CA Rev & Tax Code Section 24425


(a)

No deduction shall be allowed for any amount otherwise allowable as a deduction which is allocable to one or more classes of income not included in the measure of the tax imposed by this part, regardless of whether that income was received or accrued during the taxable year.

(b)

No deduction shall be allowed for any expense described in paragraphs (1) or (2) that is paid or incurred to an insurer if the insurer is a member of the taxpayer’s commonly controlled group and the amount paid or incurred would constitute income to the insurer if the insurer were subject to the California income or franchise tax.

(1)

An expense described in this paragraph means any of the following interest amounts payable to an insurer in the same commonly controlled group:

(A)

(i)Interest paid or incurred to an insurer in the taxpayer’s commonly controlled group with respect to indebtedness (other than qualified marketable debt instruments), the principal amount of which is attributable to a contribution of money by a noninsurer member of the taxpayer’s commonly controlled group to the capital of an insurer member of that group, including the principal amount of a loan arising from a direct or indirect transfer of money from that contribution to capital from one insurer to another insurer of the same commonly controlled group.

(ii)

Interest paid or incurred to an insurer with respect to a note or other debt instrument (other than qualified marketable debt instruments) contributed to the capital of an insurer with respect to its stock by a noninsurer member of the commonly controlled group. (iii)For purposes of this subparagraph, “qualified marketable debt instruments” means publicly available debt instruments of all noninsurer members of the commonly controlled group issued, but only to the extent that the aggregate principal amount of publicly available debt instruments held by all insurer members of the commonly controlled group constitutes less than 10 percent of the total outstanding principal amount of publicly available debt instruments issued by all noninsurer members.

(iv)

For purposes of this subparagraph, “publicly available debt instruments” means debt instruments available to the general public, including bonds, debentures, and negotiable instruments (as defined in Section 3104 of the California Commercial Code) that are rated by a nationally recognized statistical rating agency (as that term is used in Rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934) in one of its generic rating categories that signifies investment grade.

(B)

Interest paid or incurred within five years after the direct or indirect acquisition of the insurer by a member of the commonly controlled group (other than interest on qualified marketable debt instruments as defined in clause (iii) of subparagraph (A)).

(C)

The amount of interest paid or incurred during the taxable year to any insurer in the commonly controlled group multiplied by the disqualifying percentage. The disqualifying percentage is an amount equal to 100 percent less the percentage described in paragraph (1), (2), or (3) of subdivision (c) of Section 24410 (as the case may be) for that taxable year whether or not a dividend is paid or accrued.

(D)

An amount of interest determined by multiplying the amount of interest paid or incurred to an insurer in the commonly controlled group by the ratio of the commonly controlled group determined under paragraph (1) of subdivision (d) of Section 24410 for the taxable year (whether or not a dividend was paid or accrued in that year).

(2)

An expense described in this paragraph means any expense other than interest described by paragraph (1), that is either of the following:

(A)

Attributable to property formerly held by the taxpayer or a member of the taxpayer’s commonly controlled group that was acquired by the insurer in a transaction in which gain was realized but not recognized (including for this purpose any income deferred under Section 24465) by the taxpayer or a member of its commonly controlled group.

(B)

Attributable to property purchased with the proceeds attributable to a contribution by a noninsurer member of the taxpayers’ commonly controlled group to the capital of an insurer member of that group, including amounts attributable to a direct or indirect transfer of money from that contribution from one insurer to another insurer in the same group.

(3)

For purposes of this subdivision, amounts that are described in more than one subparagraph of either paragraph (1) or (2) shall be included only in that subparagraph that will result in the highest disallowance amount.

(4)

For purposes of this subdivision, the phrase “commonly controlled group” shall have the same meaning as that phrase has under Section 25105.

(5)

For purposes of this subdivision, an insurer is an insurer within the meaning of Section 28 of Article XIII of the California Constitution, whether or not the insurer is engaged in business in California.
Last Updated

Aug. 19, 2023

§ 24425’s source at ca​.gov