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definitions of personal service corporations and

Line 2 – Closely held C corporations.

Credits Subject to Other Limitations

closely held C corporations. S corporations must

Closely held C corporations can offset the loss, if

The research credit is limited to the amount of tax

use forms FTB 3801 and FTB 3801-CR instead of

any, on line 1d with net active income. Net active

on the income from those activities. Since this

form FTB 3802.

income is the corporation’s taxable income for the

limitation is applied before the passive credit

income year, determined without regard to the

limitations, figure it before completing form

D Coordination With Other

following items:

FTB 3802.

Limitations

•

Net passive income or loss;

Note: The federal transitional rules related to low-

•

Portfolio income;

income housing also apply to California.

Losses from passive activities are subject to basis

•

Deductions attributable to portfolio income

and at-risk limitations before they are subject to

Line 7

described in Temporary Treasury Regulations

the passive loss limitations. For details on at-risk

If any of the following apply, enter -0- on line 7

Section 1.469-2T(d)(2)(i), (ii) and (iv);

rules, get federal Form 6198, At-Risk Limitations.

and do not complete Part I or Part II of the

•

Interest expense allocated under Temporary

Complete federal Form 6198 using California

computation for Line 7 in the instructions for

Treasury Regulations Section 1.163-8T to a

amounts before completing form FTB 3802.

federal Form 8810:

portfolio expenditure (within the meaning of

E Special Rules for

•

The corporation is a personal service

Section 1.163-8T(b)(6));

corporation with a loss on form FTB 3802,

•

Gain on the disposition of substantially

Corporations Filing a

line 1d; or

appreciated property formerly held for

Combined Report

•

The corporation is a personal service

investment. See Temporary Treasury Regula-

corporation with net passive income on form

tions Section 1.469-2T(c)(2)(iii)(F);

The passive activity loss and passive activity credit

FTB 3802, line 1d, and the corporation had an

•

Gross income from certain oil or gas properties

of a corporation filing a combined report are

overall loss from the entire disposition of a

treated under Temporary Treasury Regulations

determined by taking into account the following

passive activity that was equal to or greater

Section 1.469-2T(c)(6) as if from a

items of all members of the group:

than the net income on line 1d; or

non-passive activity; and

•

Passive activity gross income and deductions;

•

The corporation is a closely held C corporation

•

Gross income and deductions from any trade

•

Gain or loss on dispositions;

with a loss on form FTB 3802, line 1d, and the

or business activity of trading certain personal

•

Net active income (in the case of a corporation

corporation had no net active income; or

property described in Temporary Treasury

filing a combined report treated as a closely

•

The corporation is a closely held C corporation

Regulations Section 1.469-1T(e)(6), but only if

held C corporation); and

with net passive income on form FTB 3802,

the corporation does not materially participate

•

Credits from passive activities.

line 1d, and had an overall loss from an entire

in the activity for the income year.

disposition that was equal to or greater than

Specific Instructions

Net active income includes an overall loss from a

the amount on form FTB 3802, line 1d, and the

passive activity if there is a fully taxable disposi-

corporation had no net active income.

tion of an entire interest in a passive activity.

The PAL rules of IRC Section 469 apply to closely

See the instructions for federal Form 8810, line 7,

Include the overall loss to the extent that it

held corporations and personal service corpora-

for more information.

exceeds net passive income. If there is a net

tions. Corporations subject to the PAL rules must

passive loss, include all of the loss.

Line 8 – Unallowed Passive Activity Credit.

complete form FTB 3802 to compute the allowable

If line 8 is zero, all of the passive activity credits on

PAL and credit limitations. Before completing form

Figure any contribution deduction by taking 10%

line 6 are allowed. See the instructions for line 9

FTB 3802, see the instructions for federal

of net active income (figured without the

for how to report the credits.

Form 8810. Federal Worksheet 1 through

contribution deduction) and subtract the smaller of

Worksheet 6 in the instructions for federal

that amount or the contribution deduction from the

Line 9 – Allowed Passive Activity Credit.

Form 8810 must be completed for California

net active income (figured without the contribution

If the credits allowed on line 9 do not have to be

purposes using California amounts.

deduction).

allocated between activities or different types of

credits, report the amount on line 9 on the

Also, see Temporary Treasury Regulations

Line 4

appropriate credit form.

Section 1.163-8T, which provides rules for

Use Worksheet 3 and Worksheet 4 in the

allocating interest expense among activities. The

instructions for federal Form 8810 to figure the

If the credits allowed on line 9 must be allocated

interest offset computation should be made before

unallowed deductions and losses to be carried

between activities or different types of credits, use

allocating this interest expense among activities.

forward and the allowed deductions and losses to

federal Worksheet 6 to determine the amount

Get Schedule R, Apportionment and Allocation of

report on the forms for 1999. Federal Worksheet 2,

allowed for each activity.

Income, for more information.

columns (d) and (e), will show whether an activity

Part III — Election to Increase Basis of Credit

had an overall gain or loss. If an activity has an

Note: A state adjustment may be required on

Property.

overall gain on Worksheet 2, column (d), report all

Form 100, line 7 or line 15, if the corporation uses

of the deductions and losses listed in Worksheet 1

When a taxpayer disposes of an entire interest in a

the “federal reconciliation” method to file Form

and any prior year unallowed losses in Work-

passive activity through a taxable transaction, the

100 (see General Information I, Net Income

sheet 2 for those activities on the appropriate lines

taxpayer may elect to increase the basis of credit

Computation, in the Form 100 booklet).

of Form 100.

property immediately before the disposition under

Specific Line Instructions

the following circumstances:

Use Worksheet 3 and Worksheet 4 for activities in

Worksheet 2 that show an overall loss in column (e).

•

The taxpayer was required to reduce the

See the instructions for federal Form 8810, Part I

property’s basis by the amount of the credit;

Part II — Passive Activity Credits.

and Part II, for specific line instructions for

and

completing form FTB 3802, Part I and Part II.

Use form FTB 3802, Part II to determine the

•

The taxpayer was not able to apply all or part of

amount of certain credits allowed from passive

the credit against tax liability because of the

Part I — Passive Activity Loss.

activities for the current income year and the

limitations imposed by the passive activity

Line 1d and Line 3

amount that is unallowed and carried forward.

rules.

If line 1d or line 3 shows net income or zero, all of

The following credits from passive activities are

See IRC Section 469(j)(9), for more information.

the deductions and losses are allowed, including

included on form FTB 3802:

The amount of the unallowed credit which a

any prior year unallowed losses entered on line 1c.

taxpayer may elect to add back to the basis of

Credit

Code

Compare the California amount on form FTB 3802,

property for California tax purposes may differ

•

Orphan drug credit carryover

185

line 1d or line 3 to the amount on federal

from the amount of unallowed credit entered on

•

Low-income housing credit

172

Form 8810, line 1d or line 3. Enter the difference

federal Form 8810, Part III, because of differences

•

Research credit

183

as a state adjustment on Form 100, line 7 or

in California and federal law. Complete Part III to

line 15, whichever is applicable, if the “federal

make the election for California tax purposes.

reconciliation” method was used to complete

Form 100.

Page 2 FTB 3802 1999

California Form 3802 - Corporate Passive Activity Loss And Credit Limitations - 1999 Page 2

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