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a 10-year period using the straight-line

Financial institutions using bad debt

Determining the Yearly Net Increase

method. The LAMBRA business expense

reserve methods may carry forward the

in Jobs

deduction you may claim is $5,000. You may

LAMBRA NOL for only five years.

To determine the yearly net increase in jobs,

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also claim the normal $125 of depreciation

A LAMBRA NOL may not be applied to

subtract the total number of full-time

that is allowed for each month the oven was

years prior to the year in which the

employees (defined as 2,000 paid hours per

in service during the year.

LAMBRA NOL occurred (no carrybacks).

employee per year) employed by the taxpayer

($20,000 - $5,000) ÷ 120 months =

in California during the taxable or income year

Example 5: For your 1997 income year, the

prior to starting business operations in the

$125 per

activities in the LAMBRA show a $5,000 NOL

LAMBRA from the total number of full-time

that is the exclusive result of your LAMBRA

month

employees the taxpayer employed in

activity. Because of the loss, you owe no tax

Deduction Recapture

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California during the second taxable or

on LAMBRA income. In 1998, your business

The full amount of the deduction must be

income year after starting business operations

shows a profit of $8,000. You may carry over

included in income if the property is no

in the LAMBRA.

the 1997 $5,000 NOL to reduce your

longer used in a LAMBRA before the close

LAMBRA taxable income for 1998 to $3,000.

The total number of employees employed in

of the first two taxable or income years

Record Keeping

the LAMBRA equals the sum of:

beginning after the property was first

placed in service.

To support your claim of an NOL carryover on

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Total number of hours worked in the

In addition, if at the close of the second

your California tax return, you should

LAMBRA by hourly wage employees*

year, the taxpayer does not have a net

maintain:

2000

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increase of one or more jobs (defined as

Records showing the status date your

2,000 paid hours per employee per year),

Plus

business activities began in a LAMBRA;

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the amount of the business expense

Accounting records showing that the loss

Total number of months worked in the

deduction previously claimed must be

was the result of business activity in a

LAMBRA by salaried employees**

added back to the taxpayer’s income for

LAMBRA; and

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the taxpayer’s second taxable year.

Financial data indicating that the income

* Not to exceed 2000 hours for any one

Record Keeping

offset by the carryover is the product of

employee.

business activity in a LAMBRA.

You should maintain information that will allow

** Not to exceed 12 months for any one

you to substantiate your claim for the first-year

employee.

business expense deduction. The records for

Determination of LAMBRA Income

each item should show:

Example 7: Z Corp. employs four individuals

or LAMBRA Tax

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prior to establishing operations in the

The identity and purchase price;

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LAMBRA.

The date on which the property was first

For businesses operating within and outside a

placed in service in a LAMBRA; and

LAMBRA, the amount of credit and NOL

Employee #1 is salaried and employed

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The location where the property is used.

deduction you may claim on your California

for 12 months.

tax return is limited by the amount of tax or

Employee #2 is full-time and works 2080

Net Operating Loss Carryover

income attributable to a LAMBRA. The

hours a year.

formula used to determine the amount of tax

Employees #3 and #4 are part-time and each

Net operating losses (NOLs) of individuals or

or income attributable to a LAMBRA is a

work 1500 hours a year.

corporations doing business in a LAMBRA

formula based on the total property and

Total employees employed at the beginning of

may be carried over to future years to reduce

payroll of the business located in a LAMBRA

operations in the LAMBRA equals:

the amount of taxable LAMBRA income for

compared to the total property and payroll of

those years. The NOL carryover is determined

the business everywhere.

Employee #2 - 2000*

by computing the business loss that results

An example of a business doing business

Number of

Employee #3 - 1500

strictly from business activity in a LAMBRA.

within and outside of a LAMBRA:

hours for hourly

Employee #4 - 1500

Election

wage employees

Example 6: You have a factory located in a

If you qualify to claim more than one type of

5000 = 2.50

LAMBRA and you also have a factory located

NOL, you must make an irrevocable election

2000

outside a LAMBRA. In this situation, you

as to which type of NOL you claim. This

would be required to use the formula.

PLUS

election must be made on the original return

If you are doing business within and outside a

for the year of the loss and be filed by the

LAMBRA, or in more than one LAMBRA, get

Number of months

original or extended due date of the return.

FTB 3807, Local Agency Military Base

for salaried

For more information regarding the other

Recovery Area Booklet. Refer to Part IV,

employees

types of NOLs, see the following forms or

Doing Business Totally Within, Within and

Employee #1 - 12

= 1.00

worksheets:

Outside a LAMBRA or in More than One

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LAMBRA.

FTB 3805V, Net Operating Loss (NOL)

Total employees, beginning

3.50

Computation and NOL and Disaster Loss

Limitations – Individuals, Estates and

Qualified Taxpayer Defined

* Not to exceed 2000 hours for any one employee.

Trusts;

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FTB 3805Q, Net Operating Loss (NOL)

For LAMBRA, a qualified taxpayer means a

At the end of the second year of operation in

Computation and NOL and Disaster Loss

taxpayer or partnership that conducts a trade

the LAMBRA, the taxpayer employed five

Limitations – Corporations;

or business within a LAMBRA and, for the first

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individuals:

FTB 3805Z, Enterprise Zone Business

two taxable or income years, has a net

Employee #1 is salaried and employed for 36

Booklet, Worksheet VI; and

increase in jobs (defined as 2,000 paid hours

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months.

FTB 3806, Los Angeles Revitalization

per employee per year) of one or more

Employee #2 is full-time and works 2080

Zone Booklet, Worksheet VI.

employees in the LAMBRA determined as

hours per year.

follows.

Limitations

Employees #3, #4 and #5 are part-time and

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LAMBRA NOL carryovers are allowed only

work 1700 hours per year.

for losses occurring in a year beginning on

or after the date the area is designated as

a LAMBRA.

FTB Pub. 1102 (REV. 6/1998)

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Guidelines For Form Ftb Pub.1102 Local Agency Military Base Recovery Area Tax Incentives - California Franchise Tax Board Page 3

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