A business must expend cash, or take on debt, or issue owners’ equity shares for an intangible asset in order to record the asset on its books. Building up a good reputation with customers or establishing a well-known brand is not recorded as an intangible asset. This Google™ translation feature, provided on the Franchise Tax Board (FTB) website, is for general information only. For more information, see R&TC Section or go to ftb.ca.gov and search for doing business.

Unitary Member’s Computation of the Sales Factor

The LLC will income statement complete Table 2, Part C to report the member’s distributive share of property, payroll and sales Total within California. You need to add your share of the aggregate gross receipts from this LLC to your aggregate gross receipts from all other trades or businesses in which you hold an interest to determine if you are a qualified taxpayer. You cannot claim the low-income housing credit on any qualified low‑income housing project for which any person was allowed any benefit under Section 502 of the federal Tax Reform Act of 1986.

Investment Partnership Income

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Table 2 – Member’s Share of Distributive Items

If the LLC has a residual interest in a REMIC, it will report your share of REMIC taxable income (net loss) on the schedule. Report the adjustment amount from column (c) on Schedule CA (540 or 540NR). The LLC will also report your share of “excess inclusion” and your share of IRC Section 212 expenses. Individuals, estates, trusts, and S corporations must complete form FTB 3801 to calculate the allowable passive losses and form FTB 3801‑CR to calculate the allowable passive credits. The process by which business income from a trade or business is conducted in two or more states (an apportioning trade or business) is divided between taxing jurisdictions.

• 18 section 25137‑1 requires that nonbusiness income from intangibles be allocated in accordance with the rules of R&TC Sections to 25127.
• Nonbusiness intangibles are sourced or allocated at the member level and must be entered on Table 1 instead.
• The LLC completes the questions and items on each Schedule K-1 (568) for all its members.
• If a member is required to attach this statement but fails to do so, the member may be subject to an accuracy related penalty.
• The at-risk rules limit the amount of loss (including loss on disposition of assets) and other deductions (such as IRC Section 179) that you can claim to the amount you could actually lose in the activity.
• LLC nonbusiness income from real and tangible property will also be entered in column (e).

California residents are subject to tax on their entire taxable income shown in column (d) (R&TC Section 17041). If the LLC derives income from activities conducted both within and outside California, the LLC is an apportioning LLC. All LLCs (apportioning and nonapportioning) should complete columns (c) and (d). The apportioning LLC will determine which items of income constitute business or nonbusiness income and will use Schedule R to determine the LLC income from California sources.

Line 21 – More than one activity for at-risk purposes

For additional information on the treatment of LLC income, deductions, credits, etc., get the federal Pub. 541, Partnerships, or go to irs.gov and search for Guide to Business Expense Resources. In general, for taxable years beginning on or after January 1, 2015, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540), California Adjustments – Residents, or Schedule CA (540NR), California Adjustments – Nonresidents or Part-Year Residents, and the Business Entity tax booklets.

• If it is not a passive activity amount and there is an amount on Schedule K-1 (568), line 12, column (c), enter this amount on Schedule CA (540), Part I, line 8z, or on Schedule CA (540NR), Part II, line 8z, column B or column C, whichever is applicable.
• Thus, members who do not materially participate in the operations of a PTP are allowed to deduct their share of the PTP’s losses only to the extent of passive income from the same PTP or when the entire interest is sold (IRC Section 469(k)).
• Individuals, estates, trusts, and S corporations must complete form FTB 3801 to calculate the allowable passive losses and form FTB 3801‑CR to calculate the allowable passive credits.
• Generally, California tax law conforms to federal tax law concerning basis limitation.
• If the amounts on line 10a and line 10b relate to a trade or business activity and you are a limited partner, the IRC Section 1231 gain (loss) is a passive activity amount.

Line 13c – Investment Interest Expense

• The LLC uses line 11a, column (d), to report portfolio income other than interest, dividend, royalty, and capital gain (loss) income.
• Enter the amount from column (d) on form FTB 3526 along with your investment interest expense from any other sources.
• The passive loss rules apply to the items attributable to each publicly traded partnership (PTP) that is not treated as a corporation under IRC Section 7704.
• Return of Partnership Income, and federal Form 4797, Sales of Business Property.

For more information, get the instructions for federal Schedule K-1 (Form 1065), line 23. Use the information reported on line 17a through line 17f, column (d) as well as your adjustments and tax preference items from other sources to complete Schedule P (100, 100W, 540, 540NR, or 541), Alternative Minimum Tax and Credit Limitations. For more information, get the instructions for federal Schedule K-1 (Form 1065), box 17, Alternative minimum tax (AMT) items.