Form 2424 - California Water'S-Edge Foreign Investment Interest Offset - 2015 Page 2

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2015 Instructions for Form FTB 2424
Water’s-Edge Foreign Investment Interest Offset
General Information
• The creditor can look only to the specific
• Reduced (but not below zero) by any deficit
property (or any lease or other interest
in E&P of such corporation attributable to
Revenue and Taxation Code (R&TC)
therein) as security for payment of
such stock or other equity investment for
Section 24344(c) provides that interest expense
the principal and interest of the loan
such period .
incurred for purposes of foreign investment
and, thus, has no secured interest in
See R&TC Section 24344(c) and the related
(as defined below) may be offset against the
any other property of the borrower
regulations for more information .
foreign dividend deduction allowed under R&TC
or the borrower itself with respect to
Specific Line Instructions
Section 24411 . The foreign investment interest
repayment of the loan .
offset may not exceed the total foreign dividend
Line 2
Even though the above facts and
deduction allowed for the taxable year .
Enter total interest expense for all entities
circumstances are present in substance
Use form FTB 2424, Water’s-Edge Foreign
included in the water’s-edge combined report
as well as form, a deduction for interest
Investment Interest Offset, to compute the
filed pursuant to R&TC Section 25110, net of
will not be considered definitely related to
foreign investment interest offset . The amount
intercompany interest expense .
a specific property where the motive for
of interest expense attributable to foreign
Line 3
structuring the transaction in the manner
investment is equal to the amount of interest
Enter the interest expense specifically
described above was without any economic
expense specifically assigned to foreign
assignable to foreign investments . See R&TC
significance .
investment plus the amount of unassigned
Section 24344(c) and the related regulations
3. Unassigned interest expense
interest expense allocated to foreign
for more information .
Interest expense paid that does not meet
investment . Unassigned interest expense is
Line 4
the above conditions to be assigned, is
allocated by formula . The amount of the offset
Enter the interest expense specifically
unassigned interest expense .
is limited to the lesser of the following:
assignable to domestic investments or other
4. Interest expense on restricted accounts
• The sum of interest expense specifically
property . See R&TC Section 24344(c) and the
Interest expense on restricted accounts
assigned and interest expense allocated to
related regulations for more information .
is interest expense paid on new debt
foreign investment .
Line 11
incurred on or after January 1, 1988, if the
• The foreign dividend deduction .
Unassigned foreign investment is the average
proceeds of the debt are deposited into an
This limited amount is multiplied by 75%
value of all foreign investment to which interest
account that prevents its use for foreign
to arrive at the foreign investment interest
is not specifically assigned .
investment and the account is not, in fact,
offset . Interest expense that exceeds the offset
used for foreign investment . However,
Line 12
amount will be subject to the standard interest
debt shall not be treated as incurred on
Unassigned total assets is the average value of
offset computation of R&TC Section 24344(b) .
or after January 1, 1988, if the majority of
all the water’s-edge group’s unassigned total
See FTB Notice 2000-9 .
the proceeds were used to refinance debt
assets .
If there is no foreign dividend deduction under
incurred prior to January 1, 1988, or the
Line 13
R&TC Section 24411, then no foreign interest
debt arises pursuant to a line of credit or
In calculating the percentage, do not include
offset computation is necessary .
similar arrangement .
any foreign investment, and assets to which
A Definitions
5. Total assets
interest expense has been specifically
Total assets means all of the assets of a
assigned .
1. Foreign investment
corporation included in a water’s-edge
Foreign investment is stock or other equity
combined report by reason of R&TC
Note: If the taxpayer reported the foreign
investment, which is included in total
Section 25110, after the elimination of
dividend deduction for dividends received from
assets, regardless of when it was acquired,
intercompany accounts of assets .
foreign investments and foreign construction
in the following instances:
6. Average values of assets
projects, the taxpayer must calculate a separate
• An entity whose dividends would be
An average of values is computed by
foreign investment interest offset for each
qualifying dividends for purposes of
averaging the value of assets at the
component . The interest expense assignable
R&TC Section 24411 .
beginning and ending of the taxable year .
to the construction project shall be multiplied
• A non-affiliated corporation that is
by 100 percent, while the interest expense
B Asset Values
organized under the laws of a country or
assignable to the non-construction project
political subdivision of a country other
Assets and stock or other equity investments
shall be multiplied by 75 percent . The two
than the United States .
with less than 50% ownership are taken into
separately calculated amounts are then added
account at the federal tax book value (original
To determine the asset value for the foreign
together and entered on Schedule R, Side 1,
cost for federal tax purposes less depreciation,
investment, see Section B “Asset Values .”
line 1b .
amortization, or depletion) .
2. Interest expense assigned to specific
Stock or other equity investments with more
property
than a 50% ownership are taken into account
Interest expense is considered to be related
at the adjusted basis for federal tax purposes if
solely to specific property, if the existence
any of the following apply:
of all of the facts and circumstances
• Increased by the amount of the earnings
described below is established:
and profits (E&P) of such corporation
• The indebtedness on which the interest
attributable to such stock, or other equity
was paid was specifically incurred for
investment and accumulated during
the purpose of purchasing, maintaining,
the period the stock, or other equity
or improving the specific property .
investment was owned by another affiliated
• The proceeds of the borrowing were
corporation .
actually applied to the specified
purpose .
Page 42 Form 100W Booklet 2015

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