(a) In the case of any “S corporation” or personal service corporation required to change its accounting period by the federal Tax Reform Act of 1986 (Public Law 99-514) as modified by Section 10206 of Public Law 100-203 and Section 1008(e) of Public Law 100-647, that change shall be treated as initiated by the “S corporation” or personal service corporation with the consent of the Franchise Tax Board.
(b) With respect to any beneficiary, partner, or shareholder which is required to include the items from more than one taxable year of the trust, partnership, or corporation in any one taxable year, any income in excess of expenses for the short taxable year resulting from the change described in subdivision (a) or subdivision (a) of Section 17551.5 shall be taken into account ratably in each of the first four taxable years beginning after December 31, 1986, unless the beneficiary, partner, or shareholder elects to include all that income in the beneficiary’s, partner’s, or shareholder’s taxable year with or within which the trust’s, partnership’s, or corporation’s short taxable year ends.
(c) The spreading of income over four years, as allowed by subdivision (b), shall not apply unless the taxpayer receives similar treatment for federal income tax purposes.
(d) For taxable years beginning on or after January 1, 1987, each of the following shall apply:
(1) The adjusted basis of any partner’s interest in a partnership or shareholder’s stock in an “S corporation” shall be determined as if all of the income to be taken into account ratably in the four taxable years referred to in subdivision (b) were included in gross income for the first of those taxable years.
(2) If any interest in a partnership or stock in an “S corporation” is disposed of before the last taxable year in the spread period, all amounts which would be included in the gross income of the partner or shareholder for subsequent taxable years in the spread period under subdivision (b) and attributable to the interest or stock disposed of shall be included in gross income for the taxable year in which the disposition occurs. For purposes of the preceding sentence, the term “spread period” means the period consisting of the four taxable years referred to in subdivision (b).
(Amended by Stats. 2000, Ch. 862, Sec. 177. Effective January 1, 2001.)
Last modified: October 25, 2018