Form 3523 - Research Credit - 2015 (Page 5 of 8) in pdf

Specific Line Instructions

• S corporations may claim only 1/3 of the credit against the 1.5%

entity‑level tax (3.5% for financial S corporations) after applying the

Part I – Credit Computation

limitations relating to passive activity losses and credits. If you are an

S corporation claiming this credit, compute the credit at 100%. Multiply

For purposes of computing the credit, all members of a controlled

the credit computed on this form by 1/3 and transfer the amount to

group of corporations, as defined in IRC Section 41(f)(5), and all

Schedule C (100S), S Corporation Tax Credits.

members of a group of businesses under common control, are treated

• S corporations can pass through 100% of this credit to their

as a single taxpayer. The credit allowed for each member is based on

shareholders on a pro‑rata basis. Partnerships allocate the credit

its proportionate shares of the group’s qualified research expenses

among the partners according to the partner’s distributive share

and basic research payments. Use Section A or Section B of Part I to

as determined in a written partnership agreement. See R&TC

compute the credit for the entire group, but enter only this member’s

Section 17039(e).

share of the credit on line 17 or line 39, whichever applies. Attach

a statement showing how this member’s share of the credit was

If a C corporation had unused credit carryovers when it elected

computed, and write “See attached” next to the entry space for line 17

S corporation status, the carryovers were reduced to 1/3

or line 39.

and transferred to the S corporation. The remaining 2/3 were

disregarded. The allowable carryovers may be used to offset the

Section A – Regular Credit

1.5% tax on net income in accordance with the respective carryover

rules. These C corporation carryovers may not be passed through to

Line 1

shareholders. For more information, get Schedule C (100S).

Corporations (other than S corporations, personal holding companies,

• If a taxpayer owns an interest in a disregarded business entity [a

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

Single Member Limited Liability Company (SMLLC) not recognized

if the cash payments exceed the base period amount as determined on

(disregarded) by California and for tax purposes is treated as a

line 2 of this section.

sole proprietorship owned by an individual or a branch owned by a

Enter the basic research payments paid in cash during the 2015

corporation], the amount of the credit that can be utilized is limited

taxable year and made to a qualified university or scientific research

to the difference between the taxpayer’s regular tax computed with

organization. To be eligible, the basic research must be performed

the income of the disregarded entity, and the taxpayer’s regular

pursuant to a written contract, performed by a qualified organization,

tax computed without the income of the disregarded entity. If the

and be performed within California. See IRC Section 41(e) and R&TC

disregarded entity reports a loss, the taxpayer may not claim the

Section 23609 for more information.

credit this year but can carry over the credit amount received from

the disregarded entity.

Biopharmaceutical and Biotech Research Activities

For taxable years beginning on or after January 1, 1996, corporations

For more information on disregarded business entities, get

(other than S corporations, personal holding companies, and service

Form 568, Limited Liability Company Tax Booklet.

organizations) that are engaged in certain biopharmaceutical research

This credit cannot reduce the minimum franchise tax (corporations

and biotech research and development activities (as defined below), and

and S corporations), annual tax (partnerships and QSub), alternative

that make payments to hospitals run by public universities (as defined

minimum tax (corporations, exempt organizations, individuals, and

below) or qualified cancer centers (as defined below), may be eligible to

fiduciaries), built‑in gains tax (S corporations), or excess net passive

claim the “basic research” credit if they meet specific criteria.

income tax (S corporations).

The taxpayer’s biopharmaceutical activities must satisfy both of the

This credit can reduce regular tax below tentative minimum tax (TMT).

following:

Get Schedule P (100, 100W, 540, 540NR, or 541), Alternative Minimum

• Meet at least one of the biopharmaceutical research activities

Tax and Credit Limitations, for more information.

described in Codes 2833 to 2836, inclusive, or any research activities

This credit may be limited further. See IRC Section 41(g) and line 17b

that are described in Codes 3826, 3829, or 3841 to 3845, inclusive,

instructions for more information.

of the Standard Industrial Classification Manual published by the

United States Office of Management and Budget, 1987 Edition.

D Assignment of Credits

• Use organisms or materials derived from organisms, and

Assigned Credits to Affiliated Corporations – Credit earned by

their cellular, subcellular, or molecular components to provide

members of a combined reporting group may be assigned to an affiliated

pharmaceutical products for human or animal therapeutics and

corporation that is a member of the same combined reporting group. A

diagnostics. For biotechnology research and development, taxpayers

credit assigned may only be claimed by the affiliated corporation against

must be involved in research and development activities regarding

its tax liability. For more information, get form FTB 3544, Election to

the application of recombinant DNA technology or pharmaceutical

Assign Credit Within Combined Reporting Group, or form FTB 3544A,

delivery systems.

List of Assigned Credit Received and/or Claimed by Assignee or go to

If the taxpayer’s activities meet the criteria mentioned in the previous

ftb.ca.gov and search for credit assignment.

paragraphs and such payments are made to a cancer center, the cancer

center must be a “qualified cancer center” which is defined as meeting

E Carryover

all of the following criteria:

If the available credit exceeds the current year tax liability, the unused

• Is owned by a tax‑exempt organization described in

credit can be carried over to succeeding years until exhausted. Apply

IRC Section 501(c)(3).

the carryover to the earliest taxable year. In no event can this credit be

• Is tax‑exempt under federal law. See IRC Section 501(a).

carried back and applied against a prior year’s tax.

• Is not a private foundation.

• Has been designated a “specialized laboratory cancer center.”

• Has received Clinical Cancer Research Center status from the

National Cancer Institute.

If the taxpayer’s activities meet the criteria mentioned above

and such payments are made to a hospital owned by a public

university, the hospital must be an organization described in

IRC Section 170(b)(1)(A)(iii), and the public university that runs

such hospital must be an institution of higher education as described

in IRC Section 3304(f).

Page 2 FTB 3523 Instructions 2015

Form 3523 - Research Credit - 2015 Page 5

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