United States

California: Franchise Tax Board Address Conformity to Federal Partial Disposition Regulations

Dec 07, 2015
From KPMG TaxWatch

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The California Franchise Tax Board recently addressed whether California conforms to the federal partial disposition regulations. Recall, in the March 2015 Issue of Tax News, the FTB confirmed that California conforms to the federal repair regulations and associated accounting method changes (with certain adjustments due to federal and California asset basis differences). Questions have recently come up as to whether California likewise conforms to the partial disposition regulations.

As background, in 2014 the IRS issued final regulations regarding partial dispositions of assets. These regulations allow taxpayers to receive tax recognition when there is a disposition of a portion of an asset. In the recent Tax News, the FTB confirmed that California follows these regulations. Further, in part due to differences between the temporary and final partial disposition regulations, the IRS allowed taxpayers to make late partial disposition elections for tax years 2012 through 2014. Because California follows the partial disposition regulations, the late partial disposition elections are also valid for California. Thus, if a taxpayer receives approval (including automatic consent) for a partial disposition election from the IRS, the taxpayer will be deemed to have also made a valid California election. However, there may be a difference between the federal and California depreciable basis, useful life or method of depreciation. The federal approval for a partial disposition will still apply for California purposes even though the resultant federal numbers may be different than the California numbers. In these cases where a federal/ California difference exists, taxpayers should attach to their California tax return both a copy of the federal Form 3115, Application for Change in Accounting Method, as well as a pro forma Form 3115 with the numbers adjusted for California. Please contact Doug Bramhall at 480-459-3491 with questions on California’s conformity to the partial disposition regulations.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.