California Form 3565 Draft - Small Business Stock Questionnaire

2009 Instructions for Form FTB 3565

Small Business Stock Questionnaire

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2005, and to the California Revenue and Taxation Code (R&TC).

What’s New

C When and Where to File

Question K – A domestic corporation is

defined in IRC Section 7701(a)(4) as any

Qualified Small Business Stock – California law

A corporation is required to file form FTB 3565

corporation created or organized in the United

does not conform to the federal law in regard to

along with Form 100, California Corporation

States or under the law of the United States or

the increase in the percentage (from 50% to 75%)

Franchise or Income Tax Return, or

of any State .

of the gain exclusion for the sale of qualified small

Form 100W, California Corporation Franchise

Question O – A qualified trade or business is

business stock acquired after February 17, 2009,

or Income Tax Return — Water’s-Edge

and before January 1, 2011 . Current California

any trade or business other than:

Filers . Attach form FTB 3565 to Form 100

law allows an exclusion of 50% of any gain from

or Form 100W and file on or before the due

• Any trade or business involving the

the sale or exchange of qualified small business

date of the corporate tax return, including

performance of services in the fields of

stock held for more than 5 years .

extensions .

health, law, engineering, architecture,

accounting, actuarial science, performing

General Information

Under authority granted in R&TC

arts, consulting, athletics, financial

Section 18152 .5, the Franchise Tax Board

In general, California law conforms to

services, brokerage services, or any trade

(FTB) requires the corporation to provide

the Internal Revenue Code (IRC) as of

or business where the principal asset of the

a copy of any completed form FTB 3565 to

January 2005 . However, there are continuing

trade or business is the reputation or skill

each shareholder that acquired qualified small

differences between California and federal

of one or more of its employees .

business stock as part of the stock issuance

law . When California conforms to federal tax

• Any banking, insurance, financing, leasing,

reported on the completed form FTB 3565

law changes, we do not always adopt all of

investing, or similar business .

during the current taxable year .

the changes made at the federal level . For

• Any farming business (including the

Failure to file this form by the corporation’s

more information, go to ftb.ca.gov and search

business of raising or harvesting trees) .

original or extended return due date for the

for conformity . Additional information can

• Any business involving the production

current taxable year may result in a penalty

be found in FTB Pub . 1001, Supplemental

or extraction of products of a character

being assessed to the corporation pursuant to

Guidelines to California Adjustments, the

with respect to which a percentage

R&TC Section 19133 .5 . The penalty amount is

instructions for California Schedule CA (540 or

depletion deduction is allowable under IRC

$50 per failure to file unless the failure is due

540NR), and the Business Entity tax booklets .

Section 613 or 613A .

to negligence or intentional disregard, then the

• Any business of operating a hotel, motel,

The instructions provided with California tax

penalty amount is $100 per failure to file the

restaurant, or similar business .

forms are a summary of California tax law

form .

and are only intended to aid taxpayers in

Question P – For the purpose of calculating

Failure of the corporation to file form FTB 3565

preparing their state income tax returns . We

the total value of the assets, any ownership of,

will not disqualify the stockholder from

include information that is most useful to the

dealing in, or renting of, real property shall not

excluding gain from the sale or exchange of

greatest number of taxpayers in the limited

be treated as the active conduct of a qualified

stock . However, the stockholder bears the

space available . It is not possible to include

trade or business .

burden of proving that the gain from the sale

all requirements of the California Revenue

Question R – Enter the aggregate subscription

or exchange qualifies for exclusion pursuant

and Taxation Code (R&TC) in the tax booklets .

amount of non-treasury stock the corporation

to R&TC Section 18152 .5 whether or not the

Taxpayers should not consider the tax booklets

issued during the entire taxable year .

corporation files/provides form FTB 3565 .

as authoritative law .

Question S – Enter the amount included in

Private Mail Box

A Purpose

Question R that the corporation received for

Include the Private Mail Box (PMB) in the

that part of the stock issuance that qualifies as

address field . Write “PMB” first, then the box

Use form FTB 3565, Small Business Stock

small business stock under the provisions of

number . Example: 111 Main Street PMB 123 .

Questionnaire, to provide information

R&TC Section 18152 .5 .

regarding issuance of stock pursuant to R&TC

Specific Instructions

The amounts entered in Question R and

Section 18152 .5 .

Question S should not include the value of

Item F – Principal business activity (PBA)

B Who Must File

stock issued in exchange for stock .

code – Do not leave blank. Enter the six-

digit PBA code from the chart included in the

Question T – If there was more than one

A corporation must file form FTB 3565 if

2009 Form 100, Corporation Tax Booklet,

issuance of small business stock during the

it qualifies as a “qualified small business”

or Form 100W, Water’s-Edge Booklet . The

current taxable year, enter the date of the first

and issued stock pursuant to R&TC

PBA code should be the number for the

issuance here .

Section 18152 .5 during the current taxable

specific industry group from which the

year . Complete a separate form FTB 3565

Question U – If there was more than one

corporation derives the greatest percentage of

for each issuance of small business stock

issuance of small business stock during the

California “total receipts .” Total receipts means

during the taxable year . The corporation

current taxable year, enter the date of the last

gross receipts plus all other income . The

should maintain records to show that the

issuance here .

California PBA code may be different than the

stock issuance met the requirements of

federal PBA code .

R&TC Section 18152 .5 .

Questions G through L – If the answer

For purposes of this form, all corporations

to any of these questions is “No,’’ stop .

which are members of the same parent-

The stock issuance does not qualify under

subsidiary controlled group shall be treated as

R&TC Section 18152 .5 . The corporation does

one corporation . A parent-subsidiary controlled

not need to complete the rest of form FTB 3565

group is defined in IRC Section 1563(a)(1),

and should not attach it to the Form 100 or

except that for California tax purposes

Form 100W .

“more than 50%” shall be substituted for “at

least 80% .”

FTB 3565 Instructions 2009 Page 1

California Form 3565 Draft - Small Business Stock Questionnaire - 2009 Page 3

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