25105
. (a) For purposes of this article, other than Section 25102,
the income and apportionment factors of two or more corporations
shall be included in a combined report only if the corporations,
otherwise meeting the requirements of Section 25101 or 25101.15, are
members of a commonly controlled group.
(b) A "commonly controlled group" means any of the following:
(1) A parent corporation and any one or more corporations or
chains of corporations, connected through stock ownership (or
constructive ownership) with the parent, but only if--
(A) The parent owns stock possessing more than 50 percent of the
voting power of at least one corporation, and, if applicable,
(B) Stock cumulatively representing more than 50 percent of the
voting power of each of the corporations, except the parent, is owned
by the parent, one or more corporations described in subparagraph
(A), or one or more other corporations that satisfy the conditions of
this subparagraph.
(2) Any two or more corporations, if stock representing more than
50 percent of the voting power of the corporations is owned, or
constructively owned, by the same person.
(3) Any two or more corporations that constitute stapled entities.
(A) For purposes of this paragraph, "stapled entities" means any
group of two or more corporations if more than 50 percent of the
ownership or beneficial ownership of the stock possessing voting
power in each corporation consists of stapled interests.
(B) Two or more interests are stapled interests if, by reason of
form of ownership restrictions on transfer, or other terms or
conditions, in connection with the transfer of one of the interests
the other interest or interests are also transferred or required to
be transferred.
(4) Any two or more corporations, all of whose stock representing
more than 50 percent of the voting power of the corporations is
cumulatively owned (without regard to the constructive ownership
rules of paragraph (1) of subdivision (e)) by, or for the benefit of,
members of the same family. Members of the same family are limited
to an individual, his or her spouse, parents, brothers or sisters,
grandparents, children and grandchildren, and their respective
spouses.
(c) (1) If, in the application of subdivision (b), a corporation
is eligible to be treated as a member of more than one commonly
controlled group of corporations, the corporation shall elect to be
treated as a member of only one commonly controlled group. This
election shall remain in effect unless revoked with the approval of
the Franchise Tax Board.
(2) Membership in a commonly controlled group shall be treated as
terminated in any year, or fraction thereof, in which the conditions
of subdivision (b) are not met, except as follows:
(A) When stock of a corporation is sold, exchanged, or otherwise
disposed of, the membership of a corporation in a commonly controlled
group shall not be terminated, if the requirements of subdivision
(b) are again met immediately after the sale, exchange, or
disposition.
(B) The Franchise Tax Board may treat the commonly controlled
group as remaining in place if the conditions of subdivision (b) are
again met within a period not to exceed two years.
(d) A taxpayer may exclude some or all corporations included in a
"commonly controlled group" by reason of paragraph (4) of subdivision
(b) by showing that those members of the group are not controlled
directly or indirectly by the same interests, within the meaning of
the same phrase in Section 482 of the Internal Revenue Code. For
purposes of this subdivision, the term "controlled" includes any kind
of control, direct or indirect, whether legally enforceable, and
however exercisable or exercised.
(e) Except as otherwise provided, stock is "owned" when title to
the stock is directly held or if the stock is constructively owned.
(1) An individual constructively owns stock that is owned by any
of the following:
(A) His or her spouse.
(B) Children, including adopted children, of that individual or
the individual's spouse, who have not attained the age of 21 years.
(C) An estate or trust, of which the individual is an executor,
trustee, or grantor, to the extent that the estate or trust is for
the benefit of that individual's spouse or children.
(2) Stock owned by a corporation, or a member of a controlled
group of which the corporation is the parent corporation, is
constructively owned by any shareholder owning stock that represents
more than 50 percent of the voting power of the corporation.
(3) Stock owned by a partnership is constructively owned by any
partner, other than a limited partner, in proportion to the partner's
capital interest in the partnership. For this purpose, a partnership
is treated as owning proportionately the stock owned by any other
partnership in which it has a tiered interest, other than as a
limited partner.
(4) In any case where a member of a commonly controlled group, or
shareholders, officers, directors, or employees of a member of a
commonly controlled group, is a general partner in a limited
partnership, stock held by the limited partnership is constructively
owned by a limited partner to the extent of its capital interest in
the limited partnership.
(f) For purposes of this section, each of the following shall
apply:
(1) "Corporation" means a subchapter S corporation, any other
incorporated entity, or any entity defined or treated as a
corporation pursuant to Section 23038 or 23038.5.
(2) "Person" means an individual, a trust, an estate, a qualified
employee benefit plan, a limited partnership, or a corporation.
(3) "Voting power" means the power of all classes of stock
entitled to vote that possess the power to elect the membership of
the board of directors of the corporation.
(4) "More than 50 percent of the voting power" means voting power
sufficient to elect a majority of the membership of the board of
directors of the corporation.
(5) "Stock representing voting power" includes stock where
ownership is retained but the actual voting power is transferred in
either of the following manners:
(A) For one year or less.
(B) By proxy, voting trust, written shareholder agreement, or by
similar device, where the transfer is revocable by the transferor.
(g) The Franchise Tax Board may prescribe any regulations as may
be necessary or appropriate to carry out the purposes of this
section, including, but not limited to, regulations that do the
following:
(1) Prescribe terms and conditions relating to the election
described by subdivision (c), and the revocation thereof.
(2) Disregard transfers of voting power not described by paragraph
(5) of subdivision (f).
(3) Treat entities not described by paragraph (2) of subdivision
(f) as a person.
(4) Treat warrants, obligations convertible into stock, options to
acquire or sell stock, and similar instruments as stock.
(5) Treat holders of a beneficial interest in, or executor or
trustee powers over, stock held by an estate or trust as
constructively owned by the holder.
(6) Prescribe rules relating to the treatment of partnership
agreements which authorize a particular partner or partners to
exercise voting power of stock held by the partnership.
(h) This section shall apply to taxable years beginning on or
after January 1, 1995.