Form 3523 - Research Credit - 2015 (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 2015 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

Section C – Available Research Credit

Complete this section ONLY if you are electing the alternative incremental

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

Line 40 – Individuals, shareholders, beneficiaries, partners,

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

and members:

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

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

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

the FTB’s consent to revoke the election.

reduced research credit, the amount of research credit passed through

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

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

a research credit amount in which the applicable credit reduction

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

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

incremental credit as a start‑up under Section A.

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

Line 18

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

Corporations (other than S corporations, personal holding companies,

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

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

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

if the 2015 taxable year payments in cash made to a qualified university

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

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

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

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

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

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

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

eligible, conduct the basic research within California.

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

Enter your 2015 taxable year payments on line 18. See IRC Section 41(e)

member’s applicable credit reduction percentage as follows:

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

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

more information.

• 91.16% (.9116) for corporations

• 98.5% (.985) for S corporations

Line 19

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

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

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

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

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

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

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

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

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

2015 taxable year contract research expenses on line 25 (subject to the

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

65% or 75% limitation).

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

Lines 22 and 23

compute the research credit limitation separately for each business

See General Information B, Description, for information regarding

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

qualified research expenses.

Credit Limit =

Taxable income attributable to

Line 24

your interest in the sole

x (Net income tax)

See line 7 instructions.

proprietorship or pass‑through

entity (Schedule K‑1)

Line 25

Total taxable income for the

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

year (Form 540, line 19;

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

Long Form 540NR, line 19; or

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

Form 541, line 20a)

line 19 base period amount.

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

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

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

research consortium. See General Information B, Description, for

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

information regarding qualified research consortium.

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

Line 27

Enter the average annual gross receipts for the four taxable years

preceding the taxable year for which the credit is being determined

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

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

more information.

Page 4 FTB 3523 Instructions 2015

Form 3523 - Research Credit - 2015 Page 7

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