Legal Ruling – Deferred Intercompany Stock Account (DISA)Tax News Flash

On July 30, 2025, the Franchise Tax Board (FTB) issued Legal Ruling 2025-1, which relates to the treatment of a Deferred Intercompany Stock Account (DISA) in certain nonrecognition transactions. The Legal Ruling has important implications for taxpayers in combined reporting groups in which there is a DISA with respect to a member corporation's stock, and the stock is transferred in a nonrecognition transaction under Internal Revenue Code of 1986, as amended, section 355.

Taxpayers in the situation described in the Legal Ruling have faced uncertainty as to whether the DISA would cause income recognition. As described in the Legal Ruling, these taxpayers may use available basis to reduce or eliminate the DISA when the stock is distributed in certain nonrecognition transactions.