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California information reporting for 25% foreign-owned corporations.

For income years beginning after 1989, "reporting" corporations subject to Sec. 6038A that file a California franchise or income tax return also must file a copy of federal Form 5472, Information Return of a Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code), with their timely filed (including extensions) California returns. A California "income" year corresponds to a federal "tax" year.

A reporting corporation is a 25% foreign-owned corporation that is either a domestic corporation or a foreign corporation engaged in a trade or business within the United States (Regs. Sec. 1.6038A-1(c)(1)). A separate Form 5472 must be filed each year for each related party with which the reporting corporation has a "reportable transaction" (described in Regs. Sec. 1.6038A-2(b)(3) and (4)). There is a $10,000 penalty for each nontimely filing, with the possibility of an additional $10,000 penalty for each 30-day period (or fractional portion) if this filing failure continues for 90 days after notice from the Service. (See the Tax Clinic item, "Information Reporting for Foreign-Owned U.S. Corporations or Branch Operations," TTA, Oct. 1991, at 653.)

Example: X, a calendar-year reporting corporation, filed its 1990 federal income and California franchise tax returns on Mar. 15, 1991. Pursuant to Regs. Sec. 1.6038A-2(d), X attached a Form 5472 to its federal return. X also filed a duplicate Form 5472 (including attachments and schedules) on Mar. 15, 1991 with the IRS Service Center in Philadelphia.

However, X did not attach a triplicate copy of Form 5472 (including attachments and schedules) with its California franchise tax return. Since California adopted Sec. 6038A for X's 1990 income year, X is liable to California for the $10,000 penalty imposed by Sec. 6038A(d)(1) for failure to timely file a copy of Form 5472.

This California requirement was not widely known. Therefore, California Franchise Tax Board (FTB) Notice 92-1 (1/24/92) provides relief from this $10,000 penalty for Forms 5472 due before Feb. 19, 1992, if they are filed before June 16, 1992 in accordance with the conditions prescribed in the notice (see above).

Caution: For income years beginning after 1990, California also conformed to Secs. 6038B and 6038C. (See the following Tax Clinic item, "Additional Information Reporting for Foreign Transactions.")

For specific California requirements regarding Sec. 6038B, also see FTB Notice 92-2 (3/4/92).
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Author:Josephs, Stuart R.
Publication:The Tax Adviser
Article Type:Brief Article
Date:May 1, 1992
Words:412
Previous Article:Quasi Sec. 195 regulations.
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