24451. Subchapter C of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to corporate distributions and adjustments,
shall apply, except as otherwise provided.
24452. Section 301(e)(2) of the Internal Revenue Code, relating to
20 percent corporate shareholders, is modified to refer to Section
24402 in lieu of Sections 243, 244, and 245 of the Internal Revenue
Code.
24453. Section 302(c)(2) of the Internal Revenue Code, relating to
determining termination of interest, is modified to refer to the
periods of limitation provided in "Chapter 4 (commencing with Section
19001) and Chapter 5 (commencing with Section 19201) of Part 10.2,"
in lieu of "Sections 6501 and 6502" of the Internal Revenue Code and
to refer to "taxes imposed under the Personal Income Tax Law" and the
"Corporation Tax Law," in lieu of "Federal income tax."
24456. Section 306(f) of the Internal Revenue Code, relating to
source of gain, shall not apply.
24458. Internal Revenue Service Notice 2008-83, 2008-42 I.R.B. 905,
issued on October 20, 2008, relating to the treatment of deductions
under Section 382(h) of the Internal Revenue Code following an
ownership change, shall not be applicable for purposes of taxes
imposed under Part 11 (commencing with Section 23001) of Division 2,
of this code with respect to any ownership change occurring at any
time.
24461. (a) For purposes of this part, the provisions of Section 633
of Public Law 99-514, relating to effective dates for recognition of
gain and loss on distributions of property in liquidation, shall
apply except as otherwise provided.
(b) The provisions of Section 633(e) of Public Law 99-514,
relating to other transition rules, shall not apply.
(c) The amendments to Section 633 of Public Law 99-514 made by
Section 1006(g)(1) to 1006(g)(8), inclusive, of Public Law 100-647,
relating to effective dates for recognition of gain and loss on
distributions of property in liquidation, are declaratory of existing
law and shall be applied in the same manner and for the same periods
as specified in Public Law 100-647.
24462. (a) Section 355 of the Internal Revenue Code, as in effect
for federal income tax purposes as of January 1, 2010, shall apply to
distributions made on or after January 1, 2010, without regard to
taxable year, except as otherwise provided.
(b) Section 355(g) of the Internal Revenue Code, relating to
section not to apply to distributions involving disqualified
investment corporations, is modified by substituting the phrase
"January 1, 2010," for "the date of the enactment of this subsection"
in Section 355(g)(2)(A)(i) of the Internal Revenue Code.
(c) The provisions of Section 4(d)(2) of the Tax Technical
Corrections Act of 2007 (Public Law 110-172), relating to
modification of active business definition under Section 355, shall
apply and are modified by substituting "January 1, 2010," for "May
17, 2006."
(d) The provisions of Section 507(b) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222),
relating to effective dates, shall apply and are modified as follows:
(1) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this Act" in Section 507(b)(1) of the Tax
Increase Prevention and Reconciliation Act of 2005 (Public Law
109-222).
(2) The phrase "January 1, 2010," shall be substituted for "such
date of enactment" in Section 507(b)(2)(A) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222).
(e) This section shall apply as of the dates specified in this
section, without regard to taxable year.
24465. (a) (1) If, in connection with any exchange described in
Section 332, 351, 354, 356, or 361 of the Internal Revenue Code, a
taxpayer transfers property to an insurer, the insurer shall not, for
purposes of determining the extent to which gain shall be recognized
on that transfer, be considered to be a corporation for purposes of
this part.
(2) Paragraph (1) shall not apply to any of the following types of
transactions, unless that transaction has the effect (directly or
indirectly) of transferring appreciated property from a taxpayer
subject to tax under this part (or a member of the taxpayer's
combined reporting group) to an insurer:
(A) An exchange or transfer pursuant to Section 368(a)(2)(D) or
Section 368(a)(2)(E) of the Internal Revenue Code.
(B) A transfer of stock in an 80 percent-owned insurer for the
purpose of filing a consolidated tax return or for financial or
regulatory reporting.
(C) A transfer or exchange of publicly owned stock of the parent
corporation.
(3) If a transaction described in paragraph (2) would qualify
under that paragraph but for the fact that the transaction has the
effect (directly or indirectly) of transferring appreciated property
from a taxpayer subject to tax under this part (or a member of the
taxpayer's combined reporting group) to an insurer, then, if the
property is used in the active trade or business of the insurer,
subdivision (b) shall be deemed to apply to that transfer.
(4) For purposes of this subdivision, "appreciated property" means
property whose fair market value, as of the date of the transfer
subject to this section, exceeds its adjusted basis as of that date.
(b) (1) Except as provided in subdivision (c), or as otherwise
provided by regulations prescribed by the Franchise Tax Board, if
property subject to paragraph (1) of subdivision (a) or to
subdivision (g) is transferred to an insurer for use in the active
conduct of a trade or business of the insurer, then any gain
otherwise required to be recognized under that subdivision shall be
deferred until the date that the property is no longer owned by an
insurer in the taxpayer's commonly controlled group (or a member of
the taxpayer's combined reporting group), or the property is no
longer used in the active conduct of the insurer's trade or business
(or the trade or business of another member in the taxpayer's
combined reporting group), or the holder of the property is no longer
held by an insurer in the commonly controlled group of the
transferor (or a member of the taxpayer's combined reporting group).
(2) Any of the events described in paragraph (1) shall be treated
as a disposition of the property under this subdivision, irrespective
of whether any other provision in this part or in the Internal
Revenue Code would otherwise permit nonrecognition treatment of the
transaction described in this subdivision.
(3) Notwithstanding paragraph (2) of this subdivision, an insurer
that becomes a member of the taxpayer's commonly controlled group or
a corporation that becomes a member of the taxpayer's combined
reporting group, as a result of a transaction of which a transfer
referred to in this subdivision is a part, shall be treated as a
member of the taxpayer's commonly controlled group or a member of the
taxpayer's combined reporting group at the time of the transfer for
purposes of this subdivision.
(4) For purposes of this subdivision, stock of an insurance
subsidiary constitutes property used in the active trade or business
of the insurer.
(5) If the deferred gain required to be taken into account under
this subdivision is business income (as defined by subdivision (a) of
Section 25120), the gain shall be apportioned using the
apportionment percentage for the taxable year that the gain is
required to be taken into account under this subdivision. Except as
provided in regulations under Section 25137, for purposes of the
sales factor for that taxable year, the transaction giving rise to
that gain shall be treated as a sale occurring in the taxable year
the gain is taken into account. The amount of any gain required to be
recognized under this subdivision upon any disposition described in
this subdivision shall not exceed the lesser of the deferred gain or
the gain realized in the transaction in which gain is required to be
recognized under this subdivision.
(6) For purposes of computing the amount of gain required to be
recognized under this subdivision, appropriate adjustments may be
made, pursuant to regulations issued by the Franchise Tax Board, to
the basis of stock to reflect the disallowance of any expenses under
paragraph (2) of subdivision (b) of Section 24425.
(c) The Franchise Tax Board may prescribe regulations providing
for an annual reporting requirement in the form of a statement or
other form, to be attached to the transferor taxpayer's return,
regarding the current ownership of any property for which any gains
were previously deferred pursuant to subdivision (b). If the
transferor taxpayer fails to provide any information required by the
Franchise Tax Board pursuant to the preceding sentence, the Franchise
Tax Board may, in lieu of the year described by subdivision (b),
require that the transferor taxpayer take those gains into account in
the first taxable year in which the current ownership of the
property is not reported. The preceding sentence shall not apply so
long as the property is still owned by the transferee and the failure
to provide the information was due to reasonable cause and not
willful neglect. Notwithstanding any other provision of law, if a
taxpayer fails to satisfy the reporting requirements of this
subdivision, then a notice of proposed deficiency assessment
resulting from adjustments attributable to gains previously deferred
pursuant to subdivision (b) with respect to which the reporting
requirements were not satisfied may be mailed to the taxpayer within
four years from the date on which the reporting requirements are
satisfied by the taxpayer.
(d) Subdivision (b) shall not apply to any property described by
Section 367(a)(3)(B) of the Internal Revenue Code.
(e) Except as provided by regulations prescribed by the Franchise
Tax Board, a transfer by a taxpayer of an interest in a partnership
to an insurer in a transaction described in subdivision (a) shall be
treated as a transfer to that insurer of the taxpayer's pro rata
share of the assets of the partnership.
(f) For purposes of this section, any distribution described by
Section 355 of the Internal Revenue Code (or so much of Section 356
of the Internal Revenue Code as it relates to Section 355 of the
Internal Revenue Code) shall be treated as an exchange under this
section, whether or not the distribution is an exchange. This
subdivision shall not apply to any distribution in which either of
the following applies:
(1) The distributing corporation is an insurer.
(2) The distributee is a person other than an insurer.
(g) For purposes of this part, any transfer of property to an
insurer as a contribution to capital of that insurer by one or more
persons who, immediately after the transfer, own (within the meaning
of Section 318 of the Internal Revenue Code) stock possessing at
least 80 percent of the total combined voting power of all classes of
stock of that insurer that are entitled to vote shall be treated as
an exchange of that property for stock of the insurer equal in value
to the fair market value of the property transferred.
(h) (1) In the case of any distribution described in Section 355
of the Internal Revenue Code (or so much of Section 356 of the
Internal Revenue Code as it relates to Section 355 of the Internal
Revenue Code) by a taxpayer to an insurer, to the extent provided in
regulations prescribed by the Franchise Tax Board, gain shall be
recognized under principles similar to the principles of this
section.
(2) In the case of any liquidation to which Section 332 of the
Internal Revenue Code applies, except as provided in regulations
prescribed by the Franchise Tax Board, both of the following shall
apply:
(A) Sections 337(a) and 337(b)(1) of the Internal Revenue Code
shall not apply, where the 80 percent distributee is an insurer.
(B) Where the distributor is an insurer, the distributee shall
treat the distribution as a distribution from the insurer's earnings
and profits, to the extent thereof.
(3) For purposes of the preceding paragraph, the deemed
distribution from earnings and profits shall be treated as a dividend
eligible for a deduction, to the extent otherwise provided in
Section 24410, as if actually distributed as a dividend.
(i) For purposes of this section, the following definitions shall
apply:
(1) An insurer is any insurer within the meaning of Section 28 of
Article XIII of the California Constitution, whether or not the
insurer is engaged in business in California.
(2) The phrase "commonly controlled group" shall have the same
meaning as that phrase has under Section 25105.
(3) The phrase "combined reporting group" means those corporations
whose income is required to be included in the same combined report
pursuant to Section 25101 or 25110.
(j) The Franchise Tax Board may prescribe any regulations that may
be appropriate to carry out the purpose of this section, which
purpose is to prevent the removal of gain inherent in property at the
time of a transfer from taxation under this part. Those regulations
may provide for appropriate adjustments to the amount of deferred
income described in subdivision (b) to avoid the double inclusion of
income for situations, including but not limited to, the property
transferred to an insurer member of the commonly controlled group is
later acquired by a noninsurer member of the taxpayer's combined
reporting group.
(k) Upon an adequate showing by a taxpayer that a transaction
referred to in subdivision (a) or (h) would not violate the purposes
of this section to prevent the removal of gain inherent in property
at the time of a transfer from taxation under this part, the
Franchise Tax Board may grant relief from the application of this
section. In an appeal filed with the State Board of Equalization, or
an action filed under Section 19382 or 19385, the State Board of
Equalization or the court, as the case may be, shall have
jurisdiction to grant that relief only upon a specific finding that
the transfer did not remove gain inherent in property at the time of
transfer from taxation under this part.
(l) This section applies to transactions entered into on or after
June 23, 2004, or transactions entered into after June 23, 2004,
pursuant to a binding written contract in existence on June 23, 2004.
For purposes of this subdivision, transactions entered into on or
after June 23, 2004, that were given final approval by a regulatory
insurance commissioner before June 23, 2004, shall be considered a
transaction entered into before June 23, 2004, pursuant to a binding
written contract in existence on June 23, 2004.
24471. Section 381(c) of the Internal Revenue Code, relating to
items of the distributor or transferor corporation, is modified to
provide that, in lieu of paragraph (24), relating to credit under
Section 38, and paragraph (25), relating to credit under Section 53,
the acquiring corporation shall take into account (to the extent
proper to carry out the purposes of Section 381 of the Internal
Revenue Code) the items required to be taken into account for
purposes of each credit allowable under this part with respect to the
distributor or transferor corporation.
24472. The amendments to Section 382 of the Internal Revenue Code
made by Section 13226 of the Revenue Reconciliation Act of 1993 (P.L.
103-66), relating to modifications of discharge of indebtedness
provisions, shall apply to discharges occurring on or after January
1, 1996, in taxable years beginning on or after January 1, 1996.
24473. Notwithstanding any other provision of law, the contribution
or other transfer of the assets of a mutual water company
established prior to September 26, 1977, that is tax exempt under
Section 501(c)(12) of the Internal Revenue Code, but is a taxable
entity under California Law, including its lands, easements, rights,
and obligations to act as sole agent of the stockholders in
exercising the riparian rights of the stockholders, and rights
relating to the ownership, operation, and maintenance of a water
system and facilities serving the customers of the company, to a
community services district formed pursuant to Part 1 (commencing
with Section 61100) of Division 3 of Title 6 of the Government Code,
is not a transfer subject to taxes imposed by this part if all of the
following requirements are met:
(a) The consideration for the transfer of all or substantially all
of the assets is the assumption by the district of the company's
liability to provide service to the company's stockholders.
(b) The legal or beneficial title to all or substantially all of
the company's assets is vested in the district on or before January
1, 2008.
(c) For the one-year period immediately prior to commencement of
the transfer and continuing until the transfer is completed, 85
percent or more of the company's income consists of amounts collected
from stockholders for the sole purpose of meeting losses and
expenses.
24481. Section 383 of the Internal Revenue Code, relating to
special limitations on certain excess credits, etc., is modified to
apply to credits allowable under Chapter 3.5 (commencing with Section
23601), and the minimum tax credit allowable under Section 23453.
24451. Subchapter C of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to corporate distributions and adjustments,
shall apply, except as otherwise provided.
24452. Section 301(e)(2) of the Internal Revenue Code, relating to
20 percent corporate shareholders, is modified to refer to Section
24402 in lieu of Sections 243, 244, and 245 of the Internal Revenue
Code.
24453. Section 302(c)(2) of the Internal Revenue Code, relating to
determining termination of interest, is modified to refer to the
periods of limitation provided in "Chapter 4 (commencing with Section
19001) and Chapter 5 (commencing with Section 19201) of Part 10.2,"
in lieu of "Sections 6501 and 6502" of the Internal Revenue Code and
to refer to "taxes imposed under the Personal Income Tax Law" and the
"Corporation Tax Law," in lieu of "Federal income tax."
24456. Section 306(f) of the Internal Revenue Code, relating to
source of gain, shall not apply.
24458. Internal Revenue Service Notice 2008-83, 2008-42 I.R.B. 905,
issued on October 20, 2008, relating to the treatment of deductions
under Section 382(h) of the Internal Revenue Code following an
ownership change, shall not be applicable for purposes of taxes
imposed under Part 11 (commencing with Section 23001) of Division 2,
of this code with respect to any ownership change occurring at any
time.
24461. (a) For purposes of this part, the provisions of Section 633
of Public Law 99-514, relating to effective dates for recognition of
gain and loss on distributions of property in liquidation, shall
apply except as otherwise provided.
(b) The provisions of Section 633(e) of Public Law 99-514,
relating to other transition rules, shall not apply.
(c) The amendments to Section 633 of Public Law 99-514 made by
Section 1006(g)(1) to 1006(g)(8), inclusive, of Public Law 100-647,
relating to effective dates for recognition of gain and loss on
distributions of property in liquidation, are declaratory of existing
law and shall be applied in the same manner and for the same periods
as specified in Public Law 100-647.
24462. (a) Section 355 of the Internal Revenue Code, as in effect
for federal income tax purposes as of January 1, 2010, shall apply to
distributions made on or after January 1, 2010, without regard to
taxable year, except as otherwise provided.
(b) Section 355(g) of the Internal Revenue Code, relating to
section not to apply to distributions involving disqualified
investment corporations, is modified by substituting the phrase
"January 1, 2010," for "the date of the enactment of this subsection"
in Section 355(g)(2)(A)(i) of the Internal Revenue Code.
(c) The provisions of Section 4(d)(2) of the Tax Technical
Corrections Act of 2007 (Public Law 110-172), relating to
modification of active business definition under Section 355, shall
apply and are modified by substituting "January 1, 2010," for "May
17, 2006."
(d) The provisions of Section 507(b) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222),
relating to effective dates, shall apply and are modified as follows:
(1) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this Act" in Section 507(b)(1) of the Tax
Increase Prevention and Reconciliation Act of 2005 (Public Law
109-222).
(2) The phrase "January 1, 2010," shall be substituted for "such
date of enactment" in Section 507(b)(2)(A) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222).
(e) This section shall apply as of the dates specified in this
section, without regard to taxable year.
24465. (a) (1) If, in connection with any exchange described in
Section 332, 351, 354, 356, or 361 of the Internal Revenue Code, a
taxpayer transfers property to an insurer, the insurer shall not, for
purposes of determining the extent to which gain shall be recognized
on that transfer, be considered to be a corporation for purposes of
this part.
(2) Paragraph (1) shall not apply to any of the following types of
transactions, unless that transaction has the effect (directly or
indirectly) of transferring appreciated property from a taxpayer
subject to tax under this part (or a member of the taxpayer's
combined reporting group) to an insurer:
(A) An exchange or transfer pursuant to Section 368(a)(2)(D) or
Section 368(a)(2)(E) of the Internal Revenue Code.
(B) A transfer of stock in an 80 percent-owned insurer for the
purpose of filing a consolidated tax return or for financial or
regulatory reporting.
(C) A transfer or exchange of publicly owned stock of the parent
corporation.
(3) If a transaction described in paragraph (2) would qualify
under that paragraph but for the fact that the transaction has the
effect (directly or indirectly) of transferring appreciated property
from a taxpayer subject to tax under this part (or a member of the
taxpayer's combined reporting group) to an insurer, then, if the
property is used in the active trade or business of the insurer,
subdivision (b) shall be deemed to apply to that transfer.
(4) For purposes of this subdivision, "appreciated property" means
property whose fair market value, as of the date of the transfer
subject to this section, exceeds its adjusted basis as of that date.
(b) (1) Except as provided in subdivision (c), or as otherwise
provided by regulations prescribed by the Franchise Tax Board, if
property subject to paragraph (1) of subdivision (a) or to
subdivision (g) is transferred to an insurer for use in the active
conduct of a trade or business of the insurer, then any gain
otherwise required to be recognized under that subdivision shall be
deferred until the date that the property is no longer owned by an
insurer in the taxpayer's commonly controlled group (or a member of
the taxpayer's combined reporting group), or the property is no
longer used in the active conduct of the insurer's trade or business
(or the trade or business of another member in the taxpayer's
combined reporting group), or the holder of the property is no longer
held by an insurer in the commonly controlled group of the
transferor (or a member of the taxpayer's combined reporting group).
(2) Any of the events described in paragraph (1) shall be treated
as a disposition of the property under this subdivision, irrespective
of whether any other provision in this part or in the Internal
Revenue Code would otherwise permit nonrecognition treatment of the
transaction described in this subdivision.
(3) Notwithstanding paragraph (2) of this subdivision, an insurer
that becomes a member of the taxpayer's commonly controlled group or
a corporation that becomes a member of the taxpayer's combined
reporting group, as a result of a transaction of which a transfer
referred to in this subdivision is a part, shall be treated as a
member of the taxpayer's commonly controlled group or a member of the
taxpayer's combined reporting group at the time of the transfer for
purposes of this subdivision.
(4) For purposes of this subdivision, stock of an insurance
subsidiary constitutes property used in the active trade or business
of the insurer.
(5) If the deferred gain required to be taken into account under
this subdivision is business income (as defined by subdivision (a) of
Section 25120), the gain shall be apportioned using the
apportionment percentage for the taxable year that the gain is
required to be taken into account under this subdivision. Except as
provided in regulations under Section 25137, for purposes of the
sales factor for that taxable year, the transaction giving rise to
that gain shall be treated as a sale occurring in the taxable year
the gain is taken into account. The amount of any gain required to be
recognized under this subdivision upon any disposition described in
this subdivision shall not exceed the lesser of the deferred gain or
the gain realized in the transaction in which gain is required to be
recognized under this subdivision.
(6) For purposes of computing the amount of gain required to be
recognized under this subdivision, appropriate adjustments may be
made, pursuant to regulations issued by the Franchise Tax Board, to
the basis of stock to reflect the disallowance of any expenses under
paragraph (2) of subdivision (b) of Section 24425.
(c) The Franchise Tax Board may prescribe regulations providing
for an annual reporting requirement in the form of a statement or
other form, to be attached to the transferor taxpayer's return,
regarding the current ownership of any property for which any gains
were previously deferred pursuant to subdivision (b). If the
transferor taxpayer fails to provide any information required by the
Franchise Tax Board pursuant to the preceding sentence, the Franchise
Tax Board may, in lieu of the year described by subdivision (b),
require that the transferor taxpayer take those gains into account in
the first taxable year in which the current ownership of the
property is not reported. The preceding sentence shall not apply so
long as the property is still owned by the transferee and the failure
to provide the information was due to reasonable cause and not
willful neglect. Notwithstanding any other provision of law, if a
taxpayer fails to satisfy the reporting requirements of this
subdivision, then a notice of proposed deficiency assessment
resulting from adjustments attributable to gains previously deferred
pursuant to subdivision (b) with respect to which the reporting
requirements were not satisfied may be mailed to the taxpayer within
four years from the date on which the reporting requirements are
satisfied by the taxpayer.
(d) Subdivision (b) shall not apply to any property described by
Section 367(a)(3)(B) of the Internal Revenue Code.
(e) Except as provided by regulations prescribed by the Franchise
Tax Board, a transfer by a taxpayer of an interest in a partnership
to an insurer in a transaction described in subdivision (a) shall be
treated as a transfer to that insurer of the taxpayer's pro rata
share of the assets of the partnership.
(f) For purposes of this section, any distribution described by
Section 355 of the Internal Revenue Code (or so much of Section 356
of the Internal Revenue Code as it relates to Section 355 of the
Internal Revenue Code) shall be treated as an exchange under this
section, whether or not the distribution is an exchange. This
subdivision shall not apply to any distribution in which either of
the following applies:
(1) The distributing corporation is an insurer.
(2) The distributee is a person other than an insurer.
(g) For purposes of this part, any transfer of property to an
insurer as a contribution to capital of that insurer by one or more
persons who, immediately after the transfer, own (within the meaning
of Section 318 of the Internal Revenue Code) stock possessing at
least 80 percent of the total combined voting power of all classes of
stock of that insurer that are entitled to vote shall be treated as
an exchange of that property for stock of the insurer equal in value
to the fair market value of the property transferred.
(h) (1) In the case of any distribution described in Section 355
of the Internal Revenue Code (or so much of Section 356 of the
Internal Revenue Code as it relates to Section 355 of the Internal
Revenue Code) by a taxpayer to an insurer, to the extent provided in
regulations prescribed by the Franchise Tax Board, gain shall be
recognized under principles similar to the principles of this
section.
(2) In the case of any liquidation to which Section 332 of the
Internal Revenue Code applies, except as provided in regulations
prescribed by the Franchise Tax Board, both of the following shall
apply:
(A) Sections 337(a) and 337(b)(1) of the Internal Revenue Code
shall not apply, where the 80 percent distributee is an insurer.
(B) Where the distributor is an insurer, the distributee shall
treat the distribution as a distribution from the insurer's earnings
and profits, to the extent thereof.
(3) For purposes of the preceding paragraph, the deemed
distribution from earnings and profits shall be treated as a dividend
eligible for a deduction, to the extent otherwise provided in
Section 24410, as if actually distributed as a dividend.
(i) For purposes of this section, the following definitions shall
apply:
(1) An insurer is any insurer within the meaning of Section 28 of
Article XIII of the California Constitution, whether or not the
insurer is engaged in business in California.
(2) The phrase "commonly controlled group" shall have the same
meaning as that phrase has under Section 25105.
(3) The phrase "combined reporting group" means those corporations
whose income is required to be included in the same combined report
pursuant to Section 25101 or 25110.
(j) The Franchise Tax Board may prescribe any regulations that may
be appropriate to carry out the purpose of this section, which
purpose is to prevent the removal of gain inherent in property at the
time of a transfer from taxation under this part. Those regulations
may provide for appropriate adjustments to the amount of deferred
income described in subdivision (b) to avoid the double inclusion of
income for situations, including but not limited to, the property
transferred to an insurer member of the commonly controlled group is
later acquired by a noninsurer member of the taxpayer's combined
reporting group.
(k) Upon an adequate showing by a taxpayer that a transaction
referred to in subdivision (a) or (h) would not violate the purposes
of this section to prevent the removal of gain inherent in property
at the time of a transfer from taxation under this part, the
Franchise Tax Board may grant relief from the application of this
section. In an appeal filed with the State Board of Equalization, or
an action filed under Section 19382 or 19385, the State Board of
Equalization or the court, as the case may be, shall have
jurisdiction to grant that relief only upon a specific finding that
the transfer did not remove gain inherent in property at the time of
transfer from taxation under this part.
(l) This section applies to transactions entered into on or after
June 23, 2004, or transactions entered into after June 23, 2004,
pursuant to a binding written contract in existence on June 23, 2004.
For purposes of this subdivision, transactions entered into on or
after June 23, 2004, that were given final approval by a regulatory
insurance commissioner before June 23, 2004, shall be considered a
transaction entered into before June 23, 2004, pursuant to a binding
written contract in existence on June 23, 2004.
24471. Section 381(c) of the Internal Revenue Code, relating to
items of the distributor or transferor corporation, is modified to
provide that, in lieu of paragraph (24), relating to credit under
Section 38, and paragraph (25), relating to credit under Section 53,
the acquiring corporation shall take into account (to the extent
proper to carry out the purposes of Section 381 of the Internal
Revenue Code) the items required to be taken into account for
purposes of each credit allowable under this part with respect to the
distributor or transferor corporation.
24472. The amendments to Section 382 of the Internal Revenue Code
made by Section 13226 of the Revenue Reconciliation Act of 1993 (P.L.
103-66), relating to modifications of discharge of indebtedness
provisions, shall apply to discharges occurring on or after January
1, 1996, in taxable years beginning on or after January 1, 1996.
24473. Notwithstanding any other provision of law, the contribution
or other transfer of the assets of a mutual water company
established prior to September 26, 1977, that is tax exempt under
Section 501(c)(12) of the Internal Revenue Code, but is a taxable
entity under California Law, including its lands, easements, rights,
and obligations to act as sole agent of the stockholders in
exercising the riparian rights of the stockholders, and rights
relating to the ownership, operation, and maintenance of a water
system and facilities serving the customers of the company, to a
community services district formed pursuant to Part 1 (commencing
with Section 61100) of Division 3 of Title 6 of the Government Code,
is not a transfer subject to taxes imposed by this part if all of the
following requirements are met:
(a) The consideration for the transfer of all or substantially all
of the assets is the assumption by the district of the company's
liability to provide service to the company's stockholders.
(b) The legal or beneficial title to all or substantially all of
the company's assets is vested in the district on or before January
1, 2008.
(c) For the one-year period immediately prior to commencement of
the transfer and continuing until the transfer is completed, 85
percent or more of the company's income consists of amounts collected
from stockholders for the sole purpose of meeting losses and
expenses.
24481. Section 383 of the Internal Revenue Code, relating to
special limitations on certain excess credits, etc., is modified to
apply to credits allowable under Chapter 3.5 (commencing with Section
23601), and the minimum tax credit allowable under Section 23453.
24451. Subchapter C of Chapter 1 of Subtitle A of the Internal
Revenue Code, relating to corporate distributions and adjustments,
shall apply, except as otherwise provided.
24452. Section 301(e)(2) of the Internal Revenue Code, relating to
20 percent corporate shareholders, is modified to refer to Section
24402 in lieu of Sections 243, 244, and 245 of the Internal Revenue
Code.
24453. Section 302(c)(2) of the Internal Revenue Code, relating to
determining termination of interest, is modified to refer to the
periods of limitation provided in "Chapter 4 (commencing with Section
19001) and Chapter 5 (commencing with Section 19201) of Part 10.2,"
in lieu of "Sections 6501 and 6502" of the Internal Revenue Code and
to refer to "taxes imposed under the Personal Income Tax Law" and the
"Corporation Tax Law," in lieu of "Federal income tax."
24456. Section 306(f) of the Internal Revenue Code, relating to
source of gain, shall not apply.
24458. Internal Revenue Service Notice 2008-83, 2008-42 I.R.B. 905,
issued on October 20, 2008, relating to the treatment of deductions
under Section 382(h) of the Internal Revenue Code following an
ownership change, shall not be applicable for purposes of taxes
imposed under Part 11 (commencing with Section 23001) of Division 2,
of this code with respect to any ownership change occurring at any
time.
24461. (a) For purposes of this part, the provisions of Section 633
of Public Law 99-514, relating to effective dates for recognition of
gain and loss on distributions of property in liquidation, shall
apply except as otherwise provided.
(b) The provisions of Section 633(e) of Public Law 99-514,
relating to other transition rules, shall not apply.
(c) The amendments to Section 633 of Public Law 99-514 made by
Section 1006(g)(1) to 1006(g)(8), inclusive, of Public Law 100-647,
relating to effective dates for recognition of gain and loss on
distributions of property in liquidation, are declaratory of existing
law and shall be applied in the same manner and for the same periods
as specified in Public Law 100-647.
24462. (a) Section 355 of the Internal Revenue Code, as in effect
for federal income tax purposes as of January 1, 2010, shall apply to
distributions made on or after January 1, 2010, without regard to
taxable year, except as otherwise provided.
(b) Section 355(g) of the Internal Revenue Code, relating to
section not to apply to distributions involving disqualified
investment corporations, is modified by substituting the phrase
"January 1, 2010," for "the date of the enactment of this subsection"
in Section 355(g)(2)(A)(i) of the Internal Revenue Code.
(c) The provisions of Section 4(d)(2) of the Tax Technical
Corrections Act of 2007 (Public Law 110-172), relating to
modification of active business definition under Section 355, shall
apply and are modified by substituting "January 1, 2010," for "May
17, 2006."
(d) The provisions of Section 507(b) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222),
relating to effective dates, shall apply and are modified as follows:
(1) The phrase "January 1, 2010," shall be substituted for "the
date of the enactment of this Act" in Section 507(b)(1) of the Tax
Increase Prevention and Reconciliation Act of 2005 (Public Law
109-222).
(2) The phrase "January 1, 2010," shall be substituted for "such
date of enactment" in Section 507(b)(2)(A) of the Tax Increase
Prevention and Reconciliation Act of 2005 (Public Law 109-222).
(e) This section shall apply as of the dates specified in this
section, without regard to taxable year.
24465. (a) (1) If, in connection with any exchange described in
Section 332, 351, 354, 356, or 361 of the Internal Revenue Code, a
taxpayer transfers property to an insurer, the insurer shall not, for
purposes of determining the extent to which gain shall be recognized
on that transfer, be considered to be a corporation for purposes of
this part.
(2) Paragraph (1) shall not apply to any of the following types of
transactions, unless that transaction has the effect (directly or
indirectly) of transferring appreciated property from a taxpayer
subject to tax under this part (or a member of the taxpayer's
combined reporting group) to an insurer:
(A) An exchange or transfer pursuant to Section 368(a)(2)(D) or
Section 368(a)(2)(E) of the Internal Revenue Code.
(B) A transfer of stock in an 80 percent-owned insurer for the
purpose of filing a consolidated tax return or for financial or
regulatory reporting.
(C) A transfer or exchange of publicly owned stock of the parent
corporation.
(3) If a transaction described in paragraph (2) would qualify
under that paragraph but for the fact that the transaction has the
effect (directly or indirectly) of transferring appreciated property
from a taxpayer subject to tax under this part (or a member of the
taxpayer's combined reporting group) to an insurer, then, if the
property is used in the active trade or business of the insurer,
subdivision (b) shall be deemed to apply to that transfer.
(4) For purposes of this subdivision, "appreciated property" means
property whose fair market value, as of the date of the transfer
subject to this section, exceeds its adjusted basis as of that date.
(b) (1) Except as provided in subdivision (c), or as otherwise
provided by regulations prescribed by the Franchise Tax Board, if
property subject to paragraph (1) of subdivision (a) or to
subdivision (g) is transferred to an insurer for use in the active
conduct of a trade or business of the insurer, then any gain
otherwise required to be recognized under that subdivision shall be
deferred until the date that the property is no longer owned by an
insurer in the taxpayer's commonly controlled group (or a member of
the taxpayer's combined reporting group), or the property is no
longer used in the active conduct of the insurer's trade or business
(or the trade or business of another member in the taxpayer's
combined reporting group), or the holder of the property is no longer
held by an insurer in the commonly controlled group of the
transferor (or a member of the taxpayer's combined reporting group).
(2) Any of the events described in paragraph (1) shall be treated
as a disposition of the property under this subdivision, irrespective
of whether any other provision in this part or in the Internal
Revenue Code would otherwise permit nonrecognition treatment of the
transaction described in this subdivision.
(3) Notwithstanding paragraph (2) of this subdivision, an insurer
that becomes a member of the taxpayer's commonly controlled group or
a corporation that becomes a member of the taxpayer's combined
reporting group, as a result of a transaction of which a transfer
referred to in this subdivision is a part, shall be treated as a
member of the taxpayer's commonly controlled group or a member of the
taxpayer's combined reporting group at the time of the transfer for
purposes of this subdivision.
(4) For purposes of this subdivision, stock of an insurance
subsidiary constitutes property used in the active trade or business
of the insurer.
(5) If the deferred gain required to be taken into account under
this subdivision is business income (as defined by subdivision (a) of
Section 25120), the gain shall be apportioned using the
apportionment percentage for the taxable year that the gain is
required to be taken into account under this subdivision. Except as
provided in regulations under Section 25137, for purposes of the
sales factor for that taxable year, the transaction giving rise to
that gain shall be treated as a sale occurring in the taxable year
the gain is taken into account. The amount of any gain required to be
recognized under this subdivision upon any disposition described in
this subdivision shall not exceed the lesser of the deferred gain or
the gain realized in the transaction in which gain is required to be
recognized under this subdivision.
(6) For purposes of computing the amount of gain required to be
recognized under this subdivision, appropriate adjustments may be
made, pursuant to regulations issued by the Franchise Tax Board, to
the basis of stock to reflect the disallowance of any expenses under
paragraph (2) of subdivision (b) of Section 24425.
(c) The Franchise Tax Board may prescribe regulations providing
for an annual reporting requirement in the form of a statement or
other form, to be attached to the transferor taxpayer's return,
regarding the current ownership of any property for which any gains
were previously deferred pursuant to subdivision (b). If the
transferor taxpayer fails to provide any information required by the
Franchise Tax Board pursuant to the preceding sentence, the Franchise
Tax Board may, in lieu of the year described by subdivision (b),
require that the transferor taxpayer take those gains into account in
the first taxable year in which the current ownership of the
property is not reported. The preceding sentence shall not apply so
long as the property is still owned by the transferee and the failure
to provide the information was due to reasonable cause and not
willful neglect. Notwithstanding any other provision of law, if a
taxpayer fails to satisfy the reporting requirements of this
subdivision, then a notice of proposed deficiency assessment
resulting from adjustments attributable to gains previously deferred
pursuant to subdivision (b) with respect to which the reporting
requirements were not satisfied may be mailed to the taxpayer within
four years from the date on which the reporting requirements are
satisfied by the taxpayer.
(d) Subdivision (b) shall not apply to any property described by
Section 367(a)(3)(B) of the Internal Revenue Code.
(e) Except as provided by regulations prescribed by the Franchise
Tax Board, a transfer by a taxpayer of an interest in a partnership
to an insurer in a transaction described in subdivision (a) shall be
treated as a transfer to that insurer of the taxpayer's pro rata
share of the assets of the partnership.
(f) For purposes of this section, any distribution described by
Section 355 of the Internal Revenue Code (or so much of Section 356
of the Internal Revenue Code as it relates to Section 355 of the
Internal Revenue Code) shall be treated as an exchange under this
section, whether or not the distribution is an exchange. This
subdivision shall not apply to any distribution in which either of
the following applies:
(1) The distributing corporation is an insurer.
(2) The distributee is a person other than an insurer.
(g) For purposes of this part, any transfer of property to an
insurer as a contribution to capital of that insurer by one or more
persons who, immediately after the transfer, own (within the meaning
of Section 318 of the Internal Revenue Code) stock possessing at
least 80 percent of the total combined voting power of all classes of
stock of that insurer that are entitled to vote shall be treated as
an exchange of that property for stock of the insurer equal in value
to the fair market value of the property transferred.
(h) (1) In the case of any distribution described in Section 355
of the Internal Revenue Code (or so much of Section 356 of the
Internal Revenue Code as it relates to Section 355 of the Internal
Revenue Code) by a taxpayer to an insurer, to the extent provided in
regulations prescribed by the Franchise Tax Board, gain shall be
recognized under principles similar to the principles of this
section.
(2) In the case of any liquidation to which Section 332 of the
Internal Revenue Code applies, except as provided in regulations
prescribed by the Franchise Tax Board, both of the following shall
apply:
(A) Sections 337(a) and 337(b)(1) of the Internal Revenue Code
shall not apply, where the 80 percent distributee is an insurer.
(B) Where the distributor is an insurer, the distributee shall
treat the distribution as a distribution from the insurer's earnings
and profits, to the extent thereof.
(3) For purposes of the preceding paragraph, the deemed
distribution from earnings and profits shall be treated as a dividend
eligible for a deduction, to the extent otherwise provided in
Section 24410, as if actually distributed as a dividend.
(i) For purposes of this section, the following definitions shall
apply:
(1) An insurer is any insurer within the meaning of Section 28 of
Article XIII of the California Constitution, whether or not the
insurer is engaged in business in California.
(2) The phrase "commonly controlled group" shall have the same
meaning as that phrase has under Section 25105.
(3) The phrase "combined reporting group" means those corporations
whose income is required to be included in the same combined report
pursuant to Section 25101 or 25110.
(j) The Franchise Tax Board may prescribe any regulations that may
be appropriate to carry out the purpose of this section, which
purpose is to prevent the removal of gain inherent in property at the
time of a transfer from taxation under this part. Those regulations
may provide for appropriate adjustments to the amount of deferred
income described in subdivision (b) to avoid the double inclusion of
income for situations, including but not limited to, the property
transferred to an insurer member of the commonly controlled group is
later acquired by a noninsurer member of the taxpayer's combined
reporting group.
(k) Upon an adequate showing by a taxpayer that a transaction
referred to in subdivision (a) or (h) would not violate the purposes
of this section to prevent the removal of gain inherent in property
at the time of a transfer from taxation under this part, the
Franchise Tax Board may grant relief from the application of this
section. In an appeal filed with the State Board of Equalization, or
an action filed under Section 19382 or 19385, the State Board of
Equalization or the court, as the case may be, shall have
jurisdiction to grant that relief only upon a specific finding that
the transfer did not remove gain inherent in property at the time of
transfer from taxation under this part.
(l) This section applies to transactions entered into on or after
June 23, 2004, or transactions entered into after June 23, 2004,
pursuant to a binding written contract in existence on June 23, 2004.
For purposes of this subdivision, transactions entered into on or
after June 23, 2004, that were given final approval by a regulatory
insurance commissioner before June 23, 2004, shall be considered a
transaction entered into before June 23, 2004, pursuant to a binding
written contract in existence on June 23, 2004.
24471. Section 381(c) of the Internal Revenue Code, relating to
items of the distributor or transferor corporation, is modified to
provide that, in lieu of paragraph (24), relating to credit under
Section 38, and paragraph (25), relating to credit under Section 53,
the acquiring corporation shall take into account (to the extent
proper to carry out the purposes of Section 381 of the Internal
Revenue Code) the items required to be taken into account for
purposes of each credit allowable under this part with respect to the
distributor or transferor corporation.
24472. The amendments to Section 382 of the Internal Revenue Code
made by Section 13226 of the Revenue Reconciliation Act of 1993 (P.L.
103-66), relating to modifications of discharge of indebtedness
provisions, shall apply to discharges occurring on or after January
1, 1996, in taxable years beginning on or after January 1, 1996.
24473. Notwithstanding any other provision of law, the contribution
or other transfer of the assets of a mutual water company
established prior to September 26, 1977, that is tax exempt under
Section 501(c)(12) of the Internal Revenue Code, but is a taxable
entity under California Law, including its lands, easements, rights,
and obligations to act as sole agent of the stockholders in
exercising the riparian rights of the stockholders, and rights
relating to the ownership, operation, and maintenance of a water
system and facilities serving the customers of the company, to a
community services district formed pursuant to Part 1 (commencing
with Section 61100) of Division 3 of Title 6 of the Government Code,
is not a transfer subject to taxes imposed by this part if all of the
following requirements are met:
(a) The consideration for the transfer of all or substantially all
of the assets is the assumption by the district of the company's
liability to provide service to the company's stockholders.
(b) The legal or beneficial title to all or substantially all of
the company's assets is vested in the district on or before January
1, 2008.
(c) For the one-year period immediately prior to commencement of
the transfer and continuing until the transfer is completed, 85
percent or more of the company's income consists of amounts collected
from stockholders for the sole purpose of meeting losses and
expenses.
24481. Section 383 of the Internal Revenue Code, relating to
special limitations on certain excess credits, etc., is modified to
apply to credits allowable under Chapter 3.5 (commencing with Section
23601), and the minimum tax credit allowable under Section 23453.
