Credit assignments

Until September 18, 2019, taxpayers may apply the “correction of an error” provisions of CCR 23363-4 to defective credit assignments made before September 18, 2018.

Overview

If you’re a C Corporation and you file a combined report, you may be able to assign credits to other members you file with (reporting group). 

This information applies only to assignments made under the general assignment statute. Visit R&TC 23663 for more information.

This information is not for credit assignments made under the California motion picture and television production credit or the Low-Income housing credit (FTB 3521) provisions.

Eligible credits

Any credit held by a C corporation is eligible for credit assignment, except for the Alternative Minimum Tax (AMT) credit.

Roles

There are two roles associated with credit assignment - that of assignor assigning the credits and the assignee receiving the credits

Assignor

The assignor is a member of a combined reporting group. The assignor generates an eligible credit (is allowed the credit as a distributive share item) and can assign the credit to an eligible assignee. The assignee must be a member of the same reporting group as the assignor.

The assignor can only assign credit(s) to a specific corporation. They cannot assign to a “division”, a group of corporations in the same line of business within the entire combined reporting group.

A single owner eligible business entity (including a single member limited liability company) that is disregarded as an entity separate from its owner is treated as a division of the parent company of the disregarded entity.

Assignee

An eligible assignee is any affiliated corporation that is a member of the same combined reporting group as the assignor on the following dates:

  • For credits generated in taxable years beginning before July 1, 2008, the assignor and assignee must have been in the same combined reporting group on both of the following dates:
    • June 30, 2008, and
    • The last day of the taxable year of the assigning taxpayer in which the eligible credit is assigned
  • For credits generated in taxable years beginning on or after July 1, 2008, the assignor and assignee must have been in the same combined reporting group on both of the following dates:
    • The last day of the taxable year in which the credit was first allowed to the assignor, and
    • The last day of the taxable year of the assigning taxpayer in which the eligible credit is assigned

Before you assign your credit(s)

  • The carryover period for the credit carries through to the assignee.
  • Any limitations on the use of a tax credit that would have been placed on the assignor will apply to the assignee.
  • If you do not use or assign all of your credit, you can use or assign the remaining portion of your unexpired credits in future tax years.
  • Once you assign the credit, it’s irrevocable. Additionally, you cannot reassign the credit.

How to assign the credit

If you’re an assignor, do all of the following:

  1. File your combined income tax return
    • Use either form 100 or 100w
  2. Attach Election to Assign Credit Within Combined Reporting Group (FTB 3544) to your original return. You only file the FTB 3544 in the year you elect to assign the credit(s).
    • Use a different FTB 3544 for each assignor
    • Use a different FTB 3544 for each type of credit you’re assigning.
    • You can only assign credits by listing, among other things:
      1. Specific dollar amounts
      2. Type of credit
      3. Year of generation
      4. Any applicable limitations for the credit’s use

A credit assignment will not be allowed if form FTB 3544 is attached to an amended tax return

How to claim/report

If you’re an assignee, do all of the following:

  1. File your combined income tax return
    • Use form 100, 100w, or 100X, as applicable
  2. Attach List of Assigned Credit Received and/or Claimed by Assignee (FTB 3544A) to your return.
    • Use a different FTB 3544A for each assignee
    • Use a different FTB 3544A for each type of credit you’re receiving
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Visit Instructions for form FTB 3544A for more information.

Defective credit assignment

Any assignment that does not meet the requirements of RTC 23663 is a defective assignment.
Defective assignments include, but not limited to:

  • Incomplete forms.
  • Assignments made to an ineligible assignee.
  • Non-specific assignments, such as listing “various” rather than a dollar amount.
  • Assigning more credits than the assignor has.

Example: In its election to assign credits, X includes the name of Y but the FEIN of Z. This is a defective assignment because the identity of the assignee is uncertain.

Allocation rules

California Code of Regulations (CCR) 23663-1 to 23663-5 became effective on September 18, 2018. If your credit assignment is defective, these regulations provide you the following options to allocate the credit:

  1. Standard allocation – generally, if you assign more credits than you actually have, your credits will be allocated to the assignee. In other instances, the credits can be allocated back to the assignor.
  2. Alternative allocation – if you made an allocation request (and you have not received an audit contact), you have more flexibility on how your defective assignment may be allocated.
  3. Correction of an error – You may request a cure for many defective assignments before you file the subsequent year’s tax return or the year’s extended due date, whichever is earlier.

    Until September 18, 2019, taxpayers may apply the “correction of an error” provisions of CCR 23363-4 to defective credit assignments made before the regulation became effective.

  4. Unitary determination – for credit assignment purposes only, you may request us to make a determination if the assignor and assignee are unitary.

Follow procedures in FTB Notice 2018-03 to make these requests.