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Changes to 2007 Form

2007 Schedule D (565)/3885P –Capital Gain or Loss/Depreciation and Amortization Instructions

The revised Internet version is available for download as of 05/23/2008

Revision Details:

The IRS added a new depreciation Form 4562-FY for 2007 fiscal year filers based on the changes from the Economic Stimulus Act of 2008. This form is used by entities that are on a fiscal year and want to claim an additional first year depreciation allowance for qualified property placed in service after 12/31/07.
The existing California form and instructions do not include reference to the new federal Form 4562-FY. We are revising the form and instructions to include the reference to the new federal Form 4562-FY.

  1. Instructions for Form FTB 3885P, Page 2 Flat/Page 38 Booklet, Election to Expense Certain Tangible Property (IRC Section 179) Worksheet
  2. Instructions for Form FTB 3885P, Page 2 Flat/Page 38 Booklet, Election to Expense Certain Tangible Property (IRC Section 179) Worksheet, line 7
  3. Instructions for Form FTB 3885P, Page 2 Flat/Page 38 Booklet, Election to Expense Certain Tangible Property (IRC Section 179) Worksheet, line 10 and page 351 of the Package X.

Previously read:

1.Follow the instructions on federal Form 4562 for listed property.
2. Listed property. Used federal Form 4562, Part V, line 29. Make any adjustments for California law and basis differences.
3.10 Carryover of disallowed deduction from 2006. See instructions for line 10 through 13 on federal Form 4562.

Revised to:

1.Follow the instructions on federal Form 4562 or 4562-FY for listed property.
2.Listed property. Used federal Form 4562 or 4562-FY, Part V, line 29. Make any adjustments for California law and basis differences.
3.10 Carryover of disallowed deduction from 2006. See instructions for line 10 through 13 on federal Form 4562 or 4562-FY.

If the taxpayer is required to complete the federal Form 4562-FY to claim the additional depreciation allowable based on changes made by the Economic Stimulus Act of 2008, and CA 3885P doesn’t make reference to the new federal Form 4562-FY, the taxpayer may enter zero on the Election to Expense Certain Tangible Property (IRC Section 179) Worksheet, line 7. This may overstate the California depreciation deduction and understate their taxable income and tax liability.


Schedule K-1 (565) – Partner’s Instructions for Schedule K-1 (565)

The revised Internet version is available for download as of 03/12/2008

Revision Details: 1.) Reference to line 9 is incorrect. The correct reference should be line 12. This is a result of the revamp of the Schedule K-1 (565) instructions for 2007, in which line 9 became line 12. Line 9 was the correct line reference for taxable years 2006 and prior. 2.) The reference to form FTB 3801 is incorrect. The correct reference should be to form FTB 3801-CR because these are instructions regarding credits. However, there is already a "blanket" instruction to use form FTB 3801-CR in the Credits portion of these instructions, so the instructions will not be revised to use form FTB 3801-CR, the instruction will be deleted from lines 15c and 15d. 3.) The instructions for line 15e are regarding a partnership that is a member in an LLC and for the partners of the partnership. In this situation, the partnership will receive a Schedule K-1 and Form 592-B from the LLC and the partners will receive a Schedule K-1 and Form 592-B from the partnership. The revision corrects the form reference to Schedule K-1 (568) and also the entity reference to LLC.

1.) Schedule K-1 (565) Instructions, Booklet page 45, Flat page 5, column 2, Section B – Deductions, paragraph 3, sentence 2.
2.) Schedule K-1 (565) Instructions, Booklet page 46, Flat page 6, column 1, Section C – Credits, Line 15c and 15d, sentence 3.
3.) Schedule K-1 (565) Instructions, Booklet page 46, Flat page 6, column 1, Section C – Credits, Line 15e, paragraph 2.

Previously read:

1.) If it is not a passive activity amount and there is an amount on Schedule K-1 (565), line 9, column (c ), enter this amount on Schedule CA (540 or 540NR), line 21f, column B or column C, whichever is applicable.
2.) See form FTB 3801 to determine if your loss is limited.
3.) You must attach a copy of the Schedule K-1 (565) previously issued to your partnership by the LLC and the Schedule K-1 (565) issued to you by your partnership. You must also attach a copy of Form 592-B received from the withholding partnership to the partnership being withheld up on and the Form 592-B to the partners by the partnership that was withheld upon, to your California tax return to claim your share of the tax paid by the LLC on your partnership’s behalf.

Revised to:

1.) If it is not a passive activity amount and there is an amount on Schedule K-1 (565), line 12, column (c ), enter this amount on Schedule CA (540 or 540NR), line 21f, column B or column C, whichever is applicable.
2.) delete the following sentence "See form FTB 3801 to determine if your loss is limited."
3.) You must attach a copy of the Schedule K-1 568 previously issued to your partnership by the LLC and the Schedule K-1 (565) issued to you by your partnership. You must also attach a copy of Form 592-B received from the withholding LLC to the partnership being withheld up on and the Form 592-B to the partners by the partnership that was withheld upon, to your California tax return to claim your share of the tax paid by the LLC on your partnership’s behalf.

No tax impact.

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