2007 California Revenue and Taxation Code Chapter 6. Accounting Periods And Methods Of Accounting

CA Codes (rtc:17551-17570)

17551.  (a) Subchapter E of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to accounting periods and methods of
accounting, shall apply, except as otherwise provided.
   (b) Section 444(c)(1) of the Internal Revenue Code, relating to
effect of election, shall not apply.
   (c) (1) Notwithstanding the specified date contained in paragraph
(1) of subdivision (a) of Section 17024.5, Section 457 of the
Internal Revenue Code, relating to deferred compensation plans of
state and local governments and tax-exempt organizations, shall
apply, except as otherwise provided, without regard to taxable year
to the same extent as applicable for federal income tax purposes.
   (2) The maximum deferred compensation for the taxable year that
may be excluded from gross income under Section 457 of the Internal
Revenue Code, as applicable for state purposes, shall not exceed the
amount of deferred compensation that may be excluded from gross
income under Section 457 of the Internal Revenue Code, as amended by
Title VI of the Economic Growth and Tax Relief Reconciliation Act of
2001 (Public Law 107-16) and as amended by Section 411 of the Job
Creation and Worker Assistance Act of 2002 (Public Law 107-147),
including additional elective deferrals under Section 414(v) of the
Internal Revenue Code, as added by Title VI of the Economic Growth
and Tax Relief Reconciliation Act of 2001 (Public Law 107-16) and
Section 411 of the Job Creation and Worker Assistance Act of 2002
(Public Law 107-147).
   (d) (1) For taxable years beginning on or after January 1, 2002,
the basis of any person in the plan shall be increased by the amount
of compensation not allowed to be excluded under subdivision (a).
   (2) Any basis described in paragraph (1) shall be recovered in the
manner specified in Section 17085.
   (e) Notwithstanding the limitations provided in subdivision (a),
any income attributable to compensation deferred in a plan in taxable
years beginning on or after January 1, 2002, in conformance with
Section 457 of the Internal Revenue Code, as applicable for federal
and state purposes, shall not be includable in the gross income of
the individual for whose benefit the plan was established until
distributed pursuant to the provisions of the plan or by operation of
law.
   (f) Section 451(i) of the Internal Revenue Code, relating to
special rule for sales or dispositions to implement Federal Energy
Regulatory Commission or state electric restructuring policy, shall
not apply.



17552.  (a) Notwithstanding Section 17565, a return for a period of
less than 12 months shall also be made when the Franchise Tax Board
terminates the taxpayer's taxable year under Section 19082 (relating
to tax in jeopardy).
   (b) Section 443(c) of the Internal Revenue Code, relating to
adjustment in deduction for personal exemption, is modified by
substituting the phrase "the credit allowed under Section  17054" for
the phrase "the exemptions allowed as a deduction under section 151
(and any deduction in lieu thereof)."



17552.3.  (a) (1) The options under Sections 112(d)(2) and 112(d)(3)
of the Federal Agriculture Improvement and Reform Act of 1996 (7
U.S.C. Sec. 7212(d)(2) and (3)), as in effect on October 21, 1998,
shall be disregarded in determining the taxable year for which any
payment under a production flexibility contract under Subtitle B of
Title I of that act (as so in effect) is properly includable in gross
income for purposes of this part, Part 10.2 (commencing with Section
18401), and Part 11 (commencing with Section 23001).
   (2) In order to provide farmers with the same tax treatment for
all payments in years beginning before January 1, 2002, with respect
to production flexibility contract payments as provided under federal
law as modified by Public Law 105-277, this subdivision shall apply
to taxable years ending after December 31, 1995.
   (b) Any option to accelerate the receipt of any payment under a
production flexibility contract entered into on or after January 1,
2002, that is payable under the Federal Agriculture Improvement and
Reform Act of 1996 (7 U.S.C. Sec. 7200 et seq.) as in effect on
December 17, 1999, shall be disregarded in determining the taxable
year for which that payment is properly includable in gross income
for purposes of this part, Part 10.2 (commencing with Section 18401),
and Part 11 (commencing with Section 23001).



17552.3.  (a) (1) The options under Sections 112(d)(2) and 112(d)(3)
of the Federal Agriculture Improvement and Reform Act of 1996 (7
U.S.C. Sec. 7212(d)(2) and (3)), as in effect on October 21, 1998,
shall be disregarded in determining the taxable year for which any
payment under a production flexibility contract under Subtitle B of
Title I of that act (as so in effect) is properly includable in gross
income for purposes of this part, Part 10.2 (commencing with Section
18401), and Part 11 (commencing with Section 23001).
   (2) In order to provide farmers with the same tax treatment for
all payments in years beginning before January 1, 2002, with respect
to production flexibility contract payments as provided under federal
law as modified by Public Law 105-277, this subdivision shall apply
to taxable years ending after December 31, 1995.
   (b) Any option to accelerate the receipt of any payment under a
production flexibility contract entered into on or after January 1,
2002, that is payable under the Federal Agriculture Improvement and
Reform Act of 1996 (7 U.S.C. Sec. 7200 et seq.) as in effect on
December 17, 1999, shall be disregarded in determining the taxable
year for which that payment is properly includable in gross income
for purposes of this part, Part 10.2 (commencing with Section 18401),
and Part 11 (commencing with Section 23001).



17553.  Section 454(c) of the Internal Revenue Code, relating to
matured United States Savings Bonds, shall not apply.



17555.  In any case where husband and wife file separate returns,
the Franchise Tax Board may distribute, apportion or allocate gross
income between the spouses, if it is determined that such
distribution, apportionment or allocation is necessary in order to
reflect the proper income of the spouses.



17556.  Notwithstanding Section 442 of the Internal Revenue Code,
the estate may change its annual accounting period one time without
the approval of the Franchise Tax Board.



17559.  (a) Section 451(e) of the Internal Revenue Code, relating to
special rule for proceeds from livestock sold on account of drought,
is modified by substituting the phrase "drought, flood, or other
weather-related conditions, and that those conditions" in lieu of the
phrase "drought conditions, and that these drought conditions"
contained therein.
   (b) This section shall apply to sales and exchanges after December
31, 1996.
   (c) This section shall not apply to taxable years beginning on or
after January 1, 1998.



17560.  (a) The provisions of Sections 811(c)(4), 811(c)(6), and 811
(c)(7) of Public Law 99-514, as modified by Section 1008(f) of Public
Law 100-647, shall apply.
   (b) The provisions of Section 812 of Public Law 99-514, relating
to the disallowance of use of installment method for certain
obligations as modified by Section 1008(g) of Public Law 100-647,
shall apply to taxable years beginning on or after January 1, 1987.
   (c) The repeal of Section 453C of the Internal Revenue Code by
Section 10202(a) of Public Law 100-203, relating to repeal of the
proportionate disallowance of the installment method, shall apply to
dispositions in taxable years beginning on or after January 1, 1990.

   (d) (1) In the case of any installment obligation to which Section
453(l)(2)(B) of the Internal Revenue Code applies, in lieu of the
provisions of Section 453(l)(3)(A) of the Internal Revenue Code, the
tax imposed under Section 17041 or 17048 for any taxable year for
which payment is received on that obligation shall be increased by
the amount of interest determined in the manner provided under
Section 453(l)(3)(B) of the Internal Revenue Code.
   (2) The provisions of Sections 10202 and 10204 of Public Law
100-203 are modified to provide for each of the following:
   (A) The provisions of Section 10202 shall apply to dispositions in
taxable years beginning on or after January 1, 1990.
   (B) The provisions of Section 10204 shall apply to costs incurred
in taxable years beginning on or after January 1, 1990.
   (C) Any adjustments required by Section 481 of the Internal
Revenue Code shall be included in gross income as follows:
   (i) Fifty percent in the first taxable year beginning on or after
January 1, 1990.
   (ii) Fifty percent in the second taxable year beginning on or
after January 1, 1990.
   (e) (1) In the case of any installment obligation to which Section
453A of the Internal Revenue Code applies and which is outstanding
as of the close of the taxable year, in lieu of the provisions of
Section 453A(c)(1) of the Internal Revenue Code, the tax imposed by
Section 17041 or 17048 for the taxable year shall be increased by the
amount of interest determined in the manner provided under Section
453A(c)(2) of the Internal Revenue Code.
   (2) The provisions of Section 453A(c)(3)(B) of the Internal
Revenue Code, relating to the maximum rate used in calculating the
deferred tax liability, are modified to refer to the maximum rate of
tax imposed under Section 17041 in lieu of the maximum rate of tax
imposed under Section 1 or 11 of the Internal Revenue Code.



17561.  (a) Section 469(c)(7) of the Internal Revenue Code, relating
to special rules for taxpayers in real property business, shall not
apply.
   (b) Section 469(d)(2) of the Internal Revenue Code, relating to
passive activity credits, is modified to refer to the following
credits:
   (1) The credit for research expenses allowed by Section 17052.12.

   (2) The credit for certain wages paid (targeted jobs) allowed by
Section 17053.7.
   (3) The credit for clinical testing expenses allowed by Section
17057.
   (4) The credit for low-income housing allowed by Section 17058.
   (c) Section 469(g)(1)(A) of the Internal Revenue Code is modified
to provide that if all gain or loss realized on the disposition of
the taxpayer's entire interest in any passive activity (or former
passive activity) is recognized, the excess of--
   (1) The sum of--
   (A) Any loss from that activity for that taxable year (determined
after application of Section 469(b) of the Internal Revenue Code),
plus
   (B) Any loss realized on that disposition, over
   (2) Net income or gain for the taxable year from all passive
activities (determined without regard to losses described in
paragraph (1)), shall be treated as a loss which is not from a
passive activity.
   (d) For purposes of applying the provisions of Section 469(i) of
the Internal Revenue Code, relating to the twenty-five thousand
dollars (,000) offset for rental real estate activities, the
dollar limitation for the credit allowed under Section 17058
(relating to low-income housing) shall be equal to seventy-five
thousand dollars (,000) in lieu of the amount specified in Section
469(i)(2) of the Internal Revenue Code.
   (e) Section 502 of the Tax Reform Act of 1986 (Public Law 99-514)
shall apply.
   (f) For taxable years beginning on or after January 1, 1987, the
provisions of Section 10212 of Public Law 100-203, relating to
treatment of publicly traded partnerships under Section 469 of the
Internal Revenue Code, shall be applicable.



17563.5.  (a) The amendment made by Section 7001(a) of the Internal
Revenue Service Restructuring and Reform Act of 1998 (Public Law
105-206) to Section 404(a)(11) of the Internal Revenue Code,
regarding determinations relating to deferred compensation, shall
apply to taxable years beginning on or after January 1, 2002.
   (b) In the case of any taxpayer required by enactment of this
section to change the method of accounting, for that taxpayer's first
taxable year beginning on or after January 1, 2002, each of the
following shall apply for purposes of this part, Part 10.2
(commencing with Section 18401), and Part 11 (commencing with Section
23001):
   (1) The change shall be treated as initiated by the taxpayer.
   (2) The change shall be treated as made with the consent of the
Franchise Tax Board.
   (3) The net amount of the adjustments required to be taken into
account by the taxpayer under Chapter 6 (commencing with Section
17551) shall be taken into account ratably over the
three-taxable-year period beginning with that taxpayer's first
taxable year beginning on or after January 1, 2002.



17563.5.  (a) The amendment made by Section 7001(a) of the Internal
Revenue Service Restructuring and Reform Act of 1998 (Public Law
105-206) to Section 404(a)(11) of the Internal Revenue Code,
regarding determinations relating to deferred compensation, shall
apply to taxable years beginning on or after January 1, 2002.
   (b) In the case of any taxpayer required by enactment of this
section to change the method of accounting, for that taxpayer's first
taxable year beginning on or after January 1, 2002, each of the
following shall apply for purposes of this part, Part 10.2
(commencing with Section 18401), and Part 11 (commencing with Section
23001):
   (1) The change shall be treated as initiated by the taxpayer.
   (2) The change shall be treated as made with the consent of the
Franchise Tax Board.
   (3) The net amount of the adjustments required to be taken into
account by the taxpayer under Chapter 6 (commencing with Section
17551) shall be taken into account ratably over the three taxable
year period beginning with that taxpayer's first taxable year
beginning on or after January 1, 2002.


17564.  (a) Long-term contracts shall be accounted for in accordance
with the special rules set forth in Section 460 of the Internal
Revenue Code.
   (b) (1) The provisions of Section 804(d) of Public Law 99-514,
relating to the effective date of modifications in the method of
accounting for long-term contracts, shall be applicable to taxable
years beginning on or after January 1, 1987.
   (2) In the case of a contract entered into after February 28,
1986, during a taxable year beginning before January 1, 1987, an
adjustment to income shall be made upon completion of the contract,
if necessary, to correct any underreporting or overreporting of
income, for purposes of this part, resulting from differences between
state and federal law for the taxable year in which the contract
began.
   (c) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 10203 of Public Law 100-203, relating to a reduction
in the percentage of items taken into account under the completed
contract method, shall apply to taxable years beginning on or after
January 1, 1990.
   (2) In the case of a contract entered into after October 13, 1987,
during a taxable year beginning before January 1, 1990, an
adjustment to income shall be made upon completion of the contract,
if necessary, to correct any underreporting or overreporting of
income, for purposes of this part, resulting from differences between
California and federal law for taxable years beginning prior to
January 1, 1990.
   (d) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 5041 of Public Law 100-647, relating to a reduction
in the percentage of items taken into account under the completed
contract method, shall apply to taxable years beginning on or after
January 1, 1990.
   (2) In the case of a contract entered into after June 20, 1988,
during a taxable year beginning before January 1, 1990, an adjustment
to income shall be made upon completion of the contract, if
necessary, to correct any underreporting or overreporting of income,
for purposes of this part, resulting from differences between
California and federal law for taxable years beginning prior to
January 1, 1990.
   (e) (1) The amendments to Section 460 of the Internal Revenue Code
made by Section 7621 of Public Law 101-239, relating to the repeal
of the completed contract method of accounting for long-term
contracts, shall apply to taxable years beginning on or after January
1, 1990.
   (2) In the case of a contract entered into after July 10, 1989,
during a taxable year beginning before January 1, 1990, an adjustment
to income shall be made upon completion of the contract, if
necessary, to correct any underreporting or overreporting of income,
for purposes of this part, resulting from differences between
California and federal law for taxable years beginning prior to
January 1, 1990.
   (f) For purposes of applying paragraphs (2) to (6), inclusive, of
Section 460(b) of the Internal Revenue Code, relating to the
look-back method, any adjustment to income computed under paragraph
(2) of subdivision (b), (c), (d), or (e) shall be deemed to have been
reported in the taxable year from which the adjustment arose, rather
than the taxable year in which the contract was completed.




17565.  (a) The taxable year of a taxpayer may not be different than
the taxable year used for purposes of the Internal Revenue Code,
unless initiated or approved by the Franchise Tax Board.
   (b) For purposes of this section, whenever a taxpayer is required
to make a federal return for a period of less than 12 months, that
period shall be deemed to be a taxable year, and the provisions of
Section 17552 shall apply.



17565.  (a) The taxable year of a taxpayer may not be different than
the taxable year used for purposes of the Internal Revenue Code,
unless initiated or approved by the Franchise Tax Board.
   (b) For purposes of this section, whenever a taxpayer is required
to make a federal return for a period of less than 12 months, that
period shall be deemed to be a taxable year, and Section 17552 shall
apply.



17570.  (a) Section 13233(c)(2)(C) of the Revenue Reconciliation Act
of 1993 (Public Law 103-66), relating to the effective date for
changes in the mark to market accounting method for securities
dealers, is modified to provide that the amount taken into account
under Section 481 of the Internal Revenue Code of 1986 shall be taken
into account ratably over the five-taxable-year period beginning
with the first taxable year beginning on or after January 1, 1997.
   (b) In the case of any taxpayer required by the enactment of the
act adding this subdivision, which act incorporated by reference the
amendments made by Section 7003 of the Internal Revenue Service
Restructuring and Reform Act of 1998 (Public Law 105-206) to Section
475 of the Internal Revenue Code, for taxable years beginning on or
after January 1, 2002, to change its method of accounting on its
first taxable year beginning on or after January 1, 2002, then each
of the following shall apply for purposes of this part, Part 10.2
(commencing with Section 18401), and Part 11 (commencing with Section
23001):
   (1) The change shall be treated as initiated by the taxpayer.
   (2) The change shall be treated as made with the consent of the
Franchise Tax Board.
   (3) The taxpayer shall not be required to make a change in the
method of accounting until the first taxable year beginning on or
after January 1, 2002.
   (4) The net amount of the adjustments required to be taken into
account by the taxpayer under Chapter 6 (commencing with Section
17551) shall be taken into account ratably over the three taxable
year period beginning with that taxpayer's first taxable year
beginning on or after January 1, 2002.
   (c) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 475(e) of the Internal Revenue Code,
relating to election of mark to market for dealers in commodities, to
have Section 475 of the Internal Revenue Code apply, Section 475 of
the Internal Revenue Code shall apply to that dealer in commodities
for state purposes, a separate election for state purposes shall not
be allowed under paragraph (3) of subdivision (e) of Section 17024.5,
and the federal election shall be binding for purposes of this part.

   (2) If a taxpayer fails to make, or has not previously made, an
election for federal purposes under Section 475(e) of the Internal
Revenue Code, relating to election of mark to market for dealers in
commodities, to have Section 475 of the Internal Revenue Code apply,
an election under Section 475(e) of the Internal Revenue Code shall
not be allowed for state purposes, Section 475 of the Internal
Revenue Code shall not apply to that dealer in commodities for state
purposes, and a separate election for state purposes shall not be
allowed under paragraph (3) of subdivision (e) of Section 17024.5.
   (d) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 475(f)(1) of the Internal Revenue
Code, relating to election of mark to market for traders in
securities, to have Section 475 of the Internal Revenue Code apply to
a trade or business, Section 475 of the Internal Revenue Code shall
apply to that trader in securities for state purposes with respect to
that trade or business, a separate election for state purposes with
respect to that trade or business shall not be allowed under
paragraph (3) of subdivision (e) of Section 17024.5, and the federal
election shall be binding for purposes of this part.
   (2) If a taxpayer fails to make, or has not previously made, an
election for federal purposes under Section 475(f)(1) of the Internal
Revenue Code, relating to election of mark to market for traders in
securities, to have Section 475 of the Internal Revenue Code apply to
a trade or business, an election under Section 475(f)(1) of the
Internal Revenue Code shall not be allowed for state purposes with
respect to that trade or business, Section 475 of the Internal
Revenue Code shall not apply to that trader in securities for state
purposes with respect to that trade or business, and a separate
election for state purposes shall not be allowed under paragraph (3)
of subdivision (e) of Section 17024.5.
   (e) (1) If a taxpayer has, at any time, made an election for
federal purposes under Section 475(f)(2) of the Internal Revenue
Code, relating to election of mark to market for traders in
commodities, to have Section 475 of the Internal Revenue Code apply
to a trade or business, Section 475 of the Internal Revenue Code
shall apply to that trader in commodities for state purposes with
respect to that trade or business, a separate election for state
purposes with respect to that trade or business shall not be allowed
under paragraph (3) of subdivision (e) of Section 17024.5, and the
federal election with respect to that trade or business shall be
binding for purposes of this part.
   (2) If a taxpayer fails to make, or has not previously made, an
election for federal purposes under Section 475(f)(2) of the Internal
Revenue Code, relating to election of mark to market for traders in
commodities, to have Section 475 of the Internal Revenue Code apply
to a trade or business, an election under Section 475(f)(2) of the
Internal Revenue Code shall not be allowed for state purposes with
respect to that trade or business, Section 475 of the Internal
Revenue Code shall not apply to that trader in commodities for state
purposes with respect to that trade or business, and a separate
election for state purposes with respect to that trade or business
shall not be allowed under paragraph (3) of subdivision (e) of
Section 17024.5.
   (f) (1) An election under Section 475(e) or (f) of the Internal
Revenue Code made for federal purposes with respect to a taxable year
beginning before January 1, 1998, shall be treated as having been
made for state purposes with respect to the first taxable year
beginning on or after January 1, 1998.
   (2) Section 1001(d)(4)(B) of the Taxpayer Relief Act of 1997
(Public Law 105-34), relating to the effective date for election of
mark to market by securities traders and traders and dealers in
commodities, is modified to provide that the requirement for timely
identification shall be treated as timely made for state purposes if
that identification is treated as timely made for federal purposes,
and the amount taken into account under Section 481 of the Internal
Revenue Code of 1986 shall be taken into account ratably over the
four-taxable-year period beginning with the first taxable year
beginning on or after January 1, 1998.