CA Rev & Tax Code Section 23802

(a)

Section 1363(a) of the Internal Revenue Code, relating to the taxability of an “S” corporation does not apply.

(b)

Corporations that are “S” corporations under this chapter shall continue to be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except as follows:

(1)

The tax imposed under Section 23151 or 23501 shall be imposed at a rate of 112 percent rather than the rate specified in those sections.

(2)

In the case of an “S” corporation that is also a financial corporation, the rate of tax specified in paragraph (1) shall be increased by the excess of the rate imposed under Section 23183 over the rate imposed under Section 23151.

(c)

An “S” corporation shall be subject to the minimum franchise tax imposed under Section 23153.

(d)

(1)For purposes of subdivision (b), an “S” corporation shall be allowed a deduction under Section 24416 or 24416.1 (relating to net operating loss deductions), but only with respect to losses incurred during periods in which the corporation is an “S” corporation for purposes of this part.

(2)

Section 1371(b) of the Internal Revenue Code, relating to denial of carryovers between “C” years and “S” years, shall apply for purposes of the tax imposed under subdivision (b), except as provided in paragraph (1).

(3)

The provisions of this subdivision do not affect the amount of any item of income or loss computed in accordance with the provisions of Section 1366 of the Internal Revenue Code, relating to pass-thru of items to shareholders.

(4)

For purposes of subdivision (b) of Section 17276, relating to limitations on loss carryovers, losses passed through to shareholders of an“S” corporation, to the extent otherwise allowable without application of that subdivision, shall be fully included in the net operating loss of that shareholder and then that subdivision shall be applied to the entire net operating loss.

(e)

For purposes of computing the taxes specified in subdivision (b), an“S” corporation shall be allowed a deduction from income for built-in gains and passive investment income for which a tax has been imposed under this part in accordance with the provisions of Section 1374 of the Internal Revenue Code, relating to tax imposed on certain built-in gains, or Section 1375 of the Internal Revenue Code, relating to tax imposed on passive investment income.

(f)

For purposes of computing taxes imposed under this part, as provided in subdivision (b):

(1)

An “S” corporation shall compute its deductions for amortization and depreciation in accordance with the provisions of Part 10 (commencing with Section 17001) of Division 2.

(2)

Section 465 of the Internal Revenue Code, relating to limitation of deductions to the amount at risk, shall be applied in the same manner as in the case of an individual.

(3)

(A)Section 469 of the Internal Revenue Code, relating to limitations on passive activity losses and credits, shall be applied in the same manner as in the case of an individual. For purposes of the tax imposed under Section 23151 or 23501, as modified by this section, material participation shall be determined in accordance with Section 469(h) of the Internal Revenue Code, relating to certain closely held “C” corporations and personal service corporations.

(B)

For purposes of this paragraph, the “adjusted gross income” of the“S” corporation shall be equal to its “net income,” as determined under Section 24341 with the modifications required by this subdivision, except that no deduction shall be allowed for contributions allowed by Section 24357.

(4)

The exclusion provided under Section 18152.5 may not be allowed to an “S” corporation.

(5)

The deduction for bad debts under paragraph (2) of subdivision (a) of Section 24348 may not be allowed to an “S” corporation.

(g)

(1)The provisions of Section 1363(d) of the Internal Revenue Code, relating to recapture of LIFO benefits, shall be modified for purposes of this part to refer to Section 19101 in lieu of Section 6601 of the Internal Revenue Code.

(2)

For purposes of Section 19023, relating to the definition of “estimated tax,” and Section 19142, relating to an addition to tax for underpayment of estimated tax, the tax imposed pursuant to this subdivision is not a tax imposed by this part.

Source: Section 23802, https://leginfo.­legislature.­ca.­gov/faces/codes_displaySection.­xhtml?lawCode=RTC§ionNum=23802.­.

Last Updated

Aug. 19, 2023

§ 23802’s source at ca​.gov