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California FTB clarifies apportionment following corporate ownership changes, S corporation built-in gains

In April 2017, the California Franchise Tax Board (FTB) issued two Technical Advice Memoranda which clarify certain matters for apportioning taxpayers. Technical Advice Memorandum 2017-03 provides guidance on the application of Internal Revenue Code (IRC) Sections 382 to 384 for California corporate franchise (income) tax apportionment purposes. Specifically, the state addresses long-standing questions of whether certain items following a corporate ownership change, such as loss limitations, should be computed on a pre-apportionment or post-apportionment basis. Additionally, Technical Advice Memorandum 2017-02 provides for apportioning net recognized built-in gains for purposes of computing the S corporation built-in gains tax.