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Disclosing Deferred Intercompany Stock Account (DISA) Balances

FTB issued Form 3726, Deferred Intercompany Stock Account (DISA) and Capital Gain Information to assist taxpayers in complying with their annual disclosure requirement. In conjunction with Form 3726, we revised Form 100, California Corporation Franchise or Income Tax Return, and Form 100W, California Corporation Franchise or Income Tax Return - Water’s-Edge Filers, to include a question asking whether taxpayers have a DISA balance and, if so, the amount of that balance. An appropriately completed Form 3726 must be included with a taxpayer's 2008 original return and every year thereafter, if a member of the combined group has a DISA balance.

For years 2001 through 2007, taxpayers who have not yet fulfilled their disclosure obligation on the original return can fulfill their disclosure obligation by submitting a Form 3726 disclosing their DISA balances for each of those prior years. An amended return does not need to be filed. However, taxpayers should file an amended return if they discover that a prior triggering event has occurred that would have required taking into income the relevant DISA amount. If taxpayers satisfy their disclosure obligations, the previously undisclosed balances will not be included in income due to the prior nondisclosures.

Winters sentencing and restitution hearing is scheduled for April 6. Winters owes the State more than $45,000 in unpaid tax, penalties, interest, and the cost of the investigation.

The Form 3726 disclosing a taxpayer's DISA account for prior years, except those years open to assessment under the applicable statute of limitations, should be submitted by May 31, 2009. Form 3726 disclosures must be made on a specific entity basis. This means the company that received the distribution and the company that made the distribution must be identified. Accordingly, the name and California corporation number, or federal employer identification number (FEIN), for each specific distributor and distributee must be provided.

Additionally, the name and California corporation number of the key corporation must also be provided.

Please mail Form 3726 and any supplemental schedules to:

PO Box 942867-2222
Sacramento CA 94267-2222

If there are any questions regarding satisfying the disclosure requirement, contact Michael Halahan at 714.567.7109.

Certain penalties may be imposed as consequences for failure to disclose. If the prior DISA balances for years 2001 through 2007 are not reported as income due to the occurrence of a triggering event described in California Code of Regulations (CCR) Section 25106.5-1, Subsection (f)(1)(B), or disclosed as required, then pursuant to CCR Section 25106.5-1, Subsection (j)(7), the undisclosed balances may be accelerated by the FTB and required to be taken into income. This could result in additional tax liability and the imposition of various penalties, including the accuracy-related penalty under California Revenue and Taxation Code (CRTC) section 19164 and the large corporate underpayment penalty under CRTC section 19138.

See California Revenue & Taxation Code Section 25106 for more information. This regulation is applicable for tax years beginning on or after January 1, 2001.