Form 3523 - California Research Credit - 2014 (Page 7 of 8) in pdf

Example 2: Partnership AB has two partners each with 50% ownership.

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

Partner A is an individual, and Partner B is a corporation. The

returns and allowances made during the taxable year. In the case of a

partnership elects the reduced regular research credit. The amount

business that operates within and outside of California, include only

of regular credit computed by the partnership on line 17a is $2,000.

the gross receipts from the sale of property held primarily for sale

Partnership AB would figure each partner’s credit from the line 17a

to customers in the ordinary course of your trade or business that is

amount as follows:

delivered or shipped to customers in California, regardless of f.o.b.

point or any other condition of the sale. This includes sales to the U.S.

Partner A – $2,000 x 50% (.50) x 87.7% (.877) = $877

government, that are delivered or shipped to customers in California.

Partner B – $2,000 x 50% (.50) x 91.16% (.9116) = $912

Throwback sales and receipts from services, rents, operating leases and

These amounts are the research credit available to Partner A and

interest, royalties and licenses are excluded from the computation.

Partner B for their 2014 taxable year.

Line 39a

Amounts received from S corporations, estates, trusts, partnerships,

See line 17a instructions.

and LLCs, may be limited due to IRC Section 41(g) and the related

regulations.

Line 39b

See line 17b instructions.

Section B – Alternative Incremental Credit

Line 40 – Individuals, shareholders, beneficiaries, partners,

Complete this section ONLY if you are electing the alternative incremental

and members:

credit instead of the regular credit. For taxable years ending on or after

If the S corporation, estate, trust, partnership, and LLC elected the

January 3, 2001, make the election on a timely filed original tax return for

reduced research credit, the amount of research credit passed through

the taxable year to which the election applies. Once made, the election

to you on Schedule(s) K‑1 (100S, 541, 565, or 568) should reflect

applies to the current taxable year and all later years unless you receive

a research credit amount in which the applicable credit reduction

the FTB’s consent to revoke the election.

percentage has been applied. Make your election of the credit reduction

If you have no California gross receipts (under LDG 2012‑03‑01), you

consistent with that of the pass‑through entity. However, the credit

cannot use the Alternative Incremental Credit; you must use the regular

reduction percentage may differ from that of the pass‑through entity.

incremental credit as a start‑up under Section A.

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

Line 18

the shareholder, beneficiary, partner, or member is, in these cases, the

Corporations (other than S corporations, personal holding companies,

pass‑through entity will report the pro‑rata or distributive amount of

and service organizations) may be eligible for a “basic research” credit

research credit on Schedule K‑1 (100S, 541, 565, or 568) without the

if the 2014 taxable year payments in cash made to a qualified university

IRC Section 280C(c) reduction. The pass‑through entity will note in the

or scientific research organization (under a written contract) exceed a

other information section of the Schedule K‑1 (100S, 541, 565, or 568)

base period amount (based on your general university giving and certain

to reduce the credit by the shareholder’s, beneficiary’s, partner’s, or

other maintenance‑of‑effort levels for the three preceding years). To be

member’s applicable credit reduction percentage as follows:

eligible, conduct the basic research within California.

• 87.7% (.877) for individuals and estates or trusts

Enter your 2014 taxable year payments on line 18. See IRC Section 41(e)

• 91.16% (.9116) for corporations

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

• 98.5% (.985) for S corporations

more information.

The amount of research credit passed through to you on Schedule(s)

K‑1 (100S, 541, 565, or 568) may be limited due to IRC Section 41(g)

Line 19

and the related regulations. Specifically, the amount of credit entered on

Enter the base amount as defined in IRC Section 41(e) and R&TC

this line is limited to the amount of tax attributable to your interest in the

Section 23609. If you do business both within and outside of California,

proprietorship, S corporation, estate, trust, or partnership generating the

see General Information C, Limitations. The amount on line 19 may not

credit. Use the formula below to determine the credit limitation. If you

be more than the amount on line 18. This amount may be classified as

have pass‑through research credits from more than one business interest,

2014 taxable year contract research expenses on line 25 (subject to the

compute the research credit limitation separately for each business

65% or 75% limitation).

interest by applying the formula below to each pass‑through credit.

Lines 22 and 23

Credit Limit =

Taxable income attributable to

See General Information B, Description, for information regarding

your interest in the sole

x (Net income tax)

qualified research expenses.

proprietorship or pass‑through

entity (Schedule K‑1)

Line 24

See line 7 instructions.

Total taxable income for the

year (Form 540, line 19;

Line 25

Long Form 540NR, line 19; or

Include 65% of any amount paid or incurred for qualified research

Form 541, line 20a)

performed on your behalf in California. For corporations only, include 65%

For purposes of completing the above formula, net income tax is regular

of the portion of line 18 basic research payments that does not exceed the

tax (from Form 540, line 35; Long Form 540NR, line 42; or Form 541,

line 19 base period amount.

line 21) plus alternative minimum tax (from Form 540, line 61;

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

Long Form 540NR, line 71; or Form 541, line 26).

research consortium. See General Information B, Description, for

The percentage representing taxable income attributable to your interest

information regarding qualified research consortium.

in the business to your total taxable income for the year cannot exceed

Line 27

100%. If in the current taxable year you had no income attributable

Enter the average annual gross receipts for the four taxable years

to a particular business interest, you cannot claim any research credit

preceding the taxable year for which the credit is being determined

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

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

over to succeeding years until exhausted. Likewise, any current year

for any short taxable year. See IRC Sections 41(c)(1)(B) and 41(f)(4) for

pass‑ through research credit that exceeds the IRC Section 41(g)

more information.

limitation may be carried over to succeeding years until exhausted.

Page 4 FTB 3523 Instructions 2014

Form 3523 - California Research Credit - 2014 Page 7

Related Articles

Related forms

Related Categories