Form 3806 - Los Angeles Revitalization Zone Businesses Booklet

Return, Water’s-Edge Filers; 100S, California

get form FTB 3805Q, Net Operating Loss

Line 1 – See Part I on page 2 for a discussion of

S Corporation Franchise or Income Tax Return;

(NOL) Computation and NOL and Disaster Loss

business and nonbusiness income .

100X, Amended Corporation Franchise or Income

Limitations (Corporations) or form FTB 3805V,

Form 540 and Form 540NR filers:

Tax Return; 565, Partnership Return of Income; or

Net Operating Loss (NOL) Computation and NOL

Be sure to include casualty losses, disaster

568, Limited Liability Company Return of Income .

and Disaster Loss Limitations (Individuals) .

losses, and any business deductions reported

Also disregard any reference to Schedules R-3,

For taxable years beginning in 2002 and

on federal Form 1040, Schedule A as itemized

R-4, or R-5 .

2003, California suspended the NOL carryover

deductions .

Nonresidents that have an apportioning business

deduction . Taxpayers continued to carryover an

Exception: If you elected to claim part or all

that operates within the former LARZ should

NOL during the suspension period . The carryover

of your current year disaster loss under IRC

have already computed Schedule R and can use

period for suspended losses was extended by two

Section 165(i)(1) on prior year’s tax return, do not

those amounts when that schedule is referenced .

years for losses incurred before January 1, 2002,

include the amount of the loss that was claimed

Residents complete a Schedule R in order to

and by one year for losses incurred on or after

on prior year’s tax return in your current year

determine their California source business

January 1, 2002, and before January 1, 2003 . The

business income for the former LARZ .

income .

deduction for disaster losses was not affected by

Line 2 – In modifying your income, deduct your

the NOL suspension rules .

Line 11 and Line 12: If the gain or loss reported

capital losses only up to your capital gains . Enter

on Schedule D or Schedule D-1 as adjusted on

Limitation

any net capital losses included in line 1 as a

Schedule CA (540 or 540NR) was attributed to

A LARZ NOL carryover deduction can only offset

positive number .

an asset used in an activity conducted within

business income attributable to operations within

Line 3 – Corporations reduce income by the

and outside the former LARZ and California, get

the former LARZ .

disaster loss deduction and the deduction for

Schedule R and complete Schedule R-1 . Multiply

Alternative Minimum Tax

excess net passive income .

the gain or loss reported by the percentage on

Taxpayers claiming a LARZ NOL carryover

Line 6 – This is your modified taxable income

Schedule R-1, Part A, line 2 or Part B, line 5

deduction, will determine their NOL for alternative

(MTI) . Reduce this amount by your LARZ NOL

and enter the result in column (a) . To determine

minimum tax (AMT) purposes . Use Schedule P

carryover deduction . The LARZ NOL carryover

the apportionment percentage in column (b),

(100, 100W, 540, 540NR, or 541) to compute the

deduction may not be larger than your MTI . If

complete Worksheet I, Section A . Enter the

LARZ NOL for AMT purposes .

your MTI is a loss in the current year or if it limits

percentage from Worksheet I, Section A, line 4,

S Corporations

column (c) on Worksheet I, Section B, column (b) .

the amount of NOL you may use this year, carry

LARZ NOLs incurred prior to becoming

over the NOL to future years .

Line 14 – If the result on the Worksheet I,

an S corporation may not be used against

Section B, Income or Loss, line 14, column (c)

Line 7 – Enter the amount from line 6 . If

S corporation income . See IRC Section 1371(b) .

this amount is zero or negative, transfer the

is a negative amount, you do not have income

S corporations are allowed to deduct a LARZ NOL

amount(s) from line 8 through line 11, column (b)

attributable to the former LARZ and you cannot

carryover incurred after the “S” election is made .

to column (e) . Go to line 12 .

claim any NOL carryovers this year .

An S corporation may use the NOL carryover as

Line 8 through Line 11 – Enter the amounts as

If the result on the Worksheet I, Section B,

a deduction against income subject to the 1 .5%

positive numbers .

Income or Loss, line 14, column (c) is a positive

entity-level tax (3 .5% for financial institutions) .

amount and you have LARZ NOL carryovers,

In column (c), enter the smaller of the amount in

Also, the LARZ NOL carryover(s) of an

enter the amount on Worksheet II, line 1 and

column (b) or the amount in column (d) from the

S corporation may be different than the LARZ

line 6 (skip line 2 through line 5) .

previous line .

NOL carryover(s) of its shareholder(s) .

Part II – Net Operating Loss

In column (d), enter the result of subtracting

Taxpayers Operating Within and Outside the

column (c) from the balance on the previous line

Former LARZ

(NOL) Carryover and Deduction

in column (d) .

Unlike the NOL treatment on a federal

No new LARZ NOLs may be generated in taxable

In column (e), enter the result of subtracting

consolidated tax return, a loss carryover for one

years beginning on or after January 1, 1998 .

the amount in column (c) from the amount in

member included in a combined report may not

column (b), as applicable .

be applied to the intrastate apportioned income of

LARZ NOL carryovers may still be claimed for 15

another member included in a combined report .

years from the year the LARZ NOL was generated .

Example:

Water’s-Edge Taxpayer

Corporations use line 17 of Forms 100 and

(b)

(c)

(d)

(e)

R&TC Section 24416(c) imposes a limitation

100W, or line 14 less line 16 of Form 100S to

Carryover

Amount

Balance

LARZ

on the NOL carryover deduction if the NOL is

from

deducted

available to

NOL

determine net income after state adjustments

generated during a non-water’s edge tax year .

prior year

this year

offset losses

carryover

(pre-apportioned income) .

to future years

The NOL carryover is limited to the lesser of the

Individuals use the amount shown on your

5,000

NOL or the re-computed NOL . The re-computed

federal tax return for the same taxable year

$ 500

4,500

NOL carryover is determined by computing the

without regard to the federal NOL deduction

6,000

4,500

1,500

income and factors of the original worldwide

(Form 540/540NR, line 13, plus the federal NOL

combined reporting group, as if the water’s-edge

Line 12 – Enter the totals from column (b) and

deduction listed on Schedule CA (540/540NR)

election had been in force for the year of the loss .

column (e) on form FTB 3806, Side 1, line 2a and

column C, line 21c) .

R&TC Section 24416(c) serves as a limitation .

line 2c, respectively .

For taxable years beginning in 2010 and

If this section applies, the NOL carryover for

Your LARZ NOL carryover deduction for 2016

2011, California suspended the NOL carryover

each corporation may only be decreased, not

is the amount on line 12, column (c) . Enter this

deduction . Taxpayers continued to compute and

increased .

amount on your California tax return or schedule

carryover NOLs during the suspension period .

Instructions for Worksheet II –

as follows:

However, taxpayers with net income after

state adjustments (pre-apportioned income)

Net Operating Loss (NOL)

• Form 100, line 20

(corporations) or with modified adjusted gross

• Form 100S, line 18

Carryover and Carryover

income (individuals) of less than $300,000, or

• Form 100W, line 20

with disaster loss carryovers were not affected by

Limitations

• Form 109, line 6

the NOL suspension rules .

• Schedule CA (540), line 21e, column B

The LARZ NOL carryover deduction is used to

• Schedule CA (540NR), line 21e, column B

If the taxpayer is denied use of an NOL carryover

reduce current year business income from the

because of the 2008 – 2011 suspension, the

Your LARZ NOL carryover(s) to 2017 is the

former LARZ . Use this worksheet to compute the

carryover period is extended by four years

amount on line 12, column (e) .

LARZ NOL carryover deduction for corporations,

for losses incurred in taxable years beginning

individuals, and exempt trusts .

before January 1, 2008 . For more information,

Page 6 FTB 3806 Booklet 2016

Form 3806 - Los Angeles Revitalization Zone Businesses Booklet - 2016 Page 6

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