Multistate Tax Alert: California FTB Holds Second Interested Parties Meeting
Discuss draft regulation language for annual reporting of property transferred to insurers
The California Franchise Tax Board (“FTB”) recently held an Interested Parties Meeting to receive input on draft regulatory language regarding the information to be required in an annual statement to be filed by any taxpayer that transfers appreciated property to an insurance company in its commonly controlled group. This regulation would implement California Revenue & Taxation Code Section 24465 that disallows tax free treatment for purposes of the California Franchise Tax in connection with certain reorganizations and exchanges that are otherwise tax free for Federal Income Tax purposes. Under Section 24465, the disallowance of California tax free treatment can arise when an insurer, which is not a “corporation” for purposes of Section 24465, receives appreciated property from a California taxpayer as part of the transaction. The gain may be deferred, however, if certain requirements are met. The purpose of the annual statement, which would be attached to the taxpayer’s return, is to report the current ownership of any property for which gains were previously deferred in such a transaction. Under Section 24465, if a taxpayer subject to the reporting requirement fails to provide the required information, the FTB may require the taxpayer to take the deferred gains into account in the first taxable year during which the current ownership of the property is not reported.
The attached Tax Alert provides background regarding Section 24465 and summarizes the possible contents of the annual statement based on the FTB’s draft language and the discussion that took place during the recent Interested Parties Meeting.