Instructions for Form 100S California S Corporation Franchise or Income Tax Return References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2001, and to the California Revenue and Taxation Code (R&TC). What’s New/Tax Law Changes Corporations that elect to be an S corporation Disaster Loss Limitations - Individuals, for federal purposes on or after January 1, Estates, and Trusts. In general, California law conforms to the 2002, and have a California filing requirement Internal Revenue Code (IRC) as of January 1, The authority of the Wildlife Conservation are deemed to make the California S election Board to award Natural Heritage Preservation 2001. Therefore, California has conformed to on the same date as the federal election. the income tax changes made to the IRC by Tax Credits has been suspended between the federal Internal Revenue Service Restruc- S Corporations are no longer required to July 1, 2002, and June 30, 2003, inclusive. turing and Reform Act of 1998 (Public Law attach form FTB 3830, S corporation's List of Thus, any credits that were allocated before 105-206), the Tax and Trade Relief Extension Shareholders and Consents, if the S corpora- June 30, 2002, may be claimed on the 2002 Act of 1998 (Public Law 105-277), the Surface tions have one or more nonresident share- tax return. Any credits that could have been Transportation Revenue Act of 1998 (Public holders or trusts with nonresident fiduciaries allocated, but were not allocated, or any new Law 105-178), the Ricky Ray Hemophilia For taxable years beginning on or after credits that are allocated on or after July 1, Relief Fund Act of 1998 (Public Law 105-369), January 1, 2002, California law conforms to 2003, could be claimed on the 2003 tax the Ticket to Work and Work Incentives the federal law relating to: return, or subsequent tax returns. Carryover is not affected for previously awarded credits, Improvement Act of 1999 (Public Law 106- • Employer deductions for Vacation and 170), the Miscellaneous Trade and Technical credits awarded before June 30, 2002, or any Severance Pay. For purposes of determin- credits allocated on or after July 1, 2003. Corrections Act of 1999 (Public Law 106-36), ing whether an item of compensation is the FSC Repeal and Extraterritorial Income deferred compensation (under IRC Sec. California has conformed to the federal Job Exclusion Act of 2000 (Public Law 106-519), 404), the compensation is not “paid” or Creation Act of 2002 provision that affects the Consolidated Appropriations Act of 2001 “received” until actually received by the discharge of indebtedness of an S corpora- (Public Law 106-554), and to technical employee. In addition, an item of deferred tion. This provision provides that income from corrections made by the Economic Growth compensation is not “paid to an employee” the discharge of indebtedness of an and Tax Relief Reconciliation Act of 2001 until actually received by the employee. S corporation that is excluded from the (Public Law 107-16). However, there are • Trade receivables arising out of the sale of S corporation's income is not taken into continuing differences between California and nonfinancial goods and services that are account as an item of income by any share- Federal law. California has not conformed to held by the taxpayer or a related person at holder and thus does not increase the basis of some of the law changes made by the all times since they were issued are not any shareholder's stock in the S corporation. Economic Growth and Tax Relief Reconcilia- eligible for mark-to-market treatment. This provision would apply for California tion Act of 2001 (Public Law 107-16) or the • The denial of the deduction for lobbying purposes to discharges of indebtedness after federal Job Creation and Worker Assistance activities, club dues, and employee December 31, 2001, in taxable years ending Act of 2002 (Public Law 107-147). Note: remuneration in excess of one million after that date. The provision would not apply Fiscal year taxpayers are subject to California dollar. to any discharge of indebtedness before tax law as it conforms to federal law that is • The deduction for contributions of March 1, 2002, pursuant to a plan of reorgani- applicable for taxable years beginning prior to appreciated property. Contributions of zation filed with a bankruptcy court on or January 1, 2002. appreciated property are no longer treated before October 11, 2001. For the 2002 taxable year only, no addition to as tax preference item for purposes of California law has not conformed to federal tax shall apply with respect to any underpay- Alternative Minimum Taxable Income. law regarding the additional 30% first-year ment of estimated tax to the extent the For taxable years beginning in 2002 and 2003, depreciation allowance for qualified property underpayment of an installment was created California has suspended the Net Operating or the additional 30% first-year depreciation or increased by any provisions of law enacted Loss (NOL) carryover deduction. Taxpayers allowance for Qualified New York Liberty Zone or amended by an act chaptered during the may continue to compute and carryover an property as added by the federal Job Creation 2002 calendar year. To request a waiver of NOL during the suspension period. However, and Worker Assistance Act of 2002 (Public underpayment of estimated tax penalty, see the deduction for disaster losses is not Law 107-147). form FTB 5806, Underpayment of Estimated affected by the NOL suspension rules. For taxable years beginning on or after Tax by Corporations. The carryover period for suspended losses is January 1, 2002, if the corporation's total For taxable years beginning on or after extended by two years for losses incurred receipts (see page 44 of the instructions) for January 1, 2002, California no longer allows a before January 1, 2002, and by one year for the taxable year and total assets at the end of federal S corporation to elect to be a California losses incurred after January 1, 2002, and the taxable year are less than $250,000, the C corporation. Therefore, for the taxable year before January 1, 2003. For more information, S corporation is not required to complete beginning in 2002, and thereafter, any get form FTB 3805Q, Net Operating Loss Schedules L and M-1. However, this informa- corporation with a valid federal S corporation (NOL) Computation and NOL and Disaster tion must be available in the future upon election is considered an S corporation for Loss Limitation - Corporations. request. California purposes. The effective date of the For taxable years beginning on or after election is the first day of the corporation’s Important Information January 1, 2002, the NOL carryover computa- taxable year beginning in 2002. tion for the California taxable income of a • Check Out Your CPA California allows these corporations to request a nonresident or part-year resident is no longer The California Board of Accountancy (CBA) portion of their 2002 taxable year’s estimated tax limited by the amount of net operating loss licenses and regulates individual Certified payments be transferred to the personal income from all sources. Only your California sourced Public Accountants and Public Accoun- tax accounts of their shareholders. Transfers are income and losses are considered in deter- tants, as well as accountancy firms and allowed only for S corporation taxable year mining if you have a California NOL. For more corporations, in California. beginning in 2002, and only if the total amount information, get FTB Pub. 1100, Taxation of If you currently use or are thinking about to be transferred is at least $500. For more Nonresidents and Individuals Who Change using a Certified Public Accountant or information, see form FTB 3833, Application for Residency, and form FTB 3805V, Net Operat- Public Accountant for tax preparation or Transfer of S Corporation 2002 Overpayments to ing Loss (NOL) Computation and NOL Shareholders. Form 100S Booklet 2002 Page 3 other services, the California Board of California law conforms to federal law for tion that flow through to the ESOP are not Accountancy can: the following provisions: treated as unrelated business taxable • Verify online or by telephone that the • Disallowing the deduction for club income (UBTI). Previously, such items CPA, PA, or firm has a current license membership fees and employee remunera- were treated as UBTI. to practice. tion in excess of $1 million. • S corporations which establish and • Provide information about any • Disallowing the deduction for lobbying maintain ESOPs are not required to give disciplinary actions taken against the expenses. participants the right to demand distribu- license. • Tax-exempt organizations may be tions in the form of employer securities, if • Answer your questions about whether a shareholders in an S corporation. the participants have the right to receive particular service or activity of a • Family farm corporations with income over such distributions in cash. licensee is regulated by the CBA. $25 million may defer tax on income that • An IRC Section 338 election, relating to • Provide you with the information and was a result of changes in accounting stock purchases treated as asset acquisi- forms to file a complaint against an methods required of these corporations. tions, is treated as an election for state individual or business regulated by the For calendar year taxpayers, the suspense purposes. A separate election for state CBA. Complaints can be submitted account for these deferrals must be purposes is not allowed. online, by mail, facsimile, or at the recaptured starting with taxable years • Expansion of deduction for certain interest Board office. beginning on or after January 1, 1998. For and premiums paid for company-owned life insurance. Web: www.dca.ca.gov fiscal year taxpayers, the suspense account must be recaptured starting in • Modification of holding period applicable Email enforcementinfo.ca.gov to dividends received deduction. Telephone (916) 263-3680 taxable years beginning after June 8, 1997, if the fiscal year taxpayer’s taxable year • Repeal of special installment sales rule for Fax: (916) 263-3675 manufacturers of tangible personal Mail: California Board of Accountancy ends on or after December 31, 1997. • Certain environmental remediation property. 2000 Evergreen Street, Suite 250 • Required registration for abusive tax Sacramento, CA 95815 expenditures that would otherwise be chargeable to capital accounts may be shelters. • You can download, view, and print expensed and taken as a deduction in the • If for any taxable year beginning on or after California tax forms, instructions, year the expense was paid or incurred. An January 1, 1987, a corporation failed to publications, and FTB Notices and Rulings election to expense environmental qualify as an S corporation solely because dated after 1995 from our Website remediation costs for federal purposes is it did not file a timely federal Form 2553, www.ftb.ca.gov . Information about other considered to be an election for state Election by a Small Business Corporation, state agencies can be accessed through purposes and a separate election is not the S corporation shall be treated as an the State Agency Index located on the allowed. S corporation for California purposes for California State Website: www.ca.gov . • For purposes of inventory accounting, an the taxable year in which the federal • A shareholder’s pro-rata share of income adjustment for shrinkage, based on an election was originally made and for each from an S corporation is treated the same estimate, may be made. Taxpayers can subsequent taxable year if both the as a partner’s distributive share of income voluntarily change their method of following conditions are met: from a partnership. The income is treated accounting if the method currently being 1. The corporation and all of its share- as if it was realized directly from the used does not utilize estimates of holders reported their income for source. Income from California sources is inventory shrinkage and the taxpayer now California tax purposes on original subject to California tax law. Valentino et. wishes to use that method. returns consistent with S corporation al. v. Franchise Tax Board ( March 23, • Required recognition of gain on certain status for the year the S corporation 2001) 87 Cal. App. 4th 1284. appreciated financial positions in personal election should have been made, and • In Ceridian v. Franchise Tax Board (2000) property. for each subsequent taxable year (if 85 Cal.App.4th 875, the Court of Appeal • Allows securities traders and commodities any) until terminated; and determined that R&TC Section 24410, that traders and dealers to elect to use mark-to- 2. The corporation and its shareholders provides a limited deduction for dividends market accounting similar to what is filed a federal Form 2553 with the IRS received from an insurance company, is currently required for securities dealers. requesting automatic relief with respect unconstitutional. As such, the statute is Commodities would include only com- to the late S corporation election in full invalid and unenforceable. Therefore, the modities of a kind that are dealt with in the compliance with federal Rev. Proc. deduction is not available. organized commodities exchange. An 1997-48 I.R.B. 1997-43 and the • Nonresidents who had tax withheld may election to use the mark-to-market method S corporation received notification of use the withholding as a credit against tax for federal purposes is considered an acceptance of the untimely filed when they file a California tax return. election for state purposes and a separate S corporation election from the IRS. R&TC Section 18662 requires buyers to election is not allowed. The S corporation shall provide a copy withhold income taxes when purchasing • Limitation on exception for investment of the notification to the FTB upon California real property from corporate companies under IRC Section 351. request. sellers with no permanent place of • For certain contributions of ordinary • Payment of estimated tax for closely held business in California immediately after the income and capital gain property, the IRC transfer. For more information, get FTB REITs and income and services provided Section 170(e)(1) limitation is modified so by REIT subsidiaries. Pub. 1016. that, in the case of charitable contribution Sellers of California real estate must attach of stock in an S corporation, rules similar California law does not conform to federal copy B of Form 597, Nonresident With- to IRC Section 751 (relating to unrealized law for the following: holding Tax Remittance Statement For Real receivables and inventory items) apply in • The additional 30% first-year depreciation Estate Sales, to their tax return as proof of determining whether gain on the stock was allowance for qualified property. withholding. long-term, if stock was sold by the • Decreased capital gains tax rate. If you need to verify withholding payments, S corporation. • Certain special tax rules relating to you may call the Nonresident Withholding • If an Employee Stock Ownership Plan employee stock ownership plans (ESOPs) at Source Section at: toll free (ESOP) is an S corporation shareholder, will not apply with respect to S corporation (888) 792-4900 or (916) 845-4900. items of income or loss of the S corpora- stock held by the ESOP. These include

Page 4 Form 100S Booklet 2002 rules relating to certain contributions to income or franchise tax. The tax rate for • Other business entities classified as ESOPs, the deduction for dividends paid financial S corporations is 3.5%. associations under Title 18 Cal. Code Reg. on employer securities, and the rollover of The taxable income of the S corporation is Sections 23038(b)-1 through 23038(b)-3. gain on the sale of stock to an ESOP. See calculated two different ways for two different IRC Sections 404(a)(9) and 404(k) for purposes. First, it is calculated in the same B Tax Rate and Minimum more information. manner as for C corporations, with certain Franchise Tax • Accelerated depreciation for property on modifications, for purposes of computing the Tax rate Indian reservations. 1.5% income or franchise tax. Second, it is • The treatment of Subpart F and calculated using federal rules for the pass- The tax rate for S corporations that are subject Section 936 income. through of income and deductions, etc. for to either the franchise or the income tax is • Temporary suspension of income purposes of pass-through to the shareholders. 1.5%. The tax rate for built-in gains, and limitations on percentage depletion for excess net passive income is 8.84%. Note: A corporation that makes a valid production from marginal wells. The Financial S corporations are required to use a percentage depletion deduction, which election to be treated as an S corporation is not allowed to be included in a combined rate of 2% above the S corporation rate. See may not exceed 65% of the taxpayer’s R&TC Section 23186. taxable income, is restricted to 100% of report of a unitary group, except as provided the net income derived from the oil or gas by R&TC Section 23801(d)(1). Minimum franchise tax well property. All S corporations subject to the corporation A Franchise or Income Tax franchise tax and any S corporation “qualified” Records Maintenance Requirements Corporation franchise tax to do business in California must file Form Any taxpayer filing on a water’s-edge or Entities subject to the corporation minimum 100S and pay at least the minimum franchise worldwide basis is required to keep and tax as required by law. The minimum maintain records and make available upon franchise tax include all S corporations that are: franchise tax is $800 and must be paid request the following: whether the S corporation is active, inactive, • Any records needed to determine the • Incorporated or organized in California; operates at a loss, or files a return for a short correct treatment of items reported on the • Qualified or registered to do business in period of less than 12 months. worldwide or water’s-edge combined California; or • Doing business in California, whether or Note: For corporations that incorporate or report for purposes of determining the qualify through the California SOS to do income attributable to California; not incorporated, organized, qualified, or registered under California law. business in California on or after January 1, • Any records needed to determine the 2000, the prepayment of the minimum treatment of items as nonbusiness or The measured franchise tax is imposed on franchise tax to the SOS is no longer required. business income; S corporations doing business in California For the first taxable year, the corporation will • Any records needed to determine the and is measured by the income of the current compute its tax liability by multiplying its state apportionment factor; and taxable year for the privilege of doing net income by the appropriate tax rate and will • Documents and information needed to business in that taxable year. not be subject to minimum franchise tax. The determine the attribution of income to the The term “doing business” means actively corporation will become subject to minimum U.S. or foreign jurisdictions under IRC engaging in any transaction for the purpose of franchise tax beginning in its second taxable Subpart F, IRC Section 882, or other financial gain or profit. year. This does not apply to qualified Sub- similar provisions of the IRC. The minimum franchise tax must be paid chapter S subsidiaries or corporations that are See R&TC Section 19141.6 and the related whether the S corporation is active, inactive, not qualified by the California SOS, or regulations for more information. A corpora- not doing business in CA, or operates at a reorganize solely to avoid payment of the tion may be required to authorize an agent to loss. minimum franchise tax. act on its behalf in response to requests for Note: An S corporation incorporated in There is no minimum franchise tax for: information or records pursuant to R&TC California, but not doing business in this state, • Corporations that derive income from Section 19504. is not subject to the measured franchise tax. sources within California but are subject Note: For information about the Power of In the case of an S corporation incorporated in only to income tax because they are not Attorney, go to our Website: California or qualified with the California “doing business” in California, and are not www.ftb.ca.gov Secretary of State (SOS) but not doing incorporated or qualified under the laws of The penalty for failure to maintain the above business in this state, careful attention should California. For more information regarding required records is $10,000 for each taxable be given to the term “doing business.” It is “doing business,” get FTB Pub. 1050, year for which the failure applies. In addition, not necessary that the S corporation conducts Application and Interpretation of Public if the failure continues for more than 90 days business or engages in transactions within the Law 86-272; FTB Pub. 1060, Guide for after the Franchise Tax Board (FTB) notifies state on a regular basis. Even an isolated Corporation Starting Business in Califor- the S corporation of the failure, a penalty of transaction during the year may be enough to nia; or FTB Pub 1063, Guide for Corpora- $10,000 may be assessed for each additional cause the S corporation to be “doing tions that May Be Subject to the Provisions 30-day period of continued failure. For taxable business.” of the California Corporation Tax Law; years beginning on or after January 1, 1996, Corporation income tax • Credit unions; • Exempt homeowners’ associations; there is no maximum amount of penalty that The corporation income tax is imposed on all • Exempt political organizations; may be assessed. See General Information M, S corporations that derive income from • Qualified non-profit farm cooperative Penalties, for more information. sources within California but are not doing associations; business in California. General Information • Exempt organizations; For purposes of the corporation income tax, • Corporations that are not incorporated Form 100S is used if a corporation has elected the term “corporation” is not limited to under the laws of California; whose sole to be a small business corporation incorporated entities, but also includes: activities in California are engaging in (S corporation). • Associations; convention and trade show activities for All federal S corporations subject to California • Massachusetts or business trusts; seven or fewer days during the income laws must file Form 100S and pay the greater • Real estate investment trusts; and year; and do not derive more than $10,000 of the minimum franchise tax or the 1.5% of gross income reportable to California Form 100S Booklet 2002 Page 5 during the taxable year. These S corpora- method to the specific write-off method. Get FTB 3539 worksheet for your records. DO tions are not “doing business” in FTB Notice 98-3, for more information. NOT SEND THE PAYMENT VOUCHER. For California. For more information, get FTB Note: California is not following the automatic more information, go to our Website: Pub. 1060, Guide for Corporations Starting consent procedure for a change of accounting www.ftb.ca.gov, call (916) 845-4025, or get Business in California or FTB Pub. 1063, method involving previously unclaimed FTB Pub. 3817, Electronic Funds Transfer Guide for Corporations that May Be allowable depreciation or amortization of Program Information Guide. Subject to the Provisions of the California Federal Revenue Procedure 96-31. Get FTB Corporation Tax Laws; and Notice 96-3, for more information. H Where to File • Newly formed or qualified corporations If tax is due, and the corporation is not filing an initial return for taxable years E When to File required to use EFT, make the check or money beginning on or after January 1, 2000. File Form 100S by the 15th day of the 3rd order payable to the Franchise Tax Board. Alternative minimum tax month after the close of the taxable year Write the California corporation number and S corporations are not subject to the unless the return is for a short period as “2002 Form 100S” on the check or money alternative minimum tax. required under R&TC Section 24634. order. Mail the return and payment to: Generally, the due date of a short period FRANCHISE TAX BOARD C Elections and Terminations return is the same as the due date of the PO BOX 942857 Elections federal short period return. See R&TC SACRAMENTO CA 94257-0501 Starting January 1, 2002, corporations that Section 18601(c) for the due date of the short Mail all other returns, including those with elect federal S corporation status and have a period return. Farmers’ cooperative associa- payment by EFT to: tions must file Form 100S by the 15th day of California filing requirement, are deemed to FRANCHISE TAX BOARD have made a California S election effective on the 9th month after the close of the taxable year. PO BOX 942857 the same date as the federal S election. SACRAMENTO CA 94257-0500 See General Information O, Dissolution/ Terminations Withdrawal, and General Information P, Private Delivery Services Terminating the taxpayer’s federal S election Ceasing Business, for information on final California law conforms to federal law simultaneously terminates its California returns. regarding the use of certain designated private S election. delivery services to meet the “timely mailing If the taxpayer terminates its S corporation F Extension of Time to File as timely filing/paying” rule for tax returns and payments. See federal Form 1120S, U.S. status, short period returns are required for If an S corporation cannot file its California tax Income Tax Return for an S Corporation, for a the S corporation short year and the return by the 15th day of the 3rd month after list of designated delivery services. If a private C corporation short year, if applicable. the close of the taxable year, it may file on or delivery service is used, address the return to: before the 15th day of the 10th month, D Accounting Period and without filing a written request for an FRANCHISE TAX BOARD Method extension. If the S corporation is suspended SACRAMENTO CA 95827 on the original due date, the automatic Caution: Private delivery services cannot The taxable year of the S corporation must not extension will not apply. deliver items to PO boxes. If using one of be different from the taxable year used for these services to mail any item to the FTB, federal purposes, unless initiated or approved An automatic extension does not extend the DO NOT use an FTB PO box. by the FTB (R&TC Section 24632). time for payment. The full amount of tax must be paid by the original due date of Form 100S. A change in accounting method requires Private Mailbox (PMB) Number If there is an unpaid tax liability on the original If the S corporation leases a PMB from a consent from the FTB. However, an due date, get form FTB 3539, Payment S corporation that obtains federal approval to private business rather than a PO box from Voucher for Automatic Extension for Corpora- the United States Postal Service, include the change its accounting method, or that is tions and Exempt Organizations, (included in permitted or required by federal law to make a box number in the field labeled “PMB no.” in this booklet) and send it with the payment by the address area. change in its accounting method without prior the original due date of the Form 100S. approval, and does so, is deemed to have the FTB’s approval if: (1) the S corporation files a Note: If the corporation must pay its tax I Net Income Computation timely Form 100S consistent with the change liability using Electronic Funds Transfer (EFT), The computation of net income from trade and for the first year the change is effective, and all taxes due must be remitted by EFT to avoid business activities generally follows the (2) the change is consistent with California penalties. Do not send form FTB 3539. determination of taxable income as provided law. A copy of federal Form 3115, Application in the IRC. However, there are differences that for Change in Accounting Method, and a copy G Electronic Funds Transfer must be taken into account when completing of the federal consent to the change must be (EFT) Form 100S. There are two ways to complete attached to Form 100S for the first year the Corporations or exempt organizations that Form 100S, the federal reconciliation method change becomes effective. See FTB meet certain requirements must remit all of or the California computation method. Notice 2000-8 for more information. The FTB their payments through EFT rather than by 1. Federal reconciliation method may modify requested changes if the paper checks to avoid the 10% non-compli- a. Attach a copy of federal Form 1120S, adjustments would distort income for ance EFT penalty. Corporations or exempt page 1, U.S. Income Tax Return for an California purposes. organizations that remit an estimated tax S Corporation, and all pertinent If the corporation is a bank, savings and loan payment or extension payment in excess of supporting schedules, or transfer the association, or financial corporation, it cannot $20,000 or that have a total tax liability in information from federal Form 1120S, use the bad debt reserve method of account- excess of $80,000 must remit all of their page 1, to Form 100S, Side 2, Schedule ing and elect to be, or continue to be, an payments through EFT. The FTB will notify F and attach all pertinent supporting S corporation for taxable years beginning on corporations or exempt organizations that are schedules; or after January 1, 1997. However, the subject to this requirement. Those that do not b. Enter the amount of federal ordinary S corporation status can be maintained or meet these requirements and wish to income (loss) from trade or business elected if the corporation changes its participate on a voluntary basis may do so. If activities before any net operating loss accounting method from the bad debt reserve you are an EFT taxpayer, complete the form (NOL) on Form 100S, Side 1, line 1; and

Page 6 Form 100S Booklet 2002 c. Enter the state adjustments (including • Any other income item that is attributable tax remains unpaid. This penalty may not any adjustments necessary to report to C corporation years. exceed 25% of the unpaid tax. items not included in ordinary trade or (These are just a few of the examples. This list See R&TC Section 19132, for more business income or loss) on line 2 is not intended to be all inclusive.) information. through line 14, to arrive at net income after state adjustments, Side 1, line 15. Note: If an S corporation is subject to both K Estimated Tax the penalty for failure to file a timely return See the specific line instructions for more California law has conformed to the federal and the penalty for failure to pay the total tax information. expanded annualization periods for the by the due date, a combination of the two 2. Schedule F – California computation computation of estimate payments. penalties may be imposed, but the total will method For taxable years beginning on or after not exceed 25% of the unpaid tax. If the S corporation has no federal filing January 1, 1998, the applicable percentage for Underpayment of estimated tax requirement, or if the S corporation estimate basis is 100%. Any S corporation that fails to pay, pays late, maintains separate records for state or underpays an installment of estimated tax purposes, complete Form 100S, Side 2, Every S corporation, must pay estimated tax is assessed a penalty. The penalty is a Schedule F, Computation of Trade or using Form 100-ES, Corporation Estimated Tax. percentage of the underpayment for the Business Income, to determine state Estimated tax is generally due and payable in underpayment period. ordinary income. If ordinary income is four installments: computed under California laws, generally • The 1st payment is due on the 15th day of Get form FTB 5806, Underpayment of no state adjustments are necessary. the 4th month of the taxable year (note Estimated Tax by Corporations, to determine Transfer the amount from Schedule F, that this payment may not be less than the both the amount of underpayment and the line 22, to Form 100S, Side 1, line 1. minimum franchise tax, plus QSub annual amount of penalty. Complete Form 100S, Side 1, line 1 tax, if applicable); and See R&TC Section 19142, 19144, 19145, through line 14, only if applicable. • The 2nd, 3rd, and 4th installments are due 19147, 19148, 19149, 19150, 19151, and Note: Regardless of the net income computa- and payable on the 15th day of the 6th, 19161, for more information. tion method used, the corporation must attach 9th, and 12th months, respectively, of the Note: If the S corporation uses Exception B or any form, schedule, or supporting document taxable year. Exception C to compute or eliminate any of referred to on the return, and schedules or Caution: If no amount is due, DO NOT mail the four installments, form FTB 5806 must be forms filed with FTB. Form 100-ES. attached to the front of Form 100S and the Substitution of federal schedules Get the instructions for Form 100-ES for more box on Side 1, line 40b, should be checked. S corporations may not substitute federal information. EFT Penalty schedules for California schedules. Note: If the corporation must pay its tax If the S corporation must pay its tax liability liability using EFT, all estimate payments due using EFT, all payments must be remitted by J Built-in Gains must be remitted by EFT to avoid the EFT EFT to avoid the EFT penalty. The EFT penalty When a C corporation elects to be an S penalty. is 10% of the amount not paid by EFT. See corporation, certain items of gain or loss R&TC Section 19011 and General recognized in S corporation years are subject L Commencing Information G, Electronic Funds Transfer to the C corporation 8.84% tax rate instead of S Corporations (EFT), for more information. the S corporation 1.5% tax rate (financial S Information reporting penalties corporations add 2%). For taxable years beginning on or after January 1, 2000, no minimum tax is required For taxable years beginning on or after Built-in gains under current IRC for the first taxable year if the corporation January 1, 1997, U.S. taxpayers that have an Section 1374 incorporated or registered through the ownership interest in (directly or indirectly) a For those S corporations that made the initial California SOS. For more information, see foreign corporation and were required to file federal S election after December 31, 1986, General Information B, Minimum Franchise federal Form(s) 5471, Information Return of certain income items reported by the Tax, or get FTB Pub. 1060, Guide for Corpora- U.S. Persons With Respect to Certain Foreign S corporation are taxed at 8.84% (or the tions Starting Business in California. Corporations, with the federal return, must financial C corporation tax rate). This attach a copy(s) to the California return. The provision applies for a period of ten years M Penalties penalty for failure to include a copy of federal following the C corporation’s election to Form(s) 5471, as required, is $1,000 per Failure to file a timely return become an S corporation. The amount of required form for each year the failure occurs. Any S corporation that fails to file a built-in gain that is taxed at 8.84% (or the The penalty applies for taxable years begin- Form 100S on or before the due date is financial C corporation tax rate) is the excess ning on or after January 1, 1998. The penalty assessed a penalty. The penalty is 5% of the of recognized built-in gains over recognized will not be assessed if the taxpayer provides a tax due, after any timely payments or credits, built-in losses, limited by taxable income as copy of the form(s) within 90 days of request for each month of delinquency, not to exceed determined under IRC Section 1374(d)(2)(A). from the FTB and the taxpayer agrees to 25% of the unpaid tax. If the S corporation The following items are treated as built-in attach a copy(s) of Form 5471 to all returns does not file its return by the extended due gains subject to this tax: filed for subsequent years. date, the automatic extension will not apply • Accounts receivable of cash basis and the late filing penalty will be assessed from Certain domestic corporations that are 25% or taxpayers from C corporation years; the original due date of the return. more foreign-owned and foreign corporations • Long-term contract deferred income from engaged in a U.S. trade or business must See R&TC Section 19131, for more C corporation years; attach federal Form(s) 5472, Information information. • Deferred income from installment sales Return of a 25% Foreign-Owned U.S. made in C corporation years; Failure to pay total tax by the due date Corporation or a Foreign Corporation Engaged • Recapture of depreciation from Any S corporation that fails to pay the total tax in a U.S. Trade or Business, to Form 100S. C corporation years; shown on Form 100S by the original due date The penalty for failing to include • Income from unreplaced LIFO inventory is assessed a penalty. The penalty is 5% of the Form(s) 5472, as required, is $10,000 per from C corporation years; and unpaid tax, plus 0.5% for each month, or part required form for each year the failure occurs. of the month (not to exceed 40 months) the

Form 100S Booklet 2002 Page 7 See R&TC Section 19141.5 for more the calculation of interest. Get FTB Pub. 1138, The unreported income on installment information. Refund/Billing Information, for more obligations, the distribution of notes, and the If the S corporation does not file its information. distribution of corporate assets (land, Form 100S by the due date or extended due buildings) at a gain must be included in date, whichever is later, copies of federal O Dissolution/Withdrawal income in the year of cessation. There is no Form(s) 5472 must still be filed on time or the The franchise tax for the period in which the federal law counterpart regarding this issue. penalty will be imposed. Attach a cover letter S corporation formally dissolves or withdraws For more information, see R&TC Sec- to the copies indicating the taxpayer’s name, is measured by the income of the year in tions 24672 and 24451. California corporation number, and taxable which it ceased doing business in California, Note: FTB will complete the final year or year. Mail to the same address used for unless such income has already been taxed at special tax computation approximately one returns without payments. See General the rate prescribed for the taxable year of year after dissolution/cessation of business. Information H, Where to File. When the dissolution or withdrawal. Generally, the S corporation will remain S corporation files Form 100S, also attach An S corporation that is a successor to a copies of the federal Form(s) 5472. subject to the minimum franchise tax for each corporation that commenced doing business in year it is in existence until a decree of Record maintenance penalties California before January 1, 1972, is allowed a dissolution is made and entered by the The penalty for failure to maintain certain credit that may be refunded in the year of California SOS. See General Information O, records is $10,000 for each taxable year for dissolution or withdrawal. The amount of the Dissolution/Withdrawal, and R&TC which the failure applies. In addition, if the refundable credit is the difference between the Sections 23331 through 23335 for more failure continues for more than 90 days after minimum franchise tax for the corporation’s information. the FTB notifies the S corporation of the first full 12 months of doing business and the failure, in general, a penalty of $10,000 may total tax paid for the same period. Q Suspension/Forfeiture be assessed for each additional 30-day period To claim this credit, enter the amount on If an S corporation fails to file Form 100S and/ of continued failure. For taxable years Form 100S, Side 1, line 34. To the left of or fails to pay any tax, penalty, or interest due, beginning on or after January 1, 1996, there line 34, write “Dissolving/ Withdrawing.” its powers, rights, and privileges may be is no maximum amount of penalty that may The return for the final taxable period is due suspended (in the case of a domestic be charged. on or before the 15th day of the 3rd full month S corporation) or forfeited (in the case of a See “Important Information” starting on after the month during which the foreign S corporation). page 3 for a discussion of the records S corporation formally dissolved or withdrew. S corporations that operate while suspended required to be maintained. See R&TC Section Get FTB Pub. 1149, Terminating a Corpora- or forfeited are subject to a $2,000 penalty 19141.6 and the related regulations for more tion, for more information. per taxable year, which is in addition to any information. To get samples and/or forms for filing a tax, penalties, and interest already accrued. Accuracy and fraud related penalties dissolution, surrender, or merger agreement, Also, any contracts entered into during California conforms to IRC Sections 6662 address your request to: suspension or forfeiture are voidable at the through 6665 that authorize the imposition of request of any party to the contract other than ATTN: LEGAL REVIEW an accuracy-related penalty equal to 20% of the suspended or forfeited corporation. CALIFORNIA SECRETARY OF STATE the related underpayment and the imposition 1500 11TH ST 3RD FLOOR Such contracts will remain voidable and of a fraud penalty equal to 75% of the related SACRAMENTO CA 95814-5701 unenforceable unless the S corporation underpayment. See R&TC Section 19164 for Telephone: (916) 657-5448 applies for relief from contract voidability and more information. the FTB grants relief. Secretary of State penalty P Ceasing Business See R&TC Sections 19135, 19719, 23301, The California Corporations Code requires the A special tax computation is necessary when 23305.1, and 23305.2 for more information. FTB to assess a penalty for failure to file an an S corporation ceases to do business in annual statement of corporate officers with California. For taxable years beginning after R Apportionment of Income the California SOS. See R&TC Section 19141. December 31, 1972, and before January 1, S corporations with business income For more information, contact the: 2000, the tax for the final year in which the attributable to sources both within and outside CALIFORNIA SECRETARY OF STATE S corporation does business in California is of California are required to apportion such PO BOX 944230 determined: income. To calculate the apportionment SACRAMENTO CA 94244-2300 • According to or measured by its net percentage, use Schedule R, Apportionment Telephone: (916) 657-3537 income for the next preceding taxable year; and Allocation of Income. Be sure to answer Question P on Form 100S, Side 2. Other penalties PLUS • Its net income for the taxable year during Note: A corporation that has made a valid Other penalties may be imposed for a check or which the corporation ceased doing election to be treated as an S corporation is EFT returned for insufficient funds, non-U.S. business. generally not included in a combined report. foreign corporations operating while forfeited However, in some cases, the FTB may use or without qualifying to do business in For taxable years beginning on or after combined reporting methods to clearly reflect California, and domestic corporations January 1, 2000 (other than the first taxable income of an S corporation. See R&TC operating while suspended in California. See year beginning on or after that date), the tax Section 23801(d)(1). R&TC Sections 19134 and 19135 for more for the final year in which the S corporation information. does business in California is: S Excess Net Passive • According to or measured by its net N Interest income for the taxable year during which Investment Income Interest is due and payable on any tax due if the corporation ceased doing business. California conforms to IRC Section 1375 for not paid by the original due date of In any event, the tax for any taxable year shall taxable years beginning on or after Form 100S. Interest is also due on some not be less than the minimum tax. January 1, 1987. If an S corporation does not have excess net passive investment income penalties. The automatic extension of time to For more information, see R&TC Sec- for federal purposes, then the S corporation file Form 100S does not stop interest from tion 23151.1. accruing. California follows federal rules for

Page 8 Form 100S Booklet 2002 will not have excess net passive investment after the final federal determination, if the W Preparer Tax Identification income for California purposes. Internal Revenue Service (IRS) examined and If at the close of the taxable year, an changed the corporation’s federal return. Number S corporation has undistributed earnings and Tax preparers have the option of providing profits – defined in IRC Section 1362(d)(3) – V Information Returns their individual Social Security Number (SSN) from previous years as a C corporation and Every S corporation engaged in a trade or or Preparer Tax Identification Number (PTIN) has passive investment income that repre- business and making or receiving certain on returns they prepare. Preparers who want a sents more than 25% of total gross receipts, payments in the course of the trade or PTIN must complete and submit federal then the S corporation may be subject to a tax business is required to file information returns Form W-7P, Application for Preparer Tax on the excess net passive investment income which report the amount of these payments. Identification Number, to the IRS. (R&TC Section 23811). Payments that must be reported include, but If an S corporation has an 80% or greater are not limited to, compensation for services X Net Operating Loss (NOL) ownership stake in a C corporation, dividends not subject to withholding, commissions, For taxable years beginning in 2002 and 2003, received from that C corporation are not fees, prizes and awards, payments to California has suspended the NOL carryover treated as passive investment income, for independent contractors, rents, royalties and deduction. Taxpayers may continue to purposes of IRC Sections 1362 and 1375, if pensions exceeding $600 annually, interest compute and carryover an NOL during the the dividends are attributable to the earnings and dividends exceeding $10 annually, and suspension period. However, the deduction for and profits of the C corporation derived from cash payments over $10,000 received in a disaster losses is not affected by the NOL the active conduct of a trade or business. trade or business. Payments of any amount by suspension rules. a broker or barter exchange must also be The carryover period for suspended losses is T Water’s-Edge Reporting reported. extended by two years for losses incurred For taxable years beginning on or after S corporations must report payments made to before January 1, 2002, and by one year for January 1, 2000, C corporations filing on a California residents by providing copies of losses incurred after January 1, 2002, and water’s-edge basis are required to use federal Form 1099. Reports must be made for before January 1, 2003. For more information, Form 100W, California Corporation Franchise the calendar year and are due to the IRS no get form FTB 3805Q, Net Operating Loss or Income Tax Return – Water’s-Edge Filers, later than February 28th of the year following (NOL) Computation and NOL and Disaster to file their California tax return. payment. S corporations must also submit Loss Limitation – Corporations. S corporations filing on water’s-edge basis federal Form 8300, Report of Cash Payments For taxable years beginning on or after should continue to file Form 100S. Over $10,000 Received in a Trade or Busi- January 1, 2002, the NOL carryover computa- For taxable years beginning on or after ness, within 15 days after the date of the tion for the California taxable income of a January 1, 1988, taxpayers may elect to transaction. nonresident or part-year resident is no longer compute income attributable to California on S corporations must report interest paid on limited by the amount of net operating loss the basis of a water’s-edge election. In municipal bonds held by California taxpayers from all sources. Only your California sourced general, affiliated foreign corporations are and issued by a state other than California, or a income and losses are considered in deter- excluded from the combined report. municipality other than a California municipal- mining if you have a California NOL.For more To make the water’s-edge election, an ity. Entities paying interest to California information, get FTB Pub. 1100, Taxation of S corporation should enter into a contract residents on these types of bonds are required Nonresidents and Individuals Who Change with the FTB by filing Form 100-WE, to report interest payments aggregating $10 or Residency, and form FTB 3805V, Net Operat- Water’s-Edge Contract. For the election to be more and paid after January 1, 2002. Informa- ing Loss (NOL) Computation and NOL valid for any taxable year, Form 100-WE tion returns are due June 1, 2003. Get form Disaster Loss Limitations – Individuals, should be signed and attached to the original FTB 4800, Federally Tax Exempt Non-California Estates, and Trusts. Form 100S. A copy should be attached to all Bond Interest and Interest-Dividend Payment Carryover periods varying from 5 to 15 years subsequent returns filed during the contract Information, for more information. and carryover deductions varying from 50% period. California conforms to the information to 100% are allowed for NOLs sustained by In consideration for being allowed to file on a reporting requirements of IRC Section 6045(f) qualified corporations. water’s-edge basis, the S corporation must, for certain payments made to attorneys. If the R&TC Sections 24416 through 24416.7 and among other things: S corporation has complied with the require- 25108 provide for NOL carryovers incurred in • File returns on a water’s-edge basis for a ments for federal purposes, the S corporation the conduct of a trade or business. period of 84 months; will be treated as having complied with the R&TC Section 24347.5 provides special • Agree to business income treatment of requirements for California purposes and no treatment for the carryover of disaster losses dividends received from certain corpora- penalty will be imposed. incurred in an area designated by the tions; and California conforms to the information President of the United States or the Governor • Consent to the taking of certain deposi- reporting requirements imposed under IRC of California as a disaster area. Losses taken tions and the acceptance of subpoenas Sections 6038, 6038A, and 6038B. Any into account under the disaster provisions duces tecum requiring the reasonable information returns required to be filed for may not be included in computing regular production of documents. federal purposes under these IRC sections are NOL deductions. Get Form 100W, Water’s-Edge Booklet, for also required to be filed for California For more information, get form FTB 3805Q, more information. purposes. Required federal information Net Operating Loss (NOL) Computation and returns should be attached to the Form 100S NOL and Disaster Loss Limitations — U Amended Return when filed. If these information returns are not Corporations (included in this booklet); form provided, penalties may be imposed under FTB 3805D, Net Operating Loss (NOL) To correct or change a previously filed R&TC Sections 19141.2 and 19141.5. Form 100S, file the most current Form 100X, Computation and Limitation – Pierce’s Amended Corporation Franchise or Income For any information returns being filed Disease; form FTB 3805Z, Enterprise Zone Tax Return. Using the incorrect form may separate from the tax return, mail to: Business Booklet; form FTB 3806, Los delay processing of the amended return. File FRANCHISE TAX BOARD Angeles Revitalization Zone Booklet; form Form 100X within six months after the PO BOX 942857 FTB 3807, Local Agency Military Base corporation filed an amended federal return or SACRAMENTO CA 94257-0500

Form 100S Booklet 2002 Page 9 Recovery Area Booklet; or form FTB 3809, may be used to offset the 1.5% tax on net the stock of the subsidiary must be held by Targeted Tax Area Business Booklet. income in accordance with the respective the S corporation parent and the parent must carryover rules. These C corporation elect to treat the subsidiary as a QSub. A Y At-Risk Rules carryovers may not be passed through to QSub is not treated as a separate entity and all California S corporations are subject to IRC shareholders. Refer to Schedule C (100S), assets, liabilities, and items of income, Section 465 relating to the at-risk rules. For S Corporation Tax Credits, included in this deduction, and credit of the QSub are treated more information, see federal Form 6198, booklet. as belonging to the parent S corporation. The At-Risk Limitations. Losses from passive S corporations may generate credits from activities of the QSub are treated as activities activities are first subject to the at-risk rules both the Corporation Tax Law and the of the parent S corporation. and then to the passive activity rules. Personal Income Tax Law. Follow the An election made by the parent S corporation guidelines below: under IRC Section 1361(b)(3) to treat the Z Passive Activity Loss • If a credit listed on page 14 is allowed only corporation as a QSub for federal purposes is Limitation under the Corporation Tax Law, 1/3 of the treated as a binding election for California credit may be used to offset the purposes. A separate election is not filed for California S corporations generally follow IRC California. Section 469 and the regulations thereunder S corporation tax or may be carried over, if that allow losses from passive activities to be allowed. The remaining 2/3 must be The federal election is made on federal applied only against income from passive disregarded and may not be carried over. Form 8869, Qualified Subchapter S Subsidiary activities. No part of the credit may be passed Election. For information on making the through to the shareholders. election, get IRS Notice 97-4, 1997-1 C.B. California differs from federal law in that rental • If the credit is allowed only under Personal 351. California requires that an S corporation real estate activities of taxpayers engaged in a Income Tax Law, the full credit may be parent attach a copy of the Form 8869 for real property business are still treated as a passed through to the shareholders. No each QSub doing business or qualified to do passive activity. part of the credit may be used by the business in California to the return for the California law also differs from federal law in S corporation to offset the S corporation taxable year during which the QSub election that the passive activity loss rules are applied tax or to be carried over. was made. California follows the federal at both the S corporation level and at the • If a credit is allowed under both the transitional relief procedures for perfecting a shareholder level. The passive activity loss Corporation Tax Law and Personal Income QSub election. rules must be applied in determining the net Tax Law, the S corporation may use 1/3 of A QSub is subject to an $800 annual tax which income of the S corporation that will be taxed the credit to offset the S corporation tax or is paid by the S corporation parent. The QSub using the 1.5% tax rate. Subsequent to the it may be carried over, if allowed. The annual tax is due and payable when the S income and deductions flowing through to the remaining 2/3 must be disregarded and corporation’s first estimated tax payment is shareholders, the rules are again applied in may not be carried over. The full amount of due. If the QSub is acquired, or a QSub determining the net income of the share- the credit, as calculated under the Personal election is made during the taxable year, the holder. Treatment at the shareholder level is Income Tax Law, may also be passed QSub annual tax is due with the the same as the federal treatment prior to through to the shareholders. S corporation’s next estimated tax payment January 1, 1994. Credits and credit carryovers may not reduce after the date of the QSub election or The passive activity loss rules apply to the the minimum franchise tax, the QSub annual acquisition. The QSub annual tax is subject to S corporation as if it were an individual (i.e., tax(es), built-in gains tax, excess net passive the estimated tax rules and penalties. losses from passive activities may not be used income tax, credit recaptures, the increase in An S corporation that owns a QSub does not to offset other income, except for $25,000 in tax imposed for the deferral of installment sale file a combined return. Instead, the QSub is losses from rental real estate). However, when income, or an installment of LIFO recapture disregarded, and the activities, assets, determining whether the S corporation tax. liabilities, income, deductions, and credits of materially participates in the activity, the the QSub are considered to be the assets, material participation rules that apply to a CC Group Nonresident liabilities, income, and credits of the “closely held C corporation” should be applied Shareholder Return S corporation. If the QSub is not unitary with to the S corporation. For more information, the S corporation, then it is treated as a see IRC Section 469(h)(4). Nonresident individual shareholder of an S corporation doing business in California separate division and separate computations S corporations must use form FTB 3801, may elect to file a group nonresident return on must be made to compute business income Passive Activity Loss Limitations, to compute Long Form 540NR, California Nonresident or and apportionment factors for the QSub and the allowable net loss from passive activities. Part-Year Resident Income Tax Return. Get the S corporation, and to apportion to FTB Pub. 1067, Guidelines for Filing a Group California the business income of each. AA Passive Activity Credits Form 540NR, for more information. An S corporation parent must complete the S corporation credits subject to the passive Note: S Corporations are required to withhold Schedule QS, Qualified Subchapter activity credit limitation rules include: income tax on certain distributions to S Subsidiary Information Worksheet on • Research credit; nonresident shareholders and the nonresident page 35 and attach it to the Form 100S for • Low-income housing credit; shareholders must file Long Form 540NR to each taxable year in which a QSub is acquired • Targeted jobs credit carryover; and claim the withholding even if there are no or a QSub election is made. • Clinical testing expense credit carryover. filing requirements. Specific Line Instructions Get form FTB 3801-CR, Passive Activity Credit Limitations, for more information. DD Qualified Subchapter Filing Form 100S without errors will expedite S Subsidiary (QSub) processing. Before mailing Form 100S, make BB Tax Credits California has conformed to the sections of sure entries have been made for: If a C corporation had unused credit carry- the IRC that allow an S corporation to own a • California corporation number (seven overs when it elected S corporation status, the QSub. A QSub is a domestic corporation that digits); carryovers were reduced to 1/3 and trans- is not an ineligible corporation, i.e., it must be • Federal employer identification number ferred to the S corporation. The remaining 2/3 eligible to be an S corporation as defined by (FEIN) (nine digits); and were disregarded. The allowable carryovers IRC Section 1361(b)(2). In addition, 100% of

Page 10 Form 100S Booklet 2002 • Corporation name and address (include interest in any legal entity surpassed 50% Form 100S, Side 1, line 2 through line 14, PMB no.; if applicable). during this year; or only if applicable. File the 2002 Form 100S for calendar year • Cumulatively more than 50% of the total Line 2 through Line 14 – State adjustments outstanding shares of this S corporation 2002 and fiscal years that begin in 2002. To figure net income for California purposes, have been transferred or changed corporations using the federal reconciliation Enter taxable year beginning and ending dates ownership or control this year. only if the return is for a short year or a fiscal method (see General Information I, Net year. If the S corporation reports its income R&TC Section 64(e) requires this information Income Computation) must enter California using a calendar year, leave the date area for use by the California State Board of adjustments to the federal net income on blank. If the return is filed for a short period Equalization. line 2 through line 14. If a specific line for the (less than 12 months), write “short year” in Question C – Principal business activity adjustment is not on Form 100S, enter the red in the top margin on Form 100S, Side 1. (PBA) code adjustment on line 7, Other additions, or Convert all foreign monetary amounts to U. S. All S corporations must answer Question C. line 13, Other deductions, and attach a dollars. schedule. Include the six digit PBA code from the chart Note: The 2002 Form 100S may also be used found on page 44 through page 46 of this Line 2 – Taxes not deductible if: booklet. California law does not permit a deduction for • The corporation has a taxable year of less The code should be the number for the California corporation franchise or income taxes than 12 months that begins and ends in specific industry group from which the or any other taxes on, according to, or measured 2003; and greatest percentage of California “total by income or profits. Add these taxes to income • The 2003 Form 100S is not available at the receipts” is derived. “Total receipts” means on line 2. Examples of these taxes are time the corporation is required to file its gross receipts plus all other income. The California’s minimum franchise tax, the 1.5% return. The S corporation must show its California code number may be different from income or franchise tax, and the environmental 2003 taxable year on the 2002 Form 100S the federal code number. taxes imposed by IRC Section 59A. and incorporate any tax law changes that If, as its principal business activity, the Line 3 – Interest on government obligations are effective for taxable years beginning corporation: (1) purchases raw material; S corporations subject to the California after December 31, 2002. (2) subcontracts out for labor to make a franchise tax must report interest received on Caution: California law is different from finished product from the raw materials; and government obligations even though it may be federal law. California taxes S corporations (3) retains title to the goods, the corporation is exempt from state or federal individual income under Chapter 2 (commencing with R&TC considered to be a manufacturer and must tax. This interest must be added to income on Section 23101) or Chapter 3 (commencing enter one of the codes under “Manufacturing.” line 3. See line 13 instructions for S corpora- with R&TC Section 23501) of the Corporation Also, write in the business activity and tions subject to the California corporation Tax Law. principal product or service on the lines income tax. provided. Questions A through P Line 4 – Net capital gain Question E – Does this return include Enter on this line any net capital gain subject Answer all applicable questions. Be sure to Qualified Subchapter S Subsidiaries to the 1.5% tax rate (3.5% for financial answer Questions E through P on Form 100S, (QSubs)? S corporations) shown on Schedule D (100S), Side 2. Note the following instructions when Answer “Yes” if the S corporation owns a Section B, and any gains subject to the 8.84% answering: QSub. Refer to the instructions for line 22 and tax rate (10.84% for financial S corporations) Question A – Final Return line 32 to report the QSub annual tax. Be sure shown on Schedule D (100S), Section A, Get FTB Pub 1149, Terminating a Corporation, to complete Schedule QS (QSub Information line 3a and line 6a. for more information. Worksheet) on page 35 of this booklet and Line 5 – Depreciation and amortization attach the Worksheet to Form 100S when Question B – Transfer or acquisition of voting Depreciation for S corporations follows the filed. stock depreciation rules provided under California All S corporations must answer Question B. If Line 1 through Line 41 Personal Income Tax Law. Unlike other the answer is “Yes,” a “Statement of Change corporations, an S corporation is allowed to in Control and Ownership of Legal Entities” Line 1 – Ordinary income (loss) from trade compute depreciation using the Modified (BOE-100-B) must be filed with the State or business Accelerated Cost Recovery System (MACRS). Board of Equalization, or substantial penalties S corporations using federal reconciliation Complete Schedule B (100S) for assets may result. Forms and information may be method to figure net income (see General subject to depreciation and for assets subject obtained from the Board of Equalization at Information I, Net Income Computation) must: to amortization. Enter the total of Schedule B, Part III, on Form 100S, Side 1, line 5. (800) 400-7115. • Transfer the amount from federal Answer “Yes” to Question B if: Form 1120S, line 21 to Form 100S, Side 1, Line 6 – Portfolio income • The percentage of outstanding voting line 1 and attach a copy of the federal Enter on this line net portfolio income not shares of this S corporation or its return and all pertinent supporting included in line 1 but that must be included in subsidiary(ies) owned by one person or schedules; or copy the information from the S corporation’s net income for computing one entity cumulatively surpassed 50% federal Form 1120S, page 1, onto the 1.5% tax. Include interest, dividends, and during this year; or Form 100S, Side 2, Schedule F and royalties. Do not include any passive activity • The total percentage of voting shares transfer the amount from Schedule F, amounts on this line. Instead, include passive transferred to one irrevocable trust line 22, to Form 100S, Side 1, line 1. activity amounts on line 7 or line 13. cumulatively surpassed 50% this year; or • Then, complete Form 100S, Side 1, line 2 Line 7 – Other additions through line 14, State Adjustments. • One or more irrevocable proxies trans- R&TC Section 24425 disallows expenses ferred voting rights to more than 50% of S corporations using the California computa- allocable to income, which is not in the the outstanding shares to one person or tion to figure ordinary income (see General measure of the Franchise Tax or Income Tax. one entity during this year; or Information I, Net Income Computation) must Add back such deductions on this line. transfer the amount from Form 100S, Side 2, • This S corporation’s cumulative ownership Also, include on this line other items not Schedule F, line 22, to line 1. Complete or control of the stock or other ownership added on any other line to arrive at California net income. Attach a schedule that clearly Form 100S Booklet 2002 Page 11 shows how each item was computed and Get Schedule R, Apportionment and Allocation If this line is a net loss, complete and attach explain the basis for the adjustment. of Income, to figure the contribution computa- the 2002 form FTB 3805Q to Form 100S. If a federal contribution deduction was taken tion for apportioning corporations. Line 17 – R&TC Section 23802(e) deduction in arriving at the amount entered on line 1, Line 12 – Enterprise Zone (EZ), Local Agency If the S corporation has a tax imposed on include that amount in the computation of Military Base Recovery Area (LAMBRA), or excess net passive investment income and line 7. See line 11, Contributions. Targeted Tax Area (TTA) business expense built-in gains, a deduction is allowed against Enter any passive activity income on line 7. and/or net interest deduction the net income taxed at the 1.5% rate. See the Businesses conducting a trade or business “Excess Net Passive Income and Income Tax California ordinary net gain or loss within an EZ, LAMBRA, or TTA may elect to Worksheet,” included on page 13 to determine Before entering the amount from treat a portion of the cost of qualified property if the S corporation is subject to the tax on Schedule D-1, line 18, determine whether the as a business expense rather than a capital excess net passive investment income. If a tax gain is subject to built-in gains tax. If the gain expense. For the year the property is placed in is shown on this worksheet, enter the amount is subject to built-in gains tax, enter the service, the business may deduct a percentage of excess net passive income from line 8 of amount on Schedule D (100S), Part III so the of the cost in that year rather than depreciate the worksheet on Form 100S, Side 1, line 17. built-in gains tax can be computed, and enter it over the life of the asset. For more informa- the difference between the amount on For purposes of the built-in gains tax, enter tion, get form FTB 3805Z, form FTB 3807, or the amount from Schedule D (100S), Schedule D-1, line 18 and the amount subject form FTB 3809. to built-in gains tax on Form 100S, Side 1, Section A, Part III, line 11. line 7. See General Information O, Dissolution/ Also, a deduction may be claimed on this line Line 18 – Net operating loss (NOL) carryover Withdrawal. for the amount of net interest on loans made deduction to an individual or company doing business California has suspended the NOL carryover Line 9 and Line 10 – Dividends inside an EZ. For more information, get form deduction for taxable years beginning in 2002 See instructions for Schedule H (100S), FTB 3805Z. Dividend Income Deduction, included in this and 2003. Be sure to attach form FTB 3805Z, form booklet. FTB 3807, or form FTB 3809 if any of these Line 19 – Pierce’s disease, EZ, LARZ, TTA, Line 11 – Contributions benefits are claimed. If the proper form is not or LAMBRA NOL carryover deduction The contribution deduction for California attached, these tax benefits may be California has suspended the NOL carryover corporations is limited to the adjusted basis of disallowed. deduction for Pierce’s disease, EZ, LARZ, TTA, the assets being contributed. or LAMBRA for taxable years beginning in Line 13 – Other deductions 2002 and 2003. For taxable years beginning on or after Include on this line deductions not claimed on January 1, 1996, the contribution deduction is any other line. Attach a schedule that clearly Line 20 – Disaster loss carryover deduction 10% of California net income, without regard shows how each deduction was computed If the S corporation has a disaster loss to charitable contributions and special and explain the basis for the deduction. carryover, enter the total amount from Part III, deductions (e.g., the deduction for dividends line 2 of the 2001 FTB 3805Q only if the Include in the computation for line 13 any received). The definition of California net corporation has income in the current year. passive activity loss. Also enter any IRC income differs from federal taxable income for Section 179 expense from Schedule B (100S), Line 22 – Tax computing the contribution deduction. line 5. S corporations must use a tax rate of 1.5%. Per IRC Section 170(d)(2), five-year carryover For S corporations subject to income (and not Financial S corporations must use the provisions shall apply for excess contributions franchise) tax, interest received on obligations financial tax rate of 3.5%. The tax on line 22 made during taxable years beginning on or of the federal government and on obligations may not be less than the sum of the minimum after January 1, 1996. of the State of California and its political franchise tax and QSub annual tax(es), if On a separate worksheet, using the subdivisions is exempt from income tax. If applicable. See General Information B, Tax Form 100S format, complete Form 100S, such interest is reported on line 3, deduct it Rate and Minimum Franchise Tax. Side 1, line 1 through line 15 (without regard on this line. If the S corporation is the parent of a QSub to line 11). If any federal contribution subject to the annual tax and paid the $800 Federal ordinary net gain or loss deduction was taken in arriving at the amount annual tax on behalf of such QSub, add the entered on Side 1, line 1, enter that amount as Enter any federal ordinary net gain or loss total amount of QSub annual tax(es) to the tax an addition on line 7 of the Form 100S from federal Form 4797, Sales of Business on net income or the minimum franchise tax, formatted worksheet. Enter the adjusted basis Property, line 18, if the amount is included in whichever is applicable, and enter the result of the assets contributed on line 5 of the income on line 1. on line 22. Use the QSub Information worksheet below. Then complete the Line 16 – Net income (loss) for state Worksheet on page 35 of this booklet. worksheet below to determine the contribu- purposes Example 1: Corporation A, an S corporation, tion deduction to enter on line 11. If all the S corporation income is derived from is the parent of three QSubs, B, C, & D. QSub 1. Net income after state adjustments California sources, transfer the amount from B & C are either incorporated or qualified to from Side 1, line 15 ...... _____ line 15 to line 16. do business in California. QSub D is not 2. Deduction for dividends received. _____ If only a portion of income is derived from incorporated, doing business, or qualified to do business in California. Corporation A is 3. Net income for contribution California sources, complete Schedule R, subject to the minimum Franchise tax of $800 calculation purposes. Add before entering any amount on line 16. and $1,600 of QSub annual tax for QSub B line 1 and line 2 ...... _____ Transfer the amount from Schedule R, line 24, to this line. Be sure to answer “Yes” to and C. 4. Allowable contributions. Multiply Question P on Form 100S, Side 2. Example 2: Beta Corporation, an S corpora- line 3 by 10% (.10) ...... _____ Note: For S corporations with business tion, is the parent of three QSubs. Only one of 5. Enter the amount actually income from prior years or multiple Schedule the QSubs is qualified and doing business in contributed ...... _____ Rs from separate trade or businesses, California. Beta Corporation reports net 6. Enter the smaller of line 4 or combine the amounts on line 24 from all income for California tax purposes on line 21 line 5 here and on Side 1, line 11 _____ Schedule Rs, and enter the total on line 16. of $100,000. Tax on net income is $1,500. On line 22, Beta Corporation will report tax of $2,300. The $2,300 includes tax on net Page 12 Form 100S Booklet 2002 income of $1,500 plus $800 of QSub annual To determine if the S corporation owes this Line 36 and Line 37 – Tax due or tax payments for one QSub. Beta corporation tax, complete line 1 through line 3 and line 9 overpayment is not required to pay the QSub tax on the two of the “Excess Net Passive Income and In addition to any amount entered on line 36 QSubs not doing business in California. Income Tax Worksheet” below. If line 2 is or line 37, tax due or overpayment, also Line 23 through Line 25 – Tax credits greater than line 3 and the S corporation has include any amounts required to be included taxable income, it must pay the tax. Complete Credits may be used to reduce the California tax from Schedule J, Add-On Taxes or Recapture a separate schedule using the format of line 1 liability, however, credits may not be used to of Tax Credits. See Schedule J instructions for through line 11 of the worksheet below to reduce the tax on line 22 to an amount less than more information. figure the tax. Enter the tax from line 11 of the the sum of the minimum franchise tax plus the Line 38 – Amount to be credited to 2003 worksheet on Form 100S, Side 1, line 29. QSub annual tax(es), if applicable. Also, the estimated tax Attach the schedule showing the computation. S corporation is allowed to claim only 1/3 of the Reduce each item of passive income passed If the corporation chooses to have the total credit generated against the 1.5% franchise through to shareholders by its pro-rata share overpayment credited to next year’s estimated tax. See General Information AA, Passive Activity of the tax on line 29. See IRC tax payment, the corporation cannot later Credits, and BB, Tax Credits. Section 1366(f)(3) and R&TC request that the overpayment be applied to the Complete and attach the applicable credit form Section 23803(b)(2). prior year to offset any tax due. for each credit claimed to Form 100S. For any R&TC Section 23811(e) provides a deduction Line 39 – Refund carryover credits only, complete form for C corporation earnings and profits FTB 3540, Credit Carryover Summary. See Direct Deposit of Refund (DDR) attributable to California sources for any page 14 for a list of available credits. taxable year by the amount of a consent Direct deposit is fast, safe, and convenient. To Transfer the credit(s) from the respective dividend paid after the close of the taxable have the refund directly deposited into the credit forms to Schedule C (100S) to compute year. The amount of the consent dividend is corporation’s bank account, enter the account the amount of credit to claim on Form 100S. limited to the difference between the information on Form 100S, Side 1, line 39a, Then transfer the credit(s) from Schedule C C corporation earnings and profits attributable 39b, and 39c. Please be sure to fill in all the (100S) to Form 100S. Each credit is identified to California sources and the C corporation information. by a code number. To claim one or two earnings and profits for federal purposes. Do not attach a voided check or deposit slip. credits, enter the credit name, code number, The illustration on page 15 shows which bank Line 32 – 2002 estimated tax payments and the amount of the credit on line 23 and numbers to transfer to the preprinted areas on line 24. Enter the total of any remaining Enter the total amount of estimated tax Form 100S, Side 1, line 39a, 39b, and 39c. credits from Schedule C (100S) on line 25. Do payments made during the 2002 taxable year To cancel the DDR, call FTB at (800) 852-2753. not make an entry on line 25 unless line 23 on line 32. If the S corporation is the parent of and line 24 are complete. a QSub and made payments for the QSub FTB is not responsible when a financial annual tax, include the total amount of QSub institution rejects a direct deposit. If the bank Attach all credit forms, schedules, and or financial institution rejects the direct Schedule C (100S) to Form 100S. annual tax payment made during 2002 on line 32 along with the total estimated tax deposit due to an error in the routing number Line 28 – Tax from Schedule D (100S) payments. See General Information DD, or account number, FTB will issue a paper S corporations must enter the tax from Qualified Subchapter S Subsidiary (QSub), for check. Schedule D (100S) (included in this booklet). more information. Be sure to complete the Line 40 – Penalties and interest See General Information J, Built-in Gains, for Schedule QS Information Worksheet on Enter on line 40a the amount of any penalties more information. page 35 of this booklet and attach it to the and interest due. return. Line 29 – Excess net passive income tax Complete and attach form FTB 5806, If the corporation has always been a Line 33 – 2002 Nonresident Withholding Underpayment of Estimated Tax by Corpora- S corporation for California purposes or has If the corporation was withheld upon, enter tions, to the front of Form 100S only if no federal excess net passive investment the 2002 nonresident withholding credit that Exception B or Exception C is used to income, the excess net passive investment was not allocated to the shareholders. Attach compute or eliminate the penalty. Be sure to income tax does not apply. See General any Form 592-B, Form 594, or Form 597 that check the box on line 40b. Information S, Excess Net Passive Investment the corporation received from the withholding Income, for more information. entity to the front of Form 100S, Side 1. (continued on page 15) Excess Net Passive Income and Income Tax Worksheet 1 Enter gross receipts for the taxable year (see IRC Section 1362(d)(3)(B) for gross receipts from the sale of capital assets)* 1 2 Enter passive investment income as defined in IRC Section 1362(d)(3)(C)* ...... 2 3 Enter 25% (.25) of line 1. If line 2 is less than line 3, the corporation is not liable for this tax ...... 3 4 Excess passive investment income. Subtract line 3 from line 2 ...... 4 5 Enter expenses directly connected with the production of income on line 2. See IRC Section 1375(b)(2)* ...... 5 6 Net passive income. Subtract line 5 from line 2 ...... 6 7 Divide the amount on line 4 by the amount on line 2 ...... 7 8 Excess of net passive income. Multiply line 6 by line 7. See instructions on line 11 below ...... 8 9 Enter taxable income** ...... 9 10 Enter the smaller of line 8 or line 9 ...... 10 11 Excess net passive income tax. Enter 8.84% (financial S corporations must use 10.84%) of line 10 here and on Form 100S, Side 1, line 29. (If an amount is entered here, go to line 8 above and carry the line 8 amount to Form 100S, line 17.) ...... 11 * 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. 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. Regulations 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. Form 100S Booklet 2002 Page 13 CREDIT NAME CODE DESCRIPTION Current Credits Community Development Financial Institution 209 20% of a qualified investments made into a community development financial institution Deposits – Obtain certification from: CALIFORNIA ORGANIZED INVESTMENT NETWORK (COIN) DEPARTMENT OF INSURANCE 300 CAPITOL MALL, STE 1460 SACRAMENTO CA 95814 Disabled Access for Eligible Small Businesses – 205 Similar to the federal credit, but limited to $125 per eligible small business, and based FTB 3548 on 50% of qualified expenditures that do not exceed $250 Donated Agricultural Products Transportation – 204 50% of the costs paid or incurred for the transportation of agricultural products FTB 3547 donated to nonprofit charitable organizations Employer Child Care Contribution – FTB 3501 190 Employer: 30% of contributions to a qualified plan Employer Child Care Program – FTB 3501 189 Employer: 30% of the cost of establishing a child care program or constructing a child care facility Enhanced Oil Recovery – FTB 3546 203 1/3 of the similar federal credit but limited to qualified enhanced oil recovery projects located within California Enterprise Zone Hiring & Sales or Use Tax – 176 Business incentives for enterprise zone businesses FTB 3805Z Farmworker Housing – Construction 207 50% of qualified costs paid or incurred to construct or rehabilitate qualified farmworkers Farmworker Housing – Loan housing Obtain certification from: 208 Banks and financial corporations: 50% of foregone interest income on qualified FARMWORKER HOUSING ASSISTANCE farmworker housing loans PROGRAM, CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE 916 CAPITOL MALL, ROOM 485 SACRAMENTO CA 95814 Joint Strike Fighter Wages – FTB 3534 215 50% of qualified wages paid or incurred in taxable years beginning on or after January 1, 2001, not to exceed $10,000 for each qualified employee, or a proportional amount for an employee who is employed by the taxpayer for only part of the taxable year Joint Strike Fighter Property Costs – FTB 3534 216 10% of the cost of property placed in service in California for ultimate use in a joint strike fighter

Local Agency Military Base Recovery Area 198 Business incentives for LAMBRAs (LAMBRA) Hiring & Sales or Use Tax – FTB 3807 Low-Income Housing – FTB 3521 172 Similar to the federal credit but limited to low-income housing in California Manufacturers’ Investment – FTB 3535 199 6% of the cost of qualified property Manufacturing Enhancement Area – FTB 3808 211 Hiring Credit for Manufacturing Enhancement Area Natural Heritage Preservation – FTB 3503 213 55% of the fair market value of the qualified contribution of property donated to the state, any local government, or any nonprofit organization designated by a local government. Prior Year Alternative Minimum Tax – FTB 3510 188 Must have paid alternative minimum tax in a prior year and have no alternative minimum tax liability in the current year Prison Inmate Labor – FTB 3507 162 10% of wages paid to prison inmates Research – FTB 3523 183 Similar to the federal credit but limited to costs for research activities in California Rice Straw 206 $15 per ton of rice straw grown in California Obtain certification from: DEPARTMENT OF FOOD AND AGRICULTURE 1220 N STREET, ROOM 409 SACRAMENTO CA 95814 Solar or Wind Energy System – FTB 3508 217 A credit equal to the lesser of 15% of the net cost paid to purchase and install a solar energy system for the production of electricity, or the $4.50 per rated watt of generating capacity of that system. Targeted Tax Area (TTA) Hiring & Sales or Use 210 Business incentives for TTA businesses Tax – FTB 3809 Repealed Credits with Carryover Provisions Agricultural Products 175 The expiration dates for these credits have passed. However, these credits had carryover Commercial Solar Electric System 196 provisions. You may claim these credits if there is a carryover available from prior years. If Commercial Solar Energy 181 you are not required to complete Schedule P (100), get form FTB 3540, Credit Contribution of Computer Software 202 Carryover Summary, to figure your credit carryover to future years. Employer Ridesharing – Large employer 191 Employer Ridesharing – Small employer 192 Employer Rideshare – Transit 193 Energy Conservation 182 Los Angeles Revitalization Zone (LARZ) Hiring & Sales or Use Tax 159 Low Emission Vehicles 160 Orphan Drug 185 Recycling Equipment 174 Ridesharing 171 Salmon & Steelhead Trout Habitat Restoration 200 Solar Energy 180 Solar Pump 179 Technology Property Contributions 201 Page 14 Form 100S Booklet 2002 Do not use a deposit slip to find the bank numbers. ✓Tip Contact your financial institution for assistance in getting the correct routing number.

John Doe 1234 Mary Doe 15-0000/0000 1234 Main Street Anytown, CA 99999 19

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DOLLARS Routing ANYTOWN BANK Account Do not include number Anytown, CA 99999 number the check number

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Schedules Schedule C (100S) Apportioning corporations only: All recognized built-in gains and all recognized Schedule B (100S) Use Schedule C (100S) to determine the built-in losses apportioned and allocated to allowable amount of credits to claim on the California must be included on line 7. Use Schedule B (100S) to calculate deprecia- 2002 Form 100S and the credit carryover to tion and amortization for California purposes. future years. For more information, see Line 9 Effective January 1, 1998, California law General Information Z, Passive Activity Loss If the S corporation: conforms to federal law regarding the income Limitation, AA, Passive Activity Credits, and • Filed its election to be an S corporation forecast method and the exemption of limits BB, Tax Credits. after 1986; on depreciation for incremental costs of clean Note: The amount entered in column (a) must • Was a C corporation before it elected to be fuel vehicles. be limited to 1/3 the amount of the total credit. an S corporation, or acquired an asset California generally conforms to the provi- with a basis determined by reference to its sions of IRC Section 197 for amortization of Schedule D (100S) basis (or the basis of any other property) intangibles for taxable years beginning on or Schedule D (100S) is divided into Section A in the hands of a C corporation; and after January 1, 1994. However, there may be and Section B. Use Section A to report all • Has a California net unrealized built-in gain differences in the federal and California built-in gains subject to the 8.84% tax rate as defined in IRC Section 1374(d)(1), that amounts for intangible assets acquired in (10.84% for financial S corporations). Use is in excess of the California net recog- taxable years beginning prior to Section B to report all other capital gains nized built-in gain from prior years; January 1, 1994. See R&TC Section 24355.5 subject to the 1.5% tax rate (3.5% for Then compute the California net unrealized for more information. financial S corporations). See General built-in gain reduced by the California net California did not allow depreciation under the Information J, Built-in Gains, for more recognized built-in gain from prior years. federal accelerated cost recovery system information. On line 9, enter the smaller of line 7, line 8, or (ACRS) for years prior to 1987. California also Note: Use California amounts when comput- the amount computed above. does not allow depreciation under MACRS for ing gain from like-kind exchanges on federal Line 10 assets placed in service while the corporation Form 8824. For taxable years beginning in 2002 and 2003, was taxable as a C corporation. This is a Section A California has suspended the NOL carryover change of accounting method for which the deduction. taxpayer must request FTB's consent. Part I and Part II S corporations must continue calculating the S corporations use Part I to report and Section B California depreciation deduction for assets summarize gains and losses attributable to: Use Section B, Part I and Part II to report the placed in service before January 1, 1987, in (1) sale or exchange of capital assets; and sale or disposition of all capital assets the same manner as in prior years. Get form (2) gains on distributions to shareholders of acquired as an S corporation or which are not FTB 3885, Corporation Depreciation and appreciated assets that are capital assets. Be reported in Section A. For more information, Amortization, to determine how to continue sure to use the California basis for all assets see the instructions for federal Schedule D depreciating these assets. The following were when computing the gain or loss. See the (Form 1120S). the most common methods used to calculate instructions for federal Schedule D depreciation for years prior to 1987: (Form 1120S), for more information. Schedule F • Straight-line; Line 2 and Line 5 See General Information I, Net Income • Declining balance; and Use California amounts when figuring the Computation, for information on net income • Sum-of-the-years digits. amount to enter for short or long-term capital computation methods. For assets placed in service in 1987 and after, gains or losses from like-kind exchanges from Line 1a-line 6 – Income S corporations may use the same method for federal Form 8824. Report only income or loss from trade or business activity on line 1a through line 6. Do California as was used for federal purposes. Part III S corporations conducting a trade or business not report any rental activity or portfolio inside an EZ, a LAMBRA, or a TTA may elect to Line 7 income or loss on these lines. Rental activity treat a portion of the cost of qualified property To determine if the S corporation is subject to and portfolio income or loss are reported on as a business expense in the first year it is tax on built-in gains, see the instructions for Form 100S, Side 1, line 7 or line 13; Sched- placed in service. This expense deduction is in federal Schedule D (Form 1120S) and General ules K (100S); and K-1 (100S). Rental real lieu of the IRC Section 179 expense deduc- Information J, Built-in Gains in this booklet. estate activities are also reported on federal tion. For more information, get form Form 8825, Rental Real Estate Income and FTB 3805Z, form FTB 3807, or form FTB 3809. Expenses of a Partnership or an S Corpora-

Form 100S Booklet 2002 Page 15 tion. Attach a copy of federal Form 8825 to Interest on tax attributable to payments as a basis for preparing California Schedule K Form 100S. received on installment sales of certain and Schedule K-1 (Form 100S). timeshares and residential lots Line 7 – Compensation of Officers Note: Amounts on Schedule K-1 (100S) may If the S corporation elected to pay interest on If the S corporation’s total receipts are not add up to amounts reflected on the amount of tax attributable to payments $150,000 or more, complete and attach a Form 100S, Side 1 amounts because Side 1 received on installment obligations arising schedule showing the compensation of calculates tax at the S corporation level while from the disposition of certain timeshares and officers. On the schedule list: Schedule K-1 (100S) amounts are calculated residential lots under IRC Section 453(l)(3) using different rules. • Name of officer; (R&TC Section 24667), it must include the • Social security number of officer; interest due on Schedule J, line 3a. For the Attach one copy of each Schedule K-1 (100S) • Percentage of time devoted to the business; applicable interest rates, get FTB Pub. 1138, to the Form 100S filed with the FTB. Keep one • Percentage of stock owned; and Refund/Billing Information. Attach a schedule copy of each Schedule K-1 (100S) for the • Amount of compensation. showing the computation. S corporation’s records, and give each shareholder a copy of Schedule K-1 (100S) on Also show the calculation of compensation of Interest on tax deferred under the or before the due date of Form 100S. officers deducted: installment method for certain nondealer Note: Be sure to give each shareholder a copy • Total compensation of officers, minus installment obligations of either the Shareholder’s Instructions for • Compensation of officers claimed in the If an obligation arising from the disposition of Schedule K-1 (100S) (included in this cost of goods sold schedule and elsewhere property to which IRC Section 453A (R&TC booklet) or specific instructions for each item on the return. Section 24667) applies is outstanding at the reported on the shareholder’s Schedule K-1 Line 8 – Salaries and wages close of the taxable year, the corporation must (100S). include the interest due under IRC Section Gain from the exercise of California Qualified Substitute forms Stock Options (CQSOs) issued and exercised 453A(c) on Schedule J, line 3b. Attach a You need approval from the FTB to use a after 1996 and before 2002, can be excluded schedule showing the computation. For the substitute Schedule K-1 (100S). The substi- from gross income if the individual’s earned applicable interest rates, get FTB Pub. 1138, tute schedule must include the Shareholder’s income is $40,000 or less. The exclusion from Refund/Billing Information. Instructions for Schedule K-1 (100S) or other gross income is subject to the alternative IRC Section 197(f)(9)(B)(ii) election prepared specific instructions. For more minimum tax and the S corporation is not Complete Schedule J, line 4 if the corporation information, get FTB Pub. 1098, Guidelines for allowed a deduction for the compensation elected to pay tax on the gain from the sale of the Development and Use of Substitute, excluded from the employee’s gross income. an intangible under the related person Scannable, and Reproduced Tax Forms. exception to the anti-churning rules. Special reporting requirements for passive Schedule J Credit recaptures Complete Schedule J if the S corporation has activities Complete Schedule J, line 5, if the S corpora- If items of income (loss), deduction, or credit credit amounts to recapture or is required to tion completed the credit recapture portion of: include installment payments of “add-on” from more than one activity are reported on taxes for: • FTB 3501, Employer Child Care Program/ Schedule K-1 (100S), the S corporation must Contribution Credit; attach a statement to Schedule K-1 (100S) for • LIFO recapture resulting from an • FTB 3805Z, Enterprise Zone Deduction and each activity that is a passive activity to the S corporation election; Credit Summary; shareholder. Rental activities are passive • Interest computed under the look-back • FTB 3807 Local Agency Military Base activities to all shareholders. Trade or method for completed long-term contracts; Recovery Area Deduction and Credit business activities are passive activities to • Interest on tax attributable to installment Summary; shareholders who do not materially participate sales of certain property or use of the • FTB 3808, Manufacturing Enhancement in the activity. installment method for non-dealer Area Credit Summary; The attachment must include all the informa- installment obligations; or • FTB 3809, Targeted Tax Area Deduction • IRC Section 197(f)(9)(B)(ii) election to tion explained in the instructions for federal and Credit Summary; or Schedule K-1 (Form 1120S). recognize gain on the disposition of an • FTB 3535 Manufacturers’ Investment IRC Section 197 intangible. Credit. Specific Line Instructions Revise the tax due or overpayment on Also complete Schedule J, line 5, if the Form 100S, line 36 or line 37, as appropriate, corporation is subject to recapture of Item A through Item E (Schedule K-1 (100S) by the amount from Schedule J, line 6. • The Farmworker Housing Credits; only) LIFO recapture tax • The Joint Strike Fighter Credit for Property To ensure correct processing of Schedule K-1 If the S corporation computed the LIFO Costs; (100S), answer all items that are appropriate. recapture tax in the final year as a C corpora- • The Community Development Financial Item A and Item B (Schedule K-1 (100S) tion, include on Schedule J, line 1, any LIFO Institution Deposits Credit; or only) installment due this taxable year. • The Solar or Wind Energy System Credit. See the instructions for Item A and Item C of Long-term contracts federal Schedule K-1 (Form 1120S). If the S corporation must compute interest Schedule K and Schedule K-1 under the look-back method for completed Shareholders’ share of income, deductions, Income long-term contracts, complete form FTB 3834, credits, etc. Line 1 – Ordinary income (loss) from trade Interest Computation Under the Look-Back Purpose of schedules or business activities Method for Completed Long-Term Contracts, Schedule K (100S) is a summary schedule of Enter in column (c) any California adjustments and include the amount of interest the to ordinary income that do not need to be S corporation owes or the amount of interest all the shareholders’ shares of the S corporation’s income, deductions, credits, separately stated. Include in this column the to be credited or refunded to the S corporation adjustment to add back the minimum on Schedule J, line 2. Attach form FTB 3834 to etc. Schedule K-1 (100S) shows each shareholder’s separate share of pass-through franchise tax or the 1.5% tax deducted for Form 100S. If interest is to be credited or federal purposes. refunded, enter as a negative amount. items and adjusted basis. Use federal Schedule K and Schedule K-1 (Form 1120S)

Page 16 Form 100S Booklet 2002 Line 2 – Net income (loss) from rental real a. Wagering gains and losses. See IRC Line 11a – Interest expense on investment estate activities Section 165(d). debts Enter the net income and expenses of any b. Recovery of tax benefit items. See IRC Include on this line interest paid or accrued to rental real estate activity of the S corporation. Section 111. purchase or carry property held for invest- If the S corporation has more than one rental c. Any gain or loss where the S corporation ment. Property held for investment includes real estate activity reported on these lines, was a trader or dealer in IRC Section 1256 property that produces portfolio income attach a separate schedule or use contracts or property related to such (interest, dividends, annuities, royalties, etc.). Schedule K-1 (100S), line 23 to list the contracts. See IRC Section 1256(f). Therefore, interest expense allocable to income or loss from each activity, plus any d. Net gain (loss) from involuntary conver- portfolio income should be reported on other information required under the rules for sions due to casualty or theft. Schedules K and K-1 (100S), line 11a rather passive activities. Attach form FTB 3801, e. Loss(es) from qualified low-income than Schedules K and K-1 (100S), line 9. Passive Activity Loss Limitations, to housing projects for shareholders that are Investment interest does not include interest Form 100S. qualified investors. expense allocable to a passive activity. A f. Eligible gain from the sale or exchange of passive activity is a rental activity or a trade or Line 3a, Line 3b, and Line 3c – Net income qualified small business stock (defined in business activity in which the shareholder (loss) from other rental activities R&TC Section 18152.5). Also report on an does not materially participate. (Schedule K (100S) only) attachment to Schedule K (100S) and Property held for investment includes a Enter the net income and expenses of other Schedule K-1 (100S) the name of the shareholder’s interest in a trade or business rental activities not listed on line 2 above. If corporation that issued the stock and the activity that is not a passive activity to the the S corporation has more than one rental adjusted basis of that stock. shareholder and in which the shareholder activity reported on these lines, attach a does not materially participate. An example separate schedule listing the income or loss Note: The exclusion allowed under R&TC Section 18152.5 for small business stock is would be a shareholder’s working interest in from each activity, plus any other information oil and gas property (i.e., the shareholder’s required under the rules for passive activities. not allowed for an S corporation but is allowed for the shareholder. interest is not limited) if the shareholder does Line 4a through Line 4f – Portfolio income not materially participate in the oil and gas (loss) Deductions activity. Portfolio income (loss) is any gross income Line 7 – Charitable contributions The amount on line 11a will be reflected (after from interest, dividends, annuities, or applying the investment interest expense Enter the total amount of charitable contribu- royalties that is not derived in the ordinary limitations) by individual shareholders on their tions made by the S corporation during its course of business. Portfolio income must be Schedule CA (540 or 540NR), California taxable year on Schedule K (100S) and each separately accounted for as such. Portfolio Adjustments. income also includes gains or losses from the shareholder’s distributive share on For more information, get form FTB 3526, sale or other disposition of property (other Schedule K-1 (100S). On an attachment to Investment Interest Expense Deduction. than an interest in a passive activity) produc- each schedule, separately show the dollar ing portfolio income or held for investment. amount of contributions subject to each of the Line 11b(1) and Line 11b(2) – Investment 50%, 30%, and 20% of adjusted gross income and expenses Line 4a, Line 4b, and Line 4c – Interest, income limits. dividend, and royalty income Enter on line 11b(1) only the investment A resident shareholder is allowed a deduction income included on Schedules K and K-1 Enter only taxable interest, dividend, and for contributions to a qualified organization as (100S), line 4a, line 4b, line 4c, and line 4f. royalty income that is portfolio income. provided in IRC Section 170. Enter on line 11b(2) only the investment Line 4d and Line 4e – Net capital gain (loss) Line 8 – Expense deduction for recovery expense included on Schedules K and K-1 Enter on line 4d and line 4e the amount of property (100S), line 9. capital gains and losses that is portfolio The amount of expense deduction for recovery If there are items of investment income or income (loss). If any of the income (loss) is not property that can be claimed from all sources expense included in the amounts that are portfolio income (loss), include it on line 6. will vary depending on the type of property required to be passed through separately to Line 4f – Other portfolio income (loss) and the year of designation. For more the shareholder on Schedule K-1 (100S), such Enter any other portfolio income (loss) not information, see IRC Section 179 and R&TC as net short-term capital gain or loss, net entered on line 4a through line 4e. Sections 17201, 17267.2, 17267.6, long-term gain or loss and other portfolio and 17268. gains or losses, give each shareholder a Line 5 – Net gain (loss) under IRC schedule identifying these amounts. See the Section 1231 Line 9 – Deductions related to portfolio instructions for Form 1120S, for more The amount for line 5 comes from income (loss) information on portfolio income. Schedule D-1, Sales of Business Property. Do Enter on this line the deductions allocable to not include specially allocated ordinary gains portfolio income (loss) other than interest Investment income includes gross income and losses or net gains or losses from expenses. Generally, these deductions are IRC from property held for investment, gain involuntary conversions due to casualties or Section 212 expenses and are subject to IRC attributable to the disposition of property held thefts on this line. Instead, report these gains Section 212 limitations at the shareholder level. for investment, and other amounts that are or losses on line 6. However, interest expense related to portfolio gross portfolio income. Investment income income (loss) is generally investment interest and investment expenses do not include any If the S corporation has more than one activity income or expenses from a passive activity. and the amount on line 5 is a passive activity expense and is reported on line 11a. amount to the shareholder, attach a statement Property subject to a net lease is not treated to Schedule K-1 (100S) (or use Schedule K-1 Investment Interest as investment property because it is subject to the passive loss rules. Do not reduce (100S), line 23) to identify to which activity Line 11a through Line 11b(2) the IRC Section 1231 gain (loss) relates. investment income by losses from passive These lines must be completed whether or not activities. Line 6 – Other income (loss) a shareholder is subject to the investment Enter any other item of income or loss not interest rules. Investment expenses are deductible expenses included on line 1 through line 5, such as: (other than interest) directly connected with the production of investment income.

Form 100S Booklet 2002 Page 17 Get form FTB 3526 for more information. Get the instructions for federal Schedules K production of business income (within the and K-1 (Form 1120S), Adjustments and Tax meaning of subdivisions (a) and (c) of R&TC Credits Preference Items, line 14a through line 14e, Section 25120) and the gross receipts from Line 12a – Low-income housing credit for more information. the production of nonbusiness income (within the meaning of subdivision (d) of R&TC R&TC Section 23610.5 provides a credit that Section 25120). “Proportionate interest” may be claimed by owners of residential rental Other State Taxes includes an interest in a pass-through entity. projects providing low-income housing. The Line 15a through Line 15e See R&TC Section 17062, Instructions for credit is generally effective for buildings Subject to certain conditions, shareholders federal Schedule K (1020S), line 21, and placed in service after 1986. If the sharehold- may claim a credit against their individual tax Schedule K-1 (100S) instructions for more ers are eligible to claim the low-income for net income taxes paid by the S corporation information. housing credit, attach a copy of form to another state that either taxes the corpora- FTB 3521, Low-Income Housing Credit, to tion as an S corporation or does not recog- Line 22 (Schedule K only) Form 100S and to each shareholder’s nize S corporation status. For purposes of this Report the distribution amount made out of Schedule K-1 (100S). credit, net income taxes include the prior C corporation years accumulated Line 12b – Credits related to rental real shareholder’s share of taxes on, according to, earnings and profits (E&P). The corporation estate activities or measured by income. Enter the name of the should issue a federal Form 1099-DIV to each other state(s), the income reported to the of the shareholders reporting their proportion- Report any information that the shareholder other state(s), and the amount of tax paid. ate distribution amounts. needs to figure credits related to a rental real Attach a copy of the return filed with the other estate activity other than the low-income Line 20 (Schedule K-1 only) state. housing credit. Attach to each shareholder’s Report the distribution amount for each Schedule K-1 (100S) a schedule showing the Residents are taxable on all their pro-rata shareholder that was paid out of prior amount to be reported and the form on which share of income and generally receive a credit C corporation years accumulated earnings and the amount should be reported. for taxes paid to other states. Nonresidents profits (E&P). Each shareholder should must use the amounts shown in column (e). receive a federal Form 1099-DIV reporting the Line 12c – Credits related to other rental See R&TC Sections 18001, 18002, and 18006 activities proportionate distribution amount shown on for more information. Schedule K-1 (100S), line 20. Use this line to report information that the shareholder needs to figure credits related to Other Line 21 (Schedule K-1 only) a rental activity other than a rental real estate Report the distribution amount for each activity. Attach to each shareholder’s Line 16a through Line 19 shareholder for distributions other than Schedule K-1 (100S) a schedule showing the Refer to the instructions for federal dividends reported on Schedule K-1 (100S), amount to be reported and the form on which Schedules K and K-1 (Form 1120S). line 20. Noncash distributions of appreciated the amount should be reported. Line 20 (Schedule K only) property are valued at fair market value. Refer Line 13 – Other credits Enter total distributions made to shareholders to the instructions for federal Form 1120S for the ordering rules on distributions. Enter on an attached schedule each other than dividends reported on Schedule K, shareholder’s allocable share of any credit or line 22. Noncash distributions of appreciated Line 22 (Schedule K-1 only) credit information reported on Schedule C property are valued at fair market value. Refer Report the amount of loan repayments the (100S) that is related to a trade or business to the instructions for federal Form 1120S for S corporation has made to each shareholder activity. the ordering rules on distributions. who has loaned the S corporation money. The following are examples of credits that Line 21 (Schedule K only) may apply to each shareholder: The S corporation may need to report Supplemental Information • Employer child care program/contribution supplemental information separately to each Line 23 (Schedule K-1 only) credit (get form FTB 3501); shareholder that is not specifically requested The S corporation will provide supplemental • Enterprise zone (EZ) hiring & sales or use on the Schedule K-1 (100S). information required to be reported to each tax credit (get form FTB 3805Z); Attach a schedule to the Schedule K showing shareholder on this line. • Local agency military base recovery area the computation of those items that must be The S corporation should provide an amount (LAMBRA) hiring & sales or use tax credit reported separately to shareholders including showing each shareholder’s proportionate (get form FTB 3807); any credit recapture reported to shareholders interest in the S corporation’s aggregate gross • Manufacturing enhancement area (MEA) on Schedule K-1, line 23. receipts, less returns and allowances, on hiring credit (get form FTB 3808); Shareholders may need to obtain the amount Schedule K-1 (100S), line 23. See the • Targeted tax area (TTA) hiring and sales or of their proportionate interest of aggregate instructions for Schedule K (100S), line 21. use tax credit (get form FTB 3809); gross receipts, less returns and allowances, Report the credit recapture amount on line 23 • Research credit (get form FTB 3523); or from the S corporation. As a result of if the S corporation completed the credit • Manufacturers’ investment credit (get form legislation enacted in 1996, alternative recapture portion of form: FTB 3535). minimum taxable income shall not include • FTB 3501, Employer Child Care Program/ income, adjustments, and items of tax Contribution Credit; or Adjustments and Tax preference related to any trade or business of • FTB 3805Z, Enterprise Zone Deduction and a qualified taxpayer who has gross receipts, Preference Items Credit Summary; or less returns and allowances, during the Line 14a through Line 14e • FTB 3807, Local Agency Military Base taxable year of less than $1,000,000 from all Recovery Area Deduction and Credit Enter the items of income and deductions that trades or businesses. The S corporation can Summary; or enter into each shareholder’s computation of provide the shareholder’s proportionate • FTB 3535, Manufacturers’ Investment adjustments and tax preference items. A interest of aggregate gross receipts on Credit; or shareholder with alternative minimum tax Schedule K-1 (100S), line 23. For purposes of • FTB 3809, Targeted Tax Area Deduction items may be required to file Schedule P (540, R&TC Section 17062(b)(4), “gross receipts” and Credit Summary; or 540NR, or 541), Alternative Minimum Tax and means the sum of gross receipts from the Credit Limitations.

Page 18 Form 100S Booklet 2002 • FTB 3808, Manufacturing Enhancement Line 23 made, the account is reduced by distributions Area Credit Summary; or Retained earnings include balances in the made during the taxable year. The AAA should • FTB 3534, Joint Strike Fighter Credit; or accumulated adjustments account (AAA), the be reduced by the California built-in gains tax • FTB 3508, Solar Energy System Credit. other adjustments account, and other retained amount and the minimum franchise tax. Also report the credit recapture amount on earnings. Note: The amount on Form 100S, Side 1, line 23 if the corporation is subject to line 2, should be included as an other addition recapture of: Schedule M-1 on Schedule M-2, line 3, and as an other reduction on Schedule M-2, line 5. Also • The Farmworker Housing Credits; or Schedule M-1 is used to reconcile the difference between book and tax accounting include any other adjustments to arrive at • The Community Development Financial California income. Institution Deposits Credit. for an income or expense item. If the corporation's total receipts (see page 44 of Note: The AAA may have a negative balance at Also show on line 23 a statement showing the instructions) for the taxable year and total year end as a result of losses or deductions each of the following: assets at the end of the taxable year are less from the S corporation. 1. Each shareholder’s share of business than $250,000, the corporation is not required Column (b) – The other adjustments account income apportioned to an EZ, LAMBRA, to complete Schedule L and Schedule M-1. is adjusted for tax-exempt income (and related MEA, or TTA; and However, this information must be available in expenses) of the S corporation. After 2. Each shareholder’s pro-rata share of the future upon request. adjusting for tax-exempt income, the account business capital gain or loss included in 1 The federal and state Schedule M-1 may be is reduced for any distributions made during above. the same when you use the federal reconcilia- the year. Table 1 and Table 2 tion method for net income computation. See Column (c) – Other retained earnings include Table 1 – Enter the shareholder’s pro-rata General Information I, Net Income Computa- appropriated and unappropriated retained share of nonbusiness income from intan- tion, for more information. The Schedule M-1 earnings accumulated in prior years when the gibles. Because the source of this income will be different if using the California S corporation was a C corporation. Line 1, must be determined at the shareholder level, computation method for net income. The column (c) for the first S corporation return do not enter income in this category in California computation method is generally will be the sum of the ending balances of column (e). If the income (loss) for an income used when the S corporation has no federal appropriated and unappropriated retained item is a mixture of income (loss) in different filing requirement, or if the S corporation earnings for the previous year. subclasses (for example, short and long-term maintains separate records for state purposes. capital gain), attach a supplemental schedule Distributions providing a breakdown of income in each Schedule M-2 Generally, property distributions (including subclass. cash) are applied in the following order to The computation of the California AAA and reduce accounts of the S corporation that are Nonbusiness income is all income other than Other Adjustments Account (OAA) is similar to used to compute the tax effect of distributions business income. See definition of business the federal computation applying California made by the S corporation to its shareholders: income below. amounts. Get the instructions for federal 1. Reduce the AAA determined without regard Table 2 – In Part A, enter the shareholder’s Form 1120S and IRC Section 1368 for additional information. to any net negative adjustment for the pro-rata share of the S corporation’s business taxable year (but not below zero). If income. The shareholder will then add that Column (a) – The AAA is an account of the distributions during the taxable year income to its own business income and S corporation that generally reflects the exceed the AAA at the close of the taxable apportion the combined business income. accumulated undistributed net income of the year determined without regard to any net Business income is defined by Title 18 Cal. corporation for the corporation’s post-1986 negative adjustment for the taxable year, Code Reg. Section 25120(a) as income arising years. S corporations with accumulated E&P the AAA is allocated pro-rata to each in the regular course of the taxpayer’s trade or from C corporation years must maintain the distribution made during the taxable year. business. Business income includes income AAA to determine the tax effect of distribu- See IRC Section 1368(c). The term “net from tangible and intangible property if the tions during S corporation years and the post- negative adjustment” means the excess, if acquisition, management, and disposition of termination transition period. An any, of the reductions in the AAA for the the property constitutes integral parts of the S corporation without accumulated E&P does taxable year (other than distributions) over taxpayer’s regular trade or business. not need to maintain the AAA in order to the increases in the AAA for the taxable determine the tax effect of distributions. year. In Part B, enter the shareholder’s pro-rata However, if an S corporation without accumu- share of nonbusiness income from real and 2. Reduce accumulated E&P. Generally, the lated E&P engages in certain transactions to S corporation has accumulated E&P only if tangible property that is located in California. which IRC Section 381(a) applies, such as a Because this income has a California source, it has not distributed E&P accumulated in merger into an S corporation with accumu- prior years when the S corporation was a this income should also be included on the lated E&P, the S corporation must be able to appropriate line in column (e). C corporation, IRC Section 1361(a)(2), or calculate its AAA at the time of the merger for when the S corporation merged with In Part C, enter the shareholder’s pro-rata purposes of determining the tax effect of post- another corporation that has C corporation share of the S corporation’s payroll, property, merger distributions. Therefore, it is recom- accumulated E&P. The only adjustments and sales factors. mended that all S corporations maintain the that can be made to the accumulated E&P AAA. Schedule L of an S corporation are: At the end of the taxable year, the AAA is a. Reductions for dividend distributions; If the corporation's total receipts (see page 44 determined by taking into account all items of and of the instructions) for the taxable year and income, loss, and deductions for the taxable b. Adjustments for redemptions, liquida- total assets at the end of the taxable year are year (including nondeductible losses and tions, reorganizations, etc. less than $250,000, the corporation is not expenses that are not capitalized but excluding required to complete Schedule L and Schedule certain exempt income and state taxes 3. Reduce the other adjustment account. M-1. However, this information must be attributable to C corporation years). After the 4. Reduce any remaining shareholders’ equity available in the future upon request. year-end income and expense adjustments are account.

Form 100S Booklet 2002 Page 19 Note: Shareholders’ previously taxed income year. A deemed dividend is treated as if it C corporation E&P (PTI) Column (c), federal Form 1120S, were a pro-rata distribution of money to Check the box on Schedule M-2, below line 9, Schedule M-2, 1120S — California the shareholders, received by the share- if the S corporation was a C corporation in a S corporations will never have undistributed holders, and immediately contributed back prior year(s) and has C corporation E&P at the PTI. The federal code section that created PTI to the corporation all on the last day of the end of the taxable year. For this purpose, C was removed from the IRC before California tax year. This election is irrevocable and corporation E&P means the remaining balance incorporated the federal S corporation applies only for the tax year for which it is of E&P of any S corporation for any taxable provisions into the R&TC. made. year when it was not an S corporation. If the S Elections relating to the order of Statement regarding elections corporation has C corporation E&P, it may be distributions To make any elections relating to the order of liable for excess net passive income tax and The corporation may modify the ordering distribution, the corporation must attach a the distributions to shareholders may have rules by making one or more of the following statement to a timely filed original Form 100S different tax consequences for federal and elections: or amended Form 100S for the year in which California purposes. See instructions for Form the election is made. The corporation must 100S, Side 1, line 28 and line 29, for details • Election to distribute accumulated E&P on these taxes. first. If the corporation has accumulated identify the election it is making and state that E&P and wants to distribute E&P before each shareholder consents to the election. A making distributions from the AAA, it may corporate officer must sign the statement elect to do so with the consent of all its under penalties of perjury on behalf of the affected shareholders – IRC corporation. The statement of election to Section 1368(e)(3)(B). This election is make a deemed dividend must include the irrevocable and applies only for the tax amount of the deemed dividend distributed to year for which it is made. For more each shareholder. information regarding this election, see When making either of the elections, the “Statement Regarding Elections” on this corporation must prepare copies of federal page. Form 1099-DIV for shareholders to report this • Election to make a deemed dividend. If the dividend as taxable income. corporation wants to distribute all or part Note: The corporation may file the election for of its C corporation accumulated E&P California purposes only. It is not necessary through a deemed dividend, it may elect to for the corporation to have the same election do so with the consent of all its affected for federal purposes in order to make a shareholders – IRC Section 1368(e)(3)(B). California election. However, regardless of Under this section, the corporation will be whether or not the corporation makes the treated as also having made the election to same election on the federal return, the distribute E&P first. The amount of the corporation must attach a separate election deemed dividend cannot exceed the statement to the California return. accumulated E&P at the end of the taxable year reduced by any actual distributions of accumulated E&P made during the taxable

Page 20 Form 100S Booklet 2002 Code Code Principal Business Activity Codes 315210 Cut & Sew Apparel 332810 Coating, Engraving, Heat This list of principal business activities and their associated codes is designed to Contractors Treating, & Allied Activities classify a business by the type of activity in which it is engaged to facilitate the 315220 Men’s & Boys’ Cut & Sew 332900 Other Fabricated Metal administration of the California Revenue and Taxation Code. For taxable years Apparel Mfg Product Mfg beginning after 1997, these principal business activity codes are based on the North 315230 Women’s & Girls’ Cut & Sew Machinery Manufacturing American Industry Classification System (NAICS). Apparel Mfg 333100 Agriculture, Construction, & 315290 Other Cut & Sew Apparel Mfg Mining Machinery Mfg Using the list of activities and codes below, determine from which activity the 315990 Apparel Accessories & Other company derives the largest percentage of its ‘’total receipts.’’ Total receipts is 333200 Industrial Machinery Mfg Apparel Mfg 333310 Commercial & Service defined as the sum of gross receipts or sales (Side 2, Schedule F, line 1a) plus all Leather and Allied Product Industry Machinery Mfg other income (Side 2, Schedule F, line 4 and line 5). If the company purchases raw Manufacturing 333410 Ventilation, Heating, Air- materials and supplies them to a subcontractor to produce the finished product, but 316110 Leather & Hide Tanning & Conditioning, & Commercial retains title to the product, the company is considered a manufacturer and must use Finishing Refrigeration Equipment Mfg one of the manufacturing codes (311110-339900). 316210 Footwear Mfg (including 333510 Metalworking Machinery Mfg Once the principal business activity is determined, entries must be made on rubber & plastics) 333610 Engine, Turbine, & Power Form 100S, Question C. For the business activity code number, enter the six digit 316990 Other Leather & Allied Product Transmission Equipment Mfg Mfg code selected from the list below. On the next line enter a brief description of the 333900 Other General Purpose company’s business activity. Finally, enter a description of the principal product or Wood Product Manufacturing Machinery Mfg service of the company on the next line. 321110 Sawmills & Wood Preservation Computer and Electronic Product 321210 Veneer, Plywood, & Manufacturing Engineered Wood Product Mfg 334110 Computer & Peripheral 321900 Other Wood Product Mfg Equipment Mfg Paper Manufacturing 334200 Communications Equipment Mfg Agriculture, Forestry, Construction 322100 Pulp, Paper, & Paperboard 334310 Audio & Video Equipment Mfg Fishing, and Hunting Code Mills 322200 Converted Paper Product Mfg 334410 Semiconductor & Other Code Construction of Buildings Electronic Component Mfg Crop Production 236110 Residential Building Printing and Related Support 334500 Navigational, Measuring, Activities 111100 Oilseed & Grain Farming Construction Electromedical, & Control 236200 Nonresidential Building 323100 Printing & Related Support Instruments Mfg 111210 Vegetable & Melon Farming Activities (including potatoes & yams) Construction 334610 Manufacturing & Reproducing 111300 Fruit & Tree Nut Farming Heavy and Civil Engineering Petroleum and Coal Products Magnetic & Optical Media 111400 Greenhouse, Nursery, & Construction Manufacturing Electrical Equipment, Appliance, and Floriculture Production 237100 Utility System Construction 324110 Petroleum Refineries Component Manufacturing 111900 Other Crop Farming (including 237210 Land Subdivision (including integrated) 335100 Electric Lighting Equipment tobacco, cotton, sugarcane, 237310 Highway, Street, & Bridge 324120 Asphalt Paving, Roofing, & Mfg hay, peanut, sugar beet, & all Construction Saturated Materials Mfg 335200 Household Appliance Mfg other crop farming) 237990 Other Heavy & Civil 324190 Other Petroleum & Coal 335310 Electrical Equipment Mfg Products Mfg Animal Production Engineering Construction 335900 Other Electrical Equipment & 112111 Beef Cattle Ranching & Specialty Trade Contractors Chemical Manufacturing Component Mfg Farming 238100 Foundation, Structure, & 325100 Basic Chemical Mfg Transportation Equipment 112112 Cattle Feedlots Building Exterior Contractors 325200 Resin, Synthetic Rubber, & Manufacturing 112120 Dairy Cattle & Milk Production (including framing carpentry, Artificial & Synthetic Fibers & 336100 Motor Vehicle Mfg 112210 Hog & Pig Farming masonry, glass, roofing, & Filaments Mfg 336210 Motor Vehicle Body & Trailer 112300 Poultry & Egg Production siding) 325300 Pesticide, Fertilizer, & Other Mfg Agricultural Chemical Mfg 112400 Sheep & Goat Farming 238210 Electrical Contractors 336300 Motor Vehicle Parts Mfg 238220 Plumbing, Heating, & Air- 325410 Pharmaceutical & Medicine 336410 Aerospace Product & Parts 112510 Animal Aquaculture (including Mfg shellfish & finfish farms & Conditioning Contractors Mfg hatcheries) 238290 Other Building Equipment 325500 Paint, Coating, & Adhesive Mfg 336510 Railroad Rolling Stock Mfg 112900 Other Animal Production Contractors 325600 Soap, Cleaning Compound, & 336610 Ship & Boat Building 238300 Building Finishing Contractors Toilet Preparation Mfg Forestry and Logging 336990 Other Transportation (including drywall, insulation, 325900 Other Chemical Product & Equipment Mfg 113110 Timber Tract Operations painting, wallcovering, Preparation Mfg 113210 Forest Nurseries & Gathering flooring, tile, & finish Furniture and Related Product Plastics and Rubber Products Manufacturing of Forest Products carpentry) Manufacturing 113310 Logging 238900 Other Specialty Trade 337000 Furniture & Related Product 326100 Plastics Product Mfg Manufacturing Fishing, Hunting and Trapping Contractors (including site 326200 Rubber Product Mfg preparation) Miscellaneous Manufacturing 114110 Fishing Nonmetallic Mineral Product 114210 Hunting & Trapping 339110 Medical Equipment & Supplies Manufacturing Manufacturing Mfg Support Activities for Agriculture 327100 Clay Product & Refractory Mfg Food Manufacturing 339900 Other Miscellaneous and Forestry 327210 Glass & Glass Product Mfg 311110 Animal Food Mfg Manufacturing 115110 Support Activities for Crop 327300 Cement & Concrete Product Production (including cotton 311200 Grain & Oilseed Milling Mfg Wholesale Trade ginning, soil preparation, 311300 Sugar & Confectionery 327400 Lime & Gypsum Product Mfg planting, & cultivating) Product Mfg Merchant Wholesalers, Durable 327900 Other Nonmetallic Mineral Goods 115210 Support Activities for Animal 311400 Fruit & Vegetable Preserving & Product Mfg Production Specialty Food Mfg 423100 Motor Vehicle & Motor Vehicle 115310 Support Activities for Forestry 311500 Dairy Product Mfg Primary Metal Manufacturing Parts & Supplies 311610 Animal Slaughtering and 331110 Iron & Steel Mills & Ferroalloy 423200 Furniture & Home Furnishings Mining Processing Mfg 423300 Lumber & Other Construction 211110 Oil & Gas Extraction 311710 Seafood Product Preparation 331200 Steel Product Mfg from Materials Purchased Steel 212110 Coal Mining & Packaging 423400 Professional & Commercial 311800 Bakeries & Tortilla Mfg 331310 Alumina & Aluminum Equipment & Supplies 212200 Metal Ore Mining Production & Processing 212310 Stone Mining & Quarrying 311900 Other Food Mfg (including 423500 Metal & Mineral (except coffee, tea, flavorings, & 331400 Nonferrous Metal (except Petroleum) 212320 Sand, Gravel, Clay, & Ceramic Aluminum) Production & & Refractory seasonings) 423600 Electrical & Electronic Goods Processing 423700 Hardware, & Plumbing & Minerals Mining & Quarrying Beverage and Tobacco Product 331500 Foundries Manufacturing Heating Equipment & Supplies 212390 Other Nonmetallic Mineral 312110 Soft Drink & Ice Mfg Fabricated Metal Product 423800 Machinery, Equipment, & Mining & Quarrying Manufacturing Supplies 213110 Support Activities for Mining 312120 Breweries 312130 Wineries 332110 Forging & Stamping 423910 Sporting & Recreational Goods & Supplies 312140 Distilleries 332210 Cutlery & Handtool Mfg Utilities 423920 Toy & Hobby Goods & 312200 Tobacco Manufacturing 332300 Architectural & Structural 221100 Electric Power Generation, Metals Mfg Supplies Transmission & Distribution Textile Mills and Textile Product Mills 332400 Boiler, Tank, & Shipping 423930 Recyclable Materials 221210 Natural Gas Distribution 313000 Textile Mills Container Mfg 423940 Jewelry, Watch, Precious 221300 Water, Sewage, & Other Stone, & Precious Metals 314000 Textile Product Mills 332510 Hardware Mfg Systems 332610 Spring & Wire Product Mfg 423990 Other Miscellaneous Durable Apparel Manufacturing 332700 Machine Shops, Turned Goods 315100 Apparel Knitting Mills Product, & Screw, Nut, & Bolt Mfg Page 44 Form 100S Booklet 2002 Code Code Code Code Merchant Wholesalers, Nondurable Clothing and Clothing Accessories Support Activities for Transportation Securities, Commodity Contracts, Goods Stores 488100 Support Activities for Air and Other Financial Investments and 424100 Paper & Paper Products 448110 Men’s Clothing Stores Transportation Related Activities 424210 Drugs & Druggists' Sundries 448120 Women’s Clothing Stores 488210 Support Activities for Rail 523110 Investment Banking & 424300 Apparel, Piece Goods, & 448130 Children’s & Infants’ Clothing Transportation Securities Dealing Notions Stores 488300 Support Activities for Water 523120 Securities Brokerage 424400 Grocery & Related Products 448140 Family Clothing Stores Transportation 523130 Commodity Contracts Dealing 424500 Farm Product Raw Materials 448150 Clothing Accessories Stores 488410 Motor Vehicle Towing 523140 Commodity Contracts 424600 Chemical & Allied Products 448190 Other Clothing Stores 488490 Other Support Activities for Brokerage 424700 Petroleum & Petroleum 448210 Shoe Stores Road Transportation 523210 Securities & Commodity Products 448310 Jewelry Stores 488510 Freight Transportation Exchanges 424800 Beer, Wine, & Distilled 448320 Luggage & Leather Goods Arrangement 523900 Other Financial Investment Alcoholic Beverages Stores 488990 Other Support Activities for Activities (including portfolio 424910 Farm Supplies Transportation management & investment Sporting Goods, Hobby, Book, and advice) 424920 Book, Periodical, & Music Stores Couriers and Messengers Newspapers 492110 Couriers Insurance Carriers and Related 451110 Sporting Goods Stores Activities 424930 Flower, Nursery Stock, & 451120 Hobby, Toy, & Game Stores 492210 Local Messengers & Local Florists' Supplies Delivery 524140 Direct Life, Health, & Medical 451130 Sewing, Needlework, & Piece Insurance & Reinsurance 424940 Tobacco & Tobacco Products Goods Stores Warehousing and Storage 424950 Paint, Varnish, & Supplies Carriers 451140 Musical Instrument & Supplies 493100 Warehousing & Storage 524150 Direct Insurance & Reinsur- 424990 Other Miscellaneous Stores (except lessors of Nondurable Goods ance (except Life, Health, & 451211 Book Stores miniwarehouses & self- Medical) Carriers Wholesale Electronic Markets and 451212 News Dealers & Newsstands storage units) 524210 Insurance Agencies & Agents and Brokers 451220 Prerecorded Tape, Compact Brokerages 425110 Business to Business Disc, & Record Stores Information 524290 Other Insurance Related Electronic Markets General Merchandise Stores Publishing Industries Activities 425120 Wholesale Trade Agents & 511110 Newspaper Publishers Brokers 452110 Department stores Funds, Trusts, and Other Financial 452900 Other General Merchandise 511120 Periodical Publishers Vehicles Retail Trade Stores 511130 Book Publishers 525100 Insurance & Employee Benefit Miscellaneous Store Retailers 511140 Database & Directory Funds Motor Vehicle and Parts Dealers Publishers 453110 Florists 525910 Open-End Investment Funds 441110 New Car Dealers 511190 Other Publishers (Form 1120-RIC) 441120 Used Car Dealers 453210 Office Supplies & Stationery Stores 511210 Software Publishers 525920 Trusts, Estates, & Agency 441210 Recreational Vehicle Dealers Accounts 453220 Gift, Novelty, & Souvenir Motion Picture and Sound Recording 441221 Motorcycle Dealers Stores Industries 525930 Real Estate Investment Trusts (Form 1120-REIT) 441222 Boat Dealers 453310 Used Merchandise Stores 512100 Motion Picture & Video 525990 Other Financial Vehicles 441229 All Other Motor Vehicle 453910 Pet & Pet Supplies Stores Industries (except video Dealers “Offices of Bank Holding Companies” 453920 Art Dealers rental) 441300 Automotive Parts, Accesso- 512200 Sound Recording Industries and “Offices of Other Holding ries, & Tire Stores 453930 Manufactured (Mobile) Home Companies” are located under Dealers Broadcasting (except Internet) Management of Companies (Holding Furniture and Home Furnishings 453990 All Other Miscellaneous Store 515100 Radio & Television Companies) below. Stores Retailers (including tobacco, Broadcasting 442110 Furniture Stores candle, & trophy shops) 515210 Cable & Other Subscription Real Estate and Rental and 442210 Floor Covering Stores Nonstore Retailers Programming Leasing 442291 Window Treatment Stores 454110 Electronic Shopping & Mail- Internet Publishing and Broadcasting Real Estate 442299 All Other Home Furnishings Order Houses 516110 Internet Publishing & Stores 531110 Lessors of Residential 454210 Vending Machine Operators Broadcasting Buildings & Dwellings Electronics and Appliance Stores 454311 Heating Oil Dealers Telecommunications 531120 Lessors of Nonresidential 443111 Household Appliance Stores 454312 Liquefied Petroleum Gas 517000 Telecommunications (including Buildings (except 443112 Radio, Television, & Other (Bottled Gas) Dealers paging, cellular, satellite, cable Miniwarehouses) Electronics Stores 454319 Other Fuel Dealers & other program distribution, 531130 Lessors of Miniwarehouses & 443120 Computer & Software Stores 454390 Other Direct Selling resellers, & other Self-Storage Units 443130 Camera & Photographic Establishments (including telecommunications) 531190 Lessors of Other Real Estate Supplies Stores door-to-door retailing, frozen Internet Service Providers, Web Property Building Material and Garden food plan providers, party plan Search Portals, and Data Processing 531210 Offices of Real Estate Agents Equipment and Supplies Dealers merchandisers, & coffee-break Services & Brokers service providers) 444110 Home Centers 518111 Internet Service Providers 531310 Real Estate Property 444120 Paint & Wallpaper Stores Transportation and 518112 Web Search Portals Managers 444130 Hardware Stores Warehousing 518210 Data Processing, Hosting, & 531320 Offices of Real Estate 444190 Other Building Material Related Services Appraisers Dealers Air, Rail, and Water Transportation Other Information Services 531390 Other Activities Related to Real Estate 444200 Lawn & Garden Equipment & 481000 Air Transportation 519100 Other Information Services Supplies Stores 482110 Rail Transportation (including news syndicates & Rental and Leasing Services Food and Beverage Stores 483000 Water Transportation libraries) 532100 Automotive Equipment Rental 445110 Supermarkets and Other Truck Transportation & Leasing Grocery (except Convenience) 484110 General Freight Trucking, Finance and Insurance 532210 Consumer Electronics & Stores Local Depository Credit Intermediation Appliances Rental 445120 Convenience Stores 484120 General Freight Trucking, 522110 Commercial Banking 532220 Formal Wear & Costume Rental 445210 Meat Markets Long-distance 522120 Savings Institutions 532230 Video Tape & Disc Rental 445220 Fish & Seafood Markets 484200 Specialized Freight Trucking 522130 Credit Unions 445230 Fruit & Vegetable Markets 532290 Other Consumer Goods Transit and Ground Passenger 522190 Other Depository Credit Rental 445291 Baked Goods Stores Transportation Intermediation 532310 General Rental Centers 445292 Confectionery & Nut Stores 485110 Urban Transit Systems Nondepository Credit Intermediation 532400 Commercial & Industrial 445299 All Other Specialty Food 485210 Interurban & Rural Bus 522210 Credit Card Issuing Stores Machinery & Equipment Transportation 522220 Sales Financing Rental & Leasing 445310 Beer, Wine, & Liquor Stores 485310 Taxi Service 522291 Consumer Lending 485320 Limousine Service Lessors of Nonfinancial Intangible Health and Personal Care Stores 522292 Real Estate Credit (including Assets (except copyrighted works) 446110 Pharmacies & Drug Stores 485410 School & Employee Bus mortgage bankers & Transportation 533110 Lessors of Nonfinancial 446120 Cosmetics, Beauty Supplies, originators) Intangible Assets (except & Perfume Stores 485510 Charter Bus Industry 522293 International Trade Financing copyrighted works) 446130 Optical Goods Stores 485990 Other Transit & Ground 522294 Secondary Market Financing 446190 Other Health & Personal Care Passenger Transportation 522298 All Other Nondepository Credit Professional, Scientific, and Stores Pipeline Transportation Intermediation Technical Services Gasoline Stations 486000 Pipeline Transportation Scenic Activities Related to Credit & Sightseeing Transportation Legal Services 447100 Gasoline Stations (including Intermediation 541110 Offices of Lawyers convenience stores with gas) Scenic & Sightseeing Transportation 522300 Activities Related to Credit 541190 Other Legal Services 487000 Scenic & Sightseeing Intermediation (including loan Transportation brokers) Form 100S Booklet 2002 Page 45 Code Code Code Code Accounting, Tax Preparation, 561500 Travel Arrangement & Other Ambulatory Health Care Food Services and Drinking Places Bookkeeping, and Payroll Services Reservation Services Services 722110 Full-Service Restaurants 541211 Offices of Certified Public 561600 Investigation & Security 621900 Other Ambulatory Health Care 722210 Limited-Service Eating Places Accountants Services Services (including ambulance 722300 Special Food Services 541213 Tax Preparation Services 561710 Exterminating & Pest Control services & blood & organ (including food service 541214 Payroll Services Services banks) contractors & caterers) 541219 Other Accounting Services 561720 Janitorial Services Hospitals 722410 Drinking Places (Alcoholic Architectural, Engineering, and 561730 Landscaping Services 622000 Hospitals Beverages) Related Services 561740 Carpet & Upholstery Cleaning Nursing and Residential Care 541310 Architectural Services Services Facilities Other Services 541320 Landscape Architecture 561790 Other Services to Buildings & 623000 Nursing & Residential Care Repair and Maintenance Services Dwellings Facilities 811110 Automotive Mechanical & 561900 Other Support Services 541330 Engineering Services Social Assistance Electrical Repair & Mainte- (including packaging & nance 541340 Drafting Services labeling services, & 624100 Individual & Family Services 541350 Building Inspection Services 811120 Automotive Body, Paint, convention & trade show 624200 Community Food & Housing, Interior, & Glass Repair 541360 Geophysical Surveying & organizers) & Emergency & Other Relief Services 811190 Other Automotive Repair & Mapping Services Waste Management and Remediation Maintenance (including oil 541370 Surveying & Mapping (except Services 624310 Vocational Rehabilitation change & lubrication shops & Geophysical) Services 562000 Waste Management & Services car washes) 541380 Testing Laboratories Remediation Services 624410 Child Day Care Services 811210 Electronic & Precision Specialized Design Services Arts, Entertainment, and Equipment Repair & 541400 Specialized Design Services Educational Services Maintenance (including interior, industrial, 611000 Educational Services Recreation 811310 Commercial & Industrial graphic, & fashion design) (including schools, colleges, & Performing Arts, Spectator Sports, Machinery & Equipment universities) (except Automotive & Computer Systems Design and and Related Industries 711100 Performing Arts Companies Electronic) Repair & Related Services Health Care and Social Maintenance 541511 Custom Computer Program- 711210 Spectator Sports (including Assistance sports clubs & racetracks) 811410 Home & Garden Equipment & ming Services Appliance Repair & 541512 Computer Systems Design Offices of Physicians and Dentists 711300 Promoters of Performing Arts, Maintenance Sports, & Similar Events Services 621111 Offices of Physicians (except 811420 Reupholstery & Furniture 541513 Computer Facilities Manage- mental health specialists) 711410 Agents & Managers for Artists, Repair ment Services 621112 Offices of Physicians, Mental Athletes, Entertainers, & Other Public Figures 811430 Footwear & Leather Goods 541519 Other Computer Related Health Specialists Repair Services 621210 Offices of Dentists 711510 Independent Artists, Writers, & Performers 811490 Other Personal & Household Other Professional, Scientific, and Offices of Other Health Practitioners Goods Repair & Maintenance Technical Services 621310 Offices of Chiropractors Museums, Historical Sites, and Similar Institutions Personal and Laundry Services 541600 Management, Scientific, & 621320 Offices of Optometrists 812111 Barber Shops Technical Consulting Services 712100 Museums, Historical Sites, & 621330 Offices of Mental Health 812112 Beauty Salons 541700 Scientific Research & Similar Institutions Practitioners (except 812113 Nail Salons Development Services Amusement, Gambling, and Physicians) 812190 Other Personal Care Services 541800 Advertising & Related 621340 Offices of Physical, Occupa- Recreation Industries Services (including diet & weight tional & Speech Therapists, & 713100 Amusement Parks & Arcades reducing centers) 541910 Marketing Research & Public Audiologists 713200 Gambling Industries Opinion Polling 812210 Funeral Homes & Funeral 621391 Offices of Podiatrists 713900 Other Amusement & Services 541920 Photographic Services 621399 Offices of All Other Miscella- Recreation Industries 812220 Cemeteries & Crematories 541930 Translation & Interpretation neous Health Practitioners (including golf courses, skiing Services facilities, marinas, fitness 812310 Coin-Operated Laundries & Outpatient Care Centers Drycleaners 541940 Veterinary Services centers, & bowling centers) 621410 Family Planning Centers 812320 Drycleaning & Laundry 541990 All Other Professional, 621420 Outpatient Mental Health & Accommodation and Food Services (except Coin- Scientific, & Technical Operated) Services Substance Abuse Centers Services 621491 HMO Medical Centers 812330 Linen & Uniform Supply Management of Companies 621492 Kidney Dialysis Centers Accommodation 812910 Pet Care (except Veterinary) (Holding Companies) 621493 Freestanding Ambulatory 721110 Hotels (except casino hotels) Services Surgical & Emergency & Motels 812920 Photofinishing 551111 Offices of Bank Holding Centers 721120 Casino Hotels 812930 Parking Lots & Garages Companies 621498 All Other Outpatient Care 721191 Bed & Breakfast Inns 812990 All Other Personal Services 551112 Offices of Other Holding Centers 721199 All Other Traveler Companies Religious, Grantmaking, Civic, Medical and Diagnostic Laboratories Accommodation Professional, and Similar 721210 RV (Recreational Vehicle) Administrative and Support 621510 Medical & Diagnostic Organizations Laboratories Parks & Recreational Camps 813000 Religious, Grantmaking, Civic, and Waste Management and 721310 Rooming & Boarding Houses Home Health Care Services Professional, & Similiar Remediation Services Organizations 621610 Home Health Care Services Administrative and Support Services 561110 Office Administrative Services 561210 Facilities Support Services 561300 Employment Services 561410 Document Preparation Services 561420 Telephone Call Centers 561430 Business Service Centers (including private mail centers & copy shops) 561440 Collection Agencies 561450 Credit Bureaus 561490 Other Business Support Services (including reposses- sion services, court reporting, & stenotype services)

Page 46 Form 100S Booklet 2002 How To Get California Tax Information Where To Get Tax Forms and Publications California Tax Forms and Publications By Internet – You can download, view, and print California tax forms, 817 California Corporation Tax Forms and Instructions. instructions, publications, FTB Notices and Rulings dated after 1995 This booklet contains: from our Website www.ftb.ca.gov Form 100, California Corporation Franchise or Income Tax Return; By phone – To order current year California tax forms: Schedule H (100), Dividend Income Deductions • Refer to the list in the right column and find the code number for the Schedule P (100), Alternative Minimum Tax and Credit form you want to order. Limitations — Corporations • Call (800) 338-0505. FTB 3539, Payment Voucher for Automatic Extension for • Select “Business Entity Information.” Corporations and Exempt Organizations • Select “Order Forms and Publications.” FTB 3565, Small Business Stock Questionnaire • Enter the three-digit code shown to the left of the form title when FTB 3805Q, Net Operating Loss (NOL) Computation you are instructed to do so. and NOL and Disaster Loss Limitations — Corporations FTB 3885, Corporation Depreciation and Amortization Please allow two weeks to receive your order. If you live outside 816 California S Corporation Tax Forms and Instructions. California, please allow three weeks to receive your order. This booklet contains: In person – Many libraries and some quick print businesses have forms Form 100S, California S Corporation Franchise or Income and schedules for you to photocopy (a nominal fee may apply). Tax Return; Note: Employees at libraries and quick print businesses cannot provide Schedule B (100S), S Corporation Depreciation and tax information or assistance. Amortization Schedule C (100S), S Corporation Tax Credits By mail – Write to: Schedule D (100S), S Corporation Capital Gains and TAX FORMS REQUEST UNIT Losses and Built-In Gains FRANCHISE TAX BOARD Schedule H (100S), Dividend Income Deduction PO BOX 307 Schedule K-1 (100S), Shareholder’s Share of Income, RANCHO CORDOVA CA 95741-0307 Deductions, Credits, etc. Schedule QS, Qualified Subchapter S Subsidiary (QSub) Information Worksheet FTB 3539, Payment Voucher for Automatic Extension for Letters Corporations and Exempt Organizations If you write to us, be sure to include your California corporation number FTB 3805Q, Net Operating Loss (NOL) Computation and or federal employer identification number, your daytime and evening NOL Disaster Loss – Corporations telephone numbers, and a copy of the notice with your letter. Send your 814 Form 109, Exempt Organization Business Income Tax Return letter to: 818 Form 100-ES, Corporation Estimated Tax 815 Form 199, Exempt Organization Annual Information Return FRANCHISE TAX BOARD 820 FTB Pub. 1068, Exempt Organizations Requirements for Filing PO BOX 942857 Returns and Paying Filing Fees SACRAMENTO CA 94257-0540 802 FTB 3500, Exemption Application We will respond to your letter within six weeks. In some cases, we may 803 FTB 3555, Request for Tax Clearance — Corporations need to call you for additional information. Do not attach correspon- 831 FTB 3534, Joint Strike Fighter Credits dence to your tax return unless the correspondence relates to an item 835 FTB 3805D, Net Operating Loss (NOL) Computation and on the return. Limitation – Pierce’s Disease Your Rights As A Taxpayer General Toll-Free Phone Service Our goal at the FTB is to make certain that your rights are protected so Our general toll-free phone service is available: that you will have the highest confidence in the integrity, efficiency, and • Monday – Friday, 7 a.m. until 8 p.m. fairness of our state tax system. FTB Pub. 4058, California Taxpayers’ • Saturdays, 8 a.m. until 5 p.m. ( January through June, only) Bill of Rights, includes information on your rights as a California Note: We may modify these hours without notice to meet operational taxpayer, the Taxpayers’ Rights Advocate Program, and how you can needs. request written advice from the FTB on whether a particular transaction is taxable. From within the United States ...... (800) 852-5711 From outside the United States (not toll-free) ...... (916) 845-6500 See “Where to Get Tax Forms and Publications” on this page. For federal tax questions, call the IRS at ...... (800) 829-1040 Assistance for persons with disabilities We comply with the Americans with Disabilities Act. Persons with hearing or speech impairment, please call: TTY/TDD ...... (800) 822-6268 Asistencia bilingüe en español: Para obtener servicios en español y asistencia para completar su declaración de impuestos / formularios, llame al número telefónico indicado arriba que le corresponda.

Form 100S Booklet 2002 Page 47 Automated Toll-Free Phone Service (Keep This Booklet For Future Use) Our automated toll-free phone service is available 24 hours a day, filed a combined report? 7 days a week, in English and Spanish to callers with touch-tone Tax Clearance telephones. To order Business Entity forms, the automated service is 724 How do I dissolve my corporation? available from 6 a.m. to 8 p.m. Monday through Friday, except state 725 What do I have to do to get a tax clearance? holidays and from 6 a.m. to 4 p.m. Saturdays. You can: 726 How long will it take to get a tax clearance certificate? • Order current year California income tax forms, and 727 My corporation was suspended/forfeited. Can I still get a • Hear recorded answers to many of your questions about California tax clearance? taxes. Limited Liability Companies (LLC) Have paper and pencil ready to take notes. 750 How do I organize or register an LLC? Call from within the United States ...... (800) 338-0505 751 How do I cancel the registration of my LLC? Call from outside the United States (not toll-free) . . . . . (916) 845-6600 752 What tax forms do I use to file as an LLC? 753 When is the annual tax payment due? To Order Forms 754 What extension voucher do I use to pay the LLC fee and/or member tax? See “Where to Get Tax Forms and Publications” on the previous page. 755 Where does an LLC send its tax payments? 756 As an LLC I never did any business or even opened a door, bank To Get Information account, or anything. Why do I owe the $800 annual tax? 757 How are the LLC fees calculated? If you need an answer to any of the following questions, call 758 If a corporation converted to an LLC during the current year, is (800) 338-0505, select “Business Entity Information,” then “General Tax it liable for tax as a corporation and as an LLC in the same year? Information,” follow the recorded instructions, and enter the three-digit code when instructed to do so. Miscellaneous 700 Who do I need to contact to start a business? Code Filing Assistance 701 I need a state Employer ID number for my business. Who do I 715 If my actual tax is less than the minimum franchise tax, contact? what figure do I put on line 23 of Form 100 or Form 100W? 702 Can you send me an employer’s tax guide? 717 What are the tax rates for corporations? 703 How do I incorporate? 718 How do I get an extension of time to file? 719 How do I properly identify my corporation when dealing with 722 When does my corporation have to file a short-period return? the Franchise Tax Board? 734 Is my corporation subject to franchise tax or income tax? 720 How do I obtain information about changing my corporation’s S Corporations name? 704 Is an S corporation subject to the minimum franchise tax? 721 How does my corporation change its accounting period? 705 Are S corporations required to file estimated payments? 737 Where do I send my payment? 706 What forms do S corporations file? 738 What is electronic funds transfer? 707 The tax for my S corporation is less than the minimum 739 How do I get a copy of my state corporation or partnership tax franchise tax. What figure do I put on line 22 of Form 100S? return? 708 Where do S corporations make adjustments for state and 740 What requirements do I have to report municipal bond interest federal law differences on Schedule K-1 (100S), and where do paid by a state other than California? nonresident shareholders find their California source income on 759 If I have nonresident members and cannot get all their signatures their Schedule K-1 (100S)? on the consent release form, can I still file the return? Exempt Organizations 709 How do I get tax-exempt status? 710 Does an exempt organization have to file Form 199? 735 How can an exempt organization incorporate without paying corporation fees and costs? 736 I have exempt status. Do I need to file Form 100 or Form 109 in addition to Form 199? Minimum Tax and Estimate Tax 712 What is the minimum franchise tax? 714 My corporation is not doing business; does it have to pay the minimum franchise tax? 716 When are my corporation’s estimated payments due? Billings and Miscellaneous Notices 503 How do I file a protest against a Notice of Proposed Assessment? 723 I received a bill for $250. What is this for? 728 Why was my corporation suspended? 729 Why is my subsidiary getting a request for a return when we

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