Instructions For Form Ftb 3523 - Research Credit (Page 3 of 3) in pdf

These amounts are the research credit available to Partner A

distributive amount of research credit on Schedule K-1 (100S,

and Partner B for their 1998 taxable or income years.

541, 565 or 568) without the IRC 280C(c) reduction. The

pass-through entity will note in the supplementary information

Note: Amounts received from S corporations, estates or trusts,

section of the Schedule K-1 (100S, 541, 565 or 568) that the

partnerships and LLCs taxed as partnerships may be limited

credit must be reduced by the shareholder’s, beneficiary’s,

due to IRC Section 41(g) and the related regulations.

partner’s or member’s applicable credit reduction percentage as

Section B – Alternative Incremental Credit

shown below:

•

90.7% (.907) for individuals and estates or trusts;

Complete this section ONLY if you are electing the alternative

•

91.16% (.9116) for corporations; or

incremental credit instead of the regular credit. To be valid, the

•

98.5% (.985) for S corporations.

election must be made for the first taxable or income year

beginning on or after January 1, 1997. Once made, the election

The amount of research credit passed through to you on

applies to the current taxable or income year and all later years

Schedule(s) K-1 (100S, 541, 565 or 568) may be limited due to

unless you receive Franchise Tax Board (FTB) consent to

IRC Section 41(g) and the related regulations. Specifically, the

revoke the election.

amount of credit entered on this line is limited to the amount of

tax attributable to your interest in the proprietorship,

Line 18 – Corporations (other than S corporations, personal holding

S corporation, estate or trust, partnership or LLC taxed as a

companies and service organizations) may be eligible for a

partnership generating the credit. Use the formula below to

‘‘basic research’’ credit if the 1998 payments in cash to a

determine the credit limitation. If you have pass-through

qualified university or scientific research organization (under a

research credits from more than one business interest, figure

written contract) exceed a base period amount (based on your

the research credit limitation separately for each business

general university giving and certain other maintenance-of-effort

interest by applying the formula below to each pass-through

levels for the 3 preceding years). To be eligible, the basic

credit.

research must have been conducted within California.

Credit

Taxable income attributable to

Enter your 1998 payments on line 18. See IRC Section 41(e)

Limit =

your interest in the sole

x {Net income tax}

and R&TC Section 23609(d) for details. Also see line 1

proprietorship or pass-through

instructions for additional information.

entity (Schedule K-1)

Line 19 – Enter the base amount as defined in IRC Section 41(e) and

Total taxable income for the

R&TC Section 23609. If you do business both within and

year (Form 540, line 19;

outside of California, see General Information D, Limitations.

Form 540NR, line 19 or

The amount on line 19 may not be more than the amount on

Form 541, line 20)

line 18. This amount may be treated as 1998 contract research

expenses on line 25 (subject to the 65% or 75% limitation).

For purposes of completing the above formula, Net income tax

is regular tax (from Form 540, line 24; Form 540NR, line 27 or

Line 23 – See line 6 instructions.

Form 541, line 21) plus alternative minimum tax (from

Form 540, line 35; Form 540NR, line 44 or Form 541, line 26).

Line 24 – See line 7 instructions.

Note: The percentage representing taxable income attributable

to your interest in the business to your total taxable income for

Line 25 – Include 65% of any amount paid or incurred for qualified

the year cannot exceed 100%. If in the current taxable or

research performed on your behalf. For corporations only,

income year you had no income attributable to a particular

include 65% of the portion of line 18 basic research payments

business interest, you cannot claim any research credit related

that does not exceed the line 19 base period amount.

to that business this year; however, the credit can be carried

For taxable or income years beginning on or after January 1,

over to succeeding years until exhausted. Likewise, any current

1997, use 75% in place of 65% for payments made to a

year pass-through research credit that exceeds the IRC

qualified research consortium. A qualified research consortium is

Section 41(g) limitation may be carried over to succeeding years

a tax-exempt organization described in IRC Section 501(c)(3) or

until exhausted. Note: All pass-through credit carryovers will be

501(c)(6) that is organized and operated primarily to conduct

subject to the IRC Section 41(g) limitation in each subsequent

scientific research and is not a private foundation.

year.

Line 27 – Enter the average annual gross receipts for the 4 tax years

Line 44 – If any part of the amount on line 41 is from a passive activity,

preceding the tax year for which the credit is being determined

you must complete form FTB 3801-CR, Passive Activity Credit

(called the credit year). You may be required to annualize gross

Limitations, or form FTB 3802, Corporate Passive Activity Loss

receipts for any short tax year. See IRC Sections 41(c)(1)(B)

and Credit Limitations, to determine your allowable credit.

and 41(f)(4) for details.

Complete form FTB 3801-CR or form FTB 3802, (using

For purposes of line 27, reduce gross receipts for any tax year

California amounts) before completing the rest of this form.

by returns and allowances made during the tax year. In the

case of a business that operates within and outside of

Line 45 – Enter any prior year research credit carryover from

California, include only the gross receipts from the sale of

non-passive activities only. Any prior year research credit

property held primarily for sale to customers in the ordinary

carryover from passive activities should have been included in

course of your trade or business that is delivered or shipped to

the computation of allowable credits from passive activities (form

customers in California, regardless of f.o.b. point or any other

FTB 3801-CR or form FTB 3802) on line 44. Individuals,

condition of the sale.

shareholders, beneficiaries, partners and members: If the

non-passive research credit carryover was generated from a

Line 39a – See line 17a instructions.

pass-through entity, you must apply the IRC Section 41(g)

limitation to the credit carryover before entering the allowable

Line 39b – See line 17b instructions.

carryover on line 45. See the instructions for line 40 above on

how to compute the IRC Section 41(g) limitation.

Line 40 – Individuals, shareholders, beneficiaries, partners and

members: If the S corporation, estate or trust, partnership or

Line 46 – The amount of this credit you may claim on your tax return may

LLC taxed as a partnership elected the reduced research credit,

be limited further. Refer to the credit instructions in your tax

the amount of research credit passed through to you on

booklet for more information. These instructions also explain

Schedule(s) K-1 (100S, 541, 565 or 568) should reflect a

how to claim this credit on your tax return. You must use credit

research credit amount in which the applicable credit reduction

code number 183 to claim this credit. Also see General

percentage has been applied. Your election of the credit

Information D, Limitations.

reduction must be consistent with that of the pass-through

entity. However, the credit reduction percentage may differ from

that of the pass-through entity.

In some cases, the pass-through entity may not know what type

of entity the shareholder, beneficiary, partner or member is. In

these cases, the pass-through entity will report the pro rata or

FTB 3523 Instructions 1998

Page 3

Instructions For Form Ftb 3523 - Research Credit Page 3

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