Code Section Group

Revenue and Taxation Code - RTC

DIVISION 2. OTHER TAXES [6001 - 61045]

  ( Heading of Division 2 amended by Stats. 1968, Ch. 279. )

PART 11. CORPORATION TAX LAW [23001 - 25141]

  ( Heading of Part 11 amended by Stats. 2001, Ch. 543, Sec. 21. )

CHAPTER 14.5. Regulated Investment Companies, Real Estate Investment Trusts, Real Estate Mortgage Investment Conduits, and Financial Asset Securitization Investment Trusts [24870 - 24875]
  ( Heading of Chapter 14.5 amended by Stats. 1997, Ch. 611, Sec. 92. )

24870.
  

Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to regulated investment companies and real estate investment trusts, shall apply, except as otherwise provided in this part.

(Amended by Stats. 2015, Ch. 359, Sec. 37. (AB 154) Effective September 30, 2015. Applicable to taxable years beginning on or after January 1, 2015, as provided in Sec. 41 of Stats. 2015, Ch. 359.)

24871.
  

(a) (1) Section 852(b)(1) of the Internal Revenue Code, relating to imposition of tax on regulated investment companies, shall not apply.

(2) Every regulated investment company shall be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except that its “net income” shall be equal to its “investment company income,” as defined in subdivision (b).

(3) (A) Section 851(d)(2)(C)(i)(I) of the Internal Revenue Code is modified by substituting “$12,500” for “$50,000.”

(B) Section 851(d)(2)(C)(i)(II) of the Internal Revenue Code is modified by substituting the phrase “the rate of tax specified in Section 23151” for the phrase “the highest rate of tax specified in section 11” contained therein.

(C) Section 851(d)(2)(C)(iii) of the Internal Revenue Code, relating to administrative provisions, is modified by substituting the phrase “Article 3 of Part 10.2 (commencing with Section 19031), a tax imposed by this subparagraph shall be treated as a tax with respect to which the deficiency procedures of such article apply” for the phrase “subtitle F, a tax imposed by this subparagraph shall be treated as an excise tax with respect to which the deficiency procedures of such subtitle apply” contained therein.

(D) Section 851(i)(2) of the Internal Revenue Code, relating to imposition of tax on failures, shall not apply.

(b) “Investment company income” means investment company taxable income, as defined in Section 852(b)(2) of the Internal Revenue Code, modified as follows:

(1) Section 852(b)(2)(A) of the Internal Revenue Code, relating to an exclusion for net capital gain, does not apply.

(2) Section 852(b)(2)(B) of the Internal Revenue Code, relating to net operating losses, is modified to deny the deduction allowed under Sections 24416 and 24416.1, in lieu of denying the deduction allowed by Section 172 of the Internal Revenue Code.

(3) In lieu of the provision of Section 852(b)(2)(C) of the Internal Revenue Code, relating to special deductions for corporations, no deduction shall be allowed under Sections 24402, 24406, 24410, and 25106.

(4) The deduction for dividends paid, under Section 852(b)(2)(D) of the Internal Revenue Code, is modified to allow capital gain dividends and exempt interest dividends (to the extent that interest is included in gross income under this part) to be included in the computation of the deduction.

(c) Section 852(b)(3)(A) of the Internal Revenue Code, relating to imposition of tax, shall not apply.

(d) (1) Section 852(b)(5) of the Internal Revenue Code, relating to exempt-interest dividends, is modified by substituting the phrase “that, when held by an individual, the interest therefrom is exempt from taxation by this state” for the phrase “described in section 103(a)” contained therein.

(2) Section 852(b)(5)(A)(iv)(V) of the Internal Revenue Code, relating to exempt interest, is modified by substituting the phrase “on obligations that, if held by an individual, is exempt from taxation by this state, over the amounts disallowed as deductions under subdivision (b) of Section 24360 or Section 24425” for the phrase “excludable from gross income under section 103(a) over the amounts disallowed as deductions under sections 265 and 171(a)(2)” contained therein.

(3) Section 852(b)(5)(B) of the Internal Revenue Code, relating to treatment of exempt-interest dividends by shareholders, shall not apply.

(e) Section 854 of the Internal Revenue Code, relating to limitations applicable to dividends received from regulated investment companies, is modified to refer to Sections 24402, 24406, 24410, and 25106, in lieu of Section 243 of the Internal Revenue Code.

(f) Section 852(g)(1)(A) of the Internal Revenue Code is modified by substituting the phrase “subdivision (a) of Section 17145” for the phrase “the first sentence of subsection (b)(5)” contained therein.

(Amended by Stats. 2015, Ch. 359, Sec. 38. (AB 154) Effective September 30, 2015. Applicable to taxable years beginning on or after January 1, 2015, as provided in Sec. 41 of Stats. 2015, Ch. 359.)

24872.
  

(a) A real estate investment trust shall be deemed to have satisfied the distribution requirements of Section 857(a)(1) of the Internal Revenue Code for purposes of this part if it satisfies the distribution requirements of Section 857(a)(1) of the Internal Revenue Code for federal purposes.

(b) (1) Section 857(b)(1) of the Internal Revenue Code, relating to imposition of tax on real estate investment trusts, shall not apply.

(2) Every real estate investment trust shall be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except that its “net income” shall be equal to its “real estate investment trust income,” as defined in subdivision (c).

(c) “Real estate investment trust income” means real estate investment company taxable income, as defined in Section 857(b)(2) of the Internal Revenue Code, modified as follows:

(1) In lieu of Section 857(b)(2)(A) of the Internal Revenue Code, relating to special deductions for corporations, no deduction shall be allowed under Section 24402.

(2) Section 857(b)(2)(D) of the Internal Revenue Code, relating to an exclusion for an amount equal to the net income from foreclosure property, shall not apply.

(3) Section 857(b)(2)(E) of the Internal Revenue Code, relating to a deduction for an amount equal to the tax imposed in the case of failure to meet certain requirements for the taxable year, shall not apply.

(4) Section 857(b)(2)(F) of the Internal Revenue Code, relating to an exclusion for an amount equal to any net income derived from prohibited transactions, shall not apply.

(d) Section 857(b)(3) of the Internal Revenue Code, relating to an alternative tax in case of capital gains, shall not apply.

(e) Section 857(b)(4)(A) of the Internal Revenue Code, relating to the imposition of tax on income from foreclosure property, shall not apply.

(f) Section 857(b)(5) of the Internal Revenue Code, relating to the imposition of tax in case of failure to meet certain requirements, shall not apply.

(g) Section 857(b)(6)(A) of the Internal Revenue Code, relating to the imposition of tax on income from prohibited transactions, shall not apply.

(h) Section 857(b)(7) of the Internal Revenue Code, relating to income from redetermined rents, redetermined deductions, and excess interest, shall not apply.

(i) Section 857(c) of the Internal Revenue Code, relating to restrictions applicable to dividends received from real estate investment trusts, is modified to refer to Sections 24402, 24406, 24410, and 25106, in lieu of Section 243 of the Internal Revenue Code.

(j) The amendments to this section by Chapter 878 of the Statutes of 1993 are clarifications of legislative intent and shall apply to taxable years beginning on or after January 1, 1987.

(Amended by Stats. 2005, Ch. 691, Sec. 73. Effective October 7, 2005.)

24872.4.
  

(a) Section 856(d)(7)(C)(ii) of the Internal Revenue Code is modified by substituting the phrase “if received by an organization described in subdivision (b) of Section 17651 of Part 10 or Section 23731” for the phrase “if received by an organization described in section 511(a)(2).”

(b) (1) An election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes is treated for purposes of this part as an election made by the real estate investment trust under Section 856(e)(5) of the Internal Revenue Code for state purposes and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed.

(2) Any revocation of an election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes is treated for purposes of this part as a revocation of the election made by the real estate investment trust under Section 856(e)(5) of the Internal Revenue Code for state purposes and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed with respect to the property for any subsequent taxable year.

(3) If the real estate investment trust fails to make an election under Section 856(e)(5) of the Internal Revenue Code for federal income tax purposes with respect to any property, that property may not be treated for purposes of this part as foreclosure property, an election under Section 856(e)(5) of the Internal Revenue Code for state purposes with respect to that property is not allowed, and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 is not allowed with respect to that property.

(Amended by Stats. 2003, Ch. 185, Sec. 38. Effective January 1, 2004.)

24872.6.
  

(a) A corporation, trust, or association that is a real estate investment trust for any taxable year for federal purposes under Part II (commencing with Section 856) of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code (as applicable for federal purposes for the taxable year) shall be a real estate investment trust for purposes of this part for the same taxable year.

(b) A corporation, trust, or association that is not a real estate investment trust for any taxable year for federal purposes under Part II (commencing with Section 856) of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code (as applicable for federal purposes for the taxable year) shall not be a real estate investment trust for purposes of this part for the same taxable year.

(c) (1) An election to be a real estate investment trust for federal purposes under Section 856(c)(1) of the Internal Revenue Code (as applicable for federal purposes for the taxable year) shall be treated, for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part, as an election to be a real estate investment trust for state purposes for the same taxable year and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 shall not be allowed.

(2) (A) The termination or revocation of an election described in paragraph (1) for federal purposes under Section 856(g) of the Internal Revenue Code (as applicable for federal purposes for the taxable year) shall be treated, for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part, as a termination or revocation, as the case may be, of an election described in paragraph (1) for state purposes and a separate termination or revocation of an election described in paragraph (1) under paragraph (3) of subdivision (e) of Section 23051.5 shall not be allowed.

(B) Section 856(g)(5)(C) of the Internal Revenue Code shall not apply.

(3) (A) Except as provided in subparagraph (B), this subdivision shall apply to any election to be a real estate investment trust that is effective for federal purposes for taxable years beginning on or after January 1, 2001.

(B) Subparagraph (B) of paragraph (2) shall apply to taxable years beginning on or after January 1, 2005.

(Amended by Stats. 2017, Ch. 176, Sec. 4. (AB 1719) Effective January 1, 2018.)

24872.7.
  

(a) (1) (A) Whenever a penalty is imposed for federal purposes under Section 857(f)(2)(A) or (B) of the Internal Revenue Code, whichever is applicable, it shall be deemed that the real estate investment trust has failed to comply with the requirements of Section 857(f)(2)(A) or (B) of the Internal Revenue Code, whichever is applicable, for state purposes for that taxable year and a penalty equal to the penalty determined for federal purposes under Section 857(f)(2)(A) or (B) of the Internal Revenue Code, whichever is applicable, shall be imposed and shall be paid on notice and demand and in the same manner as tax.

(B) No penalty shall be imposed under this paragraph if the Secretary of the Treasury, under Section 857(f)(2)(D) of the Internal Revenue Code, has determined that the failure to comply is due to reasonable cause and not to willful neglect.

(2) (A) Whenever a penalty is imposed for federal purposes under Section 857(f)(2)(C) of the Internal Revenue Code it shall be deemed that the real estate investment trust has failed to comply with the requirements of Section 857(f)(2)(C) of the Internal Revenue Code for state purposes for that taxable year and an additional penalty equal to the penalty determined for federal purposes under Section 857(f)(2)(C) of the Internal Revenue Code shall be imposed and shall be paid on notice and demand and in the same manner as tax.

(B) No penalty shall be imposed under this paragraph if the Secretary of the Treasury, under Section 857(f)(2)(D) of the Internal Revenue Code, has determined that the failure to comply is due to reasonable cause and not to willful neglect.

(b) This section shall apply to taxable years beginning after August 5, 1997.

(c) The amendments made to this section by the act adding this subdivision shall apply to taxable years beginning on or after January 1, 1998.

(Amended by Stats. 2000, Ch. 862, Sec. 198. Effective January 1, 2001.)

24873.
  

Section 860F(a) of the Internal Revenue Code, relating to the 100 percent tax on prohibited transactions, shall not apply.

(Added by Stats. 1992, Ch. 698, Sec. 26. Effective September 15, 1992.)

24874.
  

A real estate mortgage investment conduit (REMIC) shall be subject to the minimum franchise tax imposed under Section 23153.

(Added by Stats. 1992, Ch. 698, Sec. 26. Effective September 15, 1992.)

24875.
  

(a) A financial asset securitization investment trust (FASIT) shall be subject to the minimum franchise tax imposed under Section 23153.

(b) For purposes of Chapter 4 of Part 10.2 (commencing with Section 19001) the taxes imposed by this section shall be treated as taxes to which the deficiency procedures of that article apply.

(Amended by Stats. 2011, Ch. 296, Sec. 286. (AB 1023) Effective January 1, 2012.)

RTCRevenue and Taxation Code - RTC