California Personal Income Tax discusses the state’s tax laws in detail, compares California’s taxable income requirements to federal requirements, and provides an in-depth discussion of the past or continuing differences of particular items and the resulting adjustments that must be made. Since 1987, California taxable income has been substantially the same as federal taxable income. However, taxpayers may be required to make major adjustments to their federal taxable income for state tax purposes.  Written by W. Scott Thomas, Esq., Dickenson, Peatman & Fogarty, and Michael D. Herbert, Esq., PricewaterhouseCoopers, LLP, this Portfolio addresses the major additions to, and subtractions from, federal taxable income that are mandated by California law.

California Personal Income Tax also explores the various issues that arise in the taxation of nonresidents and part-year residents with California source income. The often confusing issues of residency and domicile are discussed, as well as the treatment of specific types of income derived from California sources. In addition, this Portfolio describes the special rules that apply to certain classes of taxpayers, including military personnel, athletes and entertainers, and traveling sales representatives.

A detailed discussion of state tax credits is provided, as well as information pertaining to the taxation of trusts, estates, and beneficiaries. Finally, this Portfolio instructs taxpayers and their representatives on the California rules regarding information returns, payment of tax liability, refunds, and available remedies.

California Personal Income Tax allows you to benefit from: 

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Plain-English guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

Detailed Analysis

1900.01. OVERVIEW

1900.02. INCORPORATION OF INTERNAL REVENUE CODE

A. History of Conformity

B. Current Conformity

C. Regulations and Elections

1900.03. GROSS INCOME

Introductory Material

A. Items Specifically Included In Gross Income

1. Unemployment Compensation

2. Social Security and Railroad Retirement Benefits

3. Income of S Corporations and LLCs

4. Annuities and IRAs

5. Patronage Dividends

6. Certain Qualified Retirement Plan Distributions

7. Regulated Investment Companies and Real Estate Investment Trusts

8. Merchant Marine Construction Funds

9. Parking Cash-Out Programs

B. Items Specifically Excluded From Gross Income

1. Exempt Interest

2. Sale of Residence

3. Spouses of Military Personnel

4. Miscellaneous

a. Income From Discharge of Indebtedness

b. Beverage Container Refunds

c. California Lottery Winnings

d. Employees of a Foreign Country

e. Qualified Transportation Fringe Benefits

f. Recovery of Tax Benefit Items

g. Forest Landowners

h. Relocation Assistance

i. Water Conservation

j. Educational Assistance

k. Golden State Scholarshare Trust Investments

l. Crime Hotline Rewards

m. Canadian Redress Payments for Japanese Internment

n. Holocaust Reparation Claims

o. Redress Payments for World War II Forced Labor

p. Compensation for Erroneous Convictions

q. Armenian Genocide Settlement Payments

C. Gain or Loss on Disposition of Property

1. Sales to ESOPs

2. Sales of Vessels

3. Sales of Low-Income Housing

4. Sales of Low-Income Assisted Housing to Tenants

5. Sales of Outdoor Advertising Displays

6. Sales of Special Use Property

7. Damaged Principal Residences

8. Sales of Qualified Small Business Stock

9. Rollover of Publicly Traded Securities Gain into a Specialized Small Business Investment Company

10. Certain Dispositions of Debt Obligations

11. Basis and Basis Adjustments

12. Basis of Community Property When One Spouse Has Died

13. IRC § 1250 and 1275 Modifications

D. Corporate Distributions and Adjustments

E. Partners and Partnerships

1. Deduction Limitations

2. Modifications

3. IRC § 751 Modifications

4. Publicly Traded Partnerships

F. Estates and Trusts

1. Exemptions

2. IRC § 682 Provisions

3. Throwback Rules

4. Modifications: IRC § 642

5. Modifications: IRC § 691

6. Estate Distributions to Nonresident Beneficiaries

7. Charitable Trusts and Employees' Trusts

G. Deferred Compensation

1. Basis in Retirement Accounts

2. Separate Tax on Lump–Sum Distributions

3. Individual Retirement Accounts (IRAs)

4. Pension Funding Tax

5. Pension Excise Taxes

6. Thrift Savings Funds

H. Natural Resources

I. PTPs, RICs, REITs, REMICs, and Foreign Currency

J. Accounting Periods and Methods

1. Short Years

2. U.S. Savings Bonds

3. Installment Obligations

4. Modifications: IRC § 469

5. Designated Settlement Funds

6. Spouses Filing Separately

7. Vacation Pay

8. Long–Term Contracts

9. Estates

10. I.R.C. Section 1341 (Deduction for Repayment in Later Year)

11. Tax Benefit Rule

12. Past Service Pension Costs

13. Mark to Market Accounting

1900.04. DEDUCTIONS

Introductory Material

A. Standard Deduction

B. Taxes

C. Interest and Gain on Market Discount Bonds

D. Expenses Related to Exempt Income

E. Adjusted Gross Income (AGI) Limitations on Deductions

F. Depreciation

G. Amortization

H. Net Operating Losses

I. Discriminatory Clubs

J. Substandard Housing

K. Illegal Activities

L. Indirect Contributions to Political Parties

M. Interest Incurred for Energy Efficient Products

N. Failure To Report Certain Information

O. Miscellaneous

1900.05. CALCULATION OF REGULAR INCOME TAX

A. Filing Status

B. Rate Brackets

1900.06. CREDITS AGAINST TAX

A. General Rules for Credits

1. Personal Exemptions

2. Head of Household

a. Joint Custody Head of Household

b. Senior Head of Household

3. Certain Renters

4. Certain Taxes Paid to Another State

5. Child Care Facilities and Care Plans

6. Credit for Child and Dependent Care Expenses

7. Alternative Minimum Tax

8. Investment in Certain Low-Income Housing

9. Certain Research in California

10. Adoption Costs

11. Teacher Retention Credit

12. Land Conservation Credit

13. Solar Energy Credit

14. Joint Strike Fighter Wage Credit

15. Joint Strike Fighter Property Credit

16. Credit for Transportation of Donated Agricultural Product

B. Expired Credits

1. Long-Term Care Credit

2. Certain Manufacturing and Research Property

3. Fish Habitat Restoration

1900.07. ALTERNATIVE MINIMUM TAX

A. History

B. Imposition of Tax

C. California Tentative Minimum Tax Computation

D. California Regular Tax

1900.08. APPLICATION OF TAX TO NONRESIDENTS AND PART-YEAR RESIDENTS

A. In General

B. Definition of Resident, Part-Year Resident, and Nonresident

1. Temporary or Transitory Purpose

a. Identifiable Purpose

b. Contacts With California and Other States

c. Employment-Related Contracts

2. Domicile

3. Presumption of Residency or Nonresidence

4. Proof of Nonresidence

5. Procedure If Status Doubtful

6. Public Officials

7. Military Personnel

C. Income From California Sources

1. Income From Real or Tangible Personal Property

2. Income From Business, Trade, or Profession

a. Allocation of Trade or Business Income

b. Allocation Formula

3. Compensation for Personal Services Performed in California

4. Special Rules for Some Occupations

a. Traveling Sales Representatives

b. Performers and Athletes

c. Professionals and “In–and–Out” Employees

d. Military Personnel

5. Income From Intangible Personal Property

6. Retirement Income Received by Nonresidents

D. Rules Applicable to Change of Residence Status

1. Pension Payments

2. Moving Expenses

E. Credit for Taxes Imposed by State of Residence

1. Reciprocity

2. Double Credit Not Allowed

3. Credit Limited to Taxes on California–Source Income

4. Credit Limited to California Taxes on Income Subject to Double Tax

1900.09. APPLICATION OF TAX TO TRUSTS, ESTATES, AND BENEFICIARIES

A. Residence and Source–of–Income Problems

B. Estates

C. Trusts

1. Residence and Source of Income

2. Contingent Beneficiaries

3. Collecting Tax From Beneficiaries

1900.10. ECONOMIC DEVELOPMENT AREAS

Introductory Material

A. Enterprise Zones

1. Hiring Credit

2. Sales or Use Tax Credit

3. Business Expense Deduction

4. Net Interest Deduction

5. Net Operating Loss Deduction

B. Local Military Base Recovery Areas (LAMBRAs)

1. Hiring Credit

2. Sales or Use Tax Credit

3. Business Expense Deduction

4. Net Operating Loss Deduction

C. Manufacturing Enhancement Area Hiring Credit

D. Targeted Tax Area

1. Hiring Credit

2. Sales or Use Tax Credit

3. Business Expense Deduction

4. Net Operating Loss Deduction

1900.11. RETURNS

A. Tax Returns

1. Individuals

2. Fiduciaries

3. Partnerships, Limited Liability Companies, and Limited Liability Partnerships

4. Time for Filing

5. Penalties for Failure To File

B. Information Returns

1. Payments for Services

2. Other Information Returns

3. Time for Filing; Penalties for Failure To File

1900.12. PAYMENT

Introductory Material

A. Wage Withholding

B. Nonresident Withholding: Independent Contractors, Rents and Royalties

1. Independent Contractors

2. Rents and Royalties

C. Other Withholding

D. Estimated Tax Payments

E. Payments With Returns

F. Penalties for Late Payment, Bad Checks, Inaccuracy, and Fraud

1. Late Payment

2. Bad Checks

3. Inaccuracy and Fraud

4. Failure to File

G. Exemptions From Levy

1900.13. DEALING WITH CALIFORNIA TAX AGENCIES

Introductory Material

A. Deficiencies

1. Audits and Proposed Assessments

2. Protests

3. Appeal to State Board of Equalization

4. Jeopardy Assessments

5. Statute of Limitations on Assessments and Collections

6. Reporting Federal Changes

7. Compromises of Tax Liability

8. Collection Costs Recovery Fees

B. Refunds

1. Claims for Refund

2. Appeals to State Board of Equalization

3. Statute of Limitations on Refunds

4. Suits for Refund

5. Recovery of Erroneous Refunds

C. Taxpayers' Bill of Rights Act

D. Collection of Delinquent Child Support

1900.14. INTEREST

A. Interest on Underpayments

B. Interest on Overpayments

C. Rate of Interest

D. Interest on Penalties

Working Papers

Item Description Sheet

Worksheet 1 Taxpayers' Bill of Rights

Worksheet 2 How To Get California Tax Assistance

Worksheet 3 Franchise Tax Board Return Mailing Addresses

Worksheet 4 Interest Rates on Overpayments and Underpayments (Cal. Rev. & Tax. Code § § 19101-19120)

Worksheet 5 Interest Rates on Overpayments and Underpayments of Estate Tax

Worksheet 6 Tax Rate Schedules (Cal. Rev. & Tax. Code § § 17041-17061)

Bibliography

Bibliography