (IRS) Restructuring
form FTB 3809 for more information. recomputation.
and Reform Act of 1998 (Public Law 105-206) or the
Tax and Trade Relief Extension Act of 1998 (Public
Law 105-277). B Apportioning Corporations E S Corporations
The loss carryover for a corporation that apportions An S corporation is allowed to carry over a loss that
What’s New income is the amount of the corporation’s loss, if is incurred during a year in which it has in effect a
In 1998, the Franchise Tax Board (FTB) any, after adding income or loss apportioned to valid election to be treated as an S corporation. The
implemented the new principal business activity California with income or loss allocable to California loss is also passed through to the shareholders in
(PBA) code chart that is based on the North under Chapter 17 of the Bank and Corporation Tax the year incurred and is taken into account in
American Industrial Classification System (NAICS) in Law. The loss carryover may be deducted from determining each shareholder’s NOL carryover,
the corporate tax booklets. However, the California income apportioned and allocable to California in if any.
R&TC still uses the Standard Industrial Codes (SIC) subsequent years. If a corporation changes from a C corporation to an
for purposes of the new business and eligible small S corporation, the loss incurred while the corporation
business NOL. C Combined Reporting was a C corporation may not be applied to offset
Corporations that are members of a unitary group income subject to the 1.5% tax imposed on an
A Purpose filing a single return must use intrastate S corporation. However, losses incurred while the
Use form FTB 3805Q to figure the current year NOL apportionment, separately computing the loss corporation was a C corporation may be applied
and to limit NOL and disaster loss carryover carryover for each corporation in the group using its against the built-in gains which is subject to tax.
deductions. individual apportionment factors (R&TC If the corporation incurred losses while it was a
Section 25108). Complete a separate form C corporation and an S corporation, and the S
Note: Exempt trusts should use form FTB 3805V, corporation is using C corporation losses to offset its
FTB 3805Q for EACH taxpayer included in the
Net Operating Loss (NOL) Computation and NOL built-in gains, the corporation must complete two
combined report. Attach the form FTB 3805Q for
and Disaster Loss Limitations – Individuals, Estates forms FTB 3805Q and attach them to Form 100S,
EACH taxpayer member included in the combined
and Trusts. California S Corporation Franchise or Income Tax
report BEHIND the combined form FTB 3805Q for all
The California NOL is figured the same way as the members. Return. The unused losses incurred while the
federal NOL, except that for California: corporation was a C corporation are ‘‘unavailable’’
• An NOL may be carried over only to future years Unlike the loss treatment for a federal consolidated
return, a California loss carryover for one member in except as provided for above until the S corporation
(no carrybacks are allowed); and reverts back to a C corporation or the carryover
• The carryover period and percentages differ from a combined report may not be applied to the income
of another member included in the combined report. period expires.
federal allowances.
Get FTB Pub. 1061, Guidelines for Corporations F Types of NOLs
Only a portion of the NOL may be eligible for Filing a Combined Report, for more information.
carryover to future years because California has The following table shows the types of NOL
established different categories of NOL. See General available, a description, and the percentages and
Information F for more information. carryover periods for each type of loss.

Year NOL NOL Carryover


Type of NOL and Description Incurred Carried Over Period
General NOL (GEN) 1992-1998 50% 5 Years
Available as a result of a loss incurred in years after 1986 and allowed under R&TC Section 24416. 1991 50% 6 Years
Does not include losses incurred from activities that qualify as a new business or an eligible small business, an EZ, 1987-1990 50% 7 Years
LARZ, LAMBRA, TTA or disaster loss.
New Business NOL (NB) Get Legal Ruling 96-5 for more information.
Incurred by a trade or business that first commenced in California on or after January 1, 1994. Year of
During the first three years of business, 100% of an NOL may be carried over for an extended period, but only to the Operation
extent of the net loss from the new business.
Year 1 100% 8 Years
If a taxpayer’s NOL exceeds the net loss from the new business, the excess may be carried over as a general NOL.
Year 2 100% 7 Years
If a taxpayer acquires assets of an existing trade or business which is doing business in California, the trade or business Year 3 100% 6 Years
thereafter conducted by the taxpayer or related person is not a new business if the fair market value (FMV) of the
acquired assets exceeds 20% of the FMV of the total assets of the trade or business conducted by the taxpayer or any
related person. To determine whether the acquired assets exceed 20% of the total assets, include only the assets that
continue to be used in the same trade or business activity as they were used in immediately prior to the acquisition. For
this purpose, the same trade or business activity means the same division classification listed in the SIC Manual, 1987
edition.
If a taxpayer or related person has been engaged in a trade or business in California within the preceding 36 months and
thereafter commences an additional trade or business in California, the additional trade or business qualifies as a new
business only if the activity is classified under a different division of the SIC Manual, 1987 edition.
Business activities conducted by the taxpayer or related persons wholly outside California are disregarded in determining
whether the trade or business conducted within California is a new business. Related persons are defined in IRC
Sections 267 or 318.
Effective January 1, 1997, the term ‘‘new business’’ includes any taxpayer engaged in biopharmaceutical activities or other
biotechnology activities described in Codes 2833 to 2836 of the SIC Manual. It also includes any taxpayer that has not
received regulatory approval for any product from the United States Food and Drug Administration. See R&TC
Section 24416(g)(7)(A), for more information. (continued on next page)

FTB 3805Q 1998 Page 26


Year NOL NOL Carryover
Type of NOL and Description (continued) Incurred Carried Over Period
Eligible Small Business (ESB) Get Legal Ruling 96-5 for more information. Income
Operates a trade or business activity that has gross receipts, less returns and allowances, of less than $1 million during Years
the income year. Beginning 100% 5 Years
100% of an NOL may be carried over, but only to the extent of the net loss from the eligible small business. If a on or After
1/1/94
taxpayer’s NOL exceeds the net loss from an eligible small business, the excess may be carried over at 50% as a
general NOL.
The corporation should use the same SIC Code tests described in the new business NOL section to group trade or
business activities for the eligible small business NOL.

Title 11 Bankruptcy (T11)


If the corporation is claiming an NOL carryover deduction under the provisions of R&TC Section 24416(e)(4)(A), enter the 1987-1993 50% 10 Years
carryover amount on Side 1, Part II, line 2.

Disaster Losses (DIS)


Casualty losses in areas of Callifornia declared by the President of the United States or the Governor of California to be See list 100% 5 Years
in a state of disaster. in the 50% 10 Years
An election may be made under IRC 165(i) permitting the disaster loss to be taken against the previous year’s income. Instructions
If you made this election, see current year NOLs, Part II, line 3. If special legislation is enacted under R&TC for Part II
Section 24347.5 and the specified disaster loss exceeds income in the year it is claimed, 100% of the excess may be
carried over for up to 5 income years. If any excess loss remains after the 5-year period, 50% of that remaining loss may
be carried over for up to 10 additional income years.

Specific Line Instructions Column (b) – If the loss is due to a disaster, enter Column (d) – Enter the amount of the initial loss for
the disaster code from the list below. If the loss is the year given in column (a).
Part I from a new business or eligible small business, enter Column (e) – Enter the carryover amount from the
the SIC Code for the new business or eligible small 1997 form FTB 3805Q, Part II, column (h).
Use Part I of this form to figure the current year business from the Standard Industrial Classification
NOL, if any, eligible for carryover. Manual, 1987 edition. DO NOT enter the code from Column (f) – Enter the smaller of the amount in
Line 2 – If the corporation incurred a disaster loss the PBA chart available in the 1998 Form 100 or column (e) or the amount in column (g) of the
during 1998, enter the amount of the loss on this Form 100S booklets. If the loss was from a previous line.
line. Enter as a positive number. pass-through entity, enter the entity’s federal Column (g) – Enter the result of subtracting column
Line 3 – If the amount is zero or less the corporation employer identification number from Schedule K-1 (f) from the balance in column (g) of the previous
does not have a current year general NOL. Go to (100S). line.
Part II for computation of general NOL carryovers, Following is a list of events that have been declared Column (h) – Subtract the amount in column (f)
the current year disaster loss and carryover from disasters: from the amount in column (e) and enter the result.
disaster losses. Current Year NOLs
Year Code Event
Line 7 – Go to Part II, Current Year NOLs, to record Line 3, Column (d) – Enter your 1998 disaster loss
1998 18 El Niño ’98.
your 1998 NOL carryover to 1999. Complete from Part I, line 2. If you did not elect to deduct your
columns (b), (c), (d) and (h) only, for each type of 1997 17 Disaster floods ’96/97. disaster loss in the prior year:
1996
loss that you incurred. 1996 16 Firestorms ’96.* • In column (f), enter the disaster loss used in
If you have a business that qualifies as a new 1995 15 Storms, flooding and other related casualties. 1998.
business or a small business and your NOL is 1994 14 San Luis Obispo fire and other related casualties. • In column (h), enter column (d) less column (f).
greater than the amount of net loss from such a 1994 13 Los Angeles, Orange, and Ventura County If you elected to deduct your 1998 disaster loss on
business, use the general NOL first. If you operate earthquake and other related casualties. your 1997 return, and you have an excess amount
one or more new businesses and one or more 1993 12 Storms, floods and other related casualties. to be carried over to 1998, enter the carryover
eligible small businesses, determine the amount of 1992 11 Wildfires and other related casualties in amount from your 1997 form FTB 3805Q, Part II,
the loss attributable to the new business(es) and to Calaveras and Shasta Counties. line 3, in Part II, line 2, column (e). Use the Prior
the small business(es). The NOL deduction will be 1992 10 San Bernardino County earthquake and other Year NOL instructions for column (a) through column
taken in the following manner. The NOL is first related casualties. (h) except:
treated as a new business NOL to the extent of the
loss from the new business. Any remaining NOL is
1992 9 Riots, arson and related casualties in California • In column (a), enter 1998;
then treated as an eligible small business NOL to
during April and May.
• In column (b), enter 18; and
the extent of the loss from the eligible small
1992 8 Humboldt County earthquake and related casualties.
• In column (d), enter the total disaster loss
1992 7 Storms, floods and other related casualties. incurred in 1998.
business. Any further remaining NOL is treated as 1991 6 Oakland/Berkeley fire and other related casualties.
an NOL under the general rules. Line 4 – Enter your 1998 NOL from Part I, line 3. If
1990 5 Santa Barbara fires and other related casualties.
you have different types of NOLs in the current year,
Part II 1989
1987
4
3
Bay Area earthquake and other related casualties.
Forest fires, October earthquake and other
list each type of loss separately. Enter the initial loss
Use Part II to limit current year disaster loss and related casualties. in column (d) and the loss to be carried over to
loss carryover deductions to current year income subsequent years in column (h) for each NOL.
1986 2 Storms, floods, and other related casualties.
and to record all of the corporation’s loss carryover
information.
1985 1 Forest fires and related casualties occuring in
California.
Part III
If the corporation has losses from more than one *The carryover period is limited to 5 years at 50%, no special Line 1 – If a current year disaster loss amount is
source and/or more than one category, the legislation was enacted. entered in Part II, line 2, column (f), but is also
corporation must compute the allowable NOL included in the amount in Part 1, line 1, do not
Column (c) – Enter the type of NOL from the table include that amount on this line.
carryover for each loss separately. in General Information F.
When to use an NOL carryover – Use your NOLs
in the order the losses were incurred. There is no
requirement to deduct NOL carryovers before
disaster loss carryovers.
Prior Year NOLs
Column (a) – Enter the year the loss was incurred.

Page 27 FTB 3805Q 1998


INCOME YEAR
CALIFORNIA FORM

1998 Water’s-Edge Cover Sheet 2426


For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______

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

242698109 FTB 2426 C2 1998 Page 28


INCOME YEAR
California S Corporation FORM

1998 Franchise or Income Tax Return 100S


For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______ .
California corporation number Federal employer identification number A Final return? •
■ Dissolved ■ Surrendered (withdrawn) ■ Merged/Reorganized

Corporation name
■ IRC Section 338 sale If a box is checked, enter date •
B Did this S corporation have a change in control or ownership, or
acquire ownership or control of any other legal entity this year? • ■ Yes ■ No
Address C Principal business activity code. (Do not leave blank): •
Business activity
City State ZIP Code Product or service
D Does return include Qualified Subchapter S Subsidiaries . . . • ■ Yes ■ No
1 Ordinary income (loss) from trade or business activities from Schedule F (Form 100S, Side 2) or federal Form 1120S,
line 21. If Schedule F (Form 100S, Side 2) was not completed, attach federal Form 1120S, page 1, and supporting schedules . • 1
2 Foreign or domestic tax based on income or profits and California franchise or income tax deducted . . . . • 2
3 Interest on government obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 3
State 4 Net capital gain from Schedule D (100S), Section A & Section B. Attach Schedule D (100S). See instructions . . • 4
Adjust- 5 Depreciation and amortization adjustments. Attach Schedule B (100S). . . . . . . . . . . . . . . . . . . . . . • 5
ments
6 Portfolio income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 6
7 Other additions. Attach schedule(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 7
8 Total. Add line 1 through line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 8
9 Deductible dividends. Attach Schedule H (100S) . . . . . . . . . . . . . • 9
10 Water’s-edge dividend deduction. Attach Schedule H (100S) . . . . . . • 10
11 Contributions. See instructions . . . . . . . . . . . . . . . . . . . . . . . • 11
12 EZ, LARZ, LAMBRA or TTA business expense and/or net interest deduction . . • 12
13 Other deductions. Attach schedule(s) . . . . . . . . . . . . . . . . . . . • 13
14 Total. Add line 9 through line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 14
15 Net income (loss) after state adjustments. Subtract line 14 from line 8 . . . . . . . . . . . . . . . . . . . . . • 15
16 Net income (loss) for state purposes. Use Schedule R if apportioning income . . . . . . . . . . . . . . . . . • 16
Calif. 17 R&TC Section 23802(e) deduction. See instructions . . . . . . . . . . • 17
Net 18 Net operating loss carryover deduction. See instructions. . . . . . . . . • 18
Income
19 EZ, LARZ or LAMBRA NOL carryover deduction. See instructions . . . • 19
20 Disaster loss carryover deduction. See instructions. . . . . . . . . . . . • 20
21 Net income for tax purposes. Combine line 17 through line 20 and subtract from line 16 . . . . . . . . . . . • 21
22 Tax. % x line 21 (at least minimum franchise tax and/or QSSS annual tax, if applicable). See instructions ■ 22
▲ ▲ ▲

23 Enter credit name code no. __ __ __ and amount . . 23


24 Enter credit name code no. __ __ __ and amount . . 24
25 Enter credit name code no. __ __ __ and amount . . 25
Taxes
26 To claim more than three credits, see instructions . . . . . . . . . . . . • 26
27 Add line 23 through line 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■ 27
28 Balance. Subtract line 27 from line 22 (at least minimum franchise tax and/or QSSS annual tax, if applicable) . ■ 28
29 Tax from Schedule D (100S). Attach Schedule D (100S). See instructions . ■ 29
30 Excess net passive income tax. See instructions . . . . . . . . . . . . . . ■ 30
31 Total tax. Add line 28 through line 30 . . . . . . . . . . . . . . . . . . . ■ 31
32 Additional SOS prepayment tax. See instructions. . . . . . . . . . . . . ■ 32
33 Adjusted total tax. Add line 31 and line 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■ 33
34 Overpayment from prior year allowed as a credit. . . . . . . . . . . . . ■ 34
Pay- 35 1998 estimated tax payments/excess SOS prepayment tax/QSSS payments. See instr . . ■ 35
ments 36 Amount paid with extension of time to file return . . . . . . . . . . . . . ■ 36
37 Total payments. Add line 34 through line 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■ 37
38 Tax due. If line 33 is more than line 37, subtract line 37 from line 33. Go to line 42 . . . . . . . . . . . . . ■ 38
39 Overpayment. If line 37 is more than line 33, subtract line 33 from line 37. . . . . . . . . . . . . . . . . . . ■ 39
40 Amount of line 39 to be credited to 1999 estimated tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ■ 40
Amount
Due or 41 Amount of line 39 to be refunded. Line 39 less line 40 . . . . . . . . . . . . . ■ 41 , , , •
Refund
42 Penalties and interest. See General Information M and N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
• ■ Check if estimate penalty computed using Exception B or C. Attach form FTB 5806.
43 Total amount due. Add line 38 and line 42. Pay with return . . . . . . . . . . . . 43 , , , •

100S98109 Form 100S C1 1998 Side 1


Schedule F Computation of Trade or Business Income. See General Information I.
1 a) Gross receipts or sales b) Less returns and allowances Balance 1c
2 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Income 3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4 Net gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Other income (loss). Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 •
6 Total income (loss). Combine line 3 through line 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 Compensation of officers. Attach schedule. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 •
9 Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11 Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 •
Deduc-
12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
tions 13 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14 a) Depreciation b) Less depreciation reported elsewhere on return Balance 14 •
15 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17 Pension, profit-sharing, etc. plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 a) Total travel and entertainment b) Deductible amount . . . . . . . . . . . . 19b
20 Other deductions. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 •
21 Total deductions. Add line 7 through line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 •
22 Ordinary income (loss) from trade or business. Subtract line 21 from line 6. Enter here and on Side 1, line 1 22 •
Schedule V Cost of Goods Sold
1 Inventory at beginning of year . . . . . . . . . . . 5 Other costs. Attach schedule . . . . . . . . . . .
2 Purchases . . . . . . . . . . . . . . . . . . . • 6 Total. Add line 1 through line 5. . . . . . . . . .
3 Cost of labor . . . . . . . . . . . . . . . . . • 7 Inventory at end of year. . . . . . . . . . . . . .
4 Other IRC Sec. 263A costs. Attach schedule • 8 Cost of goods sold. Subtract line 7 from line 6 •
Was there any substantial change in the manner of determining quantities, costs or valuations between opening and closing inventory? . . . ■ Yes ■ No
If ‘‘Yes,’’ attach an explanation. Enter California seller’s permit number, if any P Method of inventory valuation
Check if the LIFO inventory method was adopted this income year for any goods. If checked, attach federal Form 970 . . . . . . . . . . . . . . . . . • ■
If the LIFO inventory method was used for this income year, enter the amount of closing inventory computed under LIFO . . . . . . . . . •
Do the rules of IRC Section 263A (with respect to property produced or acquired for resale) apply to the corporation? . . . . . . . . . . . . ■ Yes ■ No
Schedule J Add-On Taxes or Recapture of Tax Credits. See instructions.
1 LIFO recapture due to S corporation election (IRC Sec. 1363(d) deferral: $ ). . . . . . . . . . . . 1 •
2 Interest computed under the look-back method for completed long-term contracts (attach FTB 3834) . . . . . . . . . . 2 •
3 Interest on tax attributable to installment: a) Sales of certain timeshares and residential lots . . . . . . . . . . . . . . 3a •
b) Method for nondealer installment obligations . . . . . . . . . . . . . . . 3b •
4 IRC Section 197(f)(9)(B)(ii) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 •
5 Credit recapture name: . . . . . . . . . . . . 5 •
6 Combine line 1 through line 5. Revise the amount on Side 1, line 38 or line 39, whichever applies, by this amount.
Write ‘‘Schedule J’’ to the left of line 38 or line 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 •
E Check here if the corporation does not need tax forms mailed next year •
■ K Effective date of California S election:

F Date incorporated: • Where: State Country L Accounting method: •
(1) ■ Cash (2) ■ Accrual (3) ■
M Location of principal accounting records:
Other

N ‘‘Doing business as’’ name: •


G Maximum number of shareholders in the corporation at any time during
the year: • O Have all required information returns (e.g., federal Form 1099,
H Date business began in California or date income was first derived from
California sources: • 8300, etc.) been filed with the Franchise Tax Board? .
P Is this corporation apportioning income to California using
■ N/A ■ Yes ■ No
I Is the corporation under audit by the IRS or has
it been audited in a prior year? . . . . . . . . . . . . . . . •
■ Yes ■ No
Schedule R? . . . . . . . . . . . . . . . . . . . . . . .
Q During the income year, were gross receipts (less returns and
■ Yes ■ No•
J Effective date of federal S election: • allowances) of this corporation more than $1 million? . . . . ■ Yes ■ No•
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,
Please correct and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Sign Signature of officer Title Date Telephone
Here P ( )
Preparer’s signature Date Check if self- Preparer’s SSN / FEIN
P employed ■
Paid
Telephone FEIN
Preparer’s Firm’s name
(or yours, if
Use Only self-employed) ( )
P
and address

Side 2 Form 100S C1 1998 100S98209 For Privacy Act Notice, get form FTB 1131.
Schedule K S Corporation Shareholders’ Shares of Income, Deductions, Credits, etc.
(b) Amount from federal (c) California (d) Total amount
(a) Pro rata share items Schedule K (1120S) adjustment using California law.
Combine (b) and (c)
where applicable

1 Ordinary income (loss) from trade or business activities . . . . . . . . . . . . . •


2 Net income (loss) from rental real estate activities . . . . . . . . . . . . . . . . •
3 a Gross income from other rental activities. . . . . . . . . . . . . . . . . . . .
Income b Expenses from other rental activities. Attach schedule . . . . . . . . . . . .
(Loss) c Net income (loss) from other rental activities. Subtract line 3b from line 3a •
4 Portfolio income (loss):
a Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
b Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
c Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
d Net short-term capital gain (loss). Attach Schedule D (100S) . . . . . . . . •
e Net long-term capital gain (loss). Attach Schedule D (100S) . . . . . . . . . •
f Other portfolio income (loss). Attach schedule . . . . . . . . . . . . . . . . . •
5 Net gain (loss) under IRC Section 1231 (other than due to casualty or theft) . •
6 Other income (loss). Attach schedule . . . . . . . . . . . . . . . . . . . . . . . •
7 Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
8 Expense deduction for recovery property (R&TC Section 17267.2,
Deduc- Section 17266, Section 17268 and Section 17267.6 and IRC Section 179
tions and R&TC Section 17201). Attach Schedule B (100S). . . . . . . . . . . . . .
9 Deductions related to portfolio income (loss). Attach schedule . . . . . . . . . •
10 Other deductions. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . .
Invest- 11 a Interest expense on investment debts . . . . . . . . . . . . . . . . . . . . . •
ment b (1) Investment income included on line 4a, line 4b, line 4c and line 4f . .
Interest
(2) Investment expenses included on line 9 above. . . . . . . . . . . . . .
12 a Low-income housing credit. See instructions. Attach schedule . . . . . . . . •
b Credits related to rental real estate activities other than on
Tax
line 12(a). Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . •

Credits
c Credits related to other rental activities. See instructions. Attach schedule .
13 Other credits. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . •
14 a Depreciation adjustment on property placed in service after 12/31/86 . . . .
Adjust- b Adjusted gain or loss. See instructions. . . . . . . . . . . . . . . . . . . . .
ments c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . . . . .
and Tax
Preference d (1) Gross income from oil, gas and geothermal properties . . . . . . . . .
Items (2) Deductions allocable to oil, gas and geothermal properties . . . . . . .
e Other adjustments and tax preference items. Attach schedule . . . . . . . .
15 a Type of income
Other b Name of state
State c Total gross income from sources outside California. Attach schedule . . . .
Taxes
d Total applicable deductions and losses. Attach schedule . . . . . . . . . . .
e Total other state taxes. Check one: ■ Paid ■ Accrued . . . . . . . . . . •
16 a Total expenditures to which an IRC Section 59(e) election may apply . .
b Type of expenditures
17 Tax-exempt interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
19 Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other 20 Total property distributions (including cash) other than dividend
Items distributions reported on line 22 below . . . . . . . . . . . . . . . . . . . . . •
21 Other items and amounts not included in line 1 through line 20 above that
are required to be reported separately to shareholders. Attach schedule . . •
22 Total dividend distributions paid from accumulated earnings and profits . . . •
23 Income (loss) (required only if Schedule M-1 must be completed). Combine
line 1, line 2 and line 3c through line 6. From the result, subtract the sum
of line 7 through line 11a and line 16a . . . . . . . . . . . . . . . . . . . . .

100S98309 Form 100S C1 1998 Side 3


Schedule L Balance Sheets Beginning of income year End of income year
Assets (a) (b) (c) (d)
1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 a Trade notes and accounts receivable . . . . . . . .
b Less allowance for bad debts . . . . . . . . . . . . ( ) ( )
3 Inventories . . . . . . . . . . . . . . . . . . . . . . . . •
4 Federal and state government obligations . . . . . . .
5 Other current assets. Attach schedule(s) . . . . . . .
6 Loans to shareholders. Attach schedule(s) . . . . . . •
7 Mortgage and real estate loans . . . . . . . . . . . .
8 Other investments. Attach schedule(s) . . . . . . . . . •
9 a Buildings and other fixed depreciable assets . . . . .
b Less accumulated depreciation . . . . . . . . . . . ( ) ( ) •
10 a Depletable assets . . . . . . . . . . . . . . . . . . .
b Less accumulated depletion . . . . . . . . . . . . . ( ) ( )
11 Land (net of any amortization) . . . . . . . . . . . . . •
12 a Intangible assets (amortizable only) . . . . . . . . .
b Less accumulated amortization . . . . . . . . . . . ( ) ( )
13 Other assets. Attach schedule(s) . . . . . . . . . . . .
14 Total assets. . . . . . . . . . . . . . . . . . . . . . . • •
Liabilities and shareholders’ equity
15 Accounts payable . . . . . . . . . . . . . . . . . . . .
16 Mortgages, notes, bonds payable in less than 1 year . .
17 Other current liabilities. Attach schedule(s) . . . . . .
18 Loans from shareholders. Attach schedule(s) . . . . . •
19 Mortgages, notes, bonds payable in 1 year or more . . •
20 Other liabilities. Attach schedule(s). . . . . . . . . . .
21 Capital stock . . . . . . . . . . . . . . . . . . . . . . . • •
22 Paid-in or capital surplus . . . . . . . . . . . . . . . . • •
23 Retained earnings . . . . . . . . . . . . . . . . . . . . • •
24 Adjustments to shareholders’ equity. Attach schedule(s) .
25 Less cost of treasury stock . . . . . . . . . . . . . . . ( ) ( )
26 Total liabilities and shareholders’ equity . . . . . .
Schedule M – 1 Reconciliation of income (loss) per books with income (loss) per return Do not complete this schedule if the amount on
Schedule L, line 14, column (d), is less than $25,000.
1 Net income per books . . . . . . . . . . . . . . . . . . 5 Income recorded on books this year not included on
2 Income included on Schedule K, line 1 through line 6, Schedule K, line 1 through line 6 (itemize)
not recorded on books this year (itemize) a Tax-exempt interest $
• •
3 Expenses recorded on books this year not included on 6 Deductions included on Sch. K lines 1 through 11a and line
Schedule K, line 1 through line 11a and line 16a (itemize) 16a, not charged against book income this year (itemize)
a Depreciation . . . . $ a Depreciation . . . . $
b State taxes . . . . . $ b State tax refunds. . $
c Travel and entertainment $ •
• 7 Total. Add line 5 and line 6 . . . . . . . . . . . . . .
4 Total. Add line 1 through line 3. . . . . . . . . . . . . . 8 Income (loss) (Sch. K, line 23, col. d). Line 4 less line 7 . .
Schedule M – 2 CA accumulated adjustments account, other adjustments account, and other retained earnings See instructions.
Important: Use California figures and federal procedures. (a) Accumulated (b) Other adjustments (c) Other retained earnings
adjustments account account (see instructions)
1 •
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Ordinary income from Form 100S, Side 1, line 1 . . . . . . . . . . . . . . . .
3 Other additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 Loss from Form 100S, Side 1, line 1 . . . . . . . . . . . . . . . . . . . . . . . ( )
5 Other reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( ) ( )
6 Combine line 1 through line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 •
Distributions other than dividend distributions. . . . . . . . . . . . . . . . . . .
8 •
Balance at end of year. Subtract line 7 from line 6 . . . . . . . . . . . . . . .
9 Retained earnings at end of year. Add line 8, column (a) through column (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . •
• ■ If the corp. has C corp. E&P at the end of the income year, check the box and enter the amount. See instructions . . . . •
Side 4 Form 100S C1 1998 100S98409
INCOME YEAR
CALIFORNIA SCHEDULE

1998 S Corporation Depreciation and Amortization B (100S)


For use by S corporations only. Attach to Form 100S.
Corporation name as shown on Form 100S California corporation number

Part I Depreciation. Use additional sheet(s) if necessary.


1 Enter federal depreciation from federal Form 4562, line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 California depreciation:
(a) Description of property (b) Date (c) Cost or (d) Depreciation (e) Method (f) Life (g) Depreciation
acquired other basis allowed or allowable of figur- or rate for this year
in earlier years ing dep.

3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3


4 Subtract line 3 from line 1. Enter here and on Form 100S, Side 1, line 5 and on the applicable line of Schedule K . . . . . 4
5a Enter the IRC 179 expense for California purposes. Enter here and on Form 100S, Side 1, line 13. Do not enter more than $16,000 5a
5b Enter the IRC Section 179 expense for federal purposes. Do not enter more than $18,500 . . . . . . . . . . . . . . . . . . . 5b
5c Subtract line 5b from line 5a. Enter here and on Schedule K, line 8, column (c) . . . . . . . . . . . . . . . . . . . . . . . . . 5c
Part II Amortization. Use additional sheet(s) if necessary.
1 Enter federal amortization from federal Form 4562, line 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 California amortization:
(a) Description of property (b) Date (c) Cost or (d) Amortization (e) R&TC (f) Period or (g) Amortization
acquired other basis allowed or allowable section percentage for this year
in earlier years

3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3


4 CA amortization adj. Subtract line 3 from line 1. Enter here, on Form 100S, Side 1, line 5 and on the applicable line of Sch. K . . 4
INCOME YEAR CALIFORNIA SCHEDULE

1998 S Corporation Tax Credits C (100S)


(a) Credit amount (b) Carryover from (c) Credit used this (d) Tax balance (e) Credit carryover
See instructions for Form 100S, General Information Z, AA and BB. limited to 1/3 prior year year (not more to 1999
Be sure to complete and attach all supporting credit forms. of total than (a) + (b))

1 Regular tax from Form 100S, Side 1, line 22 . . . . . . . . . . . . .


2 Minimum franchise tax and/or QSSS annual tax, if applicable . . . .
3 Subtract line 2 from line 1. If zero or less, enter -0- . . . . . . . . .
4 Code: Credit Name:
5 Code: Credit Name:
6 Code: Credit Name:
7 Code: Credit Name:
8 Code: Credit Name:
9 Enter the credit amounts on Form 100S, Side 1, line 23,
line 24 and line 25. If more than 3 credits, enter the total
remaining credits on Form 100S, Side 1, line 26 . . . . . . . . . . .

B100S98109 Schedules B/C/D/H (100S) 1998 Side 1


INCOME YEAR
S Corporation CALIFORNIA SCHEDULE

1998 Capital Gains and Losses and Built-In Gains D (100S)


Corporation name as shown on Form 100S California corporation number

SECTION A – 8.84% Tax on Certain Capital Gains and Built-In Gains


Part I Short-Term Capital Gains and Losses — Assets Held One Year or Less. Use additional sheet(s) if necessary.
1 (a) Description of property (b) Date acquired (c) Date sold (d) Gross sales price (e) Cost or other basis, (f) Gain (loss)
(Example: 100 shares 7% preferred of ‘‘Z’’ Co.) (mo., day, yr.) (mo., day, yr.) plus expense of sale ((d) less (e))

2 Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . . 2
3a Net short-term capital gain (loss). Combine line 1 and line 2 and enter here and on Form 100S, Side 1, line 4 . . . . . . . . . 3a
3b Tax on short-term capital gain(s) included on line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b
3c Subtract line 3b from line 3a. Enter this amount on Form 100S, Schedule K, column (d), line 4d or line 6. . . . . . . . . . . . 3c
Part II Long-Term Capital Gains and Losses — Assets Held More Than One Year. Use additional sheet(s) if necessary.
4
5 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . . 5
6a Net long-term capital gain (loss). Combine line 4 and line 5 and enter here and on Form 100S, Side 1, line 4 . . . . . . . . . 6a
6b Tax on long-term capital gain(s) included on line 15 and line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6b
6c Subtract line 6b from line 6a. Enter this amount on Form 100S, Schedule K, column (d), line 4e or line 6. . . . . . . . . . . . 6c
Part III Tax on Certain Capital Gains. See instructions before completing this part.
7 Enter IRC Section 1231 gain from Schedule D-1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Net long-term capital gain (loss). Combine line 6a and 7 and enter here. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Note: If the corporation is liable for the excess net passive income tax (Form 100S, Side 1, line 29) or the built-in
gains tax (Part IV below), see instructions for line 9.
9 Net capital gain. Enter excess net long-term capital gain (line 8) over net short-term capital loss (line 3c) . . . . . . . . . . . . 9
10 Statutory minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 $25,000
11 Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12 Multiply line 11 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Taxable income. See instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . . . . 13
14 Multiply line 13 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Tax on certain capital gains. Enter smaller of line 12 or line 14 here and on Form 100S, Side 1, line 29 . . . . . . . . . . . . 15
Part IV Tax on Built-In Gains. See instructions before completing this part.
16 Excess of recognized built-in gains over recognized built-in losses attributable to California. Attach computation schedule . . . 16
17 Taxable income. See the instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . . 17
18 Enter the smaller of line 16 or line 17 or amount from worksheet. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 Net operating loss (NOL) carryover deduction from years the corporation was a C corporation (IRC Section 1374(b)(2)) (limited
to the amount allowable for state purposes). Attach the NOL form from the appropriate year. See instructions . . . . . . . . . . . . . 19
20 Subtract line 19 from line 18. If zero or less, enter -0- here and on line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
21 Tax on built-in gains. Multiply line 20 by 8.84% (financial S corps. must use 10.84%). Enter here and on Form 100S, Side 1, line 29 21
SECTION B – 1.5% Tax on Capital Gains
Part I Short Term Capital Gains and Losses — Assets Held One Year or Less. Use additional sheet(s) if necessary.
1
2 a Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824 . . . . . . . . . . . . . . . . . . . . 2a
b Unused capital loss carryover from 1997 attributable to the S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b
3 Net short-term capital gain (loss). Combine line 1 through line 2b. Enter here and on Form 100S, Schedule K,
column (d), line 4d or line 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Part II Long-Term Capital Gains and Losses — Assets Held More Than One Year. Use additional sheet(s) if necessary.
4
5 Enter gain from Schedule D-1, line 7 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824 . . . . . . . . . . . . . . . . . . . . . . 6
7 Net long-term capital gain (loss). Combine line 4 through line 6. Enter here and on Form 100S, Schedule K,
column (d), line 4e or line 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Enter excess of net short-term capital gain (line 3) over net long-term capital loss (line 7) . . . . . . . . . . . . . . . . . . . . . 8
9 Net capital gain. Enter excess of net long-term capital gain (line 7) over net short-term capital loss (line 3) . . . . . . . . . . . 9
10 Total line 8 and line 9. Enter here and on Form 100S, Side 1, line 4. Note: If losses exceed gains, carry forward
losses to 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Side 2 Schedules B/C/D/H (100S) 1998 D100S98209


INCOME YEAR
CALIFORNIA SCHEDULE

1998 S Corporation Dividend Income Deduction H


See instructions for Schedule H. Use and attach additional sheets if necessary.
Part I Elimination of Intercompany Dividends (R&TC 25106)
(a) Dividend payer (b) Dividend (c) Total amount (d) Amount that (e) Amount from (f) Amount from (g) Balance
payee of dividends qualifies column (d) paid column (d) paid column (c)
received for 100% out of current out of prior minus
elimination year E&P year E&P column (d)

1)
2)
3)
4)
5)
6)
7 Total amounts in each column. Enter amount from Part I, column (d)
on Form 100S, Side 1, line 9 . . . . . . . . . . . . . . . . . . . . . .
Part II Deduction For Dividends Paid By A Corporation Taxed By California (R&TC 24402)
(a) Dividend payer (b) Dividends (c) FEIN or (d) Percentage of (e) Limitation (f) Percentage (g) Deductible
paid by California ownership of percentage of dividends dividends
CA taxpayer corporation no. dividend payer (See instructions) deductible (b)X(e)X(f)
(See instructions) of dividend payer

1)
2)
3)
4)
5)
6)
7 Total amount in column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III Deduction For Dividends Paid To A California Corporation By An Insurance Company (R&TC 24410)
(a) Dividend payer (b) Dividend (c) California (d) Percentage of (e) Amount of (f) Apportionment (g) Deductible
payee corporation no. ownership of qualified factors of dividends –
of dividend dividend payer insurance insurance multiply
payee dividends company col. (e) by col. (f)
(See
instructions)

1)
2)
3)
4)
5)
6)
7 Total amount in column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 Add amounts from Part II, column (g) and Part III, column (g). Enter the result on Form 100S,
Side 1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV Deduction For Foreign Dividends Paid To A Fully Included Member Of a Water’s-Edge Combined Report (R&TC 24411)
(Foreign dividends paid by partially included members of a water’s-edge combined report cannot be computed on this schedule.)
(a) Dividend payer (b) Percentage of (c) Member of (d) Amount of (e) Amount from (f) Amount from (g) Deductible
ownership of water’s-edge qualified col. (d) paid out col. (d) paid out dividends –
dividend payer combined dividends of current year of prior year multiply
reporting group received by E&P E&P col. (d) by .75
dividend was payee
paid to (payee) (See instructions)

1)
2)
3)
4)
5)
6)
7 Total amount in column (g). Enter total from Part IV, column (g) on Form 100S,
Side 1, line 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

H100S98309 Schedules B/C/D/H (100S) 1998 Side 3


INCOME YEAR
CALIFORNIA FORM

1998 S Corporation’s List of Shareholders and Consents 3830


For use by S corporations with one or more nonresident shareholders or trusts with nonresident fiduciaries. Attach to Form 100S
and give a copy to each nonresident shareholder or fiduciary. Use additional sheet(s) if necessary.
Corporation name California corporation number

Note: Completion of this form does not satisfy the requirements for filing an individual income tax return for California.
List below the names and identification numbers of shareholders of record at the end of the corporation’s income year.
Only nonresident shareholders and nonresident fiduciaries must sign: I
Shareholder’s
Number Shareholder’s name consent to the jurisdiction of the State of California to tax my pro rata
Social security no./Federal
share of the S corporation income attributable to California sources.
employer identification no.
Signature Date
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
List below the names and identification numbers of shareholders who sold or transferred their ownership interests before the end of the corporation’s income year.
Only nonresident shareholders and nonresident fiduciaries must sign: I
Shareholder’s
Number Shareholder’s name consent to the jurisdiction of the State of California to tax my pro rata
Social security no./Federal
share of the S corporation income attributable to California sources.
employer identification no.
Signature Date
1
2
3
4
5
General Information Caution: Failure to obtain required signatures, • You were married in 1998, and you and your
complete and attach this form, is grounds for the spouse had a combined gross income, from
A Purpose Franchise Tax Board to retroactively revoke the all sources, of more than $21,246; or
S corporation election. (R&TC Section 23801(b)). adjusted gross income from all sources of
When an S corporation has one or more more than $16,996; or
shareholders who are nonresidents of California, • You can be claimed as a dependent as set
or trusts with nonresident fiduciaries, use form B Nonresidents Who Must in Internal Revenue Code (IRC)
FTB 3830 to:
File a California Return Section 63(c)(5) when the individual’s gross
• List the names and social security
If you are a nonresident shareholder, in addition
income from all sources exceeds the
numbers or federal employer identification standard deduction allowed under the IRC; or
numbers of all shareholders; and to signing form FTB 3830, you may also need to • If you owe the state of California $1 or more
• Obtain the signature of each nonresident file Form 540NR, California Nonresident or
Part-Year Resident Income Tax Return.
of tax. (R&TC Section 18507).
shareholder or fiduciary evidencing
consent to the jurisdiction of California Form 540NR must be filed if you had income
to tax their pro rata share of income from California sources and: C Group Nonresident
attributable to California sources. For • You were single or unmarried in 1998 and Shareholder Return
ease in gathering proper signatures, your gross income from all sources was
multiple copies of the form FTB 3830 may more than $10,623; or adjusted gross Nonresident shareholders of an S corporation
be used. All shareholders required to income from all sources was more than doing business in California may elect to file a
sign need not sign on one form. $8,498; or group nonresident return using Form 540NR. For
more information, get FTB Pub. 1067, Guidelines
for Filing a Group Form 540NR.

For Privacy Act Notice, see form FTB 1131. 383098109 FTB 3830 C1 1998
INCOME YEAR
Shareholder’s Share of Income, CALIFORNIA SCHEDULE

1998 Deductions, Credits, etc. K-1 (100S)


For use by an S corporation and its shareholders only.
For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______
Shareholder’s identifying number California corporation number
Shareholder’s name, address and ZIP Code Corporation’s name, address and ZIP Code

A Shareholder’s percentage of stock ownership at income year end . . . . . . . . . . . . . . . . . . . . . . . . • . %


B Tax shelter registration number Type:
C Check here if this is: •
(1) ■ A final Schedule K-1 (2) ■ An amended Schedule K-1
D What type of entity is this shareholder? . . . . . . . . . . . . . . •
(1) ■ Individual (2) ■ Estate/Trust (3) ■ Qualified Exempt Organization
E Is this shareholder a nonresident of California? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P ■ Yes •
■ No
Caution: Refer to the separate shareholder’s instructions for Schedule K-1 (100S) before entering information from this schedule on your tax return.
(b) Amount from (c) California (d) Total amounts (e) California
(a) Pro rata share items federal Schedule K-1 adjustment using California law. source amounts
(1120S) Combine (b) and (c) and credits
where applicable

1 Ordinary income (loss) from trade or business


activities. . . . . . . . . . . . . . . . . . . . . • P
2 Net income (loss) from rental real estate activities. • P
3 Net income (loss) from other rental activities. . .
Income 4 Portfolio income (loss):
(Loss) a Interest . . . . . . . . . . . . . . . . . . . . • P
b Dividends . . . . . . . . . . . . . . . . . . . • P
c Royalties . . . . . . . . . . . . . . . . . . . • P
d Net short-term capital gain (loss) . . . . . . . • P
e Net long-term capital gain (loss) . . . . . . . . • P
f Other portfolio income (loss). Attach schedule . • P
5 Net gain (loss) under IRC Section 1231 (other
than due to casualty or theft) . . . . . . . . . . • P
6 Other income (loss). Attach schedule . . . . . . • P
7 Charitable contributions . . . . . . . . . . . . .
8 Expense deduction for recovery property (R&TC
Sections 17266, 17267.2, 17268 and 17267.6
Deduc- and IRC Section 179). Attach schedule . . . . .
tions
9 Deductions related to portfolio income (loss).
Attach schedule . . . . . . . . . . . . . . . . .
10 Other deductions. Attach schedule . . . . . . . .
11 a Interest expense on investment debts . . . . • P
b (1) Investment income included on
Invest-
ment line 4a, line 4b, line 4c and
Interest line 4f above. . . . . . . . . . . . . . .
(2) Investment expenses included on
line 9 above . . . . . . . . . . . . . . .
12 a Low-income housing credit. See instructions.

Tax
Attach schedule . . . . . . . . . . . . . . . • P
Credits b Credits related to rental real estate activities
other than on line 12(a). Attach schedule . . • P
c Credits related to other rental activities. See
instructions. Attach schedule . . . . . . . . . • P
13 Other credits. Attach schedule . . . . . . . . . . • P

For Privacy Act Notice, get form FTB 1131. K100S98109 Schedule K-1 (100S) 1998 Side 1
(d) Total amounts
(b) Amount from (c) California using California law. (e) California
(a) Pro rata share items federal Schedule K-1 adjustment Combine (b) and (c) source amounts
(1120S) where applicable and credits

14 a Depreciation adjustment on property


placed in service after 12/31/86 . . . . . .
b Adjusted gain or loss . . . . . . . . . . .
Adjustments c Depletion (other than oil and gas) . . . . .
and Tax
Preference d (1) Gross income from oil, gas and
Items geothermal properties . . . . . . . . .
(2) Deductions allocable to oil, gas and
geothermal properties . . . . . . . . .
e Other adjustments and tax preference
items. Attach schedule . . . . . . . . . .
15 a Type of income
b Name of state
Other
State c Total gross income from sources outside
Taxes California. Attach schedule . . . . . . . .
d Total applicable deductions and losses.
Attach schedule . . . . . . . . . . . . . .
e Total other state taxes. Check one:
■ Paid ■ Accrued . . . . . . . . . . • P
16 a Total expenditures to which an IRC
Section 59(e) election may apply . . . . .
b Type of expenditures
17 Tax-exempt interest income . . . . . . . . .
Other 18 Other tax-exempt income . . . . . . . . . .
Items
19 Nondeductible expenses . . . . . . . . . . .
20 Total taxable dividend distribution paid
from accumulated earnings and profits . . . . • P
21 Property distributions (including cash) other
than dividend distributions reported to you
on federal Form 1099-DIV . . . . . . . . . . • P
22 Amount of loan repayments for ‘‘Loans from
Shareholders’’ . . . . . . . . . . . . . . . . • P
23 Supplemental information that is required to be reported separately to each shareholder. Attach additional sheet(s) if necessary.

Supple- Table 1 — Each shareholder’s share of nonbusiness income from intangibles


mental Interest $ Royalties $ Dividends $
Information
1231 Gains/Losses $ Capital Gains/Losses $ Other $

FOR USE BY APPORTIONING UNITARY SHAREHOLDERS ONLY


Table 2 — Unitary shareholder’s pro rata share of business income and factors
A. Shareholder’s share of the S corporation’s business income. See instructions. $
B. Shareholder’s share of nonbusiness income from real and tangible property sourced or allocable to California:
Capital Gains/Losses $ Rents/Royalties $
1231 Gains/Losses $ Other $
C. Shareholder’s share of the S corporation’s property, payroll and sales:
Factors Total within and outside California Total within California
Property: Beginning $ $
Ending $ $
Payroll $ $
Sales $ $

Side 2 Schedule K-1 (100S) 1998 K100S98209


Shareholder’s Instructions for Schedule K-1 (100S)
For S Corporation Shareholder’s Use Only
References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

What’s New the passive activity loss back to the form or Basis is decreased by:
schedule it is normally reported on to figure 1. Fair market value of property distributions
For income years beginning on or after your California adjustment amount. Enter this
January 1, 1998, tax-exempt organizations as (including cash) made by the corporation
adjustment amount on the corresponding line (excluding dividend distributions reported
described in IRC Sections 401(a) and of Schedule CA (540 or 540NR), California
501(c)(3) (qualified tax-exempt shareholder) on Form 1099-DIV and distributions in
Adjustments, or Form 541, California Fiduciary excess of basis) reported on
may be shareholders in an S corporation. For Income Tax Return.
purposes of determining the number of share- Schedule K-1 (100S), line 21.
holders of an S corporation, a qualified tax- If there is no California schedule or form to 2. All losses and deductions (including non-
exempt shareholder will count as one figure your passive activity loss adjustment deductible expenses) reported on
shareholder. amount on (i.e., rental loss from passive activ- Schedule K-1 (100S).
ities), you may figure the adjustment amount These items are not a complete list of factors
Purpose on the California Adjustment Worksheet in the that determine basis.
The S corporation uses Schedule K-1 (100S) instructions for form FTB 3801. Enter the total
of your adjustments from all passive activities At-risk rules
to report your share of the S corporation’s Generally, if you have: (1) a loss or other
income, deductions, credits, etc. Please keep from line 1 and line 2 of this worksheet on
Schedule CA (540 or 540NR), as applicable. deduction from an activity carried on as a
a copy of it for your records. trade or business or for the production of
Although the S corporation is subject to vari- If you have losses, deductions, credits, etc., income by the corporation; and (2) amounts in
ous taxes, you are liable for the income tax from a prior year that were not deductible or the activity for which you are not at-risk, you
on your share of the S corporation’s income, usable because of certain limitations, such as will have to complete federal Form 6198,
whether or not distributed, and you must the at-risk rules, these carryforward losses, At-Risk Limitations, to figure the allowable
include your share on your tax return. deductions and credits may be taken into loss to report on your return. For California
account in determining your net income, loss, purposes, you must complete federal
The amount of losses and deductions that you etc., for this year. However, do not combine
may claim on your individual tax return may Form 6198 using California amounts.
the prior year amounts with any amounts
be less than the amount reported on Sched- shown on this Schedule K-1 (100S) to get a The at-risk rules generally limit the amount of
ule K-1 (100S). Generally, the amount of net figure to report on any supporting sched- loss (including loss on disposition of assets)
losses and deductions you may claim is lim- ules, statements or forms attached to your and other deductions (such as IRC
ited to your basis in the S corporation, debt return. Instead, report the amounts on an Section 179 or R&TC Sections 17266,
owed to you by the S corporation and the attached schedule, statement or form on a 17267.2, 17267.6 and 17268 deductions) that
amount for which you are considered at-risk. If year-by-year basis. you may claim to the amount you could actu-
the S corporation has losses, deductions or ally lose in the activity. See the federal
Line 1 through Line 3 Schedule K-1 (Form 1120S) instructions for
credits from a passive activity, you must also
apply the passive activity rules. It is your The amounts shown on line 1 through line 3 At-Risk Limitations for more information.
responsibility to consider and apply any appli- reflect your share of income or loss from the Passive activity limitations
cable limitations. See Limitations on Losses, S corporation’s business or rental operations
without reference to your limitations on losses Caution: During 1993, the U.S. Congress
Deductions and Credits. Use these instruc- made changes to the passive activity loss pro-
tions to help you report the items shown on or adjustments that may be required because
of: visions of the IRC relating to real estate pro-
Schedule K-1 (100S) on your California tax fessionals. California has not conformed to
return. • The adjusted basis of your S corporation those changes.
For the line items where ‘‘attach schedule’’ ownership interest;
appears, the S corporation should have pro- • The amount for which you are at-risk as California tax law conforms to federal IRC
determined under IRC Section 465; and Section 469 rules that limit the deduction of
vided additional information applicable to that
line or the S corporation should have made • The passive activity limitations of IRC certain losses and credits.
an entry on Side 2, line 23. Section 469. These rules apply to shareholders who:
Nonresident shareholders of an S corporation See the federal Schedule K-1 (Form 1120S) • Are individuals, estates or trusts; and
that is doing business in California may qualify instructions for line 1 through line 3 for more • Have a loss or credit from a passive
to file a group nonresident return on information. activity.
Form 540NR, California Nonresident or Part- A passive activity is generally a rental activity
Year Resident Income Tax Return. For more
Limitations on Losses, Deductions or a trade or business activity in which the
information on the election to file a group non- and Credits shareholder does not materially participate.
resident return, get FTB Pub. 1067, Guide- Basis rules If you have a loss or deductions from a pas-
lines for Filing a Group Form 540NR. Generally, you may not claim your share of sive activity, you will need to complete form
Line 1 through Line 22 the S corporation loss (including capital loss) FTB 3801 to figure the allowable amounts to
If you are an individual shareholder, take the that is larger than the adjusted basis of your report on your individual return. You will also
amounts in column (c) that are from nonpas- shareholder interest at the end of the S corpo- need to complete form FTB 3801 if you have
sive activities and enter these amounts on the ration’s income year. passive activity income from this S corporation
appropriate form or schedule as explained in Basis is increased by: and passive activity loss or deduction from
these instructions. another source.
1. All income (including tax-exempt income)
Report the amounts in column (d) or column reported on Schedule K-1 (100S). The amounts reported on line 2 and line 3 of
(e) that are from passive activities on the 2. Money and adjusted basis in property con- Schedule K-1 (100S) are from rental activities
California form or schedule where they are tributed to the corporation. of the S corporation and are generally passive
normally reported. Bring the total amounts fig- 3. The excess of the deduction for depletion activity income (loss) to all shareholders.
ured on the appropriate California form or over the adjusted basis of the property There is an exception to this rule for losses
schedule to form FTB 3801, Passive Activity subject to depletion. incurred by qualified investors in qualified low-
Loss Limitations, to figure the amount of your income housing projects. The S corporation
passive activity loss limitation. Then transfer

Schedule K-1 (100S) 1998 Page 41


will identify any of these qualified amounts on do so, the shareholder may be subject to an Section 469. Portfolio income includes income
an attachment for line 2. accuracy related penalty. not derived in the ordinary course of a trade
Passive activity credits are also limited to pas- Line 1 – Ordinary income (loss) from trade or business from interest, dividends, annuities
sive income. See the instructions for line 13. or business activities or royalties and gain (loss) on the sale of
The amount reported on line 1, column (d) or property that produces these types of income
California Adjustment — Column (c) column (e) is your share of the ordinary or is held for investment. If you have amounts
Use this column to account for your propor- income (loss) from the trade or business activ- on Schedule K-1 (100S), line 4a through
tionate share of the differences in the ities of the S corporation. Generally, where line 4f, report these amounts as follows:
computation of federal and California income. you report this amount on Form 540, • Line 4a, column (c) and/or column (e) –
The major items are: Form 540NR or Form 541 depends on Report on Schedule CA (540 or 540NR),
whether or not the amount is from an activity line 8 whichever column is applicable;
• California minimum franchise tax; that is a passive activity to you. • Line 4b, column (c) and/or column (e) –
• Depreciation expense due to different If, in addition to this passive activity income, Report on Schedule CA (540 or 540NR),
basis of the assets or depreciation method line 9 whichever column is applicable;
you have a passive activity loss from this
used; • Line 4c, column (c) and/or column (e) –
• Gain or loss on sale of assets due to the S corporation or from any other source, report
the line 1, column (d) or column (e) income on Report on Schedule CA (540 or 540NR),
effects of different depreciation methods or line 17 whichever column is applicable;
form FTB 3801.
basis; and • Line 4d and line 4e, column (d) or col-
• Government bond interest income: If a loss is reported on line 1, column (d) or umn (e) – Report on Schedule D; and
a) U.S. bond interest is taxable for column (e), report the loss on the applicable • Line 4f, column (d) or column (e) – Report
federal purposes but not for California line of form FTB 3801 to determine how much on the applicable schedule.
purposes; and of the loss is allowable.
Caution: Generally, amounts reported on
b) State bond interest (other than from Line 2 – Net income (loss) from rental real
line 4d and line 4e are gains or losses attrib-
California bonds) is taxable for estate activities
utable to the disposition of property held for
California franchise tax purposes but Generally, the income (loss) reported on investment and are therefore classified as
not for federal purposes. line 2, column (d) or column (e), is a passive portfolio income (loss). If, however, an amount
activity amount to all shareholders. There is reported on line 4d or line 4e, column (d) or
Total amounts using California law an exception, however, for losses from a qual- column (e), is a passive activity amount, the
— Column (d) and California source ified low-income housing project. The loss S corporation should identify the amount.
limitations do not apply to qualified investors
amounts and credits — Column (e) in qualified low-income housing projects. The The S corporation uses line 4f, column (d) or
Shareholders who are California residents will S corporation will have attached a schedule column (e), to report portfolio income other
use amounts shown in column (d) because for line 2 to identify such amounts, if applica- than interest, dividend, royalty and capital
California resident individuals are subject to ble. You will have to report the California gain (loss) income. A statement will be
personal income tax on all income from what- adjustment amount from column (c) on attached to tell you what kind of portfolio
ever source derived (R&TC Section 17041). Schedule CA (540 or 540NR). income is reported on line 4f, column (d) or
Nonresident shareholders who do not conduct column (e).
Use the following instructions to determine
a trade or business that is unitary with the where to enter a line 2 amount. Line 5 – Net gain (loss)
If the amount on line 5 relates to a rental
S corporation should use the amounts in
column (c), column (d) (for total income pur-
• If you have a loss on line 2, column (d) or activity, the IRC Section 1231 gain (loss) is a
column (e) (other than a qualified low- passive activity amount.
poses), column (e) (for California source income housing project loss), enter this
income purposes) and Table 1. If the nonresi- passive activity loss on the applicable line • If the amount is not a passive activity
dent shareholder conducts a unitary business of form FTB 3801 to determine how much amount to you, report it on Schedule D-1,
with the S corporation, data in column (e) of the loss is allowable. Sales of Business Property, line 2,
should not be used. Instead, the shareholder column (g) or column (h), whichever is
must combine its share of the S corporation’s Note: If you are a qualified investor report- applicable. You do not have to complete
income with the income from its trade or busi- ing a qualified low-income housing project the information called for in column (b)
ness and apportion that income using an loss, report the California adjustment through column (f). Write ‘‘From
apportionment percentage consisting of a amount from column (c) directly on Sched- Schedule K-1 (100S)’’ across these
combination of the factors from its trade or ule CA (540 or 540NR). columns.
business and the shareholder’s share of the • If you have income on line 2, column (d) • If a gain is reported on line 5, column (d)
factors from the S corporation from Table 2. or column (e) and no passive losses, enter or column (e), and it is a passive activity
Amounts in Table 1 should be sourced to the the California adjustment from column (c) amount to you, report the gain on Sched-
residency or commercial domicile of the on Schedule CA (540 or 540NR). ule D-1, line 2, column (h), and refer to
shareholder. Line 3 – Net income (loss) from other ‘‘Passive Loss Limitations’’ in the instruc-
rental activities tions for Schedule D-1.
Income The amount on line 3, column (d) or • If a loss is reported on line 5, column (d)
Inconsistent treatment of items column (e) is a passive activity amount for all or column (e) and it is a passive activity
Generally, shareholders must report subchap- shareholders. amount to you, report the gain on Sched-
ter S items shown on their Schedule K-1 ule D-1, line 2, column (h), and refer to
(100S), and any attached schedules, the • If line 3, column (d) or column (e) is a loss, ‘‘Passive Loss Limitations’’ in the instruc-
same way the corporation treated the items report the loss on the applicable line of tions for Schedule D-1. You will need to
on its return. If the treatment on a share- form FTB 3801. use form FTB 3801 to determine how
holder’s original or amended return is incon- • If income is reported on line 3, column (d) much of the loss is allowed on Schedule
sistent with the corporation’s treatment, or if or column (e) and you have no passive D-1.
the corporation has not filed a return, you losses, report the California adjustment
from column (c) on Schedule CA (540 or Line 6 – Other income (loss)
must attach a statement with your original or Amounts on this line are other items of
amended return to identify and explain any 540NR).
Line 4 – Portfolio income (loss) income, gain or loss not included on line 1
inconsistency or to note that a corporate through line 5. The S corporation should give
return has not been filed. If a shareholder is Income (loss) referred to as ‘‘portfolio’’ income you a description of your share for each of
required to attach this statement but fails to (loss) in these instructions is not part of a these items.
passive activity subject to the rules of IRC

Page 42 Schedule K-1 (100S) 1998


Report income or gain items that are passive nesses. See form FTB 3885A, Depreciation expenses from all other sources to determine
activity amounts to you as instructed below. If, and Amortization Adjustments – Individuals, the amount to enter on form FTB 3526, line 4.
in addition to this passive activity income or and federal Publication 534, Depreciating
gain, you have passive activity losses from Property Placed in Service Before 1987, for Tax Credits
any other source, also report the passive more information. The S corporation must provide you the infor-
activity income or gain on form FTB 3801. If the S corporation reported an EZ, LARZ, mation needed to compute a credit allowable
Line 6 items may include the following: LAMBRA or TTA business expense deduction on your return.
• S corporation gains from the disposition of on this line from R&TC Sections 17266, Line 12a – Low-income housing credit
farm recapture property (refer to 17267.2, 17267.6 or 17268, complete form Your share of the S corporation’s low-income
Schedule D-1) and other items to which FTB 3805Z, form FTB 3806, form FTB 3807 housing credit is shown on line 12a,
IRC Section 1252 applies; or form FTB 3809, to report your pro rata column (d) or column (e). Any available credit
• Recovery of bad debts, prior taxes and share. is entered on form FTB 3521, Low-Income
delinquency amounts (IRC Section 111). Line 9 – Deductions related to portfolio Housing Credit. To claim this credit, attach a
Report the amount from line 6, column (c), income (loss) copy of form FTB 3521 to your return.
on Schedule CA (540 or 540NR), line 21 Amounts entered on this line are the Caution: You may not claim the low-income
whichever column is applicable; expenses (other than investment interest housing credit on any qualified low-income
• Gains and losses from gambling (IRC expense and expenses from a REMIC) paid housing project for which any person was
Section 165(d)); or incurred to produce portfolio income. If you allowed any benefit under Section 502 of the
• Any income, gain or loss to the S corpora- have an amount on Schedule K-1 (100S), federal Tax Reform Act of 1986. Also, the
tion under IRC Section 751(b) from a part- line 9, column (c), enter this amount on passive activity credit limitations of IRC Sec-
nership. Report this amount on Schedule CA (540 or 540NR), line 37. How- tion 469 may limit the amount of credit you
Schedule D-1, line 10; ever, if any of the line 9 amount should not be may take. Get form FTB 3801-CR, Passive
• Specially allocated ordinary gain (loss). reported on Schedule CA (540 or 540NR), the Activity Credit Limitations, to figure the
Report this amount on Schedule D-1, S corporation will identify that amount for you. amount of credit that may be limited under the
line 10; Line 10 – Other deductions passive activity rules.
• Net gain (loss) from involuntary conver- Amounts on this line are other deductions not For more information, see the instructions for
sions due to casualty or theft. The S cor- included on line 7 through line 9. If there is an line 13.
poration will give you a schedule that amount on Schedule K-1 (100S), line 10,
shows the California amounts to be Line 12b – Credits related to rental real
column (c), enter this amount on the applica- estate activities
entered on federal Form 4684, Casualties ble line of Schedule CA (540 or 540NR).
and Thefts, line 34, column (b)(i), If applicable, the S corporation may use this
column (b)(ii) and column (c); Investment Interest line, through an attached schedule, to give
• Net short-term capital gain or loss, net Line 11a and Line 11b
you the information you need to compute
long-term capital gain or loss, gain or loss credits related to rental real estate activities
If the S corporation paid or accrued interest other than the low-income housing credit.
from Schedule D (100S) that is not portfo- on debts it incurred to buy or hold investment
lio income (e.g., gain or loss from the dis- property, the amount of interest you can For more information, see the instructions for
position of nondepreciable personal deduct may be limited. line 13.
property used in a trade or business activ- Line 12c – Credits related to other rental
ity of the S corporation); For more information and the special provi-
activities
• Any new gain or loss from sions that apply to investment interest
If applicable, the S corporation will use this
IRC Section 1256 contracts; and expense, get form FTB 3526, Investment
line, through an attached schedule, to give
• Eligible gain from the sale or exchange of Interest Expense Deduction, and the federal
you the information you need to compute
qualified small business stock (as defined Publication 550, Investment Income and
Expenses. credits related to rental activities other than
in R&TC Section 18152.5). The S corpora- rental real estate activities.
tion should also give you the name of the Line 11a – Interest expense on investment
corporation that issued the stock and your debts For more information, see the instructions for
pro rata share of the basis of that stock. Enter the amount from column (d) or line 13.
Note: Corporate shareholders are not eligible column (e) on form FTB 3526 along with your Line 13 – Other credits
for the R&TC Section 18152.5 exclusion. investment interest expense from other If applicable, the S corporation will use this
sources. Form FTB 3526 will help you deter- line, through an attached schedule, to give
Deductions mine how much of your total investment inter- you the information you need to compute
Line 7 – Charitable contributions est is deductible. credits related to a trade or business activity.
The S corporation will give you a schedule Line 11b(1) and Line 11b(2) – Investment Credits that may be reported on line 12c or
that shows which contributions were subject to income and investment expenses line 13 (depending on the type of activity they
the 50%, 30% and 20% limitations. For more Use the column (d) or column (e) amounts on relate to) include but are not limited to:
information, refer to the federal Form 1040 these lines to determine the amount to enter • Enterprise zone hiring & sales or use tax
instructions. on form FTB 3526, line 4. credit (FTB 3805Z);
If there is an amount on Schedule K-1 (100S), Caution: The amounts shown on line 11b(1) • Los Angeles Revitalization Zone (LARZ)
line 7, column (c), enter this amount on and line 11b(2) include only investment hiring & sales or use tax credit
Schedule CA (540 or 540NR), line 37. income and expenses included on lines 4a, (FTB 3806);
Line 8 – Expense deduction for recovery 4b, 4c, 4f and line 9 of this Schedule K-1 • Local Agency Military Base Recovery Area
property (100S). The S corporation should attach a (LAMBRA) hiring & sales or use tax credit
The maximum amount of expense deduction schedule that shows you the amount of any (FTB 3807);
for recovery property (IRC Section 179 deduc- investment income and expenses included in • Research credit (FTB 3523);
tion) that you may claim from all sources is any other lines of your Schedule K-1 (100S). • Manufacturers’ investment credit
$16,000. The S corporation will give you infor- Use these amounts, if any, to adjust line (FTB 3535);
mation on your share of the cost of the S cor- 11b(1) and line 11b(2) to determine your total • Targeted Tax Area (TTA) hiring & sales or
poration’s IRC Section 179 property so that investment income and total investment use tax credit (FTB 3809); or
you can compute this limitation. Your IRC expenses from this S corporation. Combine • Manufacturing Enhancement Area (MEA)
Section 179 deduction is also limited to your these totals with investment income and hiring credit (FTB 3808).
taxable income from all your trades or busi-

Schedule K-1 (100S) 1998 Page 43


Note: The at-risk limitations of IRC Line 21 • In the case of a pass-through entity which
Section 465, the passive activity limitations of Reduce your basis in stock of the S corpora- reports a profit for the taxable or income
IRC Section 469 and the pass-through rules tion by the distributions on line 21. If these year, your profit interest in the entity at the
of IRC Section 1366 may limit the amount of distributions exceed your basis in stock, the end of your taxable year.
credits that you may take. Credits on line 12 excess is treated as gain from the sale or • In the case of a pass-through entity which
and line 13 may be passive activity credits to exchange of property and is reported on reports a loss for the taxable or income
shareholders who do not materially Schedule D. year, your loss interest in the entity at the
participate. Line 22 end of your taxable year.
Passive activity credits are limited to tax attrib- If the line 22 payments are made on indebted- • In the case of a pass-through entity which
utable to passive activities. If you do not ness with a reduced basis, the repayments is sold or liquidates during the taxable or
materially participate in the activities of the result in income to you to the extent the income year, your capital account interest
S corporation, get form FTB 3801-CR, Pas- repayments are more than the adjusted basis in the entity at the time of the sale or
sive Activity Credit Limitations, to determine of the loan. See IRC Section 1367(b)(2) for liquidation.
the amount of the credit you may take. information on reduction in basis of a loan ‘‘Proportionate interest’’ includes an interest in
and restoration of basis of a loan with a a pass-through entity including a partnership,
Adjustments and Tax Preference reduced basis. See federal Revenue S corporation, RIC, REIT or REMIC.
Items Ruling 68-537, 1968-2 C.B. 372, for more For purposes of R&TC Section 17062(b)(4),
Line 14a through Line 14e information. ‘‘gross receipts’’ means the sum of gross
Use the information reported on line 14a receipts from the production of business
Supplemental Information income (within the meaning of subdivisions (a)
through line 14e (as well as adjustments and
Line 23 and (c) of R&TC Section 25120) and the
tax preference items from other sources) to
prepare Schedule P (540, 540NR or 541), The S corporation will provide supplemental gross receipts from the production of nonbusi-
Alternative Minimum Tax and Credit information required to be reported to you on ness income (within the meaning of subdivi-
Limitations. this line. If the S corporation is claiming tax sion (d) of R&TC Section 25120).
benefits from an EZ, LARZ, LAMBRA, TTA or ‘‘Proportionate interest’’ includes an interest in
For more information, get federal MEA, it will give you your pro rata share of (1) a pass-through entity. See R&TC Sec-
Schedule K-1 (Form 1120S) instructions for business income apportioned to the EZ, tion 17062 for more information.
Adjustments and Tax Preference Items. LARZ, LAMBRA, MEA or TTA, and (2) busi- If the S corporation listed any credit recapture
Other State Taxes ness capital gains and losses included in (1) on this line, see your tax booklet for informa-
on this line. Get form FTB 3805Z, FTB 3806, tion on how to report the credit recapture.
Line 15a through Line 15e FTB 3807, FTB 3808 or FTB 3809 to claim
You may claim a credit against your individual any applicable credit or business expense Table 1
tax for your share of net income taxes paid by deduction. The income data contained in Table 1 is not
the S corporation to certain other states which reflected in column (e) because the source of
either tax the corporation as an S corporation The S corporation may have provided an such income must be determined at the
or do not recognize S corporation status. For amount showing your proportionate interest in shareholder level. The shareholder must make
purposes of this credit, net income taxes the S corporation’s aggregate gross receipts, a determination whether the nonbusiness
include your share of taxes on, according to, less returns and allowances on Schedule K-1 intangible income item is from a California
or measured by income. (100S), line 23. Legislation enacted in 1996 source.
allows a qualified taxpayer to exclude from
Residents are taxed on their pro rata share of alternative minimum taxable income adjust- Net nonbusiness income is computed by sub-
all income and generally receive a credit for ments and items of tax preference attributable tracting related nonbusiness expenses from
taxes paid to other states. Nonresidents and to any trade or business. A ‘‘qualified tax- the nonbusiness income.
part-year residents use column (e) for your payer’’ is defined as an individual, estate or Table 2
pro rata share of California source pass- trust that: If the shareholder and S corporation are
through income.
• Is the owner of, or has an ownership inter- engaged in a single unitary business, the
For more information, get California est in a trade or business; and shareholder’s share of the S corporation’s
Schedule S, Other State Tax Credit. • Has aggregate gross receipts, less returns business income is entered on Table 2,
and allowances, of less than $1,000,000 Part A. The shareholder will then add that
Other Items from all trades or businesses that the tax- income to its own business income and
Note: Amounts on line 16a through line 22 payer is an owner of or has an ownership apportion the combined business income.
may not necessarily be California source interest in, in the amount of that taxpayer’s The shareholder’s share of the S corporation’s
amounts. However, enter the same amount in proportionate interest in each trade or payroll, property and sales data is in Table 2,
column (e) as entered in column (d). business. Part C. The business income in Table 2,
Line 16a through Line 19 ‘‘Aggregate gross receipts, less returns and Part A is combined with the taxpayer’s other
Refer to the instructions for federal allowances’’ means the sum of the gross business income from the unitary business.
Schedule K-1 (1120S). receipts of the trades or businesses which The apportionment numerator and denomina-
Line 20 you own and the proportionate interest of the tor data are added to the appropriate numera-
The S corporation must issue a federal gross receipts of the trades or businesses tor and denominator of the shareholder’s
Form 1099-DIV to you for this distribution. which you own and of pass-through entities in payroll, property, and sales factors.
Report this amount as a taxable dividend on which you hold an interest.
your individual return. ‘‘Proportionate interest’’ is defined as:

Page 44 Schedule K-1 (100S) 1998


Instructions for Form FTB 3539
Automatic Extension for Corporations and Exempt Organizations
General Information Electronic Funds Transfer (EFT)
If a corporation, including real estate investment trusts Corporations or exempt organizations that meet certain
(REITs), real estate mortgage investment conduits (REMICs), requirements must remit all of their payments through EFT
regulated investment companies (RICs) and limited liability rather than by paper checks. Corporations or exempt
companies (LLCs) treated as corporations, or an exempt organizations that remit an estimated tax payment or
organization in good standing cannot file its California tax extension payment in excess of $20,000 or that have a total
return by the original due date, a seven month extension to tax liability in excess of $80,000 in any income year
file will be allowed automatically without filing a written beginning on or after January 1, 1995, must pay through
request. To qualify for the automatic extension, the EFT. The FTB will notify corporations or exempt
corporation’s or exempt organization’s tax return must be organizations that are subject to this requirement. If you are
filed by the extended due date. The corporation’s powers, an EFT taxpayer, DO NOT USE THIS FORM. Those that
rights and privileges must not be suspended or forfeited by wish to participate on a voluntary basis may do so. For more
the Franchise Tax Board (FTB) or the California Secretary of information, call 1-800-852-2753 or get FTB Pub. 3817,
State (SOS) as of the original due date. The extended due Electronic Funds Transfer Program Information Guide.
date for corporations is the 15th day of the 10th month
following the close of the income year (fiscal year filers) or
October 15, 1999 (calendar year filers). The extended due Where to File
date for exempt organizations filing Form 199 or Form 109 is If tax is due and the corporation or exempt organization is
the 15th day of the 12th month following the close of the not required to use EFT, attach a check or money order for
taxable year (fiscal year filers) or December 15, 1999 the tax due to form FTB 3539. Write the California
(calendar year filers). corporation number or FEIN and 1998 FTB 3539 on the
The extended due date for an employees’ trust defined in check or money order. Mail only the voucher portion with
IRC Section 401(a) and an IRA filing Form 109 is the 15th the payment to:
day of the 11th month after the end of the income year FRANCHISE TAX BOARD
(fiscal year filers) or November 15, 1999 (calendar year PO BOX 942857
filers). SACRAMENTO CA 94257-0551
An extension of time to file the tax return is not an extension
of time to pay the tax. To avoid late payment penalties and
interest, 100% of the tax liability must be paid by the 15th Penalties and Interest
day of the 3rd month (fiscal year corporations), or the 15th
If the corporation or exempt organization fails to pay its total
day of the 5th month (fiscal year exempt organizations)
tax by the original due date, a late payment penalty plus
following the close of the income year or March 15, 1999
interest will be added to the tax due. If the corporation or
(calendar year corporations), or May 17, 1999 (calendar year
exempt organization does not file its return by the extended
exempt organizations). Employees’ trusts and IRAs must pay
due date, or the corporation’s powers, rights and privileges
100% of the tax liability by the 15th day of the 4th month
have been suspended or forfeited by the FTB or the
after the end of the income year.
California SOS, as of the original due date, the automatic
Complete the Tax Payment Worksheet on Side 2 to see if extension will not apply and a late filing penalty plus interest
additional tax is due. Send in the voucher only if a will be assessed from the original due date of the return.
payment is due.
Save the completed worksheet as a permanent part of the
corporation’s or exempt organization’s tax records along with
a copy of the return.

DETACH HERE
(Calendar year corporations — Due March 15, 1999)
(Employees’ trust and IRA — Due April 15, 1999)
(Calendar year exempt organizations — Due May 17, 1999)
YEAR
Payment Voucher for Automatic Extension CALIFORNIA FORM

1998 for Corporations and Exempt Organizations 3539


For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______ .
California corporation number Federal employer identification number
Tax

Corporation/Exempt organization name


due , , , • C
O
Address Type of form filed.
R
■ Form 100 ■ Form 109
City State ZIP Code
■ Form 100S ■ Form 199 P
IF NO PAYMENT IS DUE, DO NOT FILE THIS FORM Payment Voucher 5
EFT TAXPAYERS, DO NOT USE THIS FORM 353998109 FTB 3539 1998 Side 1
TAX PAYMENT WORKSHEET FOR YOUR RECORDS
1 Total tentative tax. Include alternative minimum tax if applicable. See instructions . . . . . . . . . . . . . . . . . . . . 1
2 Estimated tax payments including prior year overpayment applied as a credit . . . . . . . . . . . . . . . . . . . . . . 2
3 Tax Due. If line 2 is more than line 1, see instructions. If line 1 is more than line 2, subtract line 2 from line 1.
Enter the result here and on form FTB 3539 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Combined Reports How to Complete the Tax Payment Worksheet
If members of a combined unitary group have made or Line 1 - Enter the total tentative tax, including the alternative
intend to make an election to file a Combined Unitary Group minimum tax for the income year.
Single Return, only the key corporation designated to file the • If filing Form 100 or Form 100S, the tentative tax may
return should submit form FTB 3539. The key corporation not be less than the minimum franchise tax and
must include payment of at least the minimum franchise tax Qualified Subchapter S Subsidiary (QSSS) annual tax
for each corporation of the combined unitary group that is (S corporations only).
subject to the franchise tax in California.
• If filing Form 109, enter the amount of tax. Form 109
If members of a combined unitary group intend to file filers are not subject to the minimum franchise tax.
separate returns with the FTB, each member must submit its
own form FTB 3539 if there is an amount entered on line 3 • Qualified New Corporation
of the worksheet. If the corporation was a qualified new corporation
(QNC) and paid:
• $600 prepayment minimum tax to the SOS for
Exempt Organizations income years commencing on or after January 1,
1997 and before January 1, 1999; or
• Form 100 filers: • $300 prepayment minimum tax to the SOS for
The due dates for corporations also apply to the filing of income years commencing on or after
Form 100, California Corporation Franchise or Income January 1, 1999; and/or
Tax Return, by political action committees and • $500 minimum franchise tax for its 2nd taxable
exempt homeowners’ associations. year, for income years beginning on or after
Political action committees and exempt homeowners’ January 1, 1999, for corporations that incorporate
associations that file Form 100 should not enter the on or after January 1, 1999; and
minimum franchise tax on line 1 of the Tax Payment during the income year the corporation did not meet
Worksheet. the QNC criteria (see below), then include the
• Form 199 Filers: appropriate amount(s) on line 1:
Generally, Form 199, California Exempt Organization • $200, if the corporation paid the $600 prepayment
Annual Information Return, requires a $10 filing fee to be tax to SOS; or
paid with the return on the original or extended due date. • $500, if the corporation paid the $300 prepayment
Use form FTB 3539 only if paying the fee early. Enter the tax to SOS; and/or
amount of the fee on line 3 of the Tax Payment • $300, if the corporation paid the $500 minimum
Worksheet. franchise tax for its 2nd taxable year.
• Form 109 Filers: A qualified new corporation is a corporation that:
The due dates for filing Form 109, California Exempt • Reasonably estimates it will have gross receipts,
Organization Business Income Tax Return, depend less returns and allowances, reportable to
on the type of organization filing the return. Employees’ California of $1 million or less during the income
pension trusts and IRAs (including education IRAs) must year; and
file on or before the 15th day of the 4th month after • Reasonably estimates it will have tax liability that
the close of their income year. All other exempt does not exceed $800; and
organizations (except homeowners’ associations and • Did not begin business operations as a sole
political organizations) must file on or before the proprietorship, a partnership, or any other form of
15th day of the 5th month after the close of their income business entity; and
year. • Began business operations at or after the time of
its incorporation.
Line 2 - Enter the estimated tax payments, including prior year
overpayment applied as a credit. Also include any QSSS
annual tax payments (S corporations only).
Line 3 - Tax due. If the amount on line 2 is more than the amount on
line 1, the payments and credits are more than the tax. The
corporation or exempt organization has no tax due. DO NOT
SEND THE PAYMENT VOUCHER. The corporation or
exempt organization will automatically qualify for an
extension if the tax return is filed by the extended due date.
If the amount on line 1 is more than the amount on line 2,
then the corporation’s or exempt organization’s tax is more
than its payments and credits. The corporation or exempt
organization has tax due.
Subtract line 2 from line 1. Enter this amount on line 3 below
and on form FTB 3539.

Side 2 FTB 3539 1998


How To Get California Tax Information
Where By Internet – If you have Internet access, you may Asistencia Bilingüe en Español
download, view and print 1994 through 1998 California Para obtener servicios en Español y asistencia para
To Get income tax forms and publications. Our Internet address completar su declaración de impuestos/formularios, llame al
Income is: http://www.ftb.ca.gov número de teléfono (anotado arriba) que le corresponde.
By phone – Use F.A.S.T. to order the 1998 California tax
Tax forms listed to the right. To order a form on the list: California Tax Forms and Publications
Forms • Call (800) 338-0505 from within the United 817 California Corporation Tax Forms and Instructions.
States; or This booklet contains:
• (916) 845-6600 from outside the United States Form 100, California Corporation Franchise or Income
(not toll-free); Tax Return; and the following forms which are also
• Select bank and corporation income tax form available separately:
requests; and 821 Schedule P (100), Alternative Minimum Tax and
• Enter the three-digit code shown to the left of the Credit Limitations — Corporations
form title when you are instructed to do so. 822 FTB 3885, Depreciation/Amortization
We will send you two copies of each tax form and one copy 807 FTB 3805Q, Net Operating Loss (NOL) Computation
of each set of instructions. Please allow two weeks to and NOL and Disaster Loss Limitations —
receive your order. If you live outside California, please Corporations
allow three weeks to receive your order. 808 FTB 3539, Payment Voucher for Automatic Extension
For prior year California tax forms, call our toll-free number for Corporations and Exempt Organizations
listed under ‘‘General Toll-Free Phone Service.’’ 816 California S Corporation Tax Forms and Instructions.
In person – Most libraries, post offices and banks provide This booklet contains:
free California personal income tax booklets during the filing Form 100S, California S Corporation Franchise or
season. Many libraries and some quick print businesses Income Tax Return; and the following forms which are
have forms and schedules for you to photocopy (you may also available separately:
have to pay a nominal fee). Note that employees at 823 Schedule B(100S), S Corporation Depreciation and
libraries, post offices, banks and quick print businesses Amortization
cannot provide tax information or assistance. Schedule C (100S), S Corporation Tax Credits
Schedule H (100S), Dividend Income
By mail – Write to: TAX FORMS REQUEST UNIT, Schedule D (100S), Capital Gains and Losses and
FRANCHISE TAX BOARD, PO BOX 307, RANCHO Built-In Gains
CORDOVA CA 95741-0307. 825 Schedule K-1 (100S), Shareholder’s Share of Income,
Deductions, Credits
Letters We can serve you by phone if you call us for information to
826 FTB 3830, S Corporation’s List of Shareholders
complete your California income tax return, or to find out
about your tax refund. However, you may want to write to and Consents
us if you are replying to a notice we sent you, or to get a 808 FTB 3539, Payment Voucher for Automatic Extension
written reply. If you write to us, be sure to include your for Corporations and Exempt Organizations
California corporation number or federal employer 814 Form 109, Exempt Organization Business Income
identification number, your daytime and evening telephone Tax Return
numbers and a copy of the notice with your letter. Send 818 Form 100-ES, Corporation Estimated Tax
your letter to: 813 Form 100X, Amended Corporation Return
FRANCHISE TAX BOARD 815 Form 199, Exempt Organization Return
PO BOX 942857 819 Schedule R, Apportionment and Allocation of Income
SACRAMENTO CA 94257-0540 812 FTB Pub. 1038, Guide for Corporations Dissolving,
Withdrawing or Merging
We will respond to your letter within 6 to 8 weeks. In some 809 FTB Pub. 1060, Guide for Corporations Starting Business
cases, we may need to call you for additional information. in California
810 FTB Pub. 1061, Guidelines for Corporations Filing a
Your Our goal at the FTB is to make certain that your rights are
Combined Report
protected so that you will have the highest confidence in the
Rights integrity, efficiency and fairness of our state tax system. 827 Form 100-WE, Water’s-Edge Booklet
829 FTB 3564, Authorization of Agent Under Revenue and
As A FTB Pub. 4058, California Taxpayers’ Bill of Rights,
includes information on your rights as a California taxpayer, Taxation Code Section 19141.6
Taxpayer the Taxpayers’ Rights Advocate Program and how you can 820 FTB Pub. 1068, Exempt Organizations Requirements for
Filing Returns and Paying Filing Fees
request written advice from the FTB on whether a particular
transaction is taxable. 802 FTB 3500, Exemption Application
See ‘‘Where to Get Income Tax Forms’’ on this page for 803 FTB 3555, Request for Tax Clearance
how to get FTB Pub. 4058. 804 FTB 3557, Application for Revivor
811 FTB 3560, S Corporation Election or
Termination/Revocation
General Between January 4 – April 15, 1999, our general toll-free
phone service is available: 806 FTB 5806, Underpayment of Estimated Tax by Corporations
Toll-Free • Monday – Friday, 6 a.m. until midnight; and 800 FTB Pub. 1028, Guidelines for Homeowners’ Associations
Phone • Saturday, 8 a.m. until 5 p.m. 801 FTB Pub. 1075, Exempt Organizations – Guide for Political
Organizations
After April 15, 1999, our general toll-free phone service is
Service available:
832 FTB 3555A, Request for Tax Clearance for Exempt
Organizations
• Monday – Friday, 7 a.m. until 8 p.m.
The best times to call are before 10 a.m. and after 6 p.m.
All times listed are Pacific Standard Time (PST).
From within the United States . . . . . . . (800) 852-5711
From outside the United States . . . . . . (916) 845-6500
(not toll-free)
For hearing impaired with TDD . . . . . . (800) 822-6268
For federal tax questions,
call the IRS at . . . . . . . . . . . . . . . (800) 829-1040

Form 100S Booklet 1998 Page 47


& F.A.S.T. Toll-Free Phone Service
Call Fast Answers about State Taxes, the F.A.S.T. toll-free phone Tax Clearance
service you can use to: 724 – How do I dissolve my corporation?
• Get recorded answers to many of your questions about California 725 – What do I have to do to get a tax clearance?
taxes; and 726 – How long will it take to get a tax clearance certificate?
• Order current year California bank and corporation tax forms. 727 – My corporation was suspended/forfeited. Can I still get a
F.A.S.T. is available in English and Spanish to callers with touch-tone tax clearance?
telephones. Miscellaneous
700 – Who do I need to contact to start a business?
When Is F.A.S.T. Available? 701 – I need a state ID number for my business. Who do I contact?
To answer your questions, F.A.S.T. is available 24 hours a day, seven 702 – Can you send me an employer’s tax guide?
days a week. To order bank and corporation forms F.A.S.T. is avail- 703 – How do I incorporate?
able from 6 a.m. to 6 p.m. Monday through Friday, except state holi- 719 – How do I properly identify my corporation when dealing with
days. All times listed are Pacific Standard Time (PST). the Franchise Tax Board?
720 – How do I obtain information about changing my corporation’s
How To Use F.A.S.T. name?
Have paper and pencil handy to take notes. 721 – How do I change my accounting period?
Call from within the United States . . . . . . . . . . . (800) 338-0505 737 – Where do I send my payment?
Call from outside the United States (not toll-free) . . (916) 845-6600 738 – What is electronic funds transfer?
739 – How do I get a copy of my state corporate tax return?
Follow the recorded instructions and enter the three-digit code when
740 – What requirements do I have to report municipal bond interest
you are instructed to do so.
paid by a state other than California?
750 – How do I organize or register an LLC?
To Order Forms 751 – How do I cancel my registration as an LLC?
See ‘‘Where to Get Income Tax Forms’’ on previous page.
752 – What tax forms do I use to file as an LLC?
758 – If a corporation converted to an LLC during the current year, is
To Get Information the corporation liable for tax as a corporation and an LLC
If you need an answer to any of the following questions, call
tax/fee in the same year?
(800) 338-0505, select general tax information, follow the recorded
instructions and enter the three-digit code when instructed to do so.
District Offices
Code- Filing Assistance: You can get information, California tax forms and resolve problems on
715 – If my actual tax is less than the minimum franchise tax, your account if you visit one of our district offices.
what figure do I put on line 23 of Form 100?
717 – What are the current tax rates for corporations? District Office Address
718 – How do I get an extension of time to file?
Bakersfield 1800 30th Street, Suite 370
722 – When do I have to file a short-period return?
734 – Is my corporation subject to franchise tax or income tax? Burbank 333 N. Glenoaks Boulevard, Room 200
Fresno 2550 Mariposa Street, Room 3002
S Corporations
704 – Is an S corporation subject to the minimum franchise tax? Long Beach 4300 Long Beach Boulevard, Suite 700B
705 – Are S corporations required to file estimate payments? Los Angeles 300 S. Spring Street, Suite 5704
706 – What forms do S corporations file? Oakland 1515 Clay Street, Suite 3N-305
707 – The tax for my S corporation is less than the minimum Sacramento 3321 Power Inn Road
franchise tax. What figure do I put on line 22 of Form 100S?
San Bernardino 464 W. 4th Street, Suite 454
708 – Where do S corporations make adjustment for state and
federal law differences on Schedule K-1(100S) and where do San Diego 5353 Mission Center Road, Suite 314
nonresident shareholders find their California source income on San Francisco 50 Fremont Street, Suite 900
their Schedule K-1(100S)? San Jose 96 N. Third Street, 4th Floor
Exempt Organizations Santa Ana 600 W. Santa Ana Boulevard, Suite 300
709 – How do I get tax exempt status? Santa Rosa 50 D Street, Room 130
710 – Does an exempt organization have to file Form 199? Stockton 31 East Channel Street, Room 219
735 – How can an exempt organization incorporate without
Ventura 4820 McGrath Street, 2nd Floor
paying corporation fees and costs?
736 – I have exempt status. Do I need to file Form 100 or Form 109 West Covina 100 N. Barranca Street, Room 600
in addition to Form 199? Out of State Offices
Minimum Tax and Estimate Tax Chicago 1 N. Franklin, Suite 400
711 – Can I claim my prepayment tax as credit or estimate Chicago, IL 60606-3401
payment on my return? Long Island 1325 Franklin Avenue, Suite 560
712 – What is the minimum franchise tax?
Garden City, NY 11530
714 – My corporation is not doing business; does it have to pay the
minimum franchise tax? Houston 1415 Louisiana, Suite 1515
716 – When are my estimate payments due? Houston, TX 77002-7351
Billings and Miscellaneous Notices Manhattan 1212 Avenue of the Americas, 4th Floor
723 – I received a bill for $250. What is this for? New York, NY 10036-1601
728 – Why was my corporation suspended?
729 – Why is my subsidiary getting a request for a return when we
file a combined report? Recycled
Recyclable

Page 48 Form 100S Booklet 1998