It isn’t international tax (directly) but I’m solving this California corporate tax problem publicly so you don’t have to lose a few brain cells.
If you form a corporation in California on December 17 or later you don’t have to file a California tax return for the rest of the year. This is if you have a calendar year for the fiscal year of the corporation.
The important thing is the date. It is the Continental Divide of California corporate tax: incorporate on December 17 or later and you do not file Form 100. Incorporate on December 16 or earlier and you have to file Form 100.
And of course the company must be inactive — no fair actually doing business and earning income in that short year. If you do that, you have to file a tax return for the company.
Because you need to read the regulation, here it is:
BARCLAYS OFFICIAL CALIFORNIA CODE OF REGULATIONS
TITLE 18. PUBLIC REVENUES
DIVISION 3. FRANCHISE TAX BOARD
CHAPTER 3.5.
BANK AND CORPORATION TAX (TAXABLE YEARS BEGINNING AFTER 12-31- 54)
SUBCHAPTER 2. THE BANK AND CORPORATION FRANCHISE TAX
ARTICLE 4. COMMENCING CORPORATIONS
This database is current through 11/28/08, Register 2008, No. 48
§ 23222. Commencing Corporations.
A corporation commencing to do business in California after qualification or after having filed its articles of incorporation with the Secretary of State, a period of one-half month may be disregarded provided the corporation was not doing business in and received no income from sources in the State during such period, and a period of more than one-half a calendar month may be treated as a period of one month. For example, a corporation files its articles of incorporation on December 17th, and elects to file its return on a calendar year basis. No return will be required and no tax will be due for the period from December 17th to December 31st provided the corporation was not doing business in and received no income from sources in California during this period. However, if in the above example the corporation filed its articles on December 16th and elected to file its return on a calendar year basis, it will be required to file a return and pay a tax for the period from December 16th to December 31st, regardless of the fact that it may have been inactive and received no income during such period.
In determining whether a corporation comes within the provisions of this ruling, affidavits on behalf of the corporation that it did no business in and received no income from sources in California during such period shall be required if deemed necessary. Where it appears the corporation filed its articles only one or two days before commencement of its fiscal year period, affidavits normally will not be required.
Note: Authority cited: Section 26422, Revenue and Taxation Code. Reference: Section 23222, Revenue and Taxation Code.
Phil Hodgen
Philip D. W. Hodgen is the principal attorney of HodgenLaw PC, an international tax law firm based in Pasadena, California. He earned his undergraduate degree from Claremont McKenna College and his law degree from the School of Law at the University of California, Los Angeles. He then went on to earn a Master of Laws degree with a specialty in taxation from the University of San Diego School of Law. Admitted to the California bar in 1982, Phil spent nine years in law firms and with a large U.S. bank before starting his own firm in 1991.
Phil is a past chair of the International Tax Committee of the State Bar of California's Tax Section and was a member of the Executive Committee of the State Bar of California's Tax Section for 2004-2007. Phil frequently speaks on a variety of international tax, trust and estate topics to attorneys, accountants, and real estate professionals.
A reader of my November, 2008 article in California CPA Magazine (hi, David) called me and asked a question about the article. He wanted to clarify a generation-skipping transfer tax question. I didn’t have the space in the article to cover all of the nooks and crannies on the subject of estate taxation for cross-border…
Undeclared foreign bank accounts. It’s a common question. “I have this foreign bank account, but I haven’t been declaring it by filing Form TD F 90-22.1.? [PDF] What should I do?” The short answer is clean it up. All of it. First things first. Form TD F 90-22.1 is commonly known as an FBAR, for…
I got an inquiry today from my FIRPTA.com website that I figured would be worth answering here, because it is a topic of general application. The question is whether using a foreign corporation works to protect against U.S. estate tax. Foreign corporations to hold U.S. real estate Nonresident investors frequently hold U.S. real estate using…
To the people who attended my course today in San Jose: here is the private letter ruling I referred to. This document may not be used or cited as precedent. Section 6110(j)(3) of the Internal Revenue Code. Private Letter Ruling 200243031 PLR 200243031; 2002 PLR LEXIS 1086 July 25, 2002 SUBJECT MATTER: Section 672 —…
This is something that comes up again and again. Nonresident owns raw land (just dirt, nothing on it). There are some costs incurred each year — property taxes for sure, maybe mortgage interest, maybe a couple of other things. But property tax mostly. How can these costs get converted into a tax deduction? Answer: not…
This is an estate tax strategy designed to make $1.00 of assets look like $0.75 (or less) for tax purposes. It works. It is usually done with fractional ownership or family limited partnerships. The door’s going to close on this strategy. H.R. 436 brings into play the possible elimination of this strategy. The strategy is…
Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.