(a) If—
(1) Any person or persons acquire, or acquired on or after October 8, 1940, directly or indirectly, control of a corporation; or
(2) Any corporation acquires, or acquired on or after October 8, 1940, directly or indirectly, property of another corporation, not controlled, directly or indirectly, immediately before such acquisition, by such acquiring corporation or its stockholders, the basis of which property, in the hands of the acquiring corporation, is determined by reference to the basis in the hands of the transferor corporation;
and the principal purpose for which such acquisition was made is evasion or avoidance of tax under this part by securing the benefit of a deduction, credit, or other allowance which such person or corporation would not otherwise enjoy, then such deduction, credit, or other allowance shall not be allowed. For purposes of this subdivision, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock of the corporation.
(b) (1) If—
(A) There is a qualified stock purchase by a corporation of another corporation,
(B) An election is not made under Section 24519 with respect to that purchase,
(C) The acquired corporation is liquidated pursuant to a plan of liquidation adopted not more than two years after the acquisition date, and
(D) The principal purpose for that liquidation is the evasion or avoidance of tax under this part by securing the benefit of a deduction, credit, or other allowance which the acquiring corporation would not otherwise enjoy,
then the Franchise Tax Board may disallow that deduction, credit, or other allowance.
(2) For purposes of paragraph (1), the terms “qualified stock purchase” and “acquisition date” have the same respective meanings as when used in Section 24519.
(c) In any case to which subdivision (a) applies, the Franchise Tax Board may do any of the following:
(1) Allow as a deduction, credit, or allowance any part of any amount disallowed by that section, if it determines that such allowance will not result in the evasion or avoidance of tax under this part for which the acquisition was made.
(2) Distribute, apportion, or allocate gross income, and distribute, apportion, or allocate the deductions, credits, or allowances the benefit of which was sought to be secured, between or among the corporations, or properties, or parts thereof, involved, and to allow those deductions, credits, or allowances so distributed, apportioned, or allocated, but to give effect to that allowance only to the extent which it determines shall not result in the evasion or avoidance of tax under this part for which the acquisition was made.
(3) Exercise its powers, in part, under paragraph (1) and, in part, under paragraph (2).
(Amended by Stats. 1985, Ch. 1461, Sec. 111. Effective October 1, 1985.)
Last modified: October 25, 2018