Governor Jerry Brown has signed AB 154, which brings sections of California’s tax code into conformity with federal IRS statutes. The bill brings the standard of conformity forward from January 1, 2009 to January 1, 2015, effective the first of this year. The second portion of the bill addresses tax code relating to a “Net Operating Loss” or NOL allowing corporations expecting a net operating loss carryback to have more time to pay taxes for the preceding year.
The third significant component of the legislation affects issues related to what is known as the “Large Corporation Underpayment Penalty” or LCUP. The LCUP provisions generally imposes a penalty of 21% for a corporation’s understatement of tax that exceeds $1 Million. This penalty will not be applied to increased tax exposure resulting from an election under Internal Revenue Code Section 338, and will not be applied if the tax imposed is due to a change in the corporate taxpayers method of accounting, based upon agreements with appropriate taxation agencies.
The LCUP penalty will also not be imposed on an understatement resulting from the FTB’s imposition of an alternative apportionment or allocation method under authority of Revenue and Taxation Code section 25137. These changes were enacted to clarify ambiguities in a previous ammendment in 2010, Proposition 26, approved by votors in November of 2010.
AB 154 was an “urgency bill” taking effect immediately. The bill was widely supported by most business and taxpayer associations, with little to no formal opposition.
Corporate taxation is quite complex, and the underlying accounting methodology, informational systems and associated corporate and tax strategies have a profound effect upon a corporation’s net tax liability and therefore profitability. Allen Barron is uniquely positioned to work with California corporations to evaluate existing accounting, informational and reporting systems, as well as corporate elections and taxation strategy to maximize long term profitability and insight into critical corporate decision making.
If you are interested in learning more about this complicated subject, we invite you to contact us for a complimentary and substantive consultation at 866-631-3470.