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Ftb Notice 2003-6 - Procedures For Making The Election To Defer Certain Gain From The Sale Of Qualified Small Business Stock Form - California Franchise Tax Board

STATE OF CALIFORNIA

STEVE WESTLY

Chair

FRANCHISE TAX BOARD - Legal Branch

PO Box 1720

CAROLE MIGDEN

Rancho Cordova CA 95741-1720

Member

(916) 845-3309 Fax (916) 845-3648

STEVE PEACE

Member

May 6, 2003

FTB NOTICE 2003-6

SUBJECT:

PROCEDURES FOR MAKING THE ELECTION TO DEFER CERTAIN

GAIN FROM THE SALE OF QUALIFIED SMALL BUSINESS STOCK

In 1998, Revenue and Taxation Code section 18038.5 was enacted by the Legislature

to permit an individual to elect to rollover gain from the sale of "qualified small business

stock" if the sale proceeds are used to purchase other "qualified small business stock"

within sixty days from the date of the sale. The section applies to sales made after

August 5, 1997.

With certain exceptions, California's provisions on small business stock found in

Revenue and Taxation Code sections 18038.5 and 18152.5 mirror Internal Revenue

Code sections 1045 and 1202, respectively. Due to their similarity and the express

intent of the Legislature, any federal rules or procedures applicable to the federal

qualified small business stock provisions apply to California's qualified small business

stock provisions to the extent that they do not conflict with any California rules or

procedures. (See Rev. & Tax. Code, § 18152.5, subd. (l).)

The federal procedure for making an election to rollover gain from the sale of "qualified

small business stock" requires the election to be made on an original return filed on or

before the due date (including extensions) for filing the income tax return for the taxable

year in which the qualified small business stock is sold. (See Rev. Proc. 98-48, 1998-2

C.B. 367.) Therefore, in general, an election under Revenue and Taxation Code

section 18038.5 to rollover the gain from the sale of "qualified small business stock"

must also be made on an original return filed on or before the due date (including

extensions) for filing the income tax return for the taxable year in which the qualified

small business stock is sold.

However, the Legislature amended Revenue and Taxation Code section 18038.5 in

2002 in a manner that expanded the types of taxpayers that may elect to rollover gain

from the sale of qualified small business stock from only "individuals" to "taxpayers

(other than corporations)."

(Stats. 2002, ch. 35, § 28 (AB 1122).) Although the

"Qualified Small Business Stock" is defined in Revenue and Taxation Code section 18152.5, subd. (c).

"[T]he benefit of a tax-free rollover with respect to the sale of small business stock by a partnership will

flow through to a partner who is not a corporation if the partner held its partnership interest at all times the

Ftb Notice 2003-6 - Procedures For Making The Election To Defer Certain Gain From The Sale Of Qualified Small Business Stock Form - California Franchise Tax Board

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