Folleto del Impuesto sobre Sociedades 2022 S

Breadcrumbs:

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2015, and to the California Revenue and Taxation Code (R&TC).

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540), California Adjustments – Residents, or Schedule CA (540NR), California Adjustments – Nonresidents or Part-Year Residents, and the Business Entity tax booklets.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law.

Principal Business Activity Codes – The Principal Business Activity Codes, located within these instructions, have been updated and revised to reflect updates to the North American Industry Classification System (NAICS).

Repeal of Net Operating Loss Suspension – For the 2022 taxable year, the net operating loss suspension has been repealed. For more information, see R&TC Section 24416.23 and get form FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Corporations.

Repeal of Credit Limitation – For the 2022 taxable year, the credit limitation has been repealed. For more information, see R&TC Section 23036.3.

Reporting Requirements – Taxpayers may need to file form FTB 4197, Information on Tax Expenditure Items, with the Franchise Tax Board (FTB) to report tax expenditure items as part of the FTB’s annual reporting requirements under R&TC Section 41. To determine if you have an R&TC Section 41 reporting requirement, see the R&TC Section 41 Reporting Requirements section or get form FTB 4197.

Homeless Hiring Tax Credit – For taxable years beginning on or after January 1, 2022, and before January 1, 2027, a Homeless Hiring Tax Credit (HHTC) will be available to a qualified taxpayer that hires eligible individuals. The amount of the tax credit will be based on the number of hours the employee works in the taxable year. Employers must obtain a certification of the individual’s homeless status from an organization that works with the homeless and must receive a tentative credit reservation for that employee. Any credits not used in the taxable year may be carried forward up to three years. For more information, get form FTB 3831, Homeless Hiring Tax Credit or go to ftb.ca.gov and search for hhtc.

Soundstage Filming Tax Credit – For taxable years beginning on or after January 1, 2022, R&TC Sections 23698(k) allows a fourth film credit, the Soundstage Filming Tax Credit against tax. The credit is allocated and certified by the California Film Commission (CFC). The qualified taxpayer can:

For more information, get form FTB 3541, California Motion Picture and Television Production Credit, form FTB 3551, Sale of Credit Attributable to an Independent Film, go to ftb.ca.gov and search for motion picture, or go to the CFC website at film.ca.gov and search for soundstage filming tax credit.

State Historic Rehabilitation Tax Credit – For taxable years beginning on or after January 1, 2021, a State Historic Rehabilitation Tax Credit is available to qualified taxpayers that received a tax credit allocation from the California Tax Credit Allocation Committee (CTCAC). The credit is for the rehabilitation of certified historic structures and for individual taxpayers, a qualified residence. Any credits not used in the taxable year may be carried forward up to eight years. Taxpayers should apply for the tax credit reservation with CTCAC and have received a tax credit allocation confirmation number from CTCAC prior to claiming the State Historic Rehabilitation Tax Credit on form FTB 3835. The credit was not funded, and cannot be claimed, for tax year 2021. For more information, get form FTB 3835, State Historic Rehabilitation Tax Credit, or go to the California Office of Historic Preservation website at ohp.parks.ca.gov and search shrtc.

High Road Cannabis Tax Credit – For taxable years beginning on or after January 1, 2023, and before January 1, 2028, a High Road Cannabis Tax Credit (HRCTC) will be available to a qualified taxpayer that is a licensed commercial cannabis business that meets specified criteria. The HRCTC is allowed in an amount equal to 25% of the total amount of the qualified taxpayer’s qualified expenditures in the taxable year not to exceed $250,000 per taxable year. Any credits not used in the taxable year may be carried forward up to eight years. A qualified taxpayer must request a tentative credit reservation from the FTB during the month of July for each taxable year or within 30 days of the start of their taxable year if the qualified taxpayer’s taxable year begins after July. For more information, go to ftb.ca.gov and search for hrctc.

College Access Tax Credit – The sunset date for the College Access Tax Credit is extended until taxable years beginning before January 1, 2028. For more information, get form FTB 3592, College Access Tax Credit.

Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant – For taxable years beginning on or after January 1, 2021, and before January 1, 2030, California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant Program that is established by Section 12100.975 of the Government Code. For more information, see Specific Line Instructions and R&TC Section 24312.

Thomas and Woolsey Wildfires Exclusion – For taxable years beginning before January 1, 2027, California law allows a qualified taxpayer an exclusion from gross income for any amount received in a settlement from Southern California Edison for claims relating to the 2017 Thomas Fire or the 2018 Woolsey Fire. If a qualified taxpayer included income for an amount received from these settlements in a prior taxable year, the taxpayer can file an amended tax return for that year. If the normal statute of limitations has expired, the taxpayer must file a claim by September 29, 2023. For more information, see Specific Line Instructions and R&TC Section 24309.1.

Fire Victims Trust Exclusion – For taxable years beginning before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any amount received from the Fire Victims Trust, established pursuant to the order of the United States Bankruptcy Court for the Northern District of California dated June 20, 2020, case number 19-30088, docket number 8053. If a qualified taxpayer included income for an amount received from the Fire Victims Trust in a prior taxable year, the taxpayer can file an amended tax return for that year. If the normal statute of limitations has expired, the taxpayer must file a claim by September 29, 2023. For more information, see Specific Line Instructions and R&TC Section 24309.3.

Turf Replacement Water Conservation Program – For taxable years beginning on or after January 1, 2022, and before January 1, 2027, California law allows an exclusion from gross income for any amount received as a rebate, voucher, or other financial incentive issued by a public water system, as defined, local government, or state agency for participation in a turf replacement water conservation program. For more information, see Specific Line Instructions and R&TC Section 24308.9.

Conformity – For updates regarding the federal acts, go to ftb.ca.gov and search for conformity.

Taxpayers should file form FTB 4197 with the FTB to report tax expenditure items as part of the FTB’s annual reporting requirements under R&TC Section 41. “Tax expenditure” means a credit, deduction, exclusion, exemption, or any other tax benefit provided for by the state. The FTB uses information from form FTB 4197 for reports required by the California Legislature. Taxpayers that have a reporting requirement for any of the following should file form FTB 4197:

For more information, get form FTB 4197.

Check with the software providers to see if they support business e-filing.

The law allows a credit against the personal income tax to a taxpayer, other than a partnership, that is a partner, shareholder, or member of a qualified entity that elects to pay the elective tax, in an amount equal to 9.3 percent of the partner’s, shareholder’s, or member’s pro rata share or distributive share and guaranteed payments of qualified net income subject to the election made by the qualified entity. A disregarded business entity and its partners or members cannot claim the credit, except for a disregarded single member limited liability company (SMLLC) that is owned by an individual, fiduciary, estate, or trust subject to personal income tax. For more information, go to ftb.ca.gov and search for pte elective tax and get the following PTE elective tax forms and instructions:

The federal American Rescue Plan Act (ARPA) of 2021 expands PPP eligibility to include “additional covered nonprofit entities” which includes certain Code 501(c) nonprofit organizations and Internet-only news publishers and Internet-only periodical publishers. California law does not conform to this expansion of PPP eligibility. For more information, see Specific Line Instructions.

The CAA, 2021, allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, these deductions do not apply to an ineligible entity. “Ineligible entity” means a taxpayer that is either a publicly-traded company or does not meet the 25% reduction from gross receipts requirements under Section 311 of Division N of the CAA, 2021. For more information, see Specific Line Instructions or R&TC Section 24308.6. or go to ftb.ca.gov and search for AB 80.

A small business may elect to apply the same provisions above to taxable years beginning on or after January 1, 2018, and before January 1, 2019. Taxpayers make the election by providing the following information to the FTB:

The FTB may impose penalties if the S corporation fails to file federal Form 8886, Form 8918, Material Advisor Disclosure Statement, or any other required information. A material advisor is required to provide a reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor. For more information, go to ftb.ca.gov and search for disclosure obligation.

For more information regarding “gross receipts” or “Finnigan rule,” get Schedule R or go to ftb.ca.gov and search for corporation law changes.

An additional 1% tax will be assessed on nonresident individuals who have California taxable income over $1 million. Get FTB Pub. 1067, Guidelines for Filing a Group Form 540NR, for more information.

S corporations should follow the instructions in federal Form 4797, Sales of Business Property, with the exception that the amount of gain on property subject to the IRC Section 179 recapture must be included in the S corporation’s taxable income for California purposes. See General Information FF, Property Subject To IRC Section 179 Recapture, and Specific Line Instructions for Form 100S, line 4, for more information.

Shareholders should follow federal reporting requirements as detailed in federal Form 1120-S and federal Form 4797 instructions.

The above lists are not intended to be all-inclusive of the federal and state conformities and differences. For more information, refer to the R&TC.

Any taxpayer filing on a water’s-edge or worldwide basis is required to keep and maintain records and make the following available upon request:

See R&TC Section 19141.6 and the related regulations for more information. An S corporation may be required to authorize an agent, through a Power of Attorney (POA), to act on its behalf in response to requests for information or records pursuant to R&TC Section 19504. For more information, go to ftb.ca.gov/poa.

The penalty for not maintaining the required records is $10,000 for each taxable year for which the failure applies. In addition, if the failure continues for more than 90 days after the FTB notifies the S corporation of the failure, a penalty of $10,000 may be assessed for each additional 30 day period of continued failure. See General Information M, Penalties, for more information.

Form 100S is used if a corporation has elected to be a small business corporation (S corporation).

All federal S corporations subject to California laws must file Form 100S and pay the greater of the minimum franchise tax or the 1.5% income or franchise tax. The tax rate for financial S corporations is 3.5%.

The taxable income of the S corporation is calculated in two different ways for two different purposes. First, it is calculated in the same manner as for C corporations, with certain modifications, for purposes of computing the 1.5% income or franchise tax. Second, it is calculated using federal rules for the pass through of income and deductions, etc. for purposes of pass through to the shareholders.

A corporation that makes a valid election to be treated as an S corporation is not allowed to be included in a combined report of a unitary group, except as provided by R&TC Section 23801(d)(1).

When Completing the Form 100S:

Entities subject to the corporation minimum franchise tax include all S corporations that meet any of the following:

The minimum franchise tax must be paid by corporations incorporated in California or qualified or registered under California law whether the S corporation is active, inactive, not doing business, or operates at a loss. See General Information B, Tax Rate and Minimum Franchise Tax, for more information.

The measured franchise tax is imposed on S corporations doing business in California and is measured by the income of the current taxable year for the privilege of doing business in that taxable year.

A taxpayer is “doing business” if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California or if any of the following conditions is satisfied:

In determining the amount of the taxpayer’s sales, property, and payroll for doing business purposes, include the taxpayer’s pro rata share of amounts from partnerships and S corporations. All S corporations complete Schedule K-1 (100S), Table 2, Item C to report the shareholder’s distributive share of property, payroll and sales total within California. For more information, see R&TC Section 23101 or go to ftb.ca.gov and search for doing business.

An S corporation incorporated in California, but not doing business in this state, is not subject to the measured franchise tax. However, careful attention should be given to the term “doing business.” It is not necessary that the S corporation conducts business or engages in transactions within the state on a regular basis. Even an isolated transaction during the taxable year may be enough to cause the S corporation to be “doing business”.

Also, when an S corporation is either a general partner of a partnership or a member of an LLC that is “doing business” in California, the S corporation is also considered to be “doing business” in California.

The corporation income tax is imposed on all S corporations that derive income from sources within California but are not doing business in California.

For purposes of the corporation income tax, the term “corporation” is not limited to incorporated entities, but also includes the following:

The following tax rates apply to S corporations subject to either the corporation franchise tax or the corporation income tax.

See R&TC Section 23186, General Information J, Built-In Gains, and General Information S, Excess Net Passive Investment Income, for more information.

All S corporations subject to the corporation franchise tax and any S corporation doing business in California must file Form 100S and pay at least the minimum franchise tax as required by law. The minimum franchise tax is $800 and must be paid whether the S corporation is active, inactive, operates at a loss, or files a return for a short period of less than 12 months.

A corporation that incorporated or qualified through the California Secretary of State (SOS) to do business in California is not subject to the minimum franchise tax for its first taxable year and will compute its tax liability by multiplying its state net income by the appropriate tax rate. The corporation will become subject to minimum franchise tax beginning in its second taxable year. This does not apply to qualified Subchapter S subsidiaries or corporations that are not qualified by the California SOS, or reorganize solely to avoid payment of the minimum franchise tax.

There is no minimum franchise tax for the following entities:

For taxable years beginning on or after January 1, 2020, and before January 1, 2030, a corporation that is a small business solely owned by a deployed member of the United States Armed Forces shall not be subject to the minimum franchise tax if the owner is deployed during the taxable year and the corporation operates at a loss or ceases operation. Corporations exempt from the minimum franchise tax should write “Deployed Military” in black or blue ink in the top margin of the tax return.

For the purposes of this exemption:

(A) “Deployed” means being called to active duty or active service during a period when the United States is engaged in combat or homeland defense. “Deployed” does not include either of the following:

(B) “Operates at a loss” means negative net income as defined in R&TC Section 24341.

(C) “Small business” means a corporation with two hundred fifty thousand dollars ($250,000) or less of total income from all sources derived from or attributable to California.

S corporations are not subject to the alternative minimum tax.

Corporations that elect federal S corporation status and have a California filing requirement are deemed to have made a California S election effective on the same date as the federal S election.

Terminating the taxpayer’s federal S election simultaneously terminates its California S election.

If the taxpayer terminates its S corporation status, short-period returns are required for the S corporation short year and the C corporation short year, if applicable.

The taxable year of the S corporation must not be different from the taxable year used for federal purposes, unless initiated or approved by the FTB (R&TC Section 24632).

A change in accounting method requires consent from the FTB. However, an S corporation that obtains federal approval to change its accounting method, or that is permitted or required by federal law to make a change in its accounting method without prior approval, and does so, is deemed to have the FTB’s approval if: (1) the S corporation files a timely Form 100S consistent with the change for the first taxable year the change is effective for federal purposes; and (2) the change is consistent with California law. A copy of federal Form 3115, Application for Change in Accounting Method, and a copy of the federal consent to the change must be attached to Form 100S for the first taxable year the change becomes effective. Get FTB Notice 2020-04 for more information. The FTB may modify requested changes if the adjustments would distort income for California purposes.

California follows the provisions of Revenue Procedure 2016-29, which updates the procedures for a change of accounting method involving previously unclaimed, but allowable depreciation or amortization deductions.

File Form 100S by the 15th day of the 3rd month after the close of the taxable year unless the return is for a short-period as required under R&TC Section 24634. Generally, the due date of a short-period return is the same as the due date of the federal short-period return. See R&TC Section 18601(c) for the due date of the short-period return.

When the due date falls on a weekend or holiday, the deadline to file and pay without penalty is extended to the next business day.

Due to the federal Emancipation Day holiday observed on April 17, 2023, tax returns filed and payments mailed or submitted on April 18, 2023, will be considered timely.

For information on final returns, see General Information O, Dissolution/Withdrawal, and General Information P, Ceasing Business.

If an S corporation converts during its taxable year to an LLC or limited partnership (LP) under state law, then generally two short-period California returns must be filed (one short-period return for the S corporation and another short-period return for the LLC or LP).

The corporate status and taxable year of the LLC or LP will not terminate and only a single return Form 100S is required if:

If an S corporation cannot file its California tax return by the 15th day of the 3rd month after the close of the taxable year, it may file on or before the 15th day of the 9th month without filing a written request for an extension. Get FTB Notice 2019-07 for more information. There is no automatic extension period for business entities suspended on or after the original due date.

An automatic extension does not extend the time for payment. The full amount of tax must be paid by the original due date of Form 100S. If there is an unpaid tax liability on the original due date, complete form FTB 3539, Payment for Automatic Extension for Corporations and Exempt Organizations, included in this booklet, and send it with the payment by the original due date of the Form 100S.

When the due date falls on a weekend or holiday, the deadline to file and pay without penalty is extended to the next business day.

Due to the federal Emancipation Day holiday observed on April 17, 2023, tax returns filed and payments mailed or submitted on April 18, 2023, will be considered timely.

If the S corporation must pay its tax liability electronically, all payments must be remitted by Electronic Fund Transfer (EFT), EFW, Web Pay, or credit card to avoid penalties. Do not send form FTB 3539.

Corporations or exempt organizations remitting an estimated tax payment or extension payment in excess of $20,000 or having a total tax liability in excess of $80,000 must remit all payments through EFT. Once a corporation meets the threshold, all subsequent payments regardless of amount, tax type, or taxable year must be remitted electronically to avoid the 10% non-compliance penalty. The first payment that would trigger the mandatory EFT requirement does not have to be made electronically. Corporations required to remit payments electronically may use EFW, Web Pay, or credit card and be considered in compliance with that requirement. The FTB notifies corporations or exempt organizations that are subject to this requirement. Those that do not meet these requirements may participate on a voluntary basis. If the corporation pays electronically, complete the form FTB 3539 worksheet for its records. Do not mail the payment voucher. For more information, go to ftb.ca.gov and search for eft or call 916-845-4025.

S corporations can make an estimated tax or extension payment using tax preparation software. Check with the software provider to determine if they support EFW for estimated tax or extension payments.

Corporations can make payments online using Web Pay for Businesses. Corporations can make an immediate payment or schedule payments up to a year in advance. Go to ftb.ca.gov/pay.

Corporations can use Discover, MasterCard, Visa or American Express Card to pay business taxes. Go to officialpayments.com. ACI Payments, Inc. (formerly Official Payments) charges a convenience fee for using this service. Do not file form FTB 3539.

If a tax is due and the corporation is not required to make the payment electronically (by EFT, EFW, Web Pay, or credit card):

Using black or blue ink, make the check or money order payable to the “Franchise Tax Board.” Write the California corporation number and “2022 Form 100S” on the check or money order.

Make all checks or money orders payable in U.S. dollars and drawn against a U.S. financial institution.

Do not attach a copy of the return with the balance due payment if the S corporation already filed/e-filed a return for the same taxable year.

California law conforms to federal law regarding the use of certain designated private delivery services to meet the “timely mailing as timely filing/paying” rule for tax returns and payments. See the instructions for federal Form 1120-S for a list of designated delivery services. If a private delivery service is used, address the return to:

Private delivery services cannot deliver items to PO boxes. If using one of these services to mail any item to the FTB, do not use an FTB PO box.

The computation of net income from trade or business activities generally follows the determination of taxable income as provided in the IRC. However, there are differences that must be taken into account when completing Form 100S. There are two ways to complete Form 100S, the federal reconciliation method or the California computation method.

If the S corporation has no federal filing requirement, or if the S corporation maintains separate records for state purposes, complete Form 100S, Side 4, Schedule F, to determine state ordinary income. If ordinary income is computed under California laws, generally no state adjustments are necessary. Transfer the amount from Schedule F, line 22, to Form 100S, Side 1, line 1. Complete Form 100S, Side 1 and Side 2, line 2 through line 13, only if applicable.

See Specific Line Instructions for more information.

Regardless of the net income computation method used, the S corporation must attach any form, schedule, or supporting document referred to on the return, schedules, or forms filed with the FTB.

S corporations may not substitute federal schedules for California schedules.

When a C corporation elects to be an S corporation, certain items of gain or loss recognized in S corporation years are subject to the C corporation 8.84% tax rate instead of the S corporation 1.5% tax rate (financial S corporations add 2%).

For those S corporations that made the initial federal S election after December 31, 1986, certain income items reported by the S corporation are taxed at 8.84% (or the financial C corporation tax rate). This provision applies for a period of ten years following the C corporation’s election to become an S corporation. The amount of built-in gain that is taxed at 8.84% (or the financial C corporation tax rate) is the excess of recognized built-in gains over recognized built-in losses, limited by taxable income as determined under IRC Section 1374(d)(2)(A). The following items are treated as built-in gains subject to this tax:

These are just a few of the examples. This list is not intended to be all inclusive.

All recognized built-in gains and all recognized built-in losses are apportioned and allocated to California according to the current year Schedule R.

Use Form 100-ES, Corporation Estimated Tax, to figure and pay estimated tax for an S corporation.

Corporations are required to pay the following percentages of the estimated tax liability during the taxable year:

For exceptions and prior year’s information, get the instructions for Form 100-ES.

Estimated tax is generally due and payable in four installments as follows:

If the corporation must pay its tax liability electronically, all estimate payments due must be remitted by EFT, EFW, Web Pay, or credit card to avoid the EFT penalty. See General Information G, Electronic Payments, for more information.

If no amount is due, or if the corporation pays electronically, do not mail Form 100-ES.

An S corporation is required to pay measured tax instead of minimum tax for the first taxable year if the corporation incorporated or registered through the California SOS. For more information, see General Information B, Tax Rate and Minimum Franchise Tax, or get FTB Pub. 1060.

Any corporation that fails to file Form 100S on or before the extended due date is assessed a delinquent filing penalty. The delinquent filing penalty is computed at 5% of the tax due, after allowing for timely payments, for every month that the return is late, up to a maximum of 25%. If the S corporation does not file its return by the extended due date, the automatic extension will not apply and the late filing penalty will be assessed from the original due date of the return. See R&TC Sections 19131 and 23772 for more information.

Unless failure is due to reasonable cause, a penalty will be assessed against the S corporation if it is required to file an S corporation return and one of the following occurs:

The amount of the penalty for each month, or part of a month (for a maximum of 12 months) that the failure continues, is $18 multiplied by the total number of shareholders in the S corporation during any part of the taxable year for which the return is due. See R&TC Section 19172.5 for more information.

Any S corporation that fails to pay the total tax shown on Form 100S by the original due date is assessed a penalty. The penalty is 5% of the unpaid tax, plus 0.5% for each month, or part of the month (not to exceed 40 months) the tax remains unpaid. This penalty may not exceed 25% of the unpaid tax. See R&TC Section 19132 for more information.

The FTB may waive the late payment penalty based on reasonable cause. Reasonable cause is presumed when 90% of the tax shown on the return, but not less than minimum franchise tax if applicable, is paid by the original due date of the return. However, the imposition of interest is mandatory.

If an S corporation is subject to both the penalty for failure to file a timely return and the penalty for failure to pay the total tax by the due date, a combination of the two penalties may be assessed, but the total will not exceed 25% of the unpaid tax.

Any S corporation that fails to pay, pays late, or underpays an installment of estimated tax is assessed a penalty. The penalty is a percentage of the underpayment of estimated tax for the period from the date the installment was due until the date it is paid, or until the original due date of the tax return, whichever is earlier. Get form FTB 5806 to determine both the amount of underpayment and the amount of penalty.

The underpayment of estimated tax penalty shall not apply to the extent the underpayment of an installment was created or increased by any provision of law that is chaptered during and operative for the taxable year of the underpayment.

See R&TC Sections 19142, 19144, 19145, 19147 through 19151, and 19161 for more information.

If the S corporation uses Exception B or Exception C on form FTB 5806 to compute or eliminate any of the required installments, form FTB 5806 must be attached to the back of Form 100S (after all schedules and federal return) and the box on Form 100S, Side 2, line 44b, should be checked.

Corporations are subject to the LCUP for the understatement of tax if that understatement exceeds the greater of:

The amount of the penalty is equal to 20% of the understatement of tax. See R&TC Section 19138 for exceptions to the LCUP. For more information, go to ftb.ca.gov and search for lcup.

If the S corporation must pay its tax liability electronically, all payments must be remitted by EFT, EFW, Web Pay or credit card to avoid the penalty. The penalty is 10% of the amount not paid electronically. See R&TC Section 19011 and General Information G, Electronic Payments, for more information.

Federal Forms 5471 and 8975 – U.S. corporations that have an ownership interest (directly or indirectly) in a foreign corporation and were required to file federal Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; or federal Form 8975, Country-by-Country Report, and accompanying Schedule A (8975), Tax Jurisdiction and Constituent Entity Information with the federal return, must attach a copy(ies) to the California return. The penalty for failure to include a copy of federal Form(s) 5471, or federal Form 8975 and accompanying Schedule A (8975), as required, is $1,000 per required form for each year the failure occurs. The penalty will not be assessed if the copy of the information required to be filed with the IRS was not attached to the taxpayer’s original return and the taxpayer provides a copy of the form(s) within 90 days of request from the FTB and the taxpayer agrees to attach a copy(ies) of federal Form 5471 or federal Form 8975 and accompanying Schedule A (8975) to all original returns filed for subsequent years. See R&TC Section 19141.2 for more information.

Note: Foreign insurance companies that file as domestic companies are exempt from the requirement of filing federal Form 8975 and accompanying Schedule A (8975).

For additional information, refer to the federal Form 8975 instructions.

Federal Form 5472 – Certain domestic corporations that are 25% or more foreign-owned and foreign corporations engaged in a U.S. trade or business must attach a copy(ies) of the federal Form(s) 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, to Form 100S. The penalty for failing to include a copy of federal Form(s) 5472, as required, is $10,000 per required form for each year the failure occurs. See R&TC Section 19141.5 for more information.

If the S corporation does not file its Form 100S by the due date or extended due date, whichever is later, copy(ies) of federal Form(s) 5472 must still be filed on time or the penalty will be imposed. Attach a cover letter to the copy(ies) indicating the taxpayer’s name, California corporation number, and taxable year. Mail to the same address used for returns without payments. See General Information H, Where to File, for more information. When the S corporation files Form 100S, also attach copy(ies) of the federal Form(s) 5472.

The penalty for failure to maintain certain records is $10,000 for each taxable year for which the failure applies. In addition, if the failure continues for more than 90 days after the FTB notifies the S corporation of the failure, in general, a penalty of $10,000 may be assessed for each additional 30-day period of continued failure. There is no maximum amount of penalty that may be assessed.

See Records Maintenance Requirements for a discussion of the records required to be maintained. See R&TC Section 19141.6 and the related regulations for more information.

California conforms to IRC Sections 6662 through 6665 that authorize the imposition of an accuracy-related penalty equal to 20% of the related underpayment and the imposition of a fraud penalty equal to 75% of the related underpayment. See R&TC Section 19164 for more information.

The California Corporations Code requires the FTB to assess a penalty for failure to file an annual Statement of Information with the California SOS. For more information, see R&TC Section 19141, or contact:

Other penalties may be imposed for a payment returned for insufficient funds, foreign corporations operating while forfeited or without qualifying to do business in California, and domestic corporations operating while suspended in California. See R&TC Sections 19134 and 19135 for more information.

Interest is due and payable on any tax due if not paid by the original due date of Form 100S. Interest is also due on some penalties. The automatic extension of time to file Form 100S does not stop interest from accruing. California follows federal rules for the calculation of interest. Get FTB Pub. 1138, Business Entity Refund/Billing Information, for more information.

The S corporation must check the applicable box on Form 100S, Side 1, Question A1, if dissolving, merging, or withdrawing. Enter the date the S corporation filed or will file the documents for dissolution with the California SOS.

The franchise tax for the period in which the S corporation formally dissolves or withdraws is measured by the income of the taxable year in which it ceased doing business in California, unless such income has already been taxed at the rate prescribed for the taxable year of dissolution or withdrawal.

An S corporation that is a successor to a corporation that commenced doing business in California before January 1, 1972, is allowed a credit that may be refunded in the year of dissolution or withdrawal. The amount of the refundable credit is the difference between the minimum franchise tax for the corporation’s first full 12 months of doing business and the total tax paid for the same period.

To claim this credit, enter the amount on Form 100S, Side 2, line 34. To the left of line 34, write “Dissolving/ Withdrawing” or include it according to your software’s instructions.

The tax return for the final taxable period is due on or before the 15th day of the 3rd full month after the month during which the S corporation withdrew or stops doing business in California.

Corporations are subject to income tax or franchise tax for the final taxable period. Corporations that file a final franchise tax return must pay at least the minimum franchise tax as specified in R&TC Section 23153.

The minimum franchise tax will not be assessed after the taxable year for which the final tax return is filed, if a corporation meets all of the following requirements:

Get FTB Pub. 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity, for more information.

To get samples and forms for filing a dissolution, surrender, or merger agreement, go to sos.ca.gov and search for corporation dissolution, or address your request to:

The tax for the final year in which the S corporation does business in California is determined according to or measured by its net income for the taxable year during which the S corporation ceased doing business. In any event, the tax for any taxable year shall not be less than the minimum franchise tax, if applicable. For more information, see R&TC Section 23151.1.

Unreported income on installment obligations, distribution of notes, and distribution of corporate assets (i.e. land, buildings) at a gain must be included in income in the year of cessation. There is no federal law counterpart regarding this issue. For more information, see R&TC Section 24672 and Section 24451.

A domestic or qualified S corporation will remain subject to the minimum franchise tax for each taxable year it is in existence until a certificate of dissolution (and certificate of winding up, if necessary), certificate of withdrawal, or certificate of surrender is filed with the California SOS. See General Information O, Dissolution/Withdrawal, R&TC Sections 23331 through 23333, and R&TC Section 23335 for more information.

If an S corporation does not file Form 100S and/or does not pay any tax, penalty, or interest due, its powers, rights, and privileges may be suspended (in the case of a domestic S corporation) or forfeited (in the case of a foreign S corporation).

S corporations that operate while suspended or forfeited may be subject to a $2,000 penalty per taxable year, which is in addition to any tax, penalties, and interest already accrued. Also, any contracts entered into during suspension or forfeiture are voidable at the request of any party to the contract other than the suspended or forfeited corporation.

Such contracts will remain voidable and unenforceable unless the S corporation applies for relief from contract voidability and the FTB grants relief.

See R&TC Sections 19135, 19719, 23301, 23305.1, and 23305.2 for more information, or go to ftb.ca.gov and search for revivor.

S corporations with business income attributable to sources both within and outside of California are required to apportion such income. Use Schedule R to calculate the apportionment percentage. Be sure to answer Question P on Form 100S, Side 3. Attach the Schedule R behind Form 100S and prior to the supporting schedules.

R&TC Section 25128.7 requires all business income of an apportioning trade or business, other than an apportioning business under R&TC Section 25128(b), to apportion its business income using the single-sales factor formula.

R&TC Section 25136 requires all taxpayers to assign sales, other than sales of tangible personal property, using market assignment. For more information, see R&TC Section 25136 and Cal. Code Regs., tit. 18 section 25136-2; Legal Ruling 2022-01, get Schedule R, or go to ftb.ca.gov and search for market assignment.

For more information, see R&TC Sections 25120 through 25136.1.

Combined Reports – A corporation that has made a valid election to be treated as an S corporation is generally not included in a combined report. However, in some cases, the FTB may use combined reporting methods to clearly reflect income of an S corporation. See R&TC Section 23801(d)(1).

In general, California R&TC Section 23811 conforms to IRC Section 1375. If an S corporation does not have excess net passive investment income for federal purposes, then the S corporation will not have excess net passive investment income for California purposes.

If at the close of the taxable year, an S corporation has undistributed earnings and profits from previous years as a C corporation and has passive investment income that represents more than 25% of total gross receipts, then the S corporation may be subject to tax on the excess net passive investment income at the rate of 8.84% (10.84% in the case of a financial corporation). See R&TC Section 23811 for more information.

If an S corporation has an 80% or greater ownership stake in a C corporation, dividends received from that C corporation are not treated as passive investment income, for purposes of IRC Sections 1362 and 1375, if the dividends are attributable to the earnings and profits of the C corporation derived from the active conduct of a trade or business.

C corporations filing on a water’s-edge basis are required to use Form 100W, California Corporation Franchise or Income Tax Return – Water’s-Edge Filers, to file their California tax return. S corporations filing on water’s-edge basis use Form 100S to file their California tax return.

Taxpayers may elect to compute income attributable to California on the basis of a water’s-edge election. In general, affiliated foreign corporations are excluded from the combined report.

To make the water’s-edge election, an S corporation files Form 100-WE, Water’s-Edge Election. For the election to be valid for any taxable year, sign and attach Form 100-WE to the original timely filed Form 100S. Attach a copy of the signed Form 100-WE to all subsequent returns filed during the election period.

To be allowed to file on a water’s-edge basis, the S corporation must, among other things, do the following:

Get Form 100W Tax Booklet, for more information.

To correct or change a previously filed Form 100S, file the most current Form 100X. Using an incorrect form may delay processing of the amended return. File Form 100X within six months after the corporation filed an amended federal return or after the final federal determination, if the IRS examined and changed the corporation’s federal return.

California requires taxpayers who exchange property located in California for like-kind property located outside of California under IRC Section 1031, to file an annual information return with the FTB. For more information, get form FTB 3840, California Like-Kind Exchanges, or go to ftb.ca.gov and search for like kind.

Every S corporation engaged in a trade or business and making or receiving certain payments in the course of the trade or business is required to file information returns to report the amount of such payments.

Payments that must be reported include, but are not limited to the following:

See instructions for federal Forms 1099 (series), 1098, 5498, and W-2G; federal Pub. 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G; and federal Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, for the applicable due dates.

Report payments to the FTB and the IRS using the appropriate federal form. Reports must be made for the calendar year.

California requires S corporations to report to the FTB interest paid on municipal bonds held by California taxpayers and issued by a state other than California, or a municipality other than a California municipality. Entities paying interest to California residents on these types of bonds are required to report interest payments aggregating $10 or more and paid after January 1, 2022. These information returns will be due by June 1, 2023. For more information, get form FTB 4800 MEO, Federally Tax Exempt Non-California Bond Interest and Interest-Dividend Payments Information Media Transmittal.

California conforms to the information reporting requirements imposed under IRC Sections 6038 through 6038D.

If the corporation files any of the following federal information returns, a copy of the federal return must be filed with California as well:

*Foreign insurance companies that file as domestic companies are exempt from the requirement of filing federal Form 8975 and accompanying Schedule A (8975).

For additional information, refer to federal Form 8975 instructions.

Attach a copy of each federal information return to the California tax return.

If these federal information returns are not provided, penalties may be imposed under R&TC Sections 19141.2 and 19141.5. See General Information M, Penalties for more information.

Include an officer’s phone number and email address in case the FTB needs to contact the corporation for information needed to process this return. By providing this information the FTB will be able to process the return or issue the refund faster.

Tax preparers must provide their PTIN on the tax returns they prepare. Preparers who want a PTIN should go to the IRS website at irs.gov and search for ptin.

If the S corporation wants to allow the FTB to discuss its 2022 tax return with the paid preparer who signed it, check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer’s Use Only” section of the return. It does not apply to the firm, if any, shown in that section.

If the “Yes” box is checked, the S corporation is authorizing the FTB to call the paid preparer to answer any questions that may arise during the processing of the tax return. The S corporation is also authorizing the paid preparer to:

The S corporation is not authorizing the paid preparer to receive any refund check, bind the S corporation to anything (including any additional tax liability), or otherwise represent the S corporation before the FTB.

The authorization will automatically end no later than the due date (without regard to extensions) for filing the S corporation’s 2023 tax return. If the S corporation wants to expand the paid preparer’s authorization, go to ftb.ca.gov/poa. If the S corporation wants to revoke the authorization before it ends, notify the FTB in writing or call 800-852-5711.

For taxable years beginning on or after January 1, 2019, NOL carrybacks are not allowed.

For taxable years beginning on or after January 1, 2020, and before January 1, 2022, California suspended the NOL carryover deduction. Corporations continued to compute and carryover an NOL during the suspension period. However, corporations with taxable income of less than $1,000,000 or with disaster loss carryovers were not affected by the NOL suspension rules.

The carryover period for suspended losses was extended by:

For more information, see R&TC Section 24416.23.

R&TC Sections 24416 through 24416.7, Sections 24416.21 through 24416.23, and Section 25108 provide for NOL deductions incurred in the conduct of a trade or business.

R&TC Sections 24347.5 and 24347.11 through and 24347.13 provide the treatment for disaster losses incurred in an area declared by the President of the United States or the Governor of California as a disaster area.

For taxable years beginning on or after January 1, 2014, and before January 1, 2024, taxpayers may deduct a disaster loss sustained in any city, county, or city and county in California that is proclaimed by the Governor to be in a state of emergency. For these Governor-only declared disasters, subsequent state legislation is not required to activate the disaster loss provisions. See R&TC Section 24347.14 for more information.

Losses taken into account under the disaster provisions may not be included in computing regular NOL deductions.

For more information, see form FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations Corporations included in this booklet; or get form FTB 3805Z, Enterprise Zone Deduction and Credit Summary; form FTB 3807, Local Agency Military Base Recovery Area Deduction and Credit Summary; or form FTB 3809, Targeted Tax Area Deduction and Credit Summary.

California S corporations are subject to IRC Section 465 relating to the at-risk rules. For more information, get federal Form 6198, At-Risk Limitations. Losses from passive activities are first subject to the at-risk rules and then to the passive activity rules.

California S corporations generally follow IRC Section 469 and the regulations thereunder that allow losses from passive activities to be applied only against income from passive activities.

California differs from federal law in that rental real estate activities of taxpayers engaged in a real property business are still treated as a passive activity.

California law also differs from federal law in that the passive activity loss rules are applied at both the S corporation level and at the shareholder level. The passive activity loss rules must be applied in determining the net income of the S corporation that will be taxed using the 1.5% tax rate. Subsequent to the income and deductions passing through to the shareholders, the rules are again applied in determining the net income of the shareholder. Treatment at the shareholder level is the same as the federal treatment prior to January 1, 1994.

The passive activity loss rules apply to the S corporation as if it were an individual (i.e., losses from passive activities may not be used to offset other income, except for $25,000 in losses from rental real estate). However, when determining whether the S corporation materially participates in the activity, the material participation rules that apply to a “closely held C corporation” should be applied to the S corporation. For more information, see IRC Section 469(h)(4).

S corporations must use form FTB 3801, Passive Activity Loss Limitations, to compute the allowable net loss from passive activities.

S corporation credits subject to the passive activity credit limitation rules include the following:

Get form FTB 3801-CR, Passive Activity Credit Limitations, for more information.

*Income and expenses on line 1, line 2, and line 5 are from total operations for the taxable year. This includes applicable income and expenses from Form 100S, Side 1 and Side 2. See IRC Sections 1362(d)(3)(C) and 1375(b)(4) for exceptions regarding line 2 and line 5.

**Taxable income is defined in federal Treas. Regs. Section 1.1374-1A(d). Figure taxable income by completing line 1 through line 17 of Form 100, California Corporation Franchise or Income Tax Return. Clearly mark "ENPI Taxable Income" on the Form 100 computation and attach it to Form 100S.

If a C corporation had unused credit carryovers when it elected S corporation status, the carryovers were reduced to 1/3 and transferred to the S corporation. The remaining 2/3 were disregarded. The allowable carryovers may be used to offset the 1.5% tax on net income in accordance with the respective carryover rules. These C corporation carryovers may not be passed through to shareholders. Refer to Schedule C (100S), S Corporation Tax Credits, included in this booklet.

S corporations may generate credits from both the Corporation Tax Law and the Personal Income Tax Law. Follow the guidelines below:

The S corporation may not claim either the original, new, or Program 3.0 California Motion Picture and Television Production Credit. The entire amount of the credit passes through to the shareholder. For more information, get form FTB 3541, California Motion Picture and Television Production Credit.

Credits and credit carryovers may not reduce the minimum franchise tax, the QSub annual tax(es), built-in gains tax, excess net passive income tax, credit recaptures, the increase in tax imposed for the deferral of installment sale income, or an installment of LIFO recapture tax.

Nonresident individual shareholders of an S corporation doing business in California may elect to file a group nonresident return on Form 540NR, California Nonresident or Part-Year Resident Income Tax Return. Get FTB Pub. 1067, for more information.

S corporations are required to withhold income tax on certain payments to nonresident shareholders. Nonresident shareholders must file Form 540NR to claim the withholding even if there are no filing requirements.

California has conformed to the sections of the IRC that allow an S corporation to own a QSub. A QSub is a domestic corporation that is not an ineligible corporation, i.e., it must be eligible to be an S corporation as defined by IRC Section 1361(b)(2). In addition, 100% of the stock of the subsidiary must be held by the S corporation parent and the parent must elect to treat the subsidiary as a QSub. A QSub is not treated as a separate entity and all assets, liabilities, and items of income, deduction, and credit of the QSub are treated as belonging to the parent S corporation. The activities of the QSub are treated as activities of the parent S corporation.

An election made by the parent S corporation under IRC Section 1361(b)(3) to treat the corporation as a QSub for federal purposes is treated as a binding election for California purposes. A separate election is not filed for California.

The federal election is made on federal Form 8869, Qualified Subchapter S Subsidiary Election. California requires that an S corporation parent attach a copy of the Form 8869 for each QSub doing business or qualified to do business in California to the return for the taxable year during which the QSub election was made. California follows the federal transitional relief procedures for perfecting a QSub election.

A QSub is subject to an $800 annual tax which is paid by the S corporation parent. The QSub annual tax is due and payable when the S corporation’s first estimated tax payment is due. If the QSub is acquired, or a QSub election is made during the taxable year, the QSub annual tax is due with the S corporation’s next estimated tax payment after the date of the QSub election or acquisition. The QSub annual tax is subject to the estimated tax rules and penalties.

An S corporation that owns a QSub does not file a combined return. Instead, the QSub is disregarded, and the activities, assets, liabilities, income, deductions, and credits of the QSub are considered to be the assets, liabilities, income, and credits of the S corporation. If the QSub is not unitary with the S corporation, then it is treated as a separate division and separate computations must be made to compute business income and apportionment factors for the QSub and the S corporation, and to apportion to California the business income of each.

An S corporation parent must complete the Schedule QS, Qualified Subchapter S Subsidiary (QSub) Information, included in this booklet, and attach it to the Form 100S for each taxable year in which a QSub election is in effect.

Use tax has been in effect in California since July 1, 1935. It applies to purchases of property from out-of-state sellers and is similar to sales tax paid on purchases made in California. If the S corporation has not already paid all use tax due to the California Department of Tax and Fee Administration (CDTFA), it may be able to report and pay the use tax due on its state income tax return. However, S corporations required to hold a California seller’s permit or to otherwise register with the CDTFA for sales and use tax purposes may not report use tax on their state income tax return. See the information below and the instructions for line 37 of the income tax return.

In general, S corporations must pay California use tax on purchases of merchandise for use in California, made from out-of-state sellers, for example, by telephone, online, by mail, or in person.

S corporations must pay California use tax on taxable items if:

Example: The S corporation purchases a conference table from a company in North Carolina. The company ships the table from North Carolina to the corporation’s address in California for the corporation’s use, and does not charge California sales or use tax. The S corporation owes use tax on the purchase.

However, not all purchases require the S corporation to pay use tax. For example, the S corporation would include purchases of office equipment, but not exempt purchases of food products or prescription medicine. For more information on nontaxable and exempt purchases, the S corporation may refer to Pub. 61, Sales and Use Taxes: Exemptions and Exclusions, on the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov.

For more information about California use tax, please refer to the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov and type “Find Information About Use Tax” in the search bar.

Complete the Use Tax Worksheet to calculate the amount due.

Extensions to File. If the S corporation requests an extension to file the tax return, wait until the S corporation files the return to report the purchases subject to use tax and to make the use tax payment.

Interest, Penalties, and Fees. Failure to timely report and pay use tax due may result in the assessment of interest, penalties, and fees.

Application of Payments. For purchases made during taxable years starting on or after January 1, 2015, payments and credits reported on an income tax return will be applied first to the use tax liability, instead of income tax liabilities, penalties, and interest.

Changes in Use Tax Reported. Do not file an Amended S Corporation Franchise or Income Tax Return (Form 100X) to revise the use tax previously reported. If the S corporation has changes to the amount of use tax previously reported on the original tax return, contact the California Department of Tax and Fee Administration.

For assistance, go to the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov, or call their Customer Service Center at 1-800-400-7115 (CRS: 711) (for hearing and speech disabilities). For California income tax information, contact the FTB at ftb.ca.gov.

Special rules apply for gains from the sale, exchange or disposition of property for which an IRC Section 179 expense deduction was claimed in a prior year. For federal purposes, the gain is no longer included in income at the entity level. However, it must be included in the taxable income of the S corporation for California purposes.

S corporations should follow the instructions in federal Form 4797 with the exception that the amount of gain on property subject to the IRC Section 179 expense deduction recapture (capital gain and ordinary gain) must be included in the taxable income of the S corporation. To accomplish this, the S corporation will need to complete two sets of Schedule D-1, Sales of Business Property, and Schedule D (100S), S Corporation Capital Gains and Losses and Built-In Gains. The first set of Schedule D-1 and Schedule D (100S) will include the sale or disposition of both IRC Section 179 assets and the sale of non-IRC Section 179 business assets with the amount reported on Form 100S, Side 1, line 4.

The second set of Schedule D-1 and Schedule D (100S) will include the sale or disposition of non-IRC Section 179 business assets only, with the amount reported on the Schedule K and Schedule K-1 (100S).

See Specific Line Instructions for Property Subject to IRC Section 179 Expense Deduction Recapture. Also, see the Schedule D-1 Instructions.

The S corporation should report the gain on property subject to the IRC Section 179 expense deduction recapture passed through to the shareholders on the Schedule K and Schedule K-1 (100S) as supplemental information as instructed on the federal Form 4797.

California law authorizes the formation of LLCs and recognizes out-of-state LLCs registered or doing business in California. The taxation of an LLC in California depends upon its classification as a corporation, partnership, or “disregarded entity” for federal tax purposes.

If a LLC elects to be taxed as an S corporation for federal tax purposes, the LLC must file Form 100S, Form 100-ES, form FTB 3539, and/or form FTB 3586 and enter the California corporation number, FEIN, and California SOS file number, if applicable, in the space provided. The FTB will (1) assign an identification number to an LLC that files as a corporation, and (2) notify the LLC with the identification number upon receipt of the first estimated tax payment, first tax payment, or the first tax return. The LLC will be subject to the applicable provisions of the Corporation Tax Law and should be considered a corporation for purposes of all instructions unless otherwise indicated.

If an LLC elects to be taxed as a partnership for federal tax purposes, it must file Form 568, Limited Liability Company Return of Income. LLCs taxed as partnerships determine their income, deductions, and credits under the Personal Income Tax Law and are subject to an annual tax as well as an annual fee based on total income.

If a Single Member Limited Liability Company (SMLLC) is disregarded for federal tax purposes, get Form 568, Limited Liability Company Tax Booklet, for information regarding SMLLC filing requirements. A disregarded LLC reports its income, deductions, and credits on the return of its owner. However, an LLC that is disregarded is required to file and pay the annual LLC tax as well as the fee (if applicable) based on total income. Form 568 provides the FTB with information on the sole owner of the LLC, contains the owner’s consent to be taxed on the income of the LLC, and provides for the computation of the LLC tax and fee.

Effective January 1, 2020, the real estate withholding forms and instructions have been consolidated into one new Form 593, Real Estate Withholding Statement. For more information, get Form 593.

With certain limited exceptions, payers that are required to withhold and remit backup withholding to the IRS are also required to withhold and remit to the FTB on income sourced to California. If the S corporation (payee) has backup withholding, the S corporation (payee) must contact the FTB to provide a valid taxpayer identification number, before filing the tax return. Failure to provide a valid taxpayer identification number may result in a denial of the backup withholding credit. For more information, go to ftb.ca.gov and search for backup withholding.

R&TC Section 18662 requires buyers to withhold income taxes when purchasing California real property from corporate sellers with no permanent place of business in California immediately after the transfer. Get FTB Pub. 1016, Real Estate Withholding Guidelines, for more information.

Sellers of California real estate must attach a copy of Form 593 to their tax return as proof of withholding.

If the corporation needs to verify withholding payments, the corporation may call Withholding Services and Compliance at 916-845-4900 or 888-792-4900.

For transactions that require withholding, a seller of California real estate may elect an alternative to withholding 3 1/3% of the total sales price. The seller may elect an alternative withholding amount based on the maximum tax rate for individuals, corporations, or banks and financial corporations, as applied to the gain on the sale. The seller is required to certify under penalty of perjury the alternative withholding amount to the FTB. For more information, get FTB Pub. 1016.

If an LLC elects to be taxed as a corporation, see General Information GG, Limited Liability Companies (LLCs), for more information.

Filing Form 100S without errors will expedite processing. Before mailing Form 100S, make sure entries have been made for the following:

File the 2022 Form 100S for calendar year 2022 or for a fiscal year that begins in 2022.

Enter taxable year beginning and ending dates only if the return is for a short year or a fiscal year. If the S corporation reports its income using a calendar year, leave the date area blank. If a domestic corporation files the first California tax return, the fiscal year beginning date must be the date the corporation is incorporated. If the return is filed for a short period (less than 12 months), write “short year” in black or blue ink in the top margin on Form 100S, Side 1. Convert all foreign monetary amounts to U.S. dollars.

The 2022 Form 100S may also be used if both of the following apply:

California law is different from federal law. California taxes S corporations under Chapter 2 (commencing with R&TC Section 23101) or Chapter 3 (commencing with R&TC Section 23501) of the Corporation Tax Law.

Answer all applicable questions and attach additional sheets, if necessary. Be sure to answer Questions C through U on Form 100S, Side 3. Read the following instructions when answering:

Check the “Yes” or “No” box to indicate if the S corporation is deferring any income from the disposition of assets. If “Yes,” enter the four-digit year in which the assets were disposed (e.g., 2022). If there are multiple years, write “see attached” on the line and attach a schedule listing the years. This question is applicable if the S corporation is deferring any income from a disposition of assets in the current taxable year or prior taxable years.

Check the box for the type(s) of previously deferred income the S corporation is reporting. If there are multiple sources of income, check the box for the appropriate items and attach a schedule listing the income type and year of disposition. If the S corporation is reporting “Other” types of previously deferred income, check the box for “Other” and attach a schedule listing the income type and year of disposition. This question is applicable if the S corporation is reporting previously deferred income in the current taxable year or prior taxable years.

All S corporations must answer all three questions. The questions provide information regarding changes in control or ownership of legal entities owning or under certain circumstances leasing California real property (R&TC Section 64). (Real Property includes land, buildings, structures, fixtures – see R&TC Section 104 for more information).

If any of the answers are “Yes,” a Statement of Change in Control and Ownership of Legal Entities, must be filed with the State of California; failure to do so within 90 days of the event date will result in penalties. The form for this statement is form BOE-100-B, filed with the California State Board of Equalization (BOE). Get this form and information from the BOE website (boe.ca.gov) by searching for Legal Entity Ownership Program (LEOP).

There may be a change in ownership or control if, during this taxable year, one of the following occurred with respect to this corporation or any of its subsidiaries:

For purposes of these questions, leased real property is a leasehold interest in taxable real property: (1) leased for a term of 35 years or more (including renewal options), if not leased from a government agency; or (2) leased for any term, if leased from a government agency.

R&TC Section 64(e) requires this information for use in determining whether a change in ownership has occurred under section 64(c) and (d); it is used by the LEOP.

All S corporations must answer Question C.

Include the six digit PBA code from the Principal Business Activity Codes chart included in this tax booklet. The code should be the number for the specific industry group from which the greatest percentage of California “total receipts” is derived. “Total receipts” means gross receipts plus all other income. The California PBA code number may be different from the federal PBA code number.

If, as its principal business activity, the corporation: (1) purchases raw material; (2) subcontracts out for labor to make a finished product from the raw materials; and (3) retains title to the goods, the corporation is considered to be a manufacturer and must enter one of the codes under “Manufacturing.” Also, write in the business activity and principal product or service on the lines provided.

Answer “Yes” if the S corporation owns a QSub. Refer to the instructions for line 21 and line 32 to report the QSub annual tax. Be sure to complete Schedule QS included in this tax booklet and attach the schedule to Form 100S when filed.

S corporations doing business under a name other than that entered on Side 1 of Form 100S must enter the DBA name in Question N. If the S corporation is doing business under multiple DBAs attach a schedule listing all DBAs.

Leave Question N blank if the S corporation is not using a DBA to conduct business.

Federal Form 8886 is required to be attached to any return on which a deduction, loss, credit, or any other tax benefit is claimed or is reported, or any income the S corporation reported from an interest in a reportable transaction. If the S corporation is required to file this form with the federal return, attach a copy to the S corporation’s Form 100S.

A material advisor is required to provide a reportable transaction number to all taxpayers and material advisors for whom the material advisor acts as a material advisor.

A Reportable Transaction is any transaction as defined in R&TC Section 18407 and Treas. Reg. Section 1.6011-4 and includes, but is not limited to the following:

Check the “Yes” box if form FTB 3544, Assignment of Credit, Side 2, Part B, List of Assigned Credit Received and/or Claimed by Assignee, is attached to Form 100S.

Check the applicable box if activities were aggregated for at-risk purposes or grouped for passive activity purposes. Get the instructions for federal Form 1120-S, under Specific Instructions for Item J, for more information.

On line (3), do not round cents to the nearest whole dollar. Enter the amounts with dollars and cents as actually remitted.

S corporations using the federal reconciliation method to figure net income (see General Information I, Net Income Computation) must:

S corporations using the California computation to figure ordinary income (see General Information I, Net Income Computation) must transfer the amount from Form 100S, Side 4, Schedule F, line 22, to Side 1, line 1. Complete Form 100S, Side 1 and Side 2, line 2 through line 13, only if applicable.

To figure net income for California purposes, S corporations using the federal reconciliation method must enter California adjustments to the federal net income on line 2 through line 13. If a specific line for the adjustment is not on Form 100S, enter the adjustment on line 7, Other additions, or line 12, Other deductions, and attach a schedule that explain the adjustment.

California law does not permit a deduction for California corporation franchise or income taxes or any other taxes on, according to, or measured by net income or profits. Add these taxes to income on line 2.

S corporations subject to the California franchise tax must report interest received on government obligations even though it may be exempt from state or federal individual income tax. This interest must be added to income on line 3. See line 12 instructions for S corporations subject to the California corporation income tax.

Enter on this line any net capital gain subject to the 1.5% tax rate (3.5% for financial S corporations) shown on Schedule D (100S), Section B, line 10, and any gains subject to the 8.84% tax rate (10.84% for financial S corporations) shown on Schedule D (100S), Section A, line 13.

If the S corporation has a gain from the sale, exchange or disposition of property for which an IRC Section 179 expense deduction was claimed in a prior year, special rules apply. For federal purposes, the gain is no longer included in income at the entity level. However, it must be included in the taxable income of the S corporation for California purposes on Form 100S, line 4. See General Information FF, Property Subject To IRC Section 179 Recapture, for more information.

The S corporation should complete two sets of Schedule D-1 and Schedule D (100S). The first set of Schedule D-1 and Schedule D (100S) will include the gain or loss from the sale or disposition of IRC Section 179 assets as well as gain or loss from non-IRC Section 179 business assets, and will be reported on the Form 100S. Indicate at the top of this Schedule D-1 and Schedule D (100S) “IRC Sec. 179 and Business Assets.” When completing Schedule D-1 and Schedule D (100S) for the Form 100S, skip any instructions to report the gain or loss on Schedule K or Schedule K-1 (100S). Transfer the gain amount to Form 100S, Side 1, line 4.

The second set of Schedule D-1 and Schedule D (100S) is to report the gain or loss on non-IRC Section 179 business assets for use on the Schedule K and Schedule K-1 (100S). To accomplish this, the S corporation should complete a Schedule D-1 and Schedule D (100S) with the gain or loss for the non-IRC Section 179 business assets only. The amounts from this Schedule D-1 and Schedule D (100S) will be reported on the Schedule K (100S) and Schedule K-1 (100S). Indicate at the top of the Schedule D-1 and Schedule D (100S) set “Non-IRC Section 179 Business Assets Only.”

Depreciation for S corporations follows the depreciation rules provided under California Personal Income Tax Law. Unlike other corporations, an S corporation is allowed to compute depreciation using the Modified Accelerated Cost Recovery System (MACRS). Complete Schedule B (100S), for assets subject to depreciation and for assets subject to amortization. Enter the total of Schedule B (100S), Part III, on Form 100S, Side 1, line 5.

Enter on this line net portfolio income not included in line 1 but that must be included in the S corporation’s net income for computing the 1.5% tax. Include interest, dividends, and royalties. Do not include any passive activity amounts on this line. Instead, include passive activity amounts on line 7 or line 12.

R&TC Section 24425 disallows expenses allocable to income, which is not included in the measure of the franchise tax or income tax. Add back such deductions on this line.

Also, include on this line other items not added on any other line to arrive at California net income. Attach a schedule that clearly shows how each item was computed and explain the basis for the adjustment.

If a federal contribution deduction was taken in arriving at the amount entered on line 1, include that amount in the computation of line 7. See line 11, Charitable contributions.

Include any income from pass-through entities and passive activities on line 7. Rental real estate activities owned directly by the S corporation are reported on federal Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation.

Shuttered Venue Operator Grant. Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with grant amounts. California law conforms to this federal provision with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, include this amount on line 7.

Paycheck Protection Program Loans Forgiveness. Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, include this amount on line 7.

Also, the ARPA expands PPP eligibility to include “additional covered nonprofit entities” which includes certain Code 501(c) nonprofit organizations and Internet-only news publishers and Internet-only periodical publishers. California law does not conform to this expansion of PPP eligibility. If you met the PPP eligibility requirements and excluded the amount from gross income for federal purposes, include this amount on line 7.

Other Loan Forgiveness. Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on line 7.

Penalty Assessed by Professional Sports League. California does not allow a business expense deduction for any fine or penalty paid or incurred by an owner of a professional sports franchise assessed or imposed by the professional sports league that includes that franchise. If the corporation deducted the fine or penalty for federal purposes, include this amount on line 7.

California Ordinary Net Gain or Loss. Before entering the amount from Schedule D-1, line 18, determine whether the gain is subject to built-in gains tax. If the gain is subject to built-in gains tax, enter the amount on Schedule D (100S), Section A, Part III so the built-in gains tax can be computed, and enter the difference between the amount on Schedule D-1, line 18 and the amount subject to built-in gains tax on Form 100S, Side 1, line 7.

Gain on Installment Notes. Generally, when an S corporation sells assets in an installment sale, the S corporation defers the recognition of gain until it receives payments on the installment obligation. If the S corporation distributes the installment obligation to the shareholders in a corporate liquidation, the corporation pays 1.5% tax on the deferred gain in the final year under R&TC Section 24672. The shareholders continue to defer the gain until they receive payments. If R&TC Section 24672 applies, report the amount of deferred gain on this line.

Complete Schedule H (100S), S Corporation Dividend Income Deduction, included in this tax booklet.

The charitable contribution deduction for California corporations is limited to the adjusted basis of the assets being contributed.

The deduction is 10% of California net income, without regard to charitable contributions and special deductions (e.g., the deduction for dividends received). The definition of California net income differs from federal taxable income for computing the charitable contribution deduction.

Per IRC Section 170(d)(2), five-year carryover provisions shall apply for excess charitable contributions.

For taxable years beginning on or after January 1, 2017, and before January 1, 2028, do not include any amounts taken into account for the College Access Tax Credit as a charitable contribution deduction on line 11.

On a separate worksheet, using the Form 100S format, complete Form 100S, Side 1 and Side 2, line 1 through line 14, without regard to line 11. If any federal charitable contribution deduction was taken in arriving at the amount entered on Side 1, line 1, enter that amount as an addition on line 7 of the Form 100S formatted worksheet. Enter the adjusted basis of the assets contributed on line 5 of the following worksheet. Then complete the worksheet to determine the charitable contribution deduction to enter on line 11.

Get Schedule R to figure the charitable contribution computation for apportioning corporations.

Include on this line deductions not claimed on any other line. Attach a schedule that clearly shows how each deduction was computed and explain the basis for the deduction.

Include any losses from pass-through entities and passive activities on line 12. Rental real estate activities owned directly by the S corporation are reported on federal Form 8825. Also, enter any IRC Section 179 expense from Schedule B (100S), Part I, line 5.

For S corporations subject to income (and not franchise) tax, interest received on obligations of the federal government and on obligations of the State of California and its political subdivisions is exempt from income tax. If such interest is reported on line 3, deduct it on line 12.

Thomas and Woolsey Wildfires Exclusion. California law allows a qualified taxpayer an exclusion from gross income for any amount received in settlement from Southern California Edison for claims relating to the 2017 Thomas Fire or the 2018 Woolsey Fire. If the corporation included any amount as income for federal purposes, deduct the amount on line 12.

Fire Victims Trust Exclusion. California allows a qualified taxpayer an exclusion from gross income for any amount received from the Fire Victims Trust. If the corporation included any amount as income for federal purposes, deduct the amount on line 12.

Turf Replacement Water Conservation Program. California law allows an exclusion from gross income for any amount received as a rebate, voucher, or other financial incentive issued by a public water system, local government, or state agency for participation in a turf replacement water conservation program. If the corporation included any amount as income for federal purposes, deduct the amount on line 12.

Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant Program that is established by Section 12100.975 of the Government Code. If the corporation included any amount qualifying for this exclusion as income for federal purposes, deduct the amount on line 12.

California Microbusiness COVID-19 Relief Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Microbusiness COVID-19 Relief Program that is administered by CalOSBA. Federal law has no similar exclusion. Enter on line 12 the amount of this type of income.

California Venues Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Venues Grant Program that is administered by CalOSBA. Federal law has no similar exclusion. Enter on line 12 the amount of this type of income.

Small Business COVID-19 Relief Grant Program. California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. If the corporation included any amount as income for federal purposes, deduct the amount on line 12.

Financial Incentive for Seismic Improvement. For taxable years beginning on or after July 1, 2015, California allows an exclusion from gross income for any amount received as a loan forgiveness, grant, credit, rebate, voucher, or other financial incentive issued by the California Residential Mitigation Program or the California Earthquake Authority to assist a residential property owner or occupant with expenses paid, or obligations incurred, for earthquake loss mitigation. If the S corporation included any amount as income for federal purposes, deduct that amount on line 12.

Qualified Opportunity Zone Funds. The TCJA established Opportunity Zones. IRC Sections 1400Z-1 and 1400Z-2 provide a temporary deferral of inclusion of gross income for capital gains reinvested in a qualified opportunity fund, and exclude capital gains from the sale or exchange of an investment in such funds. California does not conform to the deferral and exclusion of capital gains reinvested or invested in federal opportunity zone funds and has no similar provisions.

If, for California purposes, gains from investment in qualified opportunity zone property had been included in income during previous taxable year, and the corporation recognized the gains for federal tax purposes in the current year, deduct the federal gains amount on line 12.

Enter any federal ordinary net gain or loss from federal Form 4797.

If all the S corporation income is derived from California sources, transfer the amount from line 14 to line 15.

If only a portion of income is derived from California sources, complete Schedule R before entering any amount on line 15. Transfer the amount from Schedule R, line 35, to this line. Be sure to answer “Yes” to Question P on Form 100S, Side 3.

If this line is a net loss, complete and attach the 2022 form FTB 3805Q to Form 100S.

S corporations who meet the protections of Public Law 86-272 are exempt from state taxes based upon, or measured by, net income. However, they still are subject to the annual minimum franchise tax if they are doing business in, incorporated in, or qualified to transact intrastate business in California. If S corporations are claiming immunity in California under Public Law 86-272, do not include their net income or loss on line 15 and write "PL 86-272" at the top of Form 100S.

If the S corporation has a tax imposed on excess net passive investment income or built-in gains, a deduction is allowed against the net income taxed at the 1.5% rate. See the “Excess Net Passive Income and Income Tax Worksheet,” to determine if the S corporation is subject to the tax on excess net passive investment income. If a tax is shown on this worksheet, enter the amount of excess net passive income from line 8 of the worksheet on Form 100S, Side 2, line 16.

For purposes of the built-in gains tax, enter on line 16 the amount from Schedule D (100S), Section A, Part III, line 11.

The order in which line 17, line 18, and line 19 appear is not meant to imply the order in which any NOL or disaster loss deduction should be taken if more than one type of deduction is available.

For taxable years beginning on or after January 1, 2019, NOL carrybacks are not allowed.

The NOL deduction is the amount of the NOL carryover from prior years that may be deducted from income in this taxable year. However, the loss may not reduce the S corporation’s current taxable year income below zero.

For more information, see form FTB 3805Q included in this tax booklet.

If line 15 less line 16 is a positive amount, enter the NOL carryover (but not more than the result of line 15 less line 16) from the S corporation’s 2022 form FTB 3805Q, Part III, line 3 on Form 100S, Side 2, line 17. Attach a copy of the 2022 form FTB 3805Q to Form 100S. If the full amount of the NOL carryover is not deducted this taxable year, complete and attach a 2022 form FTB 3805Q showing the computation of the NOL carryover to future years.

If line 15 less line 16 is a negative amount, enter -0- on line 17. See the 2022 form FTB 3805Q instructions to compute the NOL carryover to future years.

No NOL carryover arising from a year in which an S corporation was a C corporation may be applied against the 1.5% tax. See IRC Section 1371(b) (1) and R&TC Section 23802(d). However, if the corporation terminates its' S election, thus becoming a C corporation, then the prior year NOL carryover may be used to the extent it has not expired.

NOL carryovers arising from a year in which the S corporation was a C corporation may be used in computing the tax on built-in gains.

An NOL generated by a business that operates (operated) or invests (invested) within a former EZ, TTA, or LAMBRA receives special tax treatment. The loss may not reduce the corporation’s current taxable year income below zero.

S corporations can no longer generate/incur any EZ or LAMBRA NOL for taxable years beginning on or after January 1, 2014. S corporations can claim an EZ or LAMBRA NOL carryover deduction from prior years. Get FTB 3805Z Booklet or FTB 3807 Booklet for more information.

S corporations can no longer generate/incur any TTA NOL for taxable years beginning on or after January 1, 2013. Corporations can claim TTA NOL carryover deduction from prior years. Get FTB 3809 Booklet for more information.

Compute and enter the former EZ, TTA, or LAMBRA NOL carryover deduction from the corporation’s form FTB 3805Z; form FTB 3809; or form FTB 3807 on Form 100S, line 18. Attach a copy of the applicable form to Form 100S.

If the S corporation has a disaster loss carryover deduction and there is income in the current taxable year, enter the total amount from the 2022 form FTB 3805Q, Part III, line 2. The loss may not reduce the current taxable year income below zero. Any excess loss must be carried forward.

If the corporation deducts a 2022 disaster loss, any remaining disaster loss incurred in 2022 (NOL attributable to a qualified disaster loss) must be carried forward. Get form FTB 3805Q for more information.

S corporations must use a tax rate of 1.5%. Financial S corporations must use the financial tax rate of 3.5%. The tax on line 21 may not be less than the sum of the minimum franchise tax and QSub annual tax(es), if applicable. See General Information B, Tax Rate and Minimum Franchise Tax.

If the S corporation is the parent of a QSub subject to the annual tax and paid the $800 annual tax on behalf of such QSub, add the total amount of QSub annual tax(es) to the tax on net income or the minimum franchise tax, whichever is applicable, and enter the result on line 21. Use Schedule QS included in this booklet.

Example 1: Corporation A, an S corporation, is the parent of three QSubs, B, C, and D. QSub B and C are either incorporated or qualified to do business in California. QSub D is not incorporated, doing business, or qualified to do business in California. Corporation A is subject to the minimum franchise tax of $800 and $1,600 of QSub annual tax for QSub B and C.

Example 2: Beta Corporation, an S corporation, is the parent of three QSubs. Only one of the QSubs is qualified and doing business in California. Beta Corporation reports net income for California tax purposes on line 20 of $100,000. Tax on net income is $1,500. On line 21, Beta Corporation will report tax of $2,300. The $2,300 includes tax on net income of $1,500 plus $800 of QSub annual tax payments for one QSub. Beta Corporation is not required to pay the QSub tax on the two QSubs not doing business in California.

An eligible assignee can claim assigned credits received this taxable year or carried over from prior years, against its tax liabilities. For more information, get form FTB 3544.

Note: The total amount of specific credit claimed on Form 100S and Schedule C (100S) should include both: (1) the total assigned credit claimed from form FTB 3544, Side 2, Part B, column (j), and (2) the amount of credit claimed that was generated by the assignee.

Credits may be used to reduce the California tax liability; however, credits may not be used to reduce the tax on line 21 to an amount less than the sum of the minimum franchise tax plus the QSub annual tax(es), if applicable. Also, the S corporation is allowed to claim only 1/3 of the total credit generated against the 1.5% franchise tax. See General Information AA, Passive Activity Credits, and BB, Tax Credits.

To figure tax credits, complete and attach the appropriate form for each credit claimed on Form 100S. See credit chart for a list of available credits.

If the S corporation claims a credit carryover for an expired credit, complete form FTB 3540, Credit Carryover and Recapture Summary. For EZ, LAMBRA, MEA, or TTA credit carryovers, get form FTB 3805Z, form FTB 3807, form FTB 3808, or form FTB 3809.

Transfer the credit(s) from the respective credit forms to Schedule C (100S) to compute the amount of credit to claim on Form 100S. Then transfer the credit(s) from Schedule C (100S) to Form 100S.

Each credit is identified by a code. To claim one or two credits, enter the credit name, code, and the amount of the credit on line 22 and line 23. Enter the total of any remaining credits from Schedule C (100S) on line 24. Do not make an entry on line 24 unless line 22 and line 23 are complete.

Attach all credit forms, schedules, and Schedule C (100S) to Form 100S.

S corporations must enter the tax from Schedule D (100S) included in this tax booklet. See General Information J, Built-in Gains, for more information.

If the corporation has always been an S corporation for California purposes or has no federal excess net passive investment income, the excess net passive investment income tax does not apply. See General Information S, Excess Net Passive Investment Income, for more information.

To determine if the S corporation owes this tax, complete line 1 through line 3 and line 9 of the “Excess Net Passive Income and Income Tax Worksheet.” If line 2 is greater than line 3 and the S corporation has taxable income, it must pay the tax.

Complete a separate schedule using the format of line 1 through line 11 of the Excess Net Passive Income and Income Tax Worksheet to figure the tax. Enter the tax from line 11 of the worksheet on Form 100S, Side 2, line 28. Attach the schedule showing the computation. Reduce each item of passive income passed through to shareholders by its pro-rata share of the tax on line 28. See IRC Section 1366(f)(3) and R&TC Section 23803(b)(2).

R&TC Section 23811(e) provides a deduction for C corporation earnings and profits attributable to California sources for any taxable year by the amount of a consent dividend paid after the close of the taxable year. The amount of the consent dividend is limited to the difference between the C corporation earnings and profits attributable to California sources and the C corporation earnings and profits for federal purposes.

Enter the total amount of elective tax from form FTB 3804,Part I, line 3.

Enter the total amount of estimated tax payments made during the 2022 taxable year on line 32. If the S corporation is the parent of a QSub and made payments for the QSub annual tax, include the total amount of QSub annual tax payment made during 2022 on line 32 along with the total estimated tax payments. See General Information DD, Qualified Subchapter S Subsidiary (QSub), for more information. Be sure to complete Schedule QS included in this tax booklet and attach it to the return.

If the S corporation is a nonconsenting nonresident (NCNR) member of an LLC and tax was paid on the S corporation’s behalf by the LLC, include the NCNR members’ tax from Schedule K-1 (568), Member's Share of Income, Deductions, Credits, etc., line 15e. If you are including NCNR tax, write “LLC” on the dotted line to the left of the amount on line 32, and attach Schedule K-1 (568) to the California income tax return to claim the tax paid by the LLC on the S corporation’s behalf.

If the corporation was withheld upon by another entity, the corporation can either allocate the entire withholding credit to all its shareholders or claim a portion on line 33 (not to exceed total tax due) and allocate the remaining portion to all its shareholders. S corporations may not receive a refund of withholding on Form 100S. If the S corporation is claiming any of the withholding credit on the corporate return, attach a copy of Form 592-B, Resident and Nonresident Withholding Tax Statement, and/or Form 593 to the lower part of the front of Form 100S, Side 1. If any of the withholding credit is to be allocated to the shareholders, Form 592, Resident and Nonresident Withholding Statement, must be received by the FTB to allocate the credit to its shareholders. Get the instructions for Form 592 for more information.

Do not include NCNR member’s tax from Schedule K-1 (568), line 15e as withholding.

Enter the amount of payment with form FTB 3893.

As explained under General Information EE, California use tax applies to purchases of merchandise from out-of-state sellers (for example, purchases made by telephone, online, by mail, or in person) where California sales or use tax was not paid and those items were used in California. For questions on whether a purchase is taxable, go to the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov, or call their Customer Service Center at 1-800-400-7115 (CRS: 711) (for hearing and speech disabilities).

Note: The following businesses are required to report purchases subject to use tax directly to the California Department of Tax and Fee Administration, and may not report use tax on their income tax return:

An S corporation that is not required to report purchases subject to use tax directly to the California Department of Tax and Fee Administration may, with some exceptions, report use tax on its S Corporation Franchise or Income Tax Return. To report use tax on the tax return, complete the Use Tax Worksheet.

Note: An S corporation may not report use tax on its income tax return for certain types of transactions. These types of purchases are listed in the instructions for completing Worksheet, Line 1.

If the S corporation owes use tax, but does not report it on the income tax return, the S corporation must report and pay the tax to the California Department of Tax and Fee Administration. For more information on how to report use tax directly to the California Department of Tax and Fee Administration, go to their website at cdtfa.ca.gov and type “Find Information About Use Tax” in the search bar.

Failure to timely report and pay the use tax due may result in the assessment of interest, penalties, and fees.

Round all amounts to the nearest whole dollar.

Worksheet, Line 1, Purchases Subject to Use Tax

Report purchases of items that would have been subject to sales tax if purchased from a California retailer unless the receipt shows that California tax was paid directly to the retailer. For example, generally, purchases of clothing would be included, but not exempt purchases of food products or prescription medicine. For more information on nontaxable and exempt purchases, visit the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov.

Note: Do not report the following types of purchases on the S corporation’s income tax return:

Worksheet, Line 2, Sales and Use Tax Rate

Enter the sales and use tax rate applicable to the place in California where the property is used, stored, or otherwise consumed. If the S corporation does not know the applicable city or county sales and use tax rate, please go to the California Department of Tax and Fee Administration’s website at cdtfa.ca.gov and type “City and County Sales and Use Tax Rates” in the search bar. You may also call their Customer Service Center at 1-800-400-7115 (CRS: 711) (for hearing and speech disabilities).

Worksheet, Line 4, Credit for Tax Paid to Another State

This is a credit for tax paid to other states on purchases reported on Line 1. The S corporation can claim a credit up to the amount of tax that would have been due if the purchase had been made in California. For example, if the S corporation paid $8.00 sales tax to another state for a purchase, and would have paid $6.00 in California, the S corporation can only claim a credit of $6.00 for that purchase.

In addition to any amount entered on line 40 or line 41, tax due and overpayment, also include any amounts required to be included from Side 3, Schedule J, Add-On Taxes and Recapture of Tax Credits. See Schedule J instructions for more information.

If the corporation chooses to have the overpayment credited to next taxable year’s estimated tax payment, the corporation cannot later request that the overpayment be applied to the prior year to offset any tax due.

Direct deposit is fast, safe, and convenient. To have the refund directly deposited into the S corporation’s bank account, enter the account information on Form 100S, Side 2, lines 43a, 43b, and 43c. Be sure to fill in all the information. Do not attach a voided check or deposit slip.

Caution: Check with your financial institution to make sure your deposit will be accepted and to get the correct routing and account numbers. The FTB is not responsible for a lost refund due to incorrect account information.

To cancel the DDR, call the FTB at 916-845-0353. The FTB is not responsible when a financial institution rejects a direct deposit. If the FTB, the bank, or financial institution rejects the direct deposit due to an error in the routing number or account number, the FTB will issue a paper check.

Enter on line 44a the amount of any penalties and interest due. Complete and attach form FTB 5806, to the back of Form 100S (after all schedules and federal return) only if Exception B or Exception C of form FTB 5806 is used to compute or eliminate the penalty. Be sure to check the box on line 44b. For more information, see General Information M, Penalties, and General Information N, Interest.

See General Information I, Net Income Computation, for information on net income computation methods.

“Gross receipts” means the gross amounts realized (the sum of money and the fair market value of other property or services received) on:

Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold. For a complete definition of “gross receipts,” refer to R&TC Section 25120(f).

Complete line 1a through line 6 to figure the income or loss from trade or business activity. Do not report any rental activity or portfolio income or loss on these lines. Rental activity and portfolio income or loss are reported on Form 100S, Side 1, line 7 or Side 2, line 12; Form 100S, Side 6, Schedule K; and Schedule K-1 (100S). Rental real estate activities are also reported on federal Form 8825. Attach a copy of federal Form 8825 to Form 100S.

If the S corporation’s total receipts are $150,000 or more, complete and attach a schedule showing the compensation of officers. On the schedule, list all of the following:

Gain from the exercise of California Qualified Stock Options issued and exercised after 1996 and before 2002, can be excluded from gross income if the individual’s earned income is $40,000 or less. The exclusion from gross income is subject to the alternative minimum tax and the S corporation is not allowed a deduction for the compensation excluded from the employee’s gross income. For more information, see R&TC Section 24602.

Do not include the dividend deduction on this line. Instead enter the dividend deduction on Form 100S, Side 2, line 9 or line 10.

Complete Schedule J on Form 100S, Side 3, if the S corporation has credit amounts to recapture or is required to include installment payments of “add-on” taxes for the following:

Revise the tax due or overpayment on Form 100S, Side 2, line 40 or line 41, as appropriate, by the amount from Schedule J, line 6.

If the S corporation computed the LIFO recapture tax in the final year as a C corporation, include on Schedule J, line 1, any LIFO installment due this taxable year.

If the S corporation must compute interest under the look-back method for completed long-term contracts, complete and attach form FTB 3834, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, and include the amount of interest the S corporation owes or the amount of interest to be credited or refunded to the S corporation on Schedule J, line 2. Attach form FTB 3834 to Form 100S. If interest is to be credited or refunded, enter as a negative amount.

If the S corporation elected to pay interest on the amount of tax attributable to payments received on installment obligations arising from the disposition of certain timeshares and residential lots under IRC Section 453(l)(3), it must include the interest due on Schedule J, line 3a. For the applicable interest rates, get FTB Pub. 1138. Attach a schedule showing the computation.

If an obligation arising from the disposition of property to which IRC Section 453A(c) applies is outstanding at the close of the taxable year, the corporation must include the interest due under IRC Section 453A on Schedule J, line 3b. Attach a schedule showing the computation. For the applicable interest rates, get FTB Pub. 1138.

Complete Schedule J, line 4 if the corporation elected to pay tax on the gain from the sale of an intangible under the related person exception to the anti-churning rules.

Complete Schedule J, line 5, if the S corporation completed the credit recapture portion for any of the following forms:

Also, complete Schedule J, line 5, if the S corporation is subject to recapture for any of the following credits:

Get the instructions for form FTB 3540, Part II, for more information.

Schedule K is a summary schedule of all the shareholders’ shares of the S corporation’s income, deductions, credits, etc. Schedule K-1 (100S) shows each shareholder’s separate share of pass-through items and adjusted basis. Use federal Schedule K and Schedule K-1 (Form 1120-S) as a basis for preparing California Schedule K and Schedule K-1 (100S).

Amounts on Schedule K-1 (100S) may not add up to amounts reflected on Form 100S, because Form 100S calculates tax at the S corporation level while Schedule K-1 (100S) amounts are calculated using different rules.

Attach one copy of each Schedule K-1 (100S) to the Form 100S filed with the FTB. Keep one copy of each Schedule K-1 (100S) for the S corporation’s records, and give each shareholder a copy of Schedule K-1 (100S) on or before the due date of Form 100S.

Be sure to give each shareholder a copy of either the Shareholder’s Instructions for Schedule K-1 (100S) included in this booklet or specific instructions for each item reported on the shareholder’s Schedule K-1 (100S).

The S corporation needs approval from the FTB to use a substitute Schedule K-1 (100S). The substitute schedule must include the Shareholder’s Instructions for Schedule K-1 (100S) or other prepared specific instructions. For more information and access to form FTB 1096, Agreement to Comply with FTB Pub. 1098 Annual Requirements and Specification; or FTB Pub. 1098, Annual Requirements and Specifications for the Development and Use of Substitute, Scannable, and Reproduced Tax Forms, email the FTB’s Substitute Forms Program at: [email protected].

Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter that amount on the applicable line(s) as a column (c) adjustment.

Also, the ARPA expands PPP eligibility to include “additional covered nonprofit entities” which includes certain Code 501(c) nonprofit organizations and Internet-only news publishers and Internet-only periodical publishers. California law does not conform to this expansion of PPP eligibility. If you met the PPP eligibility requirements and excluded the amount from gross income for federal purposes, enter that amount on the applicable line(s) as a column (c) adjustment.

Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with covered loan amounts. California law conforms to this federal provision, with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on the applicable line(s) as a column (c) adjustment.

Under federal law, the CAA, 2021 allows deductions for eligible expenses paid for with grant amounts. California law conforms to this federal provision, with modifications. For California purposes, if you are an ineligible entity and deducted eligible expenses for federal purposes, enter the total amount of those expenses deducted on the applicable line(s) as a column (c) adjustment.

If the S corporation conducted a commercial cannabis activity licensed under the California MAUCRSA, or received flow-through income from another pass-through entity in that business, attach a schedule to the Schedule K-1 (100S) showing the breakdown of the following information:

Get form FTB 4197 for more information.

If items of income (loss), deduction, or credit from more than one activity are reported on Schedule K-1 (100S), the S corporation must attach a statement to Schedule K-1 (100S) for each activity that is a passive activity to the shareholder. Rental activities are passive activities to all shareholders. Trade or business activities are passive activities to shareholders who do not materially participate in the activity.

The attachment must include all the information explained in the instructions for federal Schedule K-1 (Form 1120-S).

When completing the California Schedule K and Schedule K-1 (100S), refer to the Schedule K Federal/State Line References chart included in this tax booklet, that shows the specific line references between the federal and state schedules.

In column (b), enter the amounts from federal Schedule K. In column (c), enter the adjustments resulting from differences between California and federal law (not adjustments relating to California source income). In column (d), enter the worldwide income computed under California law.

To ensure correct processing of Schedule K-1 (100S), answer all items that are appropriate.

Item A, B, and C – Get the instructions for federal Form 1120-S, under Specific Instructions for Schedule K-1, Part II, Item G, H, and I, for more information.

Enter in column (c) any California adjustments to ordinary income that do not need to be separately stated. Include in this column the adjustment to add back the minimum franchise tax or the 1.5% tax deducted for federal purposes.

Enter the net income and expenses of any rental real estate activity of the S corporation. If the S corporation has more than one rental real estate activity reported on these lines, attach a separate schedule to list the income or loss from each activity, plus any other information required under the rules for passive activities. Attach form FTB 3801 to Form 100S.

Enter the net income and expenses of other rental activities not listed on line 2. If the S corporation has more than one rental activity reported on these lines, attach a separate schedule listing the income or loss from each activity, plus any other information required under the rules for passive activities.

Portfolio income (loss) is any gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of business. Portfolio income must be separately accounted for as such. Portfolio income also includes gains or losses from the sale or other disposition of property (other than an interest in a passive activity) producing portfolio income or held for investment.

Enter only taxable interest, dividend, and royalty income that is portfolio income.

Enter on line 7 and line 8 the amount of capital gains and losses that is portfolio income (loss). If any of the income (loss) is not portfolio income (loss), include it on line 10b.

S corporations should report any net long-term capital gains on California Schedule K and Schedule K-1 (100S), line 8.

Qualified Opportunity Zone Funds. The TCJA established Opportunity Zones. IRC Sections 1400Z-1 and 1400Z-2 provide a temporary deferral of inclusion of gross income for capital gains reinvested in a qualified opportunity fund, and exclude capital gains from the sale or exchange of an investment in such funds. California does not conform to the deferral and exclusion of capital gains reinvested or invested in federal opportunity zone funds and has no similar provisions.

If, for California purposes, gains from investment in qualified opportunity zone property had been included in income during previous taxable year, do not include the gain in the current year income.

The amount for line 9 comes from Schedule D-1. Do not include specially allocated ordinary gains and losses or net gains or losses from involuntary conversions due to casualties or thefts on this line. Instead, report these gains or losses on line 10b.

If the S corporation has more than one activity and the amount on line 9 is a passive activity amount to the shareholder, attach a statement to Schedule K-1 (100S) to identify which activity the IRC Section 1231 gain (loss) relates.

Enter any other portfolio income (loss) not entered on lines 4, 5, 6, 7, and 8.

Enter any other item of income or loss not included on line 1 through line 8, line 9 and line 10a, such as:

IRC Section 951A income. California does not conform to IRC Section 951A. If, for federal purposes, the S corporation included global intangible low-taxed income (GILTI) on federal Schedules K and K-1, enter that amount in column (c).

Thomas and Woolsey Wildfires Exclusion. California law allows a qualified taxpayer an exclusion from gross income for any amount received in settlement from Southern California Edison for claims relating to the 2017 Thomas Fire or the 2018 Woolsey Fire. If any amount was included for federal purposes, exclude that amount for California purposes on Schedules K and K-1 (100S), line 10b, column (c).

Fire Victims Trust Exclusion. California law allows a qualified taxpayer an exclusion from gross income for any amount received from the Fire Victims Trust. If any amount was included for federal purposes, exclude that amount for California purposes on Schedules K and K-1 (100S), line 10b, column (c).

Turf Replacement Water Conservation Program. California law allows an exclusion from gross income for any amount received as a rebate, voucher, or other financial incentive issued by a public water system, local government, or state agency for participation in a turf replacement water conservation program. If any amount was included for federal purposes, exclude that amount for California purposes on Schedules K and K-1 (100S), line 10b, column (c).

Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Relief Grant Program that is established by Section 12100.975 of the Government Code. If you included an amount qualifying for this exclusion as income for federal purposes, exclude that amount for California purposes on Schedules K and K-1 (100S), line 10b, column (c).

California Microbusiness COVID-19 Relief Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Microbusiness COVID-19 Relief Program that is administered by CalOSBA. Federal law has no similar exclusion. Enter the amount of this type of income on Schedules K and K-1 (100S), line 10b, column (c).

California Venues Grant. California law allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the California Venues Grant Program that is administered by CalOSBA. Federal law has no similar exclusion. Enter the amount of this type of income on Schedules K and K-1 (100S), line 10b, column (c).

Small Business COVID-19 Relief Grant Program. California allows an exclusion from gross income for grant allocations received by a taxpayer pursuant to the COVID-19 Relief Grant under Executive Order No. E 20/21-182 and the California Small Business COVID-19 Relief Grant Program established by Section 12100.83 of the Government Code. If the corporation included any amount as income for federal purposes, enter that amount on Schedules K and K-1 (100S), line 10b, column (c).

The amount of expense deduction for recovery property that can be claimed from all sources will vary depending on the type of property and the year of designation. For more information, see IRC Section 179 and R&TC Section 17201.

Enter the total amount of charitable contributions made by the S corporation during its taxable year on Schedule K and each shareholder’s distributive share on Schedule K‑1 (100S). On an attachment to each schedule, separately show the dollar amount and type of contributions.

A resident shareholder is allowed a deduction for charitable contributions to a qualified organization as provided in IRC Section 170.

Do not include any amounts taken into account for the College Access Tax Credit as a charitable contribution on line 12a.

Complete this line whether or not a shareholder is subject to the investment interest rules.

Include on this line interest paid or accrued to purchase or carry property held for investment. Property held for investment includes property that produces portfolio income (interest, dividends, annuities, royalties, etc.). Therefore, interest expense allocable to portfolio income should be reported on Schedules K and K-1 (100S), line 12b rather than line 12e.

Investment interest does not include interest expense allocable to a passive activity. A passive activity is a rental activity or a trade or business activity in which the shareholder does not materially participate.

Property held for investment includes a shareholder’s interest in a trade or business activity that is not a passive activity to the shareholder and in which the shareholder does not materially participate. An example would be a shareholder’s working interest in oil and gas property (i.e., the shareholder’s interest is not limited) if the shareholder does not materially participate in the oil and gas activity.

The amount on line 12b will be reflected (after applying the investment interest expense limitations) by individual shareholders on their Schedule CA (540 or 540NR), California Adjustments.

For more information, get form FTB 3526, Investment Interest Expense Deduction.

Enter the same amount in column (e) as entered in column (d). Refer to the instructions for federal Schedules K and K-1 (1120-S).

Enter on this line the deductions allocable to portfolio income (loss) other than interest expenses. Generally, these deductions are IRC Section 212 expenses and are subject to IRC Section 212 limitations at the shareholder level. However, interest expense related to portfolio income (loss) is generally investment interest expense and is reported on line 12b.

Include on this line deductions not claimed on any other line. Attach a schedule that clearly shows how each deduction was computed and explain the basis for the deduction.

Financial Incentive for Seismic Improvement. For taxable years beginning on or after July 1, 2015, California allows an exclusion from gross income for any amount received as a loan forgiveness, grant, credit, rebate, voucher, or other financial incentive issued by the California Residential Mitigation Program or the California Earthquake Authority to assist a residential property owner or occupant with expenses paid, or obligations incurred, for earthquake loss mitigation. If for federal purposes, the S corporation included any amount as income on federal Schedule K and K-1, enter that amount in column (c).

Penalty Assessed by Professional Sports League. California does not allow a business expense deduction for any fine or penalty paid or incurred by an owner of a professional sports franchise assessed or imposed by the professional sports league that includes that franchise. If for federal purposes, the corporation deducted the fine or penalty on the federal Schedule K and K-1, enter that amount in column (c) as an adjustment because for state purposes, the deduction is not allowed.

R&TC Section 23610.5 provides that a credit may be claimed by owners of residential rental projects providing low-income housing. The credit is generally effective for buildings placed in service after 1986. If the shareholders are eligible to claim the low-income housing credit, attach a copy of form FTB 3521, Low-Income Housing Credit, to Form 100S and to each shareholder’s Schedule K-1 (100S), for more information.

Report any information that the shareholder needs to figure credits related to a rental real estate activity other than the low-income housing credit that is included on line 13a. Attach to each shareholder’s Schedule K-1 (100S) a schedule showing the amount to be reported and the form on which the amount should be reported.

Use this line to report information that the shareholder needs to figure credits related to a rental activity other than a rental real estate activity. Attach to each shareholder’s Schedule K-1 (100S) a schedule showing the amount to be reported and the form on which the amount should be reported.

Enter on an attached schedule each shareholder’s allocable share of any credit or credit information reported on Schedule C (100S) that is related to a trade or business activity.

The following are examples of credits that may apply to each shareholder:

Pass-Through Entity (PTE) Elective Tax Credit – The PTE Elective Tax Credit is not a pass-through item, but should still be reported on Schedule K-1 (100S), line 13d and attached schedule.

For a complete list of credits, refer to the Credit Chart.

If withholding from payments made to the S corporation are made by another entity, payments withheld on you by this S corporation, or backup withholding, they are allocated to the shareholders by their stock ownership. Get FTB Pub. 1017, Resident and Nonresident Withholding Guidelines, for more information.

Line 14 includes withholding from payments made to the S corporation allocated to all shareholders based on their stock ownership and payments withheld on nonresident shareholders. The S corporation must provide each shareholder (including California residents) with a completed Form 592-B. Shareholders must attach Form 592-B to the front of their California tax return to claim the withholding credit. The Schedule K-1 (100S) is not used for claiming the withholding credit.

Enter the items of income and deductions that enter into each shareholder’s computation of AMT items. A shareholder with AMT items may be required to file Schedule P (540, 540NR, or 541), Alternative Minimum Tax and Credit Limitations.

Get the instructions for federal Schedules K and K-1 (Form 1120-S), Alternative Minimum Tax (AMT) Items, line 15a through line 15f, for more information.

Refer to the instructions for federal Schedules K and K-1 (Form 1120-S) for more information.

Enter total distributions made to shareholders other than dividends reported on Schedule K, line 17c. Noncash distributions of appreciated property are valued at fair market value. Refer to the instructions for federal Form 1120-S for the ordering rules on distributions.

Report the distribution amount for each shareholder for distributions other than dividends reported on Schedule K-1 (100S), line 17c. Noncash distributions of appreciated property are valued at fair market value. Refer to the instructions for federal Form 1120-S for the ordering rules on distributions.

Report the amount of loan repayments the S corporation has made to each shareholder who has loaned the S corporation money.

Complete these lines whether or not a shareholder is subject to the investment interest rules.

Enter on line 17a only the investment income included on Schedules K and K-1 (100S), line 4, line 5, line 6, and line 10a. Enter on line 17b only the investment expense included on Schedules K and K-1 (100S), line 12d.

If there are items of investment income or expense included in the amounts that are required to be passed through separately to the shareholder on Schedule K-1 (100S), such as net short-term capital gain or loss, net long-term gain or loss and other portfolio gains or losses, give each shareholder a schedule identifying these amounts. See the instructions for federal Form 1120-S for more information on portfolio income.

Investment income includes gross income from property held for investment, gain attributable to the disposition of property held for investment, and other amounts that are gross portfolio income. Investment income and investment expenses do not include any income or expenses from a passive activity.

Property subject to a net lease is not treated as investment property because it is subject to the passive loss rules. Do not reduce investment income by losses from passive activities.

Investment expenses are deductible expenses (other than interest) directly connected with the production of investment income.

Get form FTB 3526 for more information.

Report the distribution amount made out of prior C corporation years accumulated earnings and profits (E&P). The S corporation should issue a federal Form 1099-DIV, Dividends and Distributions, to each of the shareholders reporting their proportionate distribution amounts.

Report the distribution amount for each shareholder that was paid out of prior C corporation years accumulated E&P. Each shareholder should receive a federal Form 1099-DIV reporting the proportionate distribution amount shown on Schedule K-1 (100S), line 17c.

The S corporation may need to report supplemental information separately to each shareholder that is not specifically requested on the Schedule K-1 (100S).

If the S corporation has supplemental information not included in lines 1 through 17b and lines 18a-e, write “See attached” on Line 17d, column (b) and column (d) and provide a schedule with details.

Attach the schedule to the Schedule K showing the computation of those items that must be reported separately to shareholders including any credit recapture reported to shareholders on Schedule K-1 (100S), line 17d.

Shareholders may need to obtain the amount of their proportionate interest of aggregate gross receipts, less returns and allowances, from the S corporation. Alternative minimum taxable income shall not include income, adjustments, and items of tax preference related to any trade or business of a qualified taxpayer who has gross receipts, less returns and allowances, during the taxable year of less than $1 million from all trades or businesses. The S corporation can provide the shareholder’s proportionate interest of aggregate gross receipts on Schedule K-1 (100S), line 17d.

For purposes of R&TC Section 17062(b)(4), “gross receipts” means the sum of gross receipts from the production of business income (within the meaning of subdivisions (a) and (c) of R&TC Section 25120) and the gross receipts from the production of nonbusiness income (within the meaning of subdivision (d) of R&TC Section 25120). For taxable years beginning on or after January 1, 2011, R&TC Section 25120 was amended to add the definition of gross receipts. For a complete definition of “gross receipts,” refer to R&TC Section 25120(f), or go to ftb.ca.gov and search for 25120. “Proportionate interest” includes an interest in a pass-through entity. See R&TC Section 17062, the instructions for federal Schedule K (Form 1120-S), line 17d, and the instructions for Schedule K-1 (100S) for more information.

The gain or loss on property subject to the IRC Section 179 expense deduction recapture should be reported on the Schedule K and Schedule K-1 (100S) as supplemental information as instructed on the federal Form 4797.

The S corporation must provide all of the following information with respect to a disposition of business property if an IRC Section 179 expense deduction was claimed in prior years:

The S corporation will provide supplemental information required to be reported to each shareholder on this line. Write “See attached” on Line 17d, column (b) and column (d) and provide a schedule with details.

The gain or loss on property subject to the IRC Section 179 expense deduction recapture should be reported on the Schedule K and Schedule K-1 (100S) as other information as instructed on the federal Form 4797.

The S corporation must provide all of the following information with respect to a disposition of business property if an IRC Section 179 expense deduction was claimed in prior years:

The S corporation should provide an amount showing each shareholder’s proportionate interest in the S corporation’s aggregate gross receipts, less returns and allowances, on Schedule K-1 (100S), line 17d. See the instructions for Schedule K, line 17d.

Report the credit recapture amount on Schedule K-1(100S), line 17d if the S corporation completed the credit recapture portion of the following forms:

Also, report the credit recapture amount on line 17d if the corporation is subject to recapture of the following:

Get the instructions for form FTB 3540, Part II, for more information.

Attach a statement showing each of the following:

Subject to certain conditions, shareholders may claim a credit against their individual tax for net income taxes paid by the S corporation to another state that either taxes the corporation as an S corporation or does not recognize S corporation status. For purposes of this credit, net income taxes include the shareholder’s share of taxes on, according to, or measured by income. Enter the name of the other state(s), the income reported to the other state(s), and the amount of tax paid. Attach a copy of the return filed with the other state(s).

Residents are taxable on all their pro-rata share of income and generally receive a credit for taxes paid to other states. Nonresidents must use the amounts shown in Schedule K-1 (100S), column (e). See R&TC Sections 18001, 18002, and 18006 for more information.

The applicable box will be checked if the corporation has more than one activity for at-risk or passive activity purposes. Get the instructions for federal Form 1120-S, under Specific Instructions (Schedules K and K-1), for Line 18 and Line 19, for more information.

Table 1 – Enter the shareholder’s pro-rata share of nonbusiness income from intangibles. Because the source of this income must be determined at the shareholder level, do not enter income in this category in column (e). If the income (loss) for an income item is a mixture of income (loss) in different subclasses (for example, short and long-term capital gain), attach a supplemental schedule providing a breakdown of income in each subclass.

Nonbusiness income is all income other than business income as defined under Table 2.

Table 2 – The S corporation will complete Schedule K-1(100S), Table 2, Items A – C.

In Item A, enter the shareholder’s pro-rata share of the S corporation’s business income. The shareholder will then add that income to its own business income and apportion the combined business income.

Business income is defined by Cal. Code Regs., tit. 18 section 25120(a) as income arising in the regular course of the taxpayer’s trade or business. Business income includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitutes integral parts of the taxpayer’s regular trade or business.

In Item B, enter the shareholder’s pro-rata share of nonbusiness income from real and tangible property that is located in California. Because this income has a California source, this income should also be included on the appropriate line in column (e).

In Item C, enter the shareholder’s pro-rata share of the S corporation’s payroll, property, and sales factors. The S corporation will complete Schedule K-1(100S), Table 2, Item C to report the shareholder’s distributive share of property, payroll and sales total within California.

The shareholders will use Schedule K-1(100S), Table 2, Item C to determine if they meet threshold amounts of California property, payroll, and sales. For more information on the doing business test, see General Information A, Franchise or Income Tax.

If the S corporation’s total receipts (see definition of total receipts) for the taxable year and total assets at the end of the taxable year are less than $250,000, the S corporation is not required to complete Schedule L and Schedule M-1. However, this information must be available in the future upon request.

Schedule M-1 is used to reconcile the difference between book and tax accounting for an income or expense item. If the S corporation’s total receipts for the taxable year and total assets at the end of the taxable year are less than $250,000, the S corporation is not required to complete Schedule L and Schedule M-1. However, this information must be available in the future upon request.

To reconcile the S corporation’s income (loss) per books with the income (loss) per the California return, adjustments consistent with California income and franchise tax law must be made to the book income and expenses to compute the California income (loss) on Schedule M-1, line 8. These adjustments will convert book income to the total California income (loss) reflected on line 19, column (d) of Schedule K.

S Corporation With Total Assets of At Least $10 Million or More but Less Than $50 Million. The IRS allows corporations with at least $10 million but less than $50 million in total assets at tax year end to file Schedule M-1 (Form 1120-S) in place of Schedule M-3 (Form 1120-S), Parts II and III. However, Schedule M-3 (Form 1120-S), Part I, is required for these corporations. For California purposes, the S corporation must complete the California Schedule M-1, and attach either of the following:

The FTB will accept the federal Schedule M-3 (Form 1120-S) in a spreadsheet format if more convenient.

The computation of the California Accumulated Adjustments Account (AAA) and Other Adjustments Account (OAA) is similar to the federal computation applying California amounts. Get the instructions for federal Form 1120-S and IRC Section 1368 for more information.

Column (a) – The AAA is an account of the S corporation that generally reflects the accumulated undistributed net income of the corporation for the corporation’s post-1986 years. S corporations with accumulated E&P from C corporation years must maintain the AAA to determine the tax effect of distributions during S corporation years and the post-termination transition period. An S corporation without accumulated E&P does not need to maintain the AAA in order to determine the tax effect of distributions. However, if an S corporation without accumulated E&P engages in certain transactions to which IRC Section 381(a) applies, such as a merger into an S corporation with accumulated E&P, the S corporation must be able to calculate its AAA at the time of the merger for purposes of determining the tax effect of post-merger distributions. Therefore, it is recommended that all S corporations maintain the AAA.

At the end of the taxable year, the AAA is determined by taking into account all items of income, loss, and deductions for the taxable year (including nondeductible losses and expenses that are not capitalized but excluding certain exempt income and state taxes attributable to C corporation years). After the year-end income and expense adjustments are made, the account is reduced by distributions made during the taxable year. The AAA should be reduced by the California built-in gains tax amount and the minimum franchise tax.

The amount on Form 100S, Side 1, line 2, should be included as an other addition on Schedule M-2, line 3, and as an other reduction on Schedule M-2, line 5. Also, include any other adjustments to arrive at California income.

The AAA may have a negative balance at year-end as a result of losses or deductions from the S corporation.

Column (b) – The other adjustments account is adjusted for tax-exempt income (and related expenses) of the S corporation. After adjusting for tax-exempt income, the account is reduced for any distributions made during the year.

Column (c) – Other retained earnings include appropriated and unappropriated retained earnings accumulated in prior years when the S corporation was a C corporation. Line 1, column (c) for the first S corporation return will be the sum of the ending balances of appropriated and unappropriated retained earnings for the previous year.

Generally, property distributions (including cash) are applied in the following order to reduce accounts of the S corporation that are used to compute the tax effect of distributions made by the S corporation to its shareholders:

Shareholders’ previously taxed income (PTI) on federal Form 1120-S, Schedule M-2, column (c) – California S corporations will never have undistributed PTI. The federal code section that created PTI was removed from the IRC before California incorporated the federal S corporation provisions into the R&TC.

The corporation may modify the ordering rules by making one or more of the following elections:

To make any elections relating to the order of distribution, the corporation must attach a statement to a timely filed original Form 100S or amended Form 100S for the year in which the election is made. The corporation must identify the election it is making and state that each shareholder consents to the election. A corporate officer must sign the statement under penalties of perjury on behalf of the corporation. The statement of election to make a deemed dividend must include the amount of the deemed dividend distributed to each shareholder.

When making either of the elections, the corporation must prepare copies of federal Form 1099-DIV for shareholders to report this dividend as taxable income.

The corporation may file the election for California purposes only. It is not necessary for the corporation to have the same election for federal purposes in order to make a California election. However, regardless of whether or not the corporation makes the same election on the federal return, the corporation must attach a separate election statement to the California return.

If the S corporation was a C corporation in a prior year(s) and has C corporation E&P at the end of the taxable year enter that amount on line 10. For this purpose, C corporation E&P means the remaining balance of E&P of any S corporation for any taxable year when it was not an S corporation. If the S corporation has C corporation E&P, it may be liable for excess net passive income tax and the distributions to shareholders may have different tax consequences for federal and California purposes. See instructions for Form 100S, Side 2, line 27 and line 28, for details on these taxes.

Note: S corporations may not claim this credit. The entire amount of the credit is passed through to the shareholder.

Note: S corporations may not claim this credit. The entire amount of the credit is passed through to the shareholder.

Note: S corporations may not claim this credit. The entire amount of the credit is passed through to the shareholder.

The expiration dates for the credits listed below have passed. However, these credits had carryover or recapture provisions. The corporation may claim these credits if there is a carryover available from prior years. Get form FTB 3540, Credit Carryover and Recapture Summary, to figure the credit carryover to future years.

For EZ, LAMBRA, MEA, or TTA carryovers, get form FTB 3805Z, form FTB 3807, form FTB 3808, or form FTB 3809.

The following chart cross-references the line items on the federal Schedule K (1120-S) to the appropriate line items on the California Schedule K (100S). For more information, see Specific Line Instructions for Schedule K (100S) and Schedule K-1 (100S), Shareholder’s Share of Income, Deductions, Credits, etc, included in this booklet.

This list of principal business activities and their associated codes is designed to classify a business by the type of activity in which it is engaged to facilitate the administration of the California Revenue and Taxation Code. These principal business activity codes are based on the North American Industry Classification System.

Using the list of activities and codes below, determine from which activity the company derives the largest percentage of its "total receipts." Total receipts is defined as the sum of gross receipts or sales (Form 100S, Side 4, Schedule F, line 1a) plus all other income (Form 100S, Side 4, Schedule F, lines 4 and 5). If the company purchases raw materials and supplies them to a subcontractor to produce the finished product, but retains title to the product, the company is considered a manufacturer and must use one of the manufacturing codes (311110-339900).

Once the principal business activity is determined, entries must be made on Form 100S, Question C. For the business activity code number, enter the six-digit code selected from the list below. On the next line enter a brief description of the company’s business activity. Finally, enter a description of the principal product or service of the company on the next line.

Nonstore retailers sell all types of merchandise using such methods as Internet, mail-order catalogs, interactive television, or direct sales. These types of Retailers should select the PBA associated with their primary line of products sold. For example, establishments primarily selling prescription and non-prescription drugs, select PBA code 456110 Pharmacies & Drug Retailers.

“Offices of Bank Holding Companies” and “Offices of Other Holding Companies” are located under Management of Companies (Holding Companies)

You can download, view, and print California tax forms, instructions, publications, FTB Notices, and FTB Legal Rulings at ftb.ca.gov.

You can order current year California tax forms from 6 a.m. to 10 p.m. weekdays, 6 a.m. to 4:30 p.m. Saturdays, except holidays. Refer to the list in the right column and find the code for the form you want to order. Call 800-338-0505 and follow the recorded instructions.

Allow two weeks to receive your order. If you live outside California, allow three weeks to receive your order.

If you write to us, be sure to include your California corporation number or federal employer identification number, your daytime and evening telephone numbers, and a copy of the notice with your letter. Send your letter to:

We will respond to your letter within ten weeks. In some cases, we may need to call you for additional information. Do not attach correspondence to your tax return unless the correspondence relates to an item on the return.

Telephone assistance is available year-round from 8 a.m. until 5 p.m. Monday through Friday, except holidays. Hours subject to change.

Asistencia telefónica está disponible durante todo el año desde las 8 a.m. hasta las 5 p.m. de lunes a viernes, excepto días feriados. Las horas están sujetas a cambios.

The FTB’s goals include making certain that your rights are protected so that you have the highest confidence in the integrity, efficiency, and fairness of our state tax system. For more information, get FTB 4058, California Taxpayers’ Bill of Rights – Information for Taxpayers.

See “Where To Get Tax Forms and Publications.”

(Keep This Information For Future Use)

Use our automated phone service to get recorded answers to many of your questions about California taxes and to order current year California business entity tax forms and publications. This service is available in English and Spanish to callers with touch-tone telephones. Have paper and pencil ready to take notes.

See “Where To Get Tax Forms and Publications.”

You can hear recorded answers to Frequently Asked Questions 24 hours a day, 7 days a week. Call our automated phone service at the number listed above. Select “Business Entity Information,” then select “Frequently Asked Questions.” Enter the 3-digit code, listed below, when prompted.