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California

Forms & Instructions This booklet contains:

100-WE
Form 100-FEE-A, Amended Water’s-Edge Election Fee
Supplemental Schedule
Form 100-FEE-X, Amended Water’s-Edge Election Fee
Form 100-WE, Water’s-Edge Contract
FTB 1116, Notice of Nonrenewal of Water’s-Edge Contract
FTB 1117, Request to Terminate Water’s-Edge Election
FTB 2416, Retained Earnings of Controlled Foreign Corporations
1998
Water’s-Edge Booklet
FTB 2424, Water’s-Edge Foreign Investment Interest Offset
FTB 2426, Water’s-Edge Cover Sheet

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

State of California
Franchise Tax Board
Contents
Page
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Water’s-Edge Combined Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Water’s-Edge Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Foreign Dividend Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Foreign Investment Interest Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Retained Earnings of Controlled Foreign Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Key Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Return Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FTB 2426, Water’s-Edge Cover Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Form 100-WE, Water’s-Edge Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FTB 1116, Notice of Nonrenewal of Water’s-Edge Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FTB 1117, Request to Terminate Water’s-Edge Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
FTB 2416, Retained Earnings of Controlled Foreign Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
FTB 2424, Water’s-Edge Foreign Investment Interest Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Form 100-FEE-X, Amended Water’s-Edge Election Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Form 100-FEE-A, Amended Water’s-Edge Election Fee Supplemental Schedule. . . . . . . . . . . . . . . . . . . . . . . 27
How to Get California Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29, 30

Other Publications
Other publications prepared by the Franchise Tax Board include:
• FTB Pub. 1038, Guide for Corporations Dissolving, Surrendering (Withdrawing) or Merging
• FTB Pub. 1050, Application and Interpretation of Public Law 86-272
• FTB Pub. 1060, Guide for Corporations Starting Business in California
• FTB Pub. 1061, Guidelines for Corporations Filing a Combined Report
• FTB Pub. 1063, Guide for Corporations that May be Subject to the Provisions of the California Bank and Corporation
Tax Law
• FTB Pub. 1071, Guidelines for Voluntary Disclosure Agreements

These publications may be obtained by writing to:

TAX FORMS REQUEST UNIT


FRANCHISE TAX BOARD
PO BOX 307
RANCHO CORDOVA CA 95741-0307
If you have Internet access, you may download, view and print California tax forms and publications. The Internet address
is: http://www.ftb.ca.gov

Page 2 Form 100-WE Booklet 1998


Instructions for Taxpayers Making a Water’s-Edge Election
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).

Introduction income year. If the corporation fails to furnish Water’s-Edge Combined Report
this information, penalties may be imposed
For income years beginning on or after under R&TC Section 19141.2. Entities Included
January 1, 1988, taxpayers may elect to com- For income years beginning on or after
pute income attributable to California on the Foreign Investment Interest Offset
January 1, 1996, the water’s-edge combined
basis of a water’s-edge combined report. In For income years beginning on or after report includes only the income and appor-
general, under a water’s-edge election, affili- January 1, 1997, the amount of interest tionment factors of the members of the unitary
ated foreign corporations are excluded from expense that must be offset against deduct- group that meet the criteria listed below. If an
the combined report. Note: For purposes of ible foreign dividends is 75% of the interest entity meets any one of these criteria and is
these instructions, the word ‘‘taxpayer’’ expense attributable to foreign investments or unitary, it must be included in the combined
means a corporation in the combined the foreign dividend deduction, whichever is report. If an entity does not meet any of these
group that has a California filing less. criteria, it must be excluded from the com-
requirement. Water’s-Edge Dividend Deduction bined report.
The statute allowing the election to file on a For income years beginning on or after 1. Any domestic international sales corpora-
water’s-edge basis does not supersede the January 1, 1996, R&TC Section 24411 gener- tion, as defined in IRC Section 992, and
concept of unity; however, it merely limits the ally allows for a 75% deduction of the quali- any foreign sales corporation, as defined
unitary entities included in the combined fied foreign dividends received and included in in IRC Section 922.
report. (For a discussion of the concepts of the water’s-edge return. Form FTB 2411,
the unitary method of taxation and its applica- 2. Any corporation, regardless of where it is
Water’s-Edge Dividend Deduction has been incorporated, if the average of its property,
tion by the State of California, get FTB eliminated. To compute your water’s-edge div-
Pub. 1061, Guidelines for Corporations Filing payroll and sales factors within the U.S. is
idend deduction, refer to the Schedule H 20% or more. This rule does not apply to
a Combined Report.) Once the taxpayer has instructions in the Form 100 or Form 100S.
computed its income attributable to California foreign incorporated banks. R&TC
on the water’s-edge combined report basis, Information Return of U.S. Taxpayers Who Section 25128, requiring the double
the taxpayer can either file a separate return Have Ownership in a Foreign Corporation weighting of the sales factor, does not
or can elect to file a single return with the For income years beginning on or after apply for purposes of this inclusion test.
other taxpayers in the water’s-edge group. January 1, 1997, a corporation that is a Cali- For more information, get FTB Notice 95-5.
(See Schedule R-7, Election to File a Unitary fornia taxpayer and is required to file federal 3. Any bank or corporation incorporated in
Taxpayers’ Group Return and List of Affiliated Form(s) 5471, Information Return of U.S. Per- the U.S., more than 50% of whose stock is
Corporations, which is included in sons With Respect to Certain Foreign Corpo- owned or controlled directly or indirectly by
Schedule R, Apportionment and Allocation of rations, with the federal return, must attach the same interests, except for corporations
Income.) copy(s) to the California return. The penalty making an election under IRC Section 936.
This booklet explains how the water’s-edge for failing to include copy(s) of federal 4. Any export trade corporation as defined in
election is made, which entities must be Form 5471 is $1,000 per required form. The IRC Section 971.
included in the water’s-edge combined report penalty applies to income years beginning on
or after January 1, 1998. 5. Any controlled foreign corporation (CFC),
and other key features of the law. This as defined in IRC Section 957, that has
booklet should be used in conjunction with Subpart F income as defined in IRC
Form 100, California Corporation Franchise or Significant Changes to Section 952. The income and apportion-
Income Tax Return, or Form 100S, California Water’s-Edge Provisions ment factors of such corporations are
S Corporation Franchise or Income Tax Significant changes to the water’s-edge provi- included in the combined report based on
Return. sions are effective for income years beginning the ratio of the total Subpart F income of
on or after January 1, 1994. For information such entity for the year to its current year
Tax Law Changes regarding these changes, get FTB Notice 93-7 earnings and profits (E&P). The ratio can-
Proposed Regulation Amendments and Legal Ruling 95-4. not exceed 100% or be less than 0%. If
Amendments to Title 18 Cal. Code Reg. For income years beginning on or after the current year E&P are zero or less,
Sections 25111 and 25111-1 have been January 1, 1996, R&TC Section 25110 was none of the income and factors of the
ACCEPTED by the Franchise Tax Board amended with respect to the entities required entity are included in the combined report.
(FTB). The new regulations permit a valid to be included in the water’s-edge combined Subpart F income, defined in IRC
water’s-edge election if there is substantial report. Entities that are incorporated and Sections 955, 956 and 956A, is not con-
compliance with the requirements for the elec- maintained in Canada or Mexico solely to sidered in the computation.
tion. For more information, access our Internet comply with local laws and that are 100% 6. Any foreign organized bank, or any corpo-
site: http://www.ftb.ca.gov, select other FTB owned by a United States incorporated mem- ration not described in items 1 through 5
information, then select FTB legal documents. ber of the water’s-edge group, are generally with less than 20% of its average property,
no longer includable in the water’s-edge com- payroll and sales in the U.S., that has
Return Requirements for Foreign Partner-
bined report regardless of whether they are income attributable to sources within the
ship Interests
included in a federal consolidated return. U.S. Such entities are included in the com-
California conforms to the information report- bined report only to the extent of their U.S.
ing requirements for IRC Section 6038 relating However, these entities can still be included in
the water’s-edge combined report if they meet located income and factors. In general,
to information with respect to certain foreign U.S. located income includes both of the
corporations and partnerships. The corpora- one of the requirements under R&TC
Sections 25110(a)(1), 25110(a)(2), following:
tion should attach a copy of federal
Form 8865, Information Return of U.S. Per- 25110(a)(4), 25110(a)(5) or 25110(a)(6). • Income that is effectively connected
sons With Respect to Certain Foreign Partner- (ECI) with a U.S. trade or business, or
ships, to the Form 100 if the corporation is is treated as effectively connected,
required to file Form 8865 with the IRS for the under the provisions of the IRC.

Form 100-WE Booklet 1998 Page 3


Because the State of California is not a Taxpayers may wish to review the treatment filed for the first income year the contract is to
party to the federal tax treaties, the ECI of intercompany transactions prescribed in be effective. The contract may not be entered
immunity provisions of the federal tax FTB Pub. 1061 and the federal rules under into through an amended return.
treaties do not apply for California pur- Treas. Reg. Section 1.1502-13. CAUTION: The contract must be attached
poses. Any income satisfying the defini- to the original return.
tion of ECI, that is excluded from Water’s-Edge Election A copy of the original contract must be
federal taxable income due to a tax Contract Requirement
treaty, is included for California pur- attached to all subsequent returns filed during
poses; and To make the water’s-edge election, each tax- the election period.
• U.S.-sourced income that is business payer must enter into a contract with the FTB Taxpayers With Different Fiscal-Year Ends
income described under R&TC by signing and filing Form 100-WE,
Water’s-Edge Contract. In consideration for Taxpayers engaged in a unitary business with
Section 25120, regardless of whether different fiscal-year ends will make the elec-
or not such income is considered ECI being allowed to file on a water’s-edge basis,
the taxpayer must: tion on each individual return. For each mem-
for federal purposes. ber of the group, the election period will begin
For more information, see R&TC Sec- • Agree to file on a water’s-edge basis for a on the first day of the income year of the last
tion 25110(a) and the regulations thereunder. period of 84 months; member of the water’s-edge group to file its
• Agree to business income treatment of div- return and make the election. Each taxpayer
Intercompany Transactions idends received from: (1) over 50% owned that has an income year earlier than the last
FTB Notice 89-601, dated September 20, entities engaged in the same general line member of the group, will compute its tax lia-
1989, states that the FTB will issue proposed of business as the members of the bility on its initial return using a hybrid
regulations prescribing the treatment of trans- water’s-edge group, or (2) entities that are worldwide/water’s-edge combination method.
actions between 2 or more entities engaged in a significant source of supply to, or a sig-
a single unitary business, and it provides nificant purchaser of the output of the For more information see Title 18 Cal. Code
interim guidance for the treatment of certain members of the water’s-edge group. Sig- Reg. Section 25111-1(g).
intercompany transactions in water’s-edge nificant means an amount equal to 15% or Automatic Renewal
combined reports. The hearing process for more; and Once the contract period starts, it will auto-
these draft regulations will begin during 1999. • Consent to the taking of depositions from matically renew on the anniversary date of the
If adopted, these regulations are expected to key employees or officers of the members contract. The anniversary date of the contract
apply prospectively. The interim water’s-edge of the water’s-edge group and to the is the later of the original due date of the
treatment can be summarized as: acceptance of subpoenas duces tecum return or the due date of the return as
1. If a combined group has deferred gain or requiring the reasonable production of extended. The anniversary date is determined
loss from intercompany transactions, a documents. by the first income year of the election and
water’s-edge election under R&TC For more information, see R&TC does not change. The automatic renewal pro-
Section 25111 will cause certain previously Section 25110(b) and the regulations vision extends the 84-month period of the
deferred gains or losses to be taxed over thereunder. contract for an additional 12 months. The con-
a 60-month period beginning with the first tract period will automatically renew each
Taxpayers Covered by Election
day of the election period. This applies annual anniversary date, unless the taxpayer
only to transactions where either the trans- For the election to be effective, all affiliated files form FTB 1116, Notice of Nonrenewal of
feree, the transferor, or both, are to be taxpayers engaged in a single unitary busi- Water’s-Edge Contract, at least 90 days prior
excluded from a combined report by rea- ness must file on a water’s-edge basis. A tax- to an anniversary date.
son of the water’s-edge election. It does payer or an affiliated group of taxpayers that
is engaged in more than one unitary business Notice of Nonrenewal
not apply if both the transferor and the
may make a water’s-edge election with Form FTB 1116 prevents the automatic
transferee are included in the water’s-edge
respect to any one or more of its businesses, renewal provision from extending the contract
combination.
but need not elect for all of its businesses. period.
2. Generally, such gains or losses will be For example, a taxpayer engaged in two uni- A taxpayer may file form FTB 1116 at any
apportioned using the percentage used in tary businesses may elect water’s-edge for time during the contract period. To prevent
the last worldwide combined report that one of the businesses and may remain sub- the automatic renewal provisions, form
preceded the first water’s-edge year. FTB ject to worldwide combined reporting treat- FTB 1116 must be filed with the FTB at least
Notice 89-601 provides that the percent- ment for the other business. In addition, each 90 days prior to the anniversary date of the
age in the year of the original transaction taxpayer should be in good standing with the contract. Once form FTB 1116 is filed, the
can be used in certain circumstances. FTB and the California Secretary of State taxpayer must continue to file on a
The above treatment of deferred gains and (SOS). water’s-edge basis until the contract period
losses is applicable to intercompany transac- The common parent of a controlled group that expires. Form FTB 1116 must be filed sepa-
tions involving fixed assets and capitalized files a consolidated federal return, or the com- rately from any other form.
items. Certain other types of intercompany mon parent wherever domiciled or organized, Mail form FTB 1116 to:
transactions, including intercompany sales of may file an election on behalf of all members
inventory and intangible assets, are required FRANCHISE TAX BOARD
of the controlled group that are part of the
to be reported under the elimination/carryover PO BOX 1779
water’s-edge combined report group. The
basis method. When members of a combined RANCHO CORDOVA CA 95741-1779
common parent need not be a California
group use the elimination/carryover basis taxpayer. Example:
method, the transferor’s basis will carryover to Corporation A, a calendar year taxpayer,
the transferee. A subsequent water’s-edge In cases where the water’s-edge election is
not entered into by a common parent, each makes a water’s-edge election with its return
election will have no effect on the recognition filed October 15, 1999. The contract covers
of profit under this method. Any profit elimi- taxpayer included in the combined report must
enter into a separate contract. income years 1998 through 2004. If Corpora-
nated as a result of using this method would tion A does not file form FTB 1116 at least 90
be recognized by the transferee when the Time of Making the Contract days prior to its anniversary date on
asset is sold outside the combined reporting The contract must be entered into by all uni- October 16, 2000, the contract automatically
group. tary taxpayers at the time the original return is renews and extends the election through the

Page 4 Form 100-WE Booklet 1998


2005 income year. If Corporation A files form its election at any time. In general, the of 100% is provided for dividends from certain
FTB 1116 at least 90 days prior to request will be granted only if the taxpayer foreign construction projects.
October 16, 2000, the contract period will end demonstrates to the satisfaction of the Both business and nonbusiness dividends
on December 31, 2004. FTB that filing on a water’s-edge basis qualify for the dividend deduction. The allow-
All members of the water’s-edge group must instead of a worldwide basis results in a able business dividend deduction is deter-
consent to the notice of nonrenewal. Similar significant disadvantage to the taxpayer, mined by multiplying the total dividend
to the water’s-edge contract, the common and that such disadvantage is the result of deduction (business and nonbusiness) by the
parent of a controlled group may file form an extraordinary and significant event that ratio of qualifying business dividends to total
FTB 1116 for all taxpayers in the water’s-edge could not have been reasonably antici- qualifying dividends. The remaining dividend
combined group. pated at the time the election was origi- deduction is the nonbusiness dividend
nally made. deduction.
Effect of Changes in Affiliations
In general, the effective date of any request Intercompany dividends received within the
In general, taxpayers are bound by any con- that is granted by the FTB will be for the
tract they enter into, or by any contract current year by the water’s-edge group should
income year immediately following the income be eliminated pursuant to R&TC
entered into by a unitary affiliate, for the entire year in which the qualifying event occurs.
term of the contract. For example, a bank or Section 25106, before computing the dividend
Form FTB 1117, Request to Terminate deduction.
corporation that is subject to California tax Water’s-Edge Election, must be filed no later
and becomes a member of an electing than the due date of the return, including Dividends are also subject to the provisions of
water’s-edge group after the group makes an extension, for the income year the termination R&TC Sections 24402 and 24410 prior to the
election, or a unitary affiliate of an electing is effective. application of R&TC Section 24411.
taxpayer that becomes subject to California In no event will a R&TC Section 24411
tax after the election, is deemed to have con- A taxpayer must timely file form FTB 1117
separately from any other form to terminate deduction be allowed with respect to a divi-
sented to and is bound by the original election dend for which a deduction was allowed
and contract for the remaining term of the its water’s-edge election. Mail form FTB 1117
to: under R&TC Section 24402 or Section 24410
contract. A water’s-edge election is a tax attri- or which was eliminated under R&TC
bute that carries over to the surviving entity in FRANCHISE TAX BOARD Section 25106.
a reorganization or liquidation. When a tax- PO BOX 1779
payer ceases to be a member of the RANCHO CORDOVA CA 95741-1779 Sources of Distributions
water’s-edge group, the taxpayer must con- For more information, see R&TC Sec- In general, dividends will be considered to be
tinue to file on a water’s-edge basis until the tion 25111 and the regulations thereunder. paid first out of current E&P and then out of
contract period expires. accumulated E&P in reverse order of accumu-
If an electing taxpayer is acquired by and is Water’s-Edge Election Fee lation (LIFO method).
unitary with a non-electing entity or group, the Effective for income years beginning on or For dividends paid by an entity that is partially
unitary non-electing entity or group must be after January 1, 1994, the water’s-edge elec- included in the combined report, only the por-
included in the water’s-edge combined report tion fee was repealed. tion of the dividend paid from E&P attributable
of the electing taxpayer until the water’s-edge to business income included in the
contract period expires. However, if the Form 100-FEE-X, Amended Water’s-Edge water’s-edge combined report is eligible for
water’s-edge taxpayer meets certain criteria, it Election Fee, and Form 100-FEE-A, Amended elimination under R&TC Section 25106. For
may request termination of its water’s-edge Water’s-Edge Election Fee Supplemental example, assume that a dividend is paid by a
election. See Termination of Election below. Schedule, are included in this booklet in case corporation partially included in the
the taxpayer finds it necessary to amend a water’s-edge combined report to the extent of
A non-electing bank or corporation that is sub- prior year’s water’s-edge election fee.
sequently proven to be unitary with a the ratio of its Subpart F income over its cur-
water’s-edge group pursuant to an audit rent year E&P (the ‘‘partial inclusion ratio’’). If
Electronic Funds Transfer (EFT) the dividend was paid entirely out of current
determination of the FTB is deemed to have
made a water’s-edge election. Corporations that remit a bank or corporation year E&P, then the partial inclusion ratio for
estimated tax or extension payment in excess the current year should be applied to deter-
Under certain circumstances, taxpayers of $20,000 or that have a total tax liability in mine the portion of the dividend eligible for
adversely affected by the above rules may excess of $80,000 must pay through EFT. R&TC Section 25106 elimination. To the
terminate their election. Corporations that meet the threshold must extent that the dividend was paid from E&P
When an affiliation change occurs, a state- remit all payments, including water’s-edge fee accumulated in prior years, the E&P attribut-
ment should be attached to the return payments, through EFT rather than by paper able to business income included in the com-
identifying which affiliates were included in the check. The FTB will notify corporations that bined report must be determined by reference
original group, the appropriate California cor- are subject to this requirement. Those that to the partial inclusion ratios for each of those
poration numbers and what changes have wish to participate on a voluntary basis may years.
occurred. do so. For more information, call FTB’s EFT Subpart F Income
For more information, see Title 18 Cal. Code Section at (916) 845-4025, or get FTB
Pub. 3817, Electronic Funds Transfer Pro- Since California does not conform to IRC Sub-
Reg. Section 25111-1(d)(2). part F provisions, Subpart F income is not
gram Information Guide.
Termination of Election treated as a deemed dividend for California
A taxpayer may terminate its water’s-edge Foreign Dividend Deduction purposes and is not subject to a dividend
election prior to the expiration of the contract deduction. California does not follow the fed-
R&TC Section 24411 provides a 75% deduc- eral rules set forth in IRC Section 959 as to
period only if: tion of qualifying dividends received from cor- the sources of distributions from an entity with
• The taxpayer is acquired by an unrelated, porations and included in the water’s-edge Subpart F income.
non-electing entity or group of entities that return. For income years beginning on or after
has larger equity capital than the taxpayer; January 1, 1998, dividends received from both Definitions
or banks and corporations qualify for the Current year qualifying dividends
• The FTB grants the taxpayer written water’s-edge dividend deduction. A deduction These are dividends received by any current
permission to terminate the election. A tax- member of the water’s-edge group from a cor-
payer may request permission to change

Form 100-WE Booklet 1998 Page 5


poration or a bank (regardless of the place of ing for specific tracing before applying the corporation number and the new key corpora-
incorporation) if: allocation formula based on assets. tion with its California corporation number.
• The average of the payer’s property, pay- The offset is limited to the lesser of: For more information, get Schedule R-7 which
roll and sales factors within the U.S. is less • Interest expense specifically assigned and is included in Schedule R.
than 20%; and allocated to foreign investment; or
• More than 50% of the total combined vot- • The foreign dividend deduction. Return Filing Requirements
ing power of all classes of voting stock is Any year a corporation files a return determin-
owned directly or indirectly by a member of For income years beginning on or after
January 1, 1997, this amount is multiplied by ing its California taxable income on a
the water’s-edge group at the time the divi- water’s-edge basis, it is required to attach the
dend is received. the same percentage used to determine the
foreign dividend deduction under R&TC Sec- following:
The payer need not be in a unitary relation- tion 24411 (75%) to arrive at the foreign • A copy of the Form 100-WE, effective for
ship with the recipient or any other member of investment interest offset. the current year; and
the water’s-edge group.
The remaining interest expense, after the • Form FTB 2426, Water’s-Edge Cover
Construction project amount of interest expense offset against divi- Sheet.
A construction project is defined as an activity dends deductible under R&TC Section 24411, Corporations must attach form FTB 2426 to
attributable to an addition to real property or is subject to the provisions of R&TC the front of their Form 100 or Form 100S.
to an alteration of land or any improvement Section 24344(b).
thereto. The construction project, the location For more information, see R&TC Sec- Records Maintenance
of which is not subject to the taxpayers’ con- tion 24344(c) and the regulations thereunder Requirements
trol, must be undertaken for an entity, includ- and the instructions to form FTB 2424.
ing a governmental entity, that is not affiliated Any taxpayer filing on a water’s-edge or
with the water’s-edge group. worldwide basis is required to keep and main-
Retained Earnings of Controlled tain records and make available upon request
For more information, see R&TC Foreign Corporations the following:
Section 24411 and the regulations thereunder.
R&TC Section 25110(a)(6) provides that a • Any records that may be appropriate in
To compute your water’s-edge dividend portion of the income and apportionment fac- determining the correct treatment of items
deduction, refer to the Schedule H instructions tors of any CFC (defined in IRC Section 957) reported on the worldwide or water’s-edge
in the Form 100 or Form 100S. that has Subpart F income, as defined in IRC combined report for purposes of determin-
Section 952, must be included in the com- ing the income attributable to California;
Foreign Investment Interest Offset bined report of a taxpayer making a • Any records that may determine the treat-
R&TC Section 24344(c) provides that interest water’s-edge election. See form FTB 2416, ment of items as nonbusiness or business
expense incurred for purposes of foreign Retained Earnings of Controlled Foreign Cor- income;
investment is offset against the dividends porations, on page 19 to compute the income • Any records that may be appropriate in
deductible under R&TC Section 24411. The and apportionment factors to be included in determining the apportionment factors; and
offset cannot be greater than the deduction the combined report. • Documents and information, to determine
allowed pursuant to R&TC Section 24411. the proper attribution of income to the U.S.
Complete and attach form FTB 2424, Key Corporation or foreign jurisdictions under IRC
Water’s-Edge Foreign Investment Interest Off- A key corporation must be designated if the Subpart F, IRC Section 882 or other simi-
set, to the return. For these purposes, foreign California taxpayers elect to file a single return lar provisions of the IRC.
investment means stock or other equity on a combined basis. The key corporation A corporation may be required to authorize an
investment, including accumulated E&P, in a must be a California taxpayer and is generally agent to act on its behalf in response to
foreign entity owned by a member of the either the parent corporation or the corpora- requests for information or records pursuant to
water’s-edge group. tion with the largest value of assets in Califor- R&TC Section 19504. The penalty for failure
In general, the amount of interest expense nia. In addition, the key corporation should be to maintain the above required records is
incurred for purposes of foreign investment is in good standing with both the FTB and Cali- $10,000 for each income year for which the
determined by multiplying the total interest fornia SOS. Once a corporation is designated failure applies. In addition, if the failure contin-
expense of the water’s-edge group by the as the key corporation, it must continue to be ues for more than 90 days after the FTB noti-
ratio of the group’s total foreign investments the key corporation as long as the fies the corporation of the failure, a penalty of
to its total assets. However, direct tracing of water’s-edge contract remains in effect and $10,000 may be assessed for each additional
interest expense to specific assets is required the corporation is a taxpayer in the 30-day period of continued failure. For income
if: water’s-edge group. years beginning on or after January 1, 1996,
• The underlying debt was incurred in con- Example: there is limitation to the amount of penalty
nection with a specific property; that may be assessed.
Corporation A, the common parent of the fed-
• The proceeds of the borrowing were actu- eral controlled group A, B, C, D and E, is not For more information, refer to R&TC
ally applied to the specific property; and a California taxpayer. Corporation A elects Section 19141.6 and the regulations
• The creditor’s only security is the specific water’s-edge treatment for the unitary group thereunder.
property. B, C and E, which are all California taxpayers. Instructions for Completing Form 100-WE,
In addition, interest expense paid with respect Since corporation A is not a California tax- Water’s-Edge Contract
to debt incurred on or after January 1, 1988, payer, then B, C or E, depending on which Enter the corporation name, California corpo-
will not be considered incurred for purposes of has the largest value of assets in California, ration number and address as they appear on
foreign investment if the proceeds of the debt will be designated as the key corporation if Form 100 or Form 100S.
are paid into an account that is restricted to the taxpayers file a single tax return on a
preclude its use for foreign investment and combined basis. Enter the name of the corporation making the
the account is not in fact used for foreign election in the space provided described as
If the key corporation is changed, a statement elector.
investment. should be attached to the return identifying
Total amounts of interest, foreign investment the original key corporation with its California Be sure to check the box if a common parent
and assets are reduced by any items qualify- is electing on behalf of members of the con-

Page 6 Form 100-WE Booklet 1998


trolled group included in the water’s-edge
combined report. If there is no common par-
ent election, each electing member of the
water’s-edge group must file its own contract,
even if a single return is filed on a combined
basis. For more information, see Title 18 Cal.
Code Reg. Section 25111-1(c). List all taxpay-
ers covered by the common parent’s election
on Side 2 of Form 100-WE.
Enter the beginning date of the water’s-edge
contract in the space provided. This date is
generally the same as the beginning date for
the income year that appears on Form 100 or
Form 100S for the first year of the election. If
the corporation is a member of a water’s-
edge combined group that has different fiscal-
year ends, the contract beginning date is the
beginning date of the income year of the last
member of the group to file its return and
make the election. For example, if one mem-
ber of the water’s-edge group has a
January 1, 1998, to December 31, 1998,
income year and the second member has an
April 1, 1998, to March 31, 1999, income
year, the beginning date of this water’s-edge
contract is April 1, 1998.
An officer of the electing corporation must
sign and date the contract.

Form 100-WE Booklet 1998 Page 7


THIS PAGE LEFT BLANK FOR NOTES

Page 8 Form 100-WE Booklet 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


THIS PAGE LEFT BLANK FOR NOTES

Page 10 Form 100-WE Booklet 1998


INCOME YEAR
CALIFORNIA FORM

1998 Water’s-Edge Contract 100-WE


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

Number and street

City State ZIP Code

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

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

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

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

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

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

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

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

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

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

Electing Corporation Name/Electing Corporation Number

Date Signature of Officer of Electing Corporation

Print or type name and title of signing Officer


SIGN FORM 100-WE AND ATTACH TO FORM 100 OR FORM 100S
KEEP A COPY FOR YOUR RECORDS

100WE98109 Form 100-WE C1 1998 Side 1


Corporations Covered by the Water’s-Edge Contract
Key California corporation name * Key California corporation number

Common parent name FEIN (if applicable)


List of corporations covered by the election California corporation number

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

Side 2 Form 100-WE C1 1998 100WE98209


INCOME YEAR
CALIFORNIA FORM

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


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

Number and street Federal employer identification number (FEIN)


City, state, ZIP Code

■ INDIVIDUAL TAXPAYER NOTICE OF NONRENEWAL

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

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

Date Signature of Officer

Print or type name and title of signing Officer

■ COMMON PARENT NOTICE OF NONRENEWAL

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

Date Signature of Officer

Print or type name and title of signing Officer

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

111698109 FTB 1116 C1 1998 Side 1


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

Common parent name FEIN (if applicable)


List of corporations covered by the election California corporation number

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

Side 2 FTB 1116 C1 1998 111698209


INCOME YEAR
CALIFORNIA FORM

19 Request to Terminate Water’s-Edge Election 1117


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

Address (number and street)

City State ZIP Code

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

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


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

Part III Complete in all cases.

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

THIS FORM MUST BE FILED SEPARATE FROM THE TAX RETURN

See instructions on page 17 for more information.


111798109 FTB 1117 C1 1998 Side 1
Parts IV, V and VI apply only if you are requesting permission to terminate the election. Otherwise, go to Part VII.
Part IV Complete only by taxpayers requesting permission to terminate the election.
Provide a list of all gains or losses on stock or assets during the water’s-edge election period of any affiliated banks or corporations
included in the combined report prior to the water’s-edge election. See Part VI.
Bank or Corporation Name Item Disposed Of Date Sold/Disposed Of Gain/Loss

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


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

Attach a statement showing computations, estimates and assumptions made.


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

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

1. I attest to the accuracy of factual statements.


2. I attest to the belief that the termination of the water’s-edge election is permitted by law.
3. I agree to the terms and conditions for all affected taxpayers.
Under penalties of perjury, I declare that I have examined this form, including accompanying schedules and statements,
and to the best of my knowledge, it is true, correct and complete.

Signature of officer Title Date

( )
Print or type name of person to contact Telephone

Mail this form separate from the tax return to:


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

Side 2 FTB 1117 C1 1998 111798209


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

Form 100-WE Booklet 1998 Page 17


Instructions for Form FTB 2416
Retained Earnings of Controlled Foreign Corporations
General Information California S Corporation Franchise or
Income Tax Booklet. The new PBA codes
A Purpose are 6 digits not 4 digits.
R&TC Section 25110(a)(6) provides that Column (e) – Subpart F income
the income and apportionment factors of In determining whether a bank or corpora-
any controlled foreign corporation (CFC) tion has Subpart F income, defined By IRC
(as defined in IRC Section 957) that has Section 952, for purposes of R&TC
Subpart F income (defined in IRC Sec- Section 25110(a)(6) and the Regulations
tion 952) are to be included in the com- thereunder, the limitation and exclusions
bined report of a taxpayer making a provided for in IRC Section 954(b) shall
water’s-edge election. apply. However, IRC Section 952(c) shall
Use form FTB 2416 to compute the net not apply.
income and apportionment factors required For these purposes, Subpart F income
to be included in the water’s-edge com- does not include income defined in IRC
bined report. Sections 955, 956 or 956A.
Include both business and nonbusiness
B Controlled Foreign Corporation income as defined under R&TC Sec-
In general, a foreign corporation is a corpo- tion 25120 for the current year.
ration that is not created or organized in If there is no Subpart F income for Califor-
the U.S. or under the laws of the U.S. or nia purposes, STOP. None of the income
any state. or factors of this corporation will be
A CFC is any foreign corporation that is included in the water’s-edge combined
more than 50% owned or considered to be report.
owned (per IRC Section 958(b)) by U.S. Column (f) – Current year earnings and
shareholders. profits (E&P)
C Apportionment E&P, as defined in IRC Section 964,
includes both business and nonbusiness
For each CFC, the amounts included in income for the current year. In most cases,
income and the apportionment factors are this figure can be taken from federal
determined by multiplying the total income Form 5471, Information Return of U.S. Per-
and each component of the apportionment sons with Respect to Certain Foreign Cor-
factors by a fraction. The numerator of the porations, Schedule H, line 5d.
fraction is the current year total Subpart F
income defined in IRC Section 952 and the If there is no current E&P, STOP. None of
denominator is the current year E&P as the income or factors of this corporation will
defined in IRC Section 964. be included in the water’s-edge combined
report.
See R&TC Section 25110(a)(6) and the
regulations thereunder for more Column (g) – Percentage
information. The percentage may not exceed one hun-
dred or be less than zero.
Column (h) –- Net income
Specific Instructions
Report the total net income as reflected on
Column (b) – Country of incorporation the corporation’s books and records,
Enter the country of incorporation in col- adjusted to conform to California tax law.
umn (b). Use the list of country codes on Columns (j), (l), (n) and (p) – Apportion-
page 20. ment factors
Column (c) – Country of primary busi- Determine the apportionment factors for the
ness activity CFC to be included in the water’s-edge
Enter the country in which the CFC con- combined report including total average
ducts its primary trade or business in col- property everywhere, rent expense every-
umn (c). Use the country codes listed on where, payroll everywhere and sales every-
page 20. This country may be different where based on the apportionment factor
from the country of incorporation. rules set forth in R&TC Sections 25129
through 25137. See Schedule R, Appor-
Column (d) – Principal business activity tionment and Allocation of Income, for
(PBA) code more information.
Enter the principal business activity code of
the CFC. The PBA codes are listed on
page 14 through page 16 of the 1998 Form
100, California Corporation Franchise or
Income Tax Booklet and on page 21
through page 23 of the 1998 Form 100S,

Page 18 Form 100-WE Booklet 1998


INCOME YEAR CALIFORNIA FORM

1998 Retained Earnings of Controlled Foreign Corporations 2416


Corporation name California corporation number

(b) (c) (d)


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

1
2
3
4
5
6
7
8
9
(j) (l)
(h) (i) Average property (k) Rent expense (m) (n) (o) (p) (q)
Net income (g) x (h) everywhere (g) x (j) Capitalized (x 8) (g) x (l) Payroll everywhere (g) x (n) Sales everywhere (g) x (p)

1
2
3
4
5
6
FTB 2416 1998

7
8
9 TOTAL
Side 1

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


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

Side 2 FTB 2416 1998


INCOME YEAR
CALIFORNIA FORM

1998 Water’s-Edge Foreign Investment Interest Offset 2424


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

242498109 FTB 2424 1998 Side 1


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

Side 2 FTB 2424 1998


INCOME YEAR
CALIFORNIA FORM

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


For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______
Please Type or Print Corporation Name and Address
Corporation name California corporation number

Number and street


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

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


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

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

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

Part IV Explanation of Changes to Property, Payroll, Sales, etc. See General Information C.

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

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

For Privacy Act Notice, get form FTB 1131. 100FX98109 Form 100-FEE-X C1 1998 Side 1
Instructions for Form 100-FEE-X
Amended Water’s-Edge Election Fee
General Information Replacement Property Write ‘‘Form 100-FEE-X’’ and the California
If new investment in California, used in a prior corporation number on the check or money
For corporations that are taxed under year to reduce the election fee base, subse- order and mail with Form 100-FEE-X to:
Chapter 3 of the Revenue and Taxation Code quently becomes replacement property, do FRANCHISE TAX BOARD
(i.e., corporations that are not doing business not file Form 100-FEE-X. Refer to PO BOX 942857
within California but derive income from Form 100-FEE-A, Specific Line Instructions, SACRAMENTO CA 94257-4091
sources within California), the term ‘‘income line 24 - Investment Property Recalculation.
year,’’ as used in these instructions, means Note: If Form 100X is also being filed, attach
a separate check for any additional tax due.
taxable year. A When to File
Use Form 100-FEE-X, Amended Electronic Funds Transfer (EFT)
Form 100-FEE-X may be filed only after the
Water’s-Edge Election Fee to amend the original Form 100-FEE is filed. Generally, a Corporations that remit a bank or corporation
Form 100-FEE, Water’s-Edge Election Fee for claim for refund may be filed within four years estimated tax or extension payment in excess
any income year beginning prior to January 1, from the original due date, or within one year of $20,000 or that have a total tax liability in
1994. Form 100-FEE-X must be used as a from the date the fee was paid, whichever excess of $80,000 must pay through EFT.
cover form and attached to the front of the is later. Original Form 100-FEE and Corporations that meet the threshold must
revised Form 100-FEE-A, Amended Form 100-FEE-A filed before the due date are remit all payments, including water’s-edge
Water’s-Edge Election Fee Supplemental considered to be filed on the due date. payments, through EFT rather than by paper
Schedule. check. The FTB will notify corporations that
First complete Form 100-FEE-A for the B Where to File are subject to this requirement. Those that
income year you wish to amend. Then clearly wish to participate on a voluntary basis may
Mail Form 100-FEE-X with a refund or an do so. For more information, call the FTB’s
mark the word ‘‘REVISED’’ on the top of that election fee due to the address listed to the
form and attach it and any supporting sched- EFT Section at (916) 845-4025, or get FTB
right. When an election fee is due, attach a Pub. 3817, Electronic Funds Transfer
ules to the Form 100-FEE-X. Form 100-FEE-X separate check or money order payable to the
must be attached to the face of the package. Program Information Guide.
Franchise Tax Board.
Corporations that file on a water’s-edge basis C Explanation of Changes to
and wish to amend their tax return should get
Form 100X, Amended Corporation Franchise Property, Payroll, Sales, etc.
or Income Tax Return. A detailed explanation of changes to the elec-
tion fee must be shown in Part IV. Show line
number references and any needed computa-
tions. Attach additional sheets if necessary.

Side 2 Form 100-FEE-X 1998


1998 Instructions for Form 100-FEE-A, Amended Water’s-Edge Election
Fee Supplemental Schedule
General Information construction.’’ ‘‘Newly constructed’’ and • Any land, improvement or fixture that is
‘‘new construction’’ include: restored, reconstructed or repaired in a
Effective for income years beginning on or • Any substantial addition (including fix- timely manner following a disaster and
after January 1, 1994, the annual tures) to land or the improvements on that is substantially equivalent to that
water’s-edge election fee was repealed. the land. For purposes of R&TC Sec- which existed prior to the disaster. Any
Form 100-FEE-A, Amended Water’s-Edge tion 70, ‘‘fixtures’’ are improvements to reconstruction of real property that is
Election Fee Supplemental Schedule, should property, the use or purpose of which not substantially equivalent to the dam-
only be used when amending the election fee directly applies to or augments the pro- aged or destroyed property is deemed
for an income year beginning prior to cess or function of a trade, industry or to be ‘‘new construction,’’ unless the
January 1, 1994. Form 100-FEE-A should be profession. exception noted above applies. How-
attached to Form 100-FEE-X, Amended ever, a new plant or facility may not be
Water’s-Edge Election Fee. Examples: The construction of a new a replacement, in whole or in part, of
building; a swimming pool, retaining wall, an existing plant or facility in California.
Definitions or sewer; or the addition of square-footage
to an existing building. New investment in California that meets
1. Base Year the definition of replacement property can-
• For purposes of R&TC Section 70, not reduce the fee base.
A. The base year used to calculate prop- ‘‘major rehabilitation’’ is any rehabilita-
erty and payroll for purposes of the tion, renovation or modernization that 4. Replacement Property
election fee is an income year of 12 full converts an improvement or fixture to A plant or facility that includes both certain
months ending in the calendar year the substantial equivalent of a new tangible personal property and real prop-
1986. If there is no income year of 12 improvement or fixture. This includes erty as described in R&TC Section 70 will
full months ending in the calendar year the substitution of a new fixture for an be deemed a replacement if the taxpayer,
1986, property and payroll for the first old one. ‘‘Substantial equivalency’’ is or an affiliated bank or corporation closes,
immediately preceding income year of ascertained by comparing the produc- takes out of service, sells or leases to an
12 full months must be used if it exists. tive capacity, normally expressed in unrelated party, a plant or facility with a
B. The base year used to calculate sales units per hour, of the rehabilitated fix- cost basis equal to 25% or more of the
for purposes of the fee shall be the ture to its original productive capacity. cost basis of the new plant or facility. The
income year for which a replacement property test must be applied
Examples: Alteration to a warehouse to the 3 calendar years immediately pre-
Form 100-FEE-A is filed. Such income making it usable as a retail store or a res-
year need not be 12 full months. ceding and the 3 calendar years immedi-
taurant; preparation of a vacant lot for use ately succeeding the date the new plant or
2. Short Period Return as a parking facility; alteration of rolling, facility is first included in the property fac-
If a taxpayer files a short period return on grazing land to level irrigated crop land; tor for apportionment purposes.
a water’s-edge basis, the fee shall be and site development of rural land for the
based on: (1) sales for the current period; purpose of establishing a residential 5. California Work Years
and (2) the base year amounts for subdivision. For purposes of computing work years in
California property and payroll, multiplied California (Form 100-FEE-A, line 6, line 7,
The term ‘‘newly constructed’’ or ‘‘new line 8 and line 10), a work year means:
by a fraction, the numerator of which is the construction’’ does not include:
number of months in the short period and • 2,000 paid hours in the case of
the denominator of which is 12. • Any active solar energy system employees who are paid an hourly
constructed or added before wage; or
3. New Investment in California January 1, 1991;
For purposes of computing the election fee • The portion of reconstruction or • A total of 12 paid months in the case of
using the .0003 calculation, new invest- improvement to a structure constructed salaried employees.
ment (a new plant or facility) in California of unreinforced masonry bearing wall To determine the total amount ‘‘paid’’ to
can be used to reduce the fee base. A construction, necessary to comply with employees, see the instructions for
new plant or facility is both certain tangible a local seismic safety ordinance for the Schedule R, Apportionment and Allocation
personal property and real property, as first 15 years after the reconstruction or of Income.
described in R&TC Section 70, acquired improvement;
during the income year. The annual new • The construction or installation of any Specific Line Instructions for Form
investments acquired since January 1, of the following fire protection improve-
1987, to the last day of the income ments that are constructed or installed 100-FEE-A
year that is being amended are then in an existing building on or after
accumulated. November 7, 1984: Side 1
Certain tangible personal property includes 1. Fire sprinkler systems; Line 1 – Base Year California Property
any new tangible personal property 2. Other fire extinguishing systems; Enter the total amount of California property
acquired by the taxpayer during the 3. Fire detection systems; and for the base year. See General Information,
income year, when the original use com- 4. Fire-related egress improvements; Definitions. See the instructions for Schedule
mences in this state. • Ordinary maintenance and repair. R for the definition of California property.
Examples: New machinery and equipment Examples: Routine annual preparation
of agricultural land; interior or exterior Note: Intangibles included in the factor pursu-
for industry, profession and trade; new ant to R&TC Section 25137 are not includible
tools, molds, dies and jigs; or new comput- painting; replacement of roof coverings;
the addition of aluminum siding for in the property factor for determining the fee
ers and related equipment. base regardless of the fact that they may be
improvements; or the replacement of
R&TC Section 70 defines a new plant or work machine parts; or included in the apportionment formula. Intan-
facility as ‘‘newly constructed’’ and ‘‘new gible drilling costs included in the factor pursu-

Form 100-WE Booklet 1998 Page 25


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

Page 26 Form 100-WE Booklet 1998


INCOME YEAR
Amended Water’s-Edge Election Fee CALIFORNIA FORM

19 Supplemental Schedule 100-FEE-A


Corporation name California corporation number

Key California corporation number

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


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

Complete one form for each taxpayer.

THIS FORM MUST BE COMPLETED AND ATTACHED


TO THE BACK OF FORM 100-FEE-X.

100FA98109 Form 100-FEE-A 1998


THIS PAGE LEFT BLANK FOR NOTES

Page 28 Form 100-WE Booklet 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 100WE Booklet 1998 Page 29


& F.A.S.T. Toll-Free Phone Service
Call Fast Answers about State Taxes, the F.A.S.T. toll-free phone Billings and Miscellaneous Notices
service you can use to: 723 – I received a bill for $250. What is this for?
• Get recorded answers to many of your questions about California 728 – Why was my corporation suspended?
taxes; and 729 – Why is my subsidiary getting a request for a return when we
• Order current year California bank and corporation tax forms. file a combined report?
F.A.S.T. is available in English and Spanish to callers with touch-tone Tax Clearance
telephones. 724 – How do I dissolve my corporation?
725 – What do I have to do to get a tax clearance?
When Is F.A.S.T. Available? 726 – How long will it take to get a tax clearance certificate?
To answer your questions, F.A.S.T. is available 24 hours a day, seven 727 – My corporation was suspended/forfeited. Can I still get a
days a week. To order bank and corporation forms F.A.S.T. is avail- tax clearance?
able from 6 a.m. to 6 p.m., Monday through Friday, except state holi- Miscellaneous
days. All times listed are Pacific Standard Time (PST). 700 – Who do I need to contact to start a business?
701 – I need a state ID number for my business. Who do I contact?
How To Use F.A.S.T. 702 – Can you send me an employer’s tax guide?
Have paper and pencil handy to take notes. 703 – How do I incorporate?
Call from within the United States . . . . . . . . . . . (800) 338-0505 719 – How do I properly identify my corporation when dealing with
Call from outside the United States (not toll-free) . . (916) 845-6600 the Franchise Tax Board?
720 – How do I obtain information about changing my corporation’s
Follow the recorded instructions and enter the three-digit code when name?
you are instructed to do so. 721 – How do I change my accounting period?
737 – Where do I send my payment?
To Order Forms 738 – What is electronic funds transfer?
See ‘‘Where to Get Income Tax Forms’’ on page 29. 739 – How do I get a copy of my state corporate tax return?
740 – What requirements do I have to report municipal bond interest
To Get Information paid by a state other than California?
If you need an answer to any of the following questions, call 750 – How do I organize or register an LLC?
(800) 338-0505, select general tax information, follow the recorded 751 – How do I cancel my registration as an LLC?
instructions and enter the three-digit code when instructed to do so. 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
Code- Filing Assistance: the corporation liable for tax as a corporation and an LLC
715 – If my actual tax is less than the minimum franchise tax, tax/fee in the same year?
what figure do I put on line 23 of Form 100?
717 – What are the current tax rates for corporations? District Offices
718 – How do I get an extension of time to file? You can get information, California tax forms and resolve problems on
722 – When do I have to file a short-period return? your account if you visit one of our district offices.
734 – Is my corporation subject to franchise tax or income tax?
S Corporations District Office Address
704 – Is an S corporation subject to the minimum franchise tax? Bakersfield 1800 30th Street, Suite 370
705 – Are S corporations required to file estimate payments? Burbank 333 N. Glenoaks Boulevard, Room 200
706 – What forms do S corporations file? Fresno 2550 Mariposa Street, Room 3002
707 – The tax for my S corporation is less than the minimum Long Beach 4300 Long Beach Boulevard, Suite 700B
franchise tax. What figure do I put on line 22 of Form 100S? Los Angeles 300 S. Spring Street, Suite 5704
708 – Where do S corporations make adjustment for state and federal Oakland 1515 Clay Street, Suite 3N-305
law differences on Schedule K-1(100S) and where do Sacramento 3321 Power Inn Road
nonresident shareholders find their California source income on San Bernardino 464 W. 4th Street, Suite 454
their Schedule K-1 (100S)? San Diego 5353 Mission Center Road, Suite 314
San Francisco 50 Fremont Street, Suite 900
Exempt Organizations San Jose 96 N. Third Street, 4th Floor
709 – How do I get tax exempt status? Santa Ana 600 W. Santa Ana Boulevard, Suite 300
710 – Does an exempt organization have to file Form 199? Santa Rosa 50 D Street, Room 130
735 – How can an exempt organization incorporate without Stockton 31 East Channel Street, Room 219
paying corporation fees and costs? Ventura 4820 McGrath Street, 2nd Floor
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 Houston 1415 Louisiana, Suite 1515
minimum franchise tax? Houston, TX 77002-7351
716 – When are my estimate payments due? Manhattan 1212 Avenue of the Americas, 4th Floor
New York, NY 10036-1601

Page 30 Form 100WE Booklet 1998