Code Section Group

Revenue and Taxation Code - RTC

DIVISION 2. OTHER TAXES [6001 - 60709]

  ( 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 15. Gain or Loss on Disposition of Property [24901 - 24998]

  ( Chapter 15 added by Stats. 1955, Ch. 938. )

ARTICLE 3. Nontaxable Exchanges [24941 - 24956]
  ( Article 3 added by Stats. 1955, Ch. 938. )

24941.
  

Section 1031 of the Internal Revenue Code, relating to exchange of property held for productive use or investment, shall apply, except as otherwise provided.

(Amended by Stats. 1993, Ch. 877, Sec. 81. Effective October 6, 1993.)

24941.5.
  

Section 1031(i) of the Internal Revenue Code, relating to special rules for mutual ditch, reservoir, or irrigation company stock, shall not apply.

(Added by Stats. 2010, Ch. 14, Sec. 77. (SB 401) Effective January 1, 2011.)

24942.
  

(a) No gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock (including treasury stock) of that corporation. No gain or loss shall be recognized by a corporation with respect to any lapse or acquisition of an option, or with respect to a securities futures contract (as defined in Section 1234B of the Internal Revenue Code, to buy or sell its stock (including treasury stock).

(b) For basis of property acquired by a corporation in certain exchanges for its stock, see Sections 24552 to 24554, inclusive.

(Amended by Stats. 2002, Ch. 35, Sec. 58. Effective May 8, 2002.)

24943.
  

If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted—

(a) Into property similar or related in service or use to the property so converted, no gain shall be recognized.

(b) Into money, and the disposition of the converted property occurred before January 1, 1953, no gain shall be recognized if such money is forthwith in good faith, under regulations prescribed by the Franchise Tax Board, expended in the acquisition of other property similar or related in service or use to the property so converted, or in the acquisition of control of a corporation owning such other property, or in the establishment of a replacement fund. If any part of the money is not so expended, the gain shall be recognized to the extent of the money which is not so expended (regardless of whether such money is received in one or more taxable years and regardless of whether or not the money which is not so expended constitutes gain). For purposes of this subsection and Section 24944, the term “disposition of the converted property” means the destruction, theft, seizure, requisition, or condemnation of the converted property, or the sale or exchange of such property under threat or imminence of requisition or condemnation.

For purposes of this section and Section 24944, the term “control” means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

(Amended by Stats. 2000, Ch. 862, Sec. 202. Effective January 1, 2001.)

24944.
  

If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted into money or into property not similar or related in service or use to the converted property, and the disposition of the converted property (as defined in subdivision (b) of Section 24943) occurred after December 31, 1952, the gain (if any) shall be recognized except to the extent hereinafter provided in this section:

(a) If the taxpayer during the period specified in subdivision (b), for the purpose of replacing the property so converted, purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (regardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. Such election shall be made at such time and in such manner as the Franchise Tax Board may by regulations prescribe. For purposes of this subdivision—

(1) No property or stock acquired before the disposition of the converted property shall be considered to have been acquired for the purpose of replacing such converted property unless held by the taxpayer on the date of such disposition; and

(2) The taxpayer shall be considered to have purchased property or stock only if, but for the provisions of Section 24947, the unadjusted basis of such property or stock would be its cost within the meaning of Section 24912.

(b) The period referred to in subdivision (a) shall be the period beginning with the date of the disposition of the converted property, or the earliest date of the threat or imminence of requisition or condemnation of the converted property, whichever is the earlier, and ending—

(1) Two years after the close of the first taxable year in which any part of the gain upon the conversion is realized; or

(2) Subject to such terms and conditions as may be specified by the Franchise Tax Board, at the close of such later date as the Franchise Tax Board may designate on application by the taxpayer. Such application shall be made at such time and in such manner as the Franchise Tax Board may by regulations prescribe.

(c) For purposes of this section and Section 24943, replacement property “similar or related in service or use” shall include, in the case of a nonprofit water utility corporation, personal property used for the transmission or storage of water.

(Amended by Stats. 2000, Ch. 862, Sec. 203. Effective January 1, 2001.)

24945.
  

If a taxpayer has made the election provided in Section 24944(a), then—

(a) The statutory period for the assessment of any deficiency, for any taxable year in which any part of the gain on such conversion is realized, attributable to such gain shall not expire prior to the expiration of four years from the date the Franchise Tax Board is notified by the taxpayer (in such manner as the Franchise Tax Board may by regulations prescribe) of the replacement of the converted property or of an intention not to replace; and

(b) Such deficiency may be assessed before the expiration of such four-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

(Amended by Stats. 2000, Ch. 862, Sec. 204. Effective January 1, 2001.)

24946.
  

If the election provided in Section 24944(a) is made by the taxpayer and such other property or such stock was purchased before the beginning of the last taxable year in which any part of the gain upon such conversion is realized, any deficiency, to the extent resulting from such election, for any taxable year ending before such last taxable year may be assessed (notwithstanding the provisions of Section 19057 or the provisions of any other law or rule of law which would otherwise prevent such assessment) at any time before the expiration of the period within which a deficiency for such last taxable year may be assessed.

(Amended by Stats. 2000, Ch. 862, Sec. 205. Effective January 1, 2001.)

24947.
  

(a) Section 1033(b) of the Internal Revenue Code, relating to basis of property acquired through involuntary conversion, shall apply, except as otherwise provided.

(b) Section 1033(b)(1) of the Internal Revenue Code is modified by substituting “subdivision (a) of Section 24943” in lieu of “subsection (a)(1).”

(c) Section 1033(b)(2) of the Internal Revenue Code is modified by substituting “subdivision (b) of Section 24943” in lieu of “subsection (a)(2).”

(d) Section 1033(b)(3) of the Internal Revenue Code is modified by substituting “subdivision (b) of Section 24943” in lieu of “subsection (a)(2)(E).”

(Repealed and added by Stats. 1997, Ch. 611, Sec. 98. Effective October 3, 1997.)

24948.
  

For purposes of this part, if property lying within an irrigation project is sold or otherwise disposed of in order to conform to the acreage limitation provisions of federal reclamation laws, such sale or disposition shall be treated as an involuntary conversion to which Sections 24943 to 24949, inclusive, apply.

(Added by Stats. 1961, Ch. 846.)

24949.
  

For purposes of this part, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which Sections 24943 to 24949, inclusive, apply.

(Added by Stats. 1961, Ch. 846.)

24949.1.
  

(a) For purposes of this part, the sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number the taxpayer would sell if he or she followed his or her usual business practices shall be treated as an involuntary conversion to which Sections 24943 to 24949, inclusive, apply if the livestock are sold or exchanged by the taxpayer solely on account of drought, flood, or other weather-related conditions.

(b) (1) In the case of drought, flood, or other weather-related conditions described in subdivision (a) that result in the area being designated as eligible for assistance by the federal government, subdivision (b) of Section 24944 shall be applied with respect to any converted property by substituting “four years” for “two years.”

(2) The Franchise Tax Board may extend the period for replacement under Sections 24943 to 24949, inclusive (after the application of paragraph (1)), for the additional time as the Franchise Tax Board determines appropriate if the weather-related conditions that resulted in the application of paragraph (1) continue for more than three years.

(Amended by Stats. 2005, Ch. 691, Sec. 74. Effective October 7, 2005.)

24949.2.
  

(a) For purposes of Sections 24943 through 24945, if real property (not including stock in trade or other property held primarily for sale) held for productive use in trade or business or for investment is (as a result of its seizure, requisition, or condemnation, or threat or imminence thereof) compulsorily or involuntarily converted, property of a like kind to be held either for productive use in trade or business or for investment shall be treated as property similar or related in service or use to the property so converted.

(b) (1) Subdivision (a) shall not apply to the purchase of stock in the acquisition of control of a corporation described in subdivision (a) of Section 24944.

(2) Subdivision (a) shall apply with respect to the compulsory or involuntary conversion of any real property only if the disposition of the converted property (within the meaning of subdivision (b) of Section 24943) occurs after December 31, 1960.

(c) (1) A taxpayer may elect, at such time and in such manner as the Franchise Tax Board may prescribe, to treat property which constitutes an outdoor advertising display as real property for purposes of this part with respect to which an election under Section 24356.2 (relating to election to expense certain depreciable business assets) is in effect.

(2) An election made under paragraph (1) may not be revoked without the consent of the Franchise Tax Board.

(3) For purposes of this subdivision, the term “outdoor advertising display” means a rigidly assembled sign, display, or device permanently affixed to the ground or permanently attached to a building or other inherently permanent structure constituting, or used for the display of, a commercial or other advertisement to the public.

(4) For purposes of this subdivision, an interest in real property purchased as replacement property for a compulsorily or involuntarily converted outdoor advertising display defined in paragraph (3) (and treated by the taxpayer as real property) shall be considered property of a like kind as the property converted without regard to whether the taxpayer’s interest in the replacement property is the same kind of interest the taxpayer held in the converted property.

(d) In the case of a compulsory or involuntary conversion described in subdivision (a), paragraph (1) of subdivision (b) of Section 24944 shall be applied by substituting “three years” for “two years.”

(e) Subdivision (d) shall apply with respect to any disposition of converted property (within the meaning of Section 24944) after December 31, 1976.

(Amended by Stats. 1984, Ch. 45, Sec. 16. Effective March 20, 1984.)

24949.3.
  

For purposes of Sections 24943 through 24946, if, because of drought, flood, other weather-related conditions, or soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property in the case of soil contamination or other environmental contamination) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted.

(Amended by Stats. 2005, Ch. 691, Sec. 75. Effective October 7, 2005.)

24949.5.
  

(a) For purposes of Sections 24943 through 24946, Section 1033(h) of the Internal Revenue Code, relating to special rules for property damaged by federally declared disasters, shall apply, except as otherwise provided.

(b) For purposes of Sections 24943 through 24946, Section 1033(i) of the Internal Revenue Code, relating to replacement property must be acquired from unrelated person in certain cases, shall apply, except as otherwise provided.

(c) For purposes of Sections 24943 through 24946, Section 1033(j) of the Internal Revenue Code, relating to sales or exchanges to implement microwave relocation policy, shall apply, except as otherwise provided.

(d) For purposes of Sections 24943 to 24946, inclusive, Section 1033(k) of the Internal Revenue Code, relating to sales or exchanges under certain hazard mitigation programs, shall apply, except as otherwise provided.

(Amended by Stats. 2010, Ch. 14, Sec. 78. (SB 401) Effective January 1, 2011.)

24950.
  

Section 1035 of the Internal Revenue Code, relating to certain exchanges of insurance policies, shall apply, except as otherwise provided.

(Amended by Stats. 1993, Ch. 877, Sec. 82. Effective October 6, 1993.)

24950.5.
  

The amendments made by Section 844 of the Pension Protection Act of 2006 (Public Law 109-280) to Section 1035 of the Internal Revenue Code shall not apply.

(Added by Stats. 2010, Ch. 14, Sec. 79. (SB 401) Effective January 1, 2011.)

24951.
  

Section 1036 of the Internal Revenue Code, relating to stock for stock of same corporation, shall apply, except as otherwise provided.

(Amended by Stats. 1993, Ch. 877, Sec. 83. Effective October 6, 1993.)

24952.
  

(a) If—

(1) A sale of real property gives rise to indebtedness to the seller which is secured by the real property sold, and

(2) The seller of such property reacquires such property in partial or full satisfaction of such indebtedness,

then, except as provided in subdivisions (b) and (d), no gain or loss shall result to the seller from such reacquisition, and no debt shall become worthless or partially worthless as a result of such reacquisition.

(b) (1) In the case of a reacquisition of real property to which subdivision (a) applies, gain shall result from such reacquisition to the extent that—

(A) The amount of money and the fair market value of other property (other than obligations of the purchaser) received, prior to such reacquisition, with respect to the sale of such property, exceeds

(B) The amount of the gain on the sale of such property included in the measure of tax or returned as income for periods prior to such reacquisition.

(2) The amount of gain determined under paragraph (1) resulting from a reacquisition during any taxable year beginning after December 31, 1964, shall not exceed the amount by which the price at which the real property was sold exceeded its adjusted basis, reduced by the sum of—

(A) The amount of the gain on the sale of such property included in the measure of tax or returned as income for periods prior to the reacquisition of such property, and

(B) The amount of money and the fair market value of other property (other than obligations of the purchaser received with respect to the sale of such property) paid or transferred by the seller in connection with the reacquisition of such property.

For purposes of this paragraph, the price at which real property is sold is the gross sales price reduced by the selling commissions, legal fees, and other expenses incident to the sale of such property which are properly taken into account in determining gain or loss on such sale.

(3) Except as provided in this section, the gain determined under this subdivision resulting from a reacquisition to which subdivision (a) applies shall be recognized, notwithstanding any other provision of this part.

(c) If subdivision (a) applies to the reacquisition of any real property, the basis of such property upon such reacquisition shall be the adjusted basis of the indebtedness to the seller secured by such property (determined as of the date of reacquisition), increased by the sum of—

(1) The amount of the gain determined under subdivision (b) resulting from such reacquisition, and

(2) The amount described in subparagraph (B) of paragraph (2) of subdivision (b).

If any indebtedness to the seller secured by such property is not discharged upon the reacquisition of such property, the basis of such indebtedness shall be zero.

(d) If, prior to a reacquisition of real property to which subdivision (a) applies, the seller has treated indebtedness secured by such property as having become worthless or partially worthless—

(1) Such seller shall be considered as receiving, upon the reacquisition of such property, an amount equal to the amount of such indebtedness treated by him as having become worthless, and

(2) The adjusted basis of such indebtedness shall be increased (as of the date of reacquisition) by an amount equal to the amount so considered as received by such seller.

(Amended by Stats. 2000, Ch. 862, Sec. 207. Effective January 1, 2001.)

24953.
  

(a) If gain or loss from the exchange of property in this state of a taxpayer is not recognized under this part because of Section 1031 of the Internal Revenue Code, relating to exchange of property held for productive use or investment, for a taxable year and the property acquired in that exchange is located outside of this state, the taxpayer shall file an information return with the Franchise Tax Board for the taxable year of the exchange and for each subsequent taxable year in which the gain or loss from that exchange has not been recognized, in the form and manner prescribed by the Franchise Tax Board.

(b) If a taxpayer fails to file an information return required pursuant to subdivision (a), and fails to file a return required under Part 10.2 (commencing with Section 18401), the Franchise Tax Board may make an estimate of the net income, from any available information, including the amount of gain described in subdivision (a), and may propose to assess the amount of tax, interest, and penalties due in the same manner as Section 19087.

(c) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.

(d) This section shall apply to exchanges of property that occur in taxable years beginning on or after January 1, 2014.

(Added by Stats. 2013, Ch. 26, Sec. 5. (AB 92) Effective June 27, 2013.)

24954.
  

For taxable years beginning on or after January 1, 1995, Section 1042 of the Internal Revenue Code, relating to sales of stock to employee stock ownership plans or certain cooperatives, shall apply, except as otherwise provided.

(Amended by Stats. 2000, Ch. 862, Sec. 208. Effective January 1, 2001.)

24954.1.
  

Section 1042(g) of the Internal Revenue Code, relating to application of section to sales of stock in agricultural refiners and processors to eligible farm cooperatives, shall not apply.

(Added by Stats. 1998, Ch. 322, Sec. 101. Effective August 20, 1998.)

24955.
  

(a) No gain shall be recognized with respect to a sale of an assisted housing development to a tenant association, nonprofit organization, profit-motivated organization or individual, or public agency which obligates itself and any successors in interest to maintain the assisted housing development affordable to persons or families of lower income or very low income for either a period of 30 years from the date of sale or the remaining term of existing federal government assistance as listed in subdivision (a) of Section 65863.10 of the Government Code, whichever is greater, provided that all of the proceeds from the sale are reinvested in residential real property, other than a personal residence, in this state within two years after the sale. This obligation shall be recorded at the time of sale in the office of the county recorder of the county in which the development is located.

(b) No gain shall be recognized with respect to a sale of a majority or more of units in an assisted housing development converted to condominium interests, to a tenant association, nonprofit organization, profit-motivated organization or individual, or public agency which obligates itself and any successors in interest to maintain the condominiums affordable to persons or families of lower income or very low income for either a period of 30 years from the date of sale or the remaining term of existing federal government assistance as listed in subdivision (a) of Section 65863.10 of the Government Code, provided that all of the proceeds from the sale are reinvested in residential real property, other than a personal residence, in this state within two years after the sale. This obligation shall be recorded at the time of sale in the office of the county recorder of the county in which the development is located.

(c) No gain shall be recognized with respect to a sale of real property to a majority or more of existing lower income and very low income residents of that property, provided that all of the proceeds from the sale are reinvested in residential real property, other than a personal residence, in this state within two years after the sale.

(d) No gain shall be recognized with respect to a sale of a majority or more of units converted to condominium interests to the existing lower income or very low income residents of that property, provided that all of the proceeds from the sale are reinvested in residential real property, other than a personal residence, in this state within two years after the sale.

(e) For purposes of this section:

(1) “Assisted housing development” means a multifamily rental housing development that receives federal government assistance, appearing of record and containing a legal description of the property, as defined in subdivision (a) of Section 65863.10 of the Government Code.

(2) “Tenant association” means a group of tenants who have formed a nonprofit corporation, cooperative corporation, or other entity or organization; or a local nonprofit, regional, or national organization whose purpose includes the acquisition of an assisted housing development, real property, or condominium and which represents the interests of at least a majority of the tenants in the assisted housing development, real property, or condominium.

(3) “Nonprofit organization” means a not-for-profit corporation organized pursuant to Division 2 (commencing with Section 5000) of Title 1 of the Corporations Code, which has as its principal purpose the ownership, development, or management of housing or community development projects for persons and families of lower income and very low income, and which has a broadly representative board, a majority of whose members are community-based and has a proven track record of community service.

(4) “Public agency” means a housing authority, redevelopment agency, or any other agency of a city, county, or city and county, whether general law or chartered, which is authorized to own, develop, or manage housing or community development projects for persons and families of lower income and very low income.

(5) “Regional or national organization” means a not-for-profit, charitable corporation organized on a multicounty, state, or multistate basis which has as its principal purpose the ownership, development, or management of housing or community development projects for persons and families of lower income and very low income.

(6) “Regional or national agency” means a multicounty, state, or multistate agency which is authorized to own, develop, or manage housing or community development projects for persons and families of lower income and very low income.

(7) “Profit-motivated organization or individual” means an individual or two or more persons organized pursuant to Division 1 (commencing with Section 100) of Title 1 of, Division 3 (commencing with Section 1200) of Title 1 of, or Division 1 (commencing with Section 15001) of Title 2 of, the Corporations Code, which carries on as a business for profit.

(8) “Lower income” means those residents having an income as defined by Section 50079.5 of the Health and Safety Code.

(9) “Very low income” means those residents having an income as defined by Section 50105 of the Health and Safety Code.

(10) “Resident” means a tenant or other person who lawfully occupies a unit located in a qualified low-income housing project as defined under Section 23610.5, and whose income qualifies as lower income or very low income.

(11) “Condominium” means the interest in real property defined in Section 783 of the Civil Code.

(f) If the purchase of residential real property results in the nonrecognition of gain on the sale of an assisted housing development, real property, or condominium under subdivision (a), (b), (c), or (d), in determining the adjusted basis of the purchased residential real property as of any time following the sale of the assisted housing development, real property, or condominium, the adjustments to the basis shall include a reduction by an amount equal to the amount of the gain not so recognized on the sale of the assisted housing development, real property, or condominium. If more than one parcel of residential real property has been purchased, the nonrecognized gain from the sale of the assisted housing development, real property, or condominium shall be attributed to the parcels of residential real property on a pro rata basis based upon the purchase prices of those parcels.

(g) In accordance with subdivision (a), (b), (c), or (d), if the sale of an assisted housing development, real property, or condominium results in a gain during the taxable year, then all of the following shall apply:

(1) The statutory period for the assessment of any deficiency attributable to any part of the gain shall not expire before the expiration of four years from the date the Franchise Tax Board is notified (on the form as the Franchise Tax Board may provide) of one of the following:

(A) The cost of purchasing the residential real property which satisfies the requirement of subdivision (a), (b), (c), or (d), and results in the nonrecognition of gain.

(B) The intention not to reinvest all of the proceeds from the sale in residential real property within the period specified in subdivision (a), (b), (c), or (d).

(C) The failure to reinvest all of the proceeds from the sale in residential real property within the period specified in subdivision (a), (b), (c), or (d).

(2) The deficiency may be assessed before the expiration of the period specified in paragraph (1), notwithstanding the provisions of any other law or rule of law which would otherwise prevent the assessment.

(3) All information regarding the sale of an assisted housing development, real property, or condominium, at a gain in accordance with subdivision (a), (b), (c), or (d), shall be disclosed in the return for the taxable year in which the sale took place in order to determine if the sale qualifies and the amount of nonrecognition of gain qualifies under subdivision (a), (b), (c), or (d).

(h) The Department of Housing and Community Development shall do all of the following:

(1) Certify that the lower income or very low income resident meets the definitions provided in paragraphs (8) and (9) of subdivision (e).

(2) Provide an annual listing to the Franchise Tax Board, in a form and manner agreed upon by the Franchise Tax Board and the Department of Housing and Community Development, of the names and identification numbers of the persons who are members of the group of purchasers who are lower income or very low income residents that were issued a certification, and the names and identification numbers of the sellers of the property.

(3) Provide the group of purchasers who are lower income or very low income residents a copy of the certification.

(i) The group of purchasers who are lower income or very low income residents shall do all of the following:

(1) Provide the Department of Housing and Community Development with documents, as deemed necessary by the department, verifying the income of each member of the group.

(2) Provide a copy of the certification to the seller of the assisted housing development, real property, or condominium.

(3) Retain a copy of the certification.

(j) The seller of the assisted housing development, real property, or condominium shall do all of the following:

(1) Obtain a copy of the certification from the group of purchasers who are lower income or very low income residents of the assisted housing development, real property, or condominium.

(2) Retain a copy of the group’s lower income or very low income certification for tax purposes.

(Amended by Stats. 2000, Ch. 862, Sec. 209. Effective January 1, 2001.)

24956.
  

(a) Section 1044 of the Internal Revenue Code, relating to rollover of publicly traded securities gain into specialized small business investment companies, shall apply, except as otherwise provided.

(b) The provisions of Section 1044 of the Internal Revenue Code, relating to rollover of publicly traded securities gain into specialized small business investment companies, shall not apply to any taxable year (or portion thereof) that those provisions (or similar provisions) are not applicable for federal income tax purposes.

(Amended by Stats. 2000, Ch. 862, Sec. 210. Effective January 1, 2001.)

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