Tax News September 2025

August Tax News Flash

August 31 - Legal Ruling - Deferred Intercompany Stock Account (DISA)

Chief Counsel Explains Legal Ruling

On July 30, 2025, the Franchise Tax Board issued Legal Ruling 2025-1, relating to the treatment of a Deferred Intercompany Stock Account (DISA) during certain nonrecognition transactions.

What the Legal Ruling does

A DISA is an accounting mechanism to track when a corporation has made a non-dividend distribution in excess of basis. There has been uncertainty as to whether a DISA can be extinguished if there is sufficient basis to reduce or eliminate the DISA in a transferee corporation’s stock during certain nonrecognition transactions. In the circumstances described in the Legal Ruling, the basis can be applied to reduce the DISA.

Who the Legal Ruling applies to

The Legal Ruling applies to corporations that are part of combined reporting groups, in which there is a DISA with respect to the stock of one member, when that stock is transferred within the group in a transaction that qualifies for nonrecognition under Internal Revenue Code section 355; and there is sufficient basis in the transferee's stock to reduce or eliminate the DISA.

Los Angeles County Disaster Relief & Assistance Reminder

Disaster Relief

FTB reminds individuals and businesses with their principal residence, or principal place of business, in Los Angeles County during the fires that began January 7, 2025, that they qualify for a postponement to file and pay taxes until October 15, 2025. To notify FTB, affected taxpayers must write the name of the disaster (e.g., LA County Fires) at the top of their tax return for paper filed returns. Taxpayers who file electronically need to follow their software instructions to enter disaster information.

Only income tax filings and payments due between January 7, 2025, and October 15, 2025, qualify for a postponement to October 15, 2025. Refer to Los Angeles County fires and disaster declaration tax payments for examples of tax returns and payments eligible for postponement.

Individuals and businesses do not need to file FTB 3872 as the California and federal postponement periods are the same for the Los Angeles County disaster.

Disaster Assistance

Los Angeles County individuals and businesses who did not mark “disaster” on their tax returns and received penalty notices, or taxpayers and tax professionals who have questions about disaster relief, should contact FTB by:

Email

FTB LA County Disaster Relief

Phone

888-825-9868

Online

MyFTB

The email address and phone number options are only for individuals and businesses affected by the Los Angeles County disaster.

For frequently asked questions, go to Help with Los Angeles County fire relief. Taxpayers with questions not related to the Los Angeles County fires may use one of the many options to contact FTB.

What to Know About Qualified Real Estate Investment Trust Subsidiary (QREITS)

Reporting

A QREITS is 100 percent owned by a Real Estate Investment Trust (REIT). For California tax purposes, a QREITS is considered a disregarded entity and is included in the REIT’s tax return. All income, deductions, and credits associated with a QREITS are treated as those of the REIT.

Therefore, a QREITS is not required to file a tax return or pay the California minimum franchise tax, even if it is doing business in California or is registered with the California Secretary of State. Refer to IRC section 856(i)(1), to which California conforms under RTC section 24870.

Procedure

To avoid receiving a Demand for Tax Return, the REIT must properly report a QREITS on Form 100, Schedule Q, Question V2. A detailed statement must be attached to the tax return, and list each QREITS’s:

• Name,
• California corporation number, and
• Federal Employer Identification Number

The QREITS’s California corporation number must be included in the statement because it is critical for FTB to establish a parent-subsidiary relationship between the REIT and a QREITS, which will help prevent receiving unnecessary notices. Refer to Form 100 Instructions.

FTB 4197 - Reporting for Certain Deductions, Credits, Exclusions, and Exemptions

Pursuant to Revenue and Taxation Code (R&TC) section 41, FTB has legislatively mandated reporting requirements. FTB is required to report on specified deductions, credits, and exclusions to the California Legislature to allow them to evaluate the performance of each specified tax expenditure.

Generally, the Legislature specifies the metrics used to evaluate the tax expenditure's performance and occasionally the reporting requirement includes metrics not reported on the State’s tax return. To meet the requirements of these reporting requirements, FTB created Form FTB 4197 to capture additional metrics.

If you have clients with any of the following 2024 tax expenditure items, please report these items on Form FTB 4197:

• Cannabis (CBIS)
• Deployed Military Exemption (DME)
• Thomas and Woolsey Wildfires Exclusion (TWWE)
• Turf Replacement Water Conservation Program Exclusion (TRWCP)
• Emergency Financial Aid Grants (EFAG)
• American Rescue Plan Act Student Loan Forgiveness (ARPSLF)
• Kincade Wildfire Exclusion (KWE)
• Zogg Wildfire (ZWE)
• Wildfire Mitigation Payment (WMP)

Below is a table to provide additional guidance on how to complete the form:

For the 2024 taxable year, FTB is no longer required to report on a few specified tax expenditures. Accordingly, taxpayers do not need to file FTB 4197 to report the following tax items: 

• Paycheck Protection Program (PPP)
• Other Loan Forgiveness (OLF)
• Economic Injury Disaster Loan (EIDL)
• Restaurant Revitalization Grant (RRG)
• Shuttered Venue Operator Grant (SVOG)

The Form FTB 4197 Instructions will not be updated to remove the tax expenditures that no longer need to be reported for the 2024 tax year. The form instructions will be updated for the 2025 tax year. If the taxpayer already reported these items on FTB FTB 4197 on their 2024 tax year return, they do not need to amend their tax return.

For more information, view the Form FTB 4197, Form FTB 4197 Instructions, or visit the Forms section of our website.

View previously released reports.

Apply to Revive Your Business Online

We are excited to introduce another new online service for tax practitioners and small business owners.

Business representatives and business tax professionals can now submit a request to revive their business through the Certificate of Revivor online application or log into MyFTB account.

For more information, go to My business is suspended.

Adjusted Interest Rates for January 1, 2026, through June 30, 2026

For the period January 1, 2026, through June 30, 2026, the interest rate will be 7%. This is the rate compounded daily that accrues with respect to various state taxes, to include:

• Personal income
• Corporate income
• Franchise income

The rate for corporation tax overpayments for the same period will be 4%.

For more information, go to interest and estimate penalty rates.

Register for Online Withholding Presentations 

We offer two 25-minute virtual withholding presentations followed by a Question-and-Answer session conducted through Microsoft Teams or Zoom.

Use the email addresses to register for each presentation. Once registered, you will receive an invitation for the presentation.

Presentations Offered

1. California Nonresident Withholding

Held the second Wednesday of each month at 10 AM.

We will review:

• California nonresident withholding requirements
• Income subject to withholding
• Withholding agent requirements
• Withholding exceptions, waivers, and reductions
• Withholding liability and penalties
• Resources

Register by FTB CA Non-Resident Withholding Education.

California Real Estate Withholding

Held the third Tuesday of each month at 10 AM.

We will review:

• Real estate withholding requirements 
• Common mistakes made on Form 593, Real Estate Withholding Statement 
• Withholding responsibilities 
• Installment sales 
• Trusts 
• Foreign sellers 
• Limited Liability Companies 
• Resources 
• Questions 

Register by emailing FTB Real Estate Education.

For the latest information, subscribe to nonresident withholding and real estate withholding.

Internal Revenue Service (IRS) Updates

We partnered with the IRS to provide monthly IRS articles to assist our tax professional and small business communities, and we are excited to share this information; however, questions about the content should be directed to the IRS.

IRS accepting applicants for 2026 Compliance Assurance Process

IR-2025-84, Aug. 18, 2025 — The IRS announced the opening of the 2026 Compliance Assurance Process (CAP) program application period, which will run from Sept. 3 to Oct. 31, 2025.

Security Summit: Protect against tax identity theft with multi-factor IDs, Identity Protection PINs, IRS Online Accounts

IR-2025-83, Aug. 12, 2025 — In the fourth installment of a special summer series, the Security Summit partners remind tax professionals and taxpayers about the IRS Identity Protection PIN and the IRS Online Accounts that can help protect against tax-related identity theft.

IRS announces no changes to individual information returns or withholding tables for 2025 under the One Big Beautiful Bill Act

IR-2025-82, Aug. 7, 2025 — The IRS announced that, as part of its phased implementation of the One Big Beautiful Bill Act, there will be no changes to certain information returns or withholding tables for Tax Year 2025 related to the new law.

IRS reminds employers: Educational Assistance Programs can help pay employee student loans through 2025

IR-2025-81, Aug. 6, 2025 — The IRS issued a reminder that employers can continue to use educational assistance programs to help employees pay down student loans through December 31, 2025.

IRS Nationwide Tax Forum standard rate deadline approaching for Orlando and Baltimore

IR-2025-80, Aug. 5, 2025 — The IRS reminded tax professionals that space is filling up quickly for the remaining 2025 IRS Nationwide Tax Forum events. The Chicago, New Orleans and San Diego forums sold out, and the IRS encourages those planning to attend in Orlando or Baltimore to register before the standard rate deadlines.

IRS, Security Summit remind tax pros they must have a Written Information Security Plan to protect client data

IR-2025-79, July 29, 2025 — The IRS and its Security Summit partners reminded tax professionals about the federal mandate to have a Written Information Security Plan (WISP) designed to help protect them against threats from identity thieves and data breaches.

Ask the Advocate

Partnering for Progress: Working Together for Better Taxpayer Services

Each year, my team has the responsibility and honor of planning our Executive Officer's, Selvi Stanislaus, meeting with her Advisory Board. The Advisory Board brings together leaders from the tax industry, academia, and government partners, who meet with FTB key leadership to share perspectives and discuss the issues and challenges that impact taxpayers and tax professionals. It was a pleasure to meet members in-person and offer the same experience to members who joined online. We were excited to have a highly successful hybrid meeting and were delighted to accommodate the Advisory Board members who could not attend in person. During our time together, subject matter experts from FTB program areas shared:

• Legislative Update
• Final EDR2 Update
• 2024/25 Service Enhancements
• Tax Filing Fraud
• 2026-2030 Strategic Plan Results
• Upgrade to New State Web Template V6
• Litigation Update

FTB appreciates the valuable insights, new ideas, and lively discussions at this year's meeting. The insights gained will facilitate process and service improvements.

In addition to the Advisory Board meeting, FTB partners with the California Society of Enrolled Agents (CSEA) to help onboard new tax professionals. This event (California Tax Agencies Unlocked) covered key topics like Power of Attorney, MyFTB, and the audit and collection processes. FTB is proud to support this successful collaboration as it equips new practitioners with tools to better serve California taxpayers.

We look forward to meeting with CSEA on Wednesday, October 29, 2025, for their annual State Tax Agency Liaison Meeting.

For members of the California Society of Certified Public Accountants (CalCPA), keep an eye out for more information from CalCPA about their annual liaison meeting on Tuesday, November 18, 2025.

Advisory Board members and the tax professional community, you bring a unique perspective grounded in day-to-day taxpayer interactions. Thank you for your expertise and insights as they help ensure FTB products and services meet the needs of California taxpayers.

I sincerely thank you for your continued partnership.