California Form 2416 - Schedule Of Included Controlled Foreign Corporations (Cfc) - 2013 Page 3

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Instructions for Form FTB 2416
Schedule of Included Controlled Foreign Corporations (CFC)
General Information
Column (e) – Subpart F income
In determining whether a CFC has Subpart F
A Purpose
income, defined by IRC Section 952, for
purposes of R&TC Section 25110(a)(2) and
Revenue and Taxation Code (R&TC)
the regulations thereunder, the limitation and
Section 25110(a)(2)(A)(ii) provides that
exclusions provided for in IRC Section 954(b)
the income and apportionment factors of
shall apply. However, IRC Section 952(c) shall
any Controlled Foreign Corporation (CFC)
not apply.
(as defined in Internal Revenue Code [IRC]
Section 957) that has Subpart F income
For these purposes, Subpart F income does not
(defined in IRC Section 952) are to be included
include income defined in IRC Sections 955 or
in the combined report of a taxpayer making a
956.
water’s-edge election.
Include both business and nonbusiness
Use form FTB 2416, Schedule of Included
income as defined under R&TC Section 25120
Controlled Foreign Corporations (CFC), to
for the current year.
compute the net income and apportionment
If there is no Subpart F income, none of the
factors required to be included in the
income or factors of this CFC will be included
water’s-edge combined report.
in the water’s-edge combined report. See
Fujitsu IT Holdings, Inc. vs. Franchise Tax Board
B Controlled Foreign
(2004) 120 Cal. App. 4th 459.
Corporation
Column (f) – Current year earnings and profits
In general, a foreign corporation is a
E&P, as defined in IRC Section 964, includes
corporation that is not created or organized in
both business and nonbusiness income for the
the U.S. or under the laws of the U.S. or any
current taxable year. In most cases, the E&P
state.
can be taken from federal Form 5471, page 4,
A CFC is any foreign corporation that is more
Schedule H, line 5d.
than 50% owned or considered to be owned
If there is no current E&P, stop. None of the
per IRC Section 958(b) by U.S. shareholders.
income or factors of this CFC will be included
C Apportionment
in the water’s-edge combined report.
Column (g) – Percentage
For each CFC, the amounts included in income
and the apportionment factors are determined
The percentage may not exceed 100% or be
by multiplying the total income and each
less than zero.
component of the apportionment factors
Column (h) – Net income
by a fraction. The numerator of the fraction
is the current taxable year total Subpart F
Report the total net income as reflected on the
income defined in IRC Section 952 and the
CFC’s books and records, adjusted to conform
denominator is the current taxable year
to California tax law.
earnings and profits (E&P) as defined in IRC
Column (i) – Net income included in the
Section 964.
combined report
See R&TC Section 25110(a)(2) and the related
Enter total from column (i) on Form 100W,
regulations for more information.
Side 1, line 7a.
Specific Instructions
Columns (j), (l), (n), and (p) – Apportionment
Column (b) – Country of incorporation
factors
Enter the country of incorporation in
Determine the apportionment factors for
column (b). Use the list of country codes on
the CFC to be included in the water’s-edge
form FTB 2416, Side 2.
combined report including:
• Total sales everywhere, if using the
Column (c) – Country of primary business
single-sales factor formula, or
activity
• Total average property everywhere, rent
Enter the country in which the CFC conducts its
expense everywhere, payroll everywhere,
primary trade or business in column (c). Use
and sales everywhere, if using the
the list of country codes on form FTB 2416,
three-factor formula.
Side 2. This country may be different from the
Refer to the apportionment factor rules set
country of incorporation.
forth in R&TC Sections 25128.7, 25128,
Column (d) – Principal business activity
and 25129 through 25137. See California
(PBA) code
Schedule R, Apportionment and Allocation
of Income, for more information.
Enter the PBA code of the CFC. The PBA codes
are listed on the Principal Business Activity
Codes chart included in this booklet.
Page 38 Form 100W Booklet 2013

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