Tax News December 2025

Senate Bill 711 Federal Conformity Bill - Impacts to Business Electronic Filing Mandate and Research Credit

Senate Bill (SB) 711, chaptered on October 1, 2025, changes the general “specified date” the California Revenue and Taxation Code (CRTC) conforms to the Internal Revenue Code (IRC) from January 2015, to January 1, 2025, for personal income tax and corporate tax purposes.

Impacts to Business Electronic Filing Mandate

Following the enactment of SB 711, California's specified conformity date with IRC section 6011(e) and IRC section 6011(h) is now January 1, 2025. Accordingly, most federal changes pertaining to e-filing of income tax returns—including changes that lowered the e-filing threshold for Corporations, Partnerships and Exempt Organization returns—apply to California. The following information will show the updated business electronic filing mandates for California income tax returns for taxable years beginning on or after January 1, 2025.

Business Electronic Filing Mandate

In addition to Revenue Taxation Code (RTC) section 18621.10, which requires business entities that prepare an original or amended return using tax preparation software to electronically file their return with FTB, California's conformity with the IRC section 6011(e) and IRC section 6011(h) now requires:

• Any corporation required to file a corporate income tax return must file the return electronically if the corporation is required by IRC section 6011(e) or regulations to file at least 10 returns during the calendar year ending with or within the taxable year of the corporation. (See Treasury Regulation § 301.6011-5(a)(1).)
• Any partnership that must file a return must do so electronically if (1) the partnership is required to file at least 10 returns during the calendar year ending with or within the taxable year of the partnership, or (2) the partnership has more than 100 partners during the partnership's taxable year. (See Treasury Regulation § 301.6011-3(a)(1).)
• Any organization, including exempt organizations, required to file an annual return with unrelated business income, which relates to any tax imposed by IRC section 511, shall file such return in electronic form. While exempt organizations with unrelated business income are newly required to electronically file their returns, pursuant to RTC section 18409, trusts and estates are still not required to file electronically.

You may request a waiver annually if you believe you are unable to comply with the e-filing requirements. FTB may grant a waiver due to, but not limited to, the following reasons:

• Technology constraints – The inability of the tax preparation software used by a taxpayer to electronically file the tax return due to software limitations or the complex nature of the tax return.
• Where compliance would result in undue financial burden.
• Circumstances that constitute reasonable cause and not willful neglect.

If you are submitting a waiver, please make your reason(s) specific so we can do our best to address your inability to comply with the e-file requirements.

For more information about the business e-file program, go to e-file for Business.

Impacts to Research Credit
Changes to the California Research Credit

SB 711 also made changes to how certain federal income tax laws apply for California purposes, with specified exceptions and modifications to both the Personal Income Tax Law and the Corporation Tax Law that affect the California research credit under CRTC sections 17052.12 and 23609.

Repeal of the Alternative Incremental Credit

SB 711 repeals the Alternative Incremental Credit (AIC) for taxable years beginning on or after January 1, 2025. If you previously elected the AIC, to continue receiving research credit for taxable years beginning on or after January 1, 2025, you must act. On your timely-filed original return for the 2025 taxable year, use FTB Form 3523 to elect either the regular incremental credit or the new Alternative Simplified Credit (ASC) [see below], or you can choose not to claim the research credit. IMPORTANT: A previous AIC election will not default to another credit.

Adoption of the Alternative Simplified Credit

For taxable years beginning on or after January 1, 2025, SB 711 adopts the federal Alternative Simplified Credit (ASC) under IRC Section 41(c)(4), as modified by CRTC Sections 17052.12 and 23609.

SB 711 modifies the federal ASC rates to 3 percent in general, or 1.3 percent in cases where a taxpayer has no qualified research expenses in any of the three preceding years.

IRC Section 41(c)(4)(C) does not apply under California law, and any request to revoke an ASC election requires FTB's consent. Any request to revoke a research credit election must be made prior to filing your timely-filed original return for the applicable taxable year. For example, you must request and receive FTB's consent to revoke an ASC election prior to filing your timely-filed original return, or you will remain on the ASC. As the statute requires taxpayers to obtain FTB's consent, "deemed consent" does not apply to revocation of the ASC.

Taxpayers should make a request for consent to revoke a credit election by filing federal Form 3115, Application for Change in Accounting Method, or federal form 1128, Application to Adopt, Change, or Retain a Tax Year.

Send your request and cover letter to:

Franchise Tax Board
Change in Accounting Periods and Methods Coordinator

P. O. Box 1998
Rancho Cordova, CA 95812

You may also FAX a request and cover letter to (916) 855-5557.

For more information on FTB’s consent to revoke an election or on separate tax treatment for federal purposes, refer to FTB Notice 2024-01 and the corporate business entity tax booklets, General Information, Section D, Accounting Period/ Method, within the booklets.

Senate Bill 132 Extends Pass-Through Entity Elective Tax

Governor Newsom signed California Senate Bill ("SB") 132 into law on June 27, 2025. SB 132 extended the pass-through entity ("PTE") elective tax created by the Small Business Relief Act under Part 10.4, Division 2 of the Revenue and Taxation Code ("R&TC"). SB 132 extended the PTE elective tax for taxable years beginning on or after January 1, 2026, and before January 1, 2031. SB 132 added Part 10.4.1 of Division 2 of the R&TC as well as R&TC section 17052.11. While the PTE elective tax under Part 10.4.1 is similar to the PTE elective tax under Part 10.4, there are some notable differences.

First, R&TC section 19914(b) allows qualified entities that fail to make the requisite pre-payment on or before June 15th of the taxable year, to still make the PTE elective tax election for that taxable year. However, R&TC section 19910 still requires the election be made on an original timely filed return and not an amended return. Once properly made, the election is irrevocable.

Second, if the qualified entity fails to make the required June 15th payment, or underpays the June 15th payment, the qualified taxpayer's PTE elective tax credit is reduced by 12.5% of the qualified taxpayer's pro rata share of the unpaid amount that was due on June 15th. (R&TC section 17052.11).

SB 132 also amended R&TC section 17052.10 to allow the PTE elective tax credit in situations where the qualified entity makes a valid PTE elective tax election and is a fiscal year filer but has a different taxable year beginning than its qualified taxpayer. This same provision was included in R&TC section 17052.11.

For additional information, go to Pass-through entity elective tax.

Updated Estimated Tax Payments for Nonresident Aliens

For taxable years that begin on or after January 1, 2021, and before January 1, 2026, Assembly Bill (AB) 2660 (Stats. 2020, Ch. 102) allows nonresident aliens that receive California source income to elect to be included on a group nonresident return instead of filing an individual nonresident return. A California group nonresident tax return must be filed by an authorized representative.

As a result of the administrative burden to process estimated tax payments for electing nonresident aliens, FTB has not required estimated tax payments to be made for electing nonresident aliens that were included on a California group nonresident tax return for the 2021, 2022, 2023 and 2024 taxable years. FTB will also not require estimated tax payments to be made for electing nonresident aliens included on a California group nonresident tax return for the 2025 taxable year.

For taxable years beginning on or after January 1, 2026, AB 1518 (Stats. 2025, Ch. 73) makes permanent the group return election for nonresident aliens and would make permanent the exemption from the requirement that nonresident aliens provide a social security number or individual tax identification number when filing a state return, statement, or other document with FTB. Additionally, this bill will make the estimated tax payment penalty inapplicable for nonresident aliens electing to file in a group return.

For additional information about filing a nonresident group return, including filing as a nonresident alien, go to Publication 1067 or visit FTB’s website for FTB’s latest analysis of AB 1518.

New Single-Sales Factor Apportionment Formula for Financial Institutions

Businesses with income derived from or attributable to sources both inside and outside of California are subject to California apportionment and allocation rules. All apportioning trades or businesses must apportion their business income to California using a single-sales factor except those that derive more than 50% of their gross receipts from qualified business activities (QBA).

Senate Bill (SB)132 was enacted into law June 27, 2025. SB 132 modified the definition of QBA to remove savings and loan activities and banking or financial business activities. Therefore, apportioning trades or businesses that derive more than 50% of gross business receipts from savings and loan activities or banking or financial business activities are now required to use the single-sales factor apportionment formula for taxable years beginning on or after January 1, 2025. Agricultural and extractive business activities continue to be considered QBA.

For more information, go to FTB’s analysis of SB 132.

For more information about formulas and forms, go to Apportionment and Allocation.

Gross Income Exclusion for Taxpayers Receiving Wildfire Settlements

Senate Bills (SB) 132 and 159, enacted into law June 27, 2025, and September 17, 2025, respectively, expand tax relief for California taxpayers who received wildfire settlements. Qualified taxpayers may exclude qualified amounts from gross income from a settlement entity in connection with a qualified wildfire disaster.

A qualified taxpayer is generally any taxpayer who is a resident, owns a home, or has a business in an area damaged by a qualified wildfire disaster. A qualified wildfire disaster is any disaster arising from a wildfire for which either the Governor has declared a state of emergency, or the President has declared an emergency or major disaster. A settlement entity is an entity making a settlement payment of a qualified amount to a qualified taxpayer.

This relief is available retroactively to taxable years beginning on or after January 1, 2021, and before January 1, 2030. If your client received a settlement due to wildfire damages, it may be excludable from California gross income. The statute of limitations to claim a refund generally expires four years from the date of the timely filed return, or in the case of a late filed return, four years from the original due date for filing the return. For calendar years filers who filed their 2021 tax return on or before the original due date, the statute of limitation to claim a credit or refund expires on April 15, 2026.

For more information, go to Emergency tax relief.

Submission Resources – Power of Attorney (POA), Tax Information Authorization (TIA), TIA Renewals, and Self-Help Videos

With the 2026 tax season quickly approaching, FTB is excited to offer new resources to assist you to prepare for a smooth and efficient start to the tax season!

Tax preparers file over 12 million individual tax returns annually, which is over 65% of the total returns filed. It is more important than ever to timely file your POA declarations and TIA forms renewal timely to ensure you have access to the full spectrum of authorized information at your fingertips to provide the best service to your clients.

MyFTB is your ultimate 24/7 access point for detailed tax information and a wide range of self-service options, including the ability to conveniently renew TIA relationships online. Remember that TIA relationships are valid for 13 months, and the renewal window for tax professionals opens 90 calendar days before the expiration date and closes just five calendar days prior to the expiration date.

Exciting new self-help video resources for you!

FTB is excited to announce a brand-new series of "How-to Videos" designed to help you and your clients submit and manage POA declarations and TIA forms and manage those relationships quickly and easily. These step-by-step video resources are perfect for both new and experienced professionals alike. Find the full playlist on FTB's YouTube page and our public website on the Help with POA and Help with TIA pages.

Avoid common POA declaration and TIA form rejection pitfalls

Timely access is essential for an efficient and effective tax season. To help you avoid common submission delays, remember these key points to ensure your POA declaration or TIA form is accepted:

• Complete every required field. Incomplete declarations and forms are a leading cause of delays.
• Attach supporting documents. If someone other than the taxpayer is signing on behalf of the taxpayer, attach supporting documentation, such as durable POAs, certifications of trusts, or court orders.
• Avoid MyFTB submission errors. Only upload the POA declaration and any supporting documentation. Be sure the information keyed into the MyFTB POA Wizard matches all the fields on the uploaded POA declaration. Do not key any representatives not listed on the uploaded POA declaration.
• Use a wet signature. An electronic signature, digital signature, or a signature copied from another form will result in rejection.
• FTB Notices 1181 (Verify POA), 1182 (Verify TIA), and 3911 (Full Online Account Access Requested). Advise your client that FTB may send a notice related to authorizing your access. These notices are time-sensitive and may require a phone call.

Bottom line, we know how important it is to have access to your client’s information for accurate tax return filing. Keep these tips handy throughout the season to ensure you avoid the common rejection pitfalls and can easily get support from the self-help videos.

Thank you for your dedication to California taxpayers. We wish you a successful tax season!

Internal Revenue Service 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.

Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025

IR-2025-114, Nov. 21, 2025 — The Department of the Treasury and the IRS issued guidance for workers eligible to claim the deduction for tips and for overtime compensation for tax year 2025.

Treasury, IRS issue guidance on tax benefit for lenders on loans secured by farm or rural property under the One, Big, Beautiful Bill

IR-2025-113, Nov. 20, 2025 — The Department of the Treasury and the IRS issued guidance for a new tax benefit for certain lenders that make loans secured by rural or agricultural real property.

401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500

IR-2025-111, Nov. 13, 2025 — The IRS announced that the amount individuals can contribute to their 401(k) plans in 2026 has increased to $24,500, up from $23,500 for 2025.

Interest rates remain the same for the first quarter of 2026

IR-2025-112, Nov. 13, 2025 — The IRS announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2026.

Treasury, IRS provide penalty relief for tax year 2025 for information reporting on tips and overtime under the One, Big, Beautiful Bill

IR-2025-110, Nov. 5, 2025 — The Department of the Treasury and the IRS issued guidance providing penalty relief to employers and other payors for tax year 2025 regarding new information reporting requirements for cash tips and qualified overtime compensation under the One, Big, Beautiful Bill.

Nationwide Tax Forum Online launches with new continuing education content

IR-2025-109, Nov. 4, 2025 — The IRS announced the launch of the 2025 Nationwide Tax Forum Online, providing tax professionals access to seminars recorded at this year's IRS Nationwide Tax Forum.

Celebrating 35 Years of Exceptional Service: Honoring Our TRAO Section Manager Ann Wilson’s Retirement

After an extraordinary 35 years of dedicated State service, our Taxpayers’ Rights Advocate Office (TRAO) Section Manager, Ann Wilson, is retiring, leaving behind a legacy defined by integrity, innovation, and an unwavering commitment to excellence.

Throughout her distinguished career, she set the standard for what it means to serve California’s taxpayers. Known for her strong work ethic, she consistently approached every challenge with determination, professionalism, and a deep sense of responsibility to the public we serve.

A natural problem-solver, she brought exceptional innovative thinking to every corner of her work. She led TRAO’s education and outreach, guided the direction and tone of Tax News, and created dynamic presentations for external stakeholder meetings that strengthened understanding and collaboration across the tax community.

Her influence on the written word at FTB cannot be overstated. As the architect of Franchise Tax Board’s departmental writing standards, colleagues fondly describe her as a true grammar guru, a gifted editor with an eagle eye for clarity, precision, and consistency.

Beyond her operational leadership, she also brought a rare talent for hospitality and connection. A skilled events planner, she created meaningful, engaging experiences each one planned with the same care, creativity, and attention to detail that she brought to her everyday work.

As we celebrate her retirement, we also celebrate the countless ways she has elevated our programs, strengthened our communication with the public, and mentored staff across the department. Her legacy will continue to shape the TRAO for years to come.

Please join us to congratulate her on a remarkable career and wish her health, happiness, and well-deserved enjoyment in the next chapter of her life.

Ask the Advocate - CalCPA/COT Annual Liaison Meeting and Taxpayer Bill of Rights Hearing

Greetings! Can you believe the end of 2025 is already here?

The Taxpayers’ Rights Advocate’s Office (TRAO) is pleased the Franchise Tax Board (FTB) participated in the recent CalCPA Committee on Taxation Liaison meeting. This is an important forum that strengthens collaboration between FTB and the tax professional community. These meetings continue to play a vital role to ensure open communication, mutual understanding, and shared problem-solving as we work together to support California taxpayers.

This year’s agenda featured informative presentations, including a Litigation Update and a Pass-Through Entity Elective Tax (PTE Elective Tax) overview. Both presentations provided valuable insight into current legal developments and key program updates that affect taxpayers and tax professionals.

 A dedicated portion of the meeting was set aside to address pre-submitted questions from CalCPA members and allow for meaningful discussion on issues most relevant to tax professionals. These thoughtful inquiries help guide our ongoing efforts to improve clarity, consistency, and taxpayer service.

As we look ahead, I want to remind the community, the Taxpayers’ Bill of Rights Hearing is December 8, 2025. I encourage taxpayers, tax professionals and stakeholders to participate, as this is a great opportunity for the public to share concerns, suggestions, and systemic issues directly with the Board.

With the year winding down, I extend my sincere appreciation to the tax professional community for its partnership, expertise, and support throughout the 2025 filing season. I recognize the extraordinary effort you invest on behalf of California taxpayers. As the holidays approach, I hope you enjoy well-deserved time off with family and friends.

Thank you for your continued collaboration and commitment to helping Californians navigate the tax system.