Form 1117 - California Request To Terminate Water'S-Edge Election Page 2

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2014 Instructions for Form FTB 1117
Request to Terminate Water’s-Edge Election
General Information
receive a determination on its termination
after permission is granted . Losses will be
request within 45 days after it has filed form
included only to the extent of gain recognized
California Revenue and Taxation Code (R&TC)
FTB 1117 .
as a result of the change in election .
Section 25113 and Cal . Code Regs ., tit . 18,
Do not change the method of filing until the
The books and records with respect to the
section 25113 provide how and when the
FTB has approved this request .
gains and losses listed in Part IV, E&P of
water’s-edge election is to be made . In
affiliated corporations, the nature of the event
If the FTB takes no action or requests no
addition, these sections provide the manner
giving rise to the request, the consequences of
in which the water’s-edge election may be
additional information within 90 days,
such event, and other relevant matters must be
terminated with or without the Franchise Tax
a request for consent to terminate the
made available upon the FTB’s request .
water’s-edge election is deemed disallowed .
Board’s (FTB’s) consent . The filing of form
See Cal . Code Regs ., tit . 18, section 25113(d)
FTB 1117, Request to Terminate Water’s-Edge
Specific Instructions
Election, is required only if the taxpayer
for more information .
requests the FTB’s consent to terminate the
Private Mail Box (PMB)
D Where to File
Include the PMB in the address field . Write
water’s-edge election prior to the end of the
“PMB” first, then the box number . Example:
84-month election period, and taxpayers (the
A taxpayer must file form FTB 1117 separately
taxpayer filing this form and all members of
111 Main Street PMB 123 .
from any other form . Form FTB 1117 filed with
the water’s-edge group making the request)
a tax return is not valid and will not terminate a
Part II – Basis to Terminate
meet one of the two requirements provided
taxpayer’s water’s-edge election .
Water’s-Edge Election
under R&TC Section 25113(c)(10) and Cal .
Mail form FTB 1117 to:
Code Regs ., tit . 18, section 25113(d)(2) . The
Provide the explanation for the request for
FRANCHISE TAX BOARD
requirements are:
consent to terminate the water’s-edge election .
PO BOX 1779
• The taxpayers request to terminate
RANCHO CORDOVA CA 95741-1779
The basis for the request must clearly state the
the water’s-edge election for good
reason for the request .
E Request to Withdraw
cause . Good cause for this purpose
has the same meaning as described in
In general, the request for consent to terminate
The taxpayer may withdraw its request at any
the water’s-edge election will be granted only if
Treas . Reg . Section 1 .1502 -75(c) and
time before the FTB takes action .
R&TC Section 25113(c)(10)(A) .
the taxpayers (the taxpayer filing this form and
The request must be in writing and mailed to
• The taxpayers’ purpose for requesting
all members of the water’s-edge group making
the address shown in General Information D,
termination is to permit the state to
the request) meet one of the following:
Where to File .
contract with an expatriate corporation,
• If the taxpayers request to terminate the
or its subsidiary, pursuant to Public
water’s-edge election for good cause,
F
Gains and Losses
Contract Code Section 10286 .1(b)(2) and
taxpayers must demonstrate that they meet
R&TC Section 25113(c)(10)(B) .
A request for consent to terminate an election
the good cause requirement as described in
may be subject to the following:
Treas . Reg . Section 1 .1502-75(c) .
The FTB’s consent is not required if the
election is being terminated as a result of
• If the taxpayers request to terminate the
• Dividends received during the remaining
an affiliation change as provided in R&TC
water’s-edge election so they can meet
period of the election from affiliated
the requirements of Public Contract Code
Section 25113(c) (2) .
corporations not included in the water’s-edge
Section 10286 .1(b)(2), taxpayers must
combined report will be considered to have
A Purpose
provide source documentation to support
been paid first out of the earnings and
the request .
profits (E&P) not included in the combined
Use form FTB 1117 to request the FTB’s
report of a unitary business for purposes of
consent to terminate the water’s-edge election
computing any allowable dividend exclusion
prior to the end of the 84-month election period
under R&TC Section 25106 . To the extent
as provided in R&TC Section 25113(c)(10) .
the dividends exceed such E&P, they may be
B Due Date
subject to the exclusion .
• Gains on distribution with respect to stock
The taxpayer must file form FTB 1117 with the
that is not a dividend or from the sale or
FTB no later than the 120th day prior to the due
other disposition of assets received during
date, including extensions, of the tax return for
the remaining period of the election from
which the termination would be effective .
affiliated corporations not included in the
water’s-edge combined report will not be
Do not file form FTB 1117 with the tax return
deferred or eliminated . Losses from the
because the request will not be timely filed and
will be considered invalid .
sale or worthlessness of stock or from
the sale or other disposition of assets
C Approval and Effective Date
of affiliated corporations not included in
the water’s-edge combined report will
In general, requests for consent to terminate
the water’s-edge election are effective for the
be allowed only to the extent of dividend
taxable year in which:
income or other gain recognized as a result
of the change in election .
• Good cause occurred .
• Gains or losses on the disposition of stock
• The expatriate corporation, or its subsidiary,
or assets of an affiliated corporation that
enters into the contract with the state .
was included in a combined report prior
The FTB will notify the corporation if its request
to the election and that was excluded from
is approved . The corporation should generally
the water’s-edge combined report will be
included in income in the first tax return filed
FTB 1117 Instructions 2014 Page 1

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