California Enacts IRS Conformity Legislation

November 19, 2015

By David Venanzi

On September 30, 2015, California Governor Jerry Brown signed into law L.2015, A154 which, effective immediately, updates California’s Revenue and Taxation Code conformity date with the Internal Revenue Code to January 1, 2015. It also amends various California statutes to bring into conformity or partial conformity California law with federal law.

Some of the laws that were brought into conformity with the federal law include but are not limited to:

  1. The exclusion from gross income for military base closure benefits;
  2. Increase in information return penalties;
  3. Information disclosure requirements with respect to foreign financial assets; and
  4. Extension and modification of research credit.

In addition, the legislation modifies California provisions that do not conform to federal law, including:

  1. The deferral and inclusion of income from business indebtedness discharged by the reacquisition of a debt instrument;
  2. The treatment of certain ownership changes for purposes of limitations on net operating loss carryforwards; and
  3. The increase in penalty for failure to file an S corporation or partnership return.

In addition to the changes above, the bill also provides a provision for relief of the large corporate understatement penalty (“LCUP”). It provides additional exceptions to the LCUP when any underpayment of tax is attributable to:

  1. An increase to tax from a IRC section 338 election as reported on the first amended return; and
  2. An understatement arising from the following:
  • the FTB's imposition of an alternative apportionment or allocation method to prevent distortion in the allocation and apportionment of California income; or
  • changes to the taxpayer’s federal method of accounting.


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