ARTICLE 2. Items Specifically Included in Gross Income [17081. - 17091.]

Cal. Revenue and Taxation Code - RTC 2.

in effect

Cal. Revenue and Taxation Code - RTC § 17081. Section 17081.

Part II of Subchapter B of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to items that are specifically included in gross income, shall apply, except as otherwise provided.

Cal. Revenue and Taxation Code - RTC § 17082. Section 17082.

(a) For taxable years beginning on or after January 1, 2023, the income of an incomplete gift nongrantor trust shall be included in a qualified taxpayer’s gross income to the extent the income of the trust would be taken into account in computing the qualified taxpayer’s taxable income if the trust in its entirety were treated as a grantor trust under Section 17731. (b) Notwithstanding subdivision (a), Section 17745 applies to distributions from an incomplete gift nongrantor trust. (c) Notwithstanding subdivision (a), the income of an incomplete gift nongrantor trust shall not be included in a qualified taxpayer’s gross income for a taxable year if all of the following apply: (1) The fiduciary of the incomplete gift nongrantor trust timely files an original California Fiduciary Income Tax Return and makes an irrevocable election on that return to be taxed as a resident nongrantor trust, pursuant to Chapter 9 (commencing with Section 17731). The election shall be made in the form and manner prescribed by the Franchise Tax Board. (2) The incomplete gift nongrantor trust is a nongrantor trust pursuant to Chapter 9 (commencing with Section 17731). (3) Ninety percent or more of the distributable net income of the incomplete gift nongrantor trust, pursuant to Chapter 9 (commencing with Section 17731), is distributed, or treated as being distributed pursuant to Section 17752 or 17731, including subdivision (a), for purposes of Chapter 9 (commencing with Section 17731), to a charitable organization, as defined in Section 501(c)(3) of the Internal Revenue Code. (d) For purposes of this section, the following definitions apply: (1) (A) “Incomplete gift nongrantor trust” means a trust that meets both of the following conditions: (i) The trust does not qualify as a grantor trust under Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to grantors and others treated as substantial owners. (ii) The qualified taxpayer’s transfer of assets to the trust is treated as an incomplete gift under Section 2511 of the Internal Revenue Code, relating to transfers in general. (B) “Incomplete gift nongrantor trust” shall not include a trust, or portion of a trust, that qualifies as a charitable remainder trust under Section 664 of the Internal Revenue Code. (2) “Qualified taxpayer” means a grantor of an incomplete gift nongrantor trust. (3) “Resident nongrantor trust” means a trust that is not a grantor trust and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary in accordance with Section 17742. (e) (1) The Franchise Tax Board may prescribe any regulations necessary or appropriate to carry out the purposes of this section. (2) The Franchise Tax Board may prescribe rules, guidelines, procedures, or other guidance to carry out the purposes of this section. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, procedure, or other guidance prescribed by the Franchise Tax Board pursuant to this section.

Cal. Revenue and Taxation Code - RTC § 17083. Section 17083.

Section 85 of the Internal Revenue Code, relating to unemployment compensation, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17085. Section 17085.

Section 72 of the Internal Revenue Code, relating to annuities, certain proceeds of endowment and life insurance contracts, is modified as follows: (a) The amendments and transitional rules made by Public Law 99-514 shall be applicable to this part for the same transactions and the same years as they are applicable for federal purposes, except that the repeal of Section 72(d) of the Internal Revenue Code, relating to repeal of special rule for employees’ annuities, shall apply only to the following: (1) Any individual whose annuity starting date is after December 31, 1986. (2) At the election of the taxpayer, any individual whose annuity starting date is after July 1, 1986, and before January 1, 1987. (b) The amount of a distribution from an individual retirement account or annuity or employee trust or employee annuity that is includable in gross income for federal purposes shall be reduced for purposes of this part by the lesser of either of the following: (1) An amount equal to the amount includable in federal gross income for the taxable year. (2) An amount equal to the basis in the account or annuity allowed by Section 17507 (relating to individual retirement accounts and simplified employee pensions), the increased basis allowed by Sections 17504 and 17506 (relating to plans of self-employed individuals), the increased basis allowed by Section 17501, or the increased basis allowed by Section 17551 that is remaining after adjustment for reductions in gross income under this provision in prior taxable years. (c) (1) Except as provided in paragraph (2), the amount of the additional tax imposed under this part shall be computed in accordance with Sections 72(m), (q), (t), and (v) of the Internal Revenue Code, as applicable for federal income tax purposes for the same taxable year, using a rate of 2 1 2 percent, in lieu of the rate provided in those sections. (2) In the case where Section 72(t)(6) of the Internal Revenue Code, relating to special rules for simple retirement accounts, as applicable for federal income tax purposes for the same taxable year, applies, the rate in paragraph (1) shall be 6 percent in lieu of the 2 1 2 percent rate specified therein. (d) Section 72(f)(2) of the Internal Revenue Code shall be applicable without applying the exceptions which immediately follow that paragraph. (e) The amendments made by Section 844 of the federal Pension Protection Act of 2006 (Public Law 109-280) to Section 72(e) of the Internal Revenue Code, shall not apply. (f) For purposes of this part, Section 2202(b) of the Coronavirus Aid, Relief, and Economic Security Act (Public Law 116-136), relating to loans from qualified plans shall apply. (g) For purposes of this part, Section 302(c) of Title III of the Consolidated Appropriations Act, 2021 (Public Law 116-260), relating to loans from qualified plans, shall apply.

Cal. Revenue and Taxation Code - RTC § 17085.7. Section 17085.7.

(a) In the case of any distribution made on account of a notice to withhold (pursuant to Section 18670 or 18670.5) on a qualified retirement plan, no additional tax shall be imposed in accordance with Section 72(t) of the Internal Revenue Code. (b) This section shall apply to distributions after December 31, 1999.

Cal. Revenue and Taxation Code - RTC § 17086. Section 17086.

(a) Noncash patronage allocations from farmers’ cooperative and mutual associations (whether paid in capital stock, revolving fund certificates, retain certificates, certificates of indebtedness, letters of advice or in some other manner that discloses the dollar amount of those noncash patronage allocations) may, at the election of the taxpayer, be considered as income and included in gross income for the taxable year in which received. (b) If a taxpayer exercises the election provided for in subdivision (a), the amount included in gross income shall be the face amount of those allocations. (c) If a taxpayer elects to exclude noncash patronage allocations from gross income for the taxable year in which received, those allocations shall be included in gross income in the year that they are redeemed or realized upon. (d) If a taxpayer exercises the election provided for in subdivision (c), the face amount of those noncash patronage allocations shall be disclosed in the return made for the taxable year in which those noncash patronage allocations were received. (e) If a taxpayer exercises the election provided for in subdivision (a) or (c) for any taxable year, then the method of computing income so adopted shall be adhered to with respect to all subsequent taxable years unless with the approval of the Franchise Tax Board a change to a different method is authorized. (f) If a taxpayer has made the election provided for in subdivision (c), then (1) the statutory period for the assessment of a deficiency for any taxable year in which the amount of any noncash patronage allocations are realized shall not expire prior to the expiration of four years from the date the Franchise Tax Board is notified by the taxpayer (in the manner as the Franchise Tax Board may by regulation prescribe) of the realization of gain on those allocations; and (2) that deficiency may be assessed prior to the expiration of that four-year period, notwithstanding the provisions of Section 19057 or the provisions of any other law or rule of law which would otherwise prevent that assessment.

Cal. Revenue and Taxation Code - RTC § 17087. Section 17087.

(a) Section 86 of the Internal Revenue Code, relating to Social Security and Tier 1 Railroad Retirement Benefits, shall not apply. (b) Section 72(r) of the Internal Revenue Code, relating to Tier 2 Railroad Retirement Benefits, shall not apply. (c) Section 105(h) of the Internal Revenue Code, relating to sick pay under the Railroad Unemployment Insurance Act, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17087.5. Section 17087.5.

(a) Subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to tax treatment of “S corporations” and their shareholders, shall apply, except as otherwise provided under this part or Part 11 (commencing with Section 23001). (b) Section 1371(f) of the Internal Revenue Code, relating to cash distributions following post-termination transition period, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17087.6. Section 17087.6.

If a limited liability company is classified as a partnership for California tax purposes, a person with a membership or economic interest shall take into account amounts required to be recognized under Chapter 10 (commencing with Section 17851).

Cal. Revenue and Taxation Code - RTC § 17088. Section 17088.

(a) Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to regulated investment companies and real estate investment trusts, shall apply, except as otherwise provided. (b) Section 17145 shall apply in lieu of Section 852(b)(5) of the Internal Revenue Code, relating to exempt-interest dividends. (c) (1) Section 852(b)(3)(D) of the Internal Revenue Code, relating to treatment by shareholders of undistributed capital gains, shall not apply. (2) Section 852(g)(1)(A) of the Internal Revenue Code is modified by substituting the phrase “subdivision (a) of Section 17145” for the phrase “the first sentence of subsection (b)(5)” contained therein.

Cal. Revenue and Taxation Code - RTC § 17088.1. Section 17088.1.

(a) The amendments made to Section 860E(a)(3)(B) of the Internal Revenue Code by Section 2303(a)(2)(C) of Public Law 116-136, relating to conforming amendments, shall not apply. (b) The amendments made to Section 860E(a)(4) of the Internal Revenue Code by Section 10101(a)(4)(B)(ii) of Public Law 117-169, relating to conforming adjustments, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17088.3. Section 17088.3.

(a) Section 7518 of the Internal Revenue Code, relating to tax incentives relating to merchant marine capital construction funds, shall apply, except as otherwise provided. (b) Section 7518(d)(2)(C) of the Internal Revenue Code is modified as follows: (1) By substituting “70 percent” in lieu of the reference to “the percentage applicable under Section 243(a)(1).” (2) To refer to Section 24402 in lieu of Section 243 of the Internal Revenue Code. (c) Section 7518(d)(2)(D) of the Internal Revenue Code is modified to refer to “interest income exempt from taxation under this part” in lieu of “interest income exempt from taxation under Section 103.” (d) Section 7518(g)(3) of the Internal Revenue Code is modified as follows: (1) To refer to Article 6 (commencing with Section 19101) of Chapter 4 of Part 10.2 in lieu of Section 6601 of the Internal Revenue Code. (2) To refer to Article 7 (commencing with Section 19131) of Chapter 4 of Part 10.2 in lieu of Section 6651 of the Internal Revenue Code. (e) Section 7518(g)(6) of the Internal Revenue Code is modified as follows: (1) By substituting a reference to “this part” in lieu of “Chapter 1” in each place in which it appears. (2) To refer to Section 17041 in lieu of Section 1 of the Internal Revenue Code. (3) The last sentence in Section 7518(g)(6)(A) of the Internal Revenue Code shall not apply.

Cal. Revenue and Taxation Code - RTC § 17090. Section 17090.

Gross income includes cash allowances received by an employee under a parking cash-out program, except any portion used for a ridesharing purpose and excluded from gross income by Section 17149.

Cal. Revenue and Taxation Code - RTC § 17091. Section 17091.

(a) Section 71 of the Internal Revenue Code, relating to alimony and separate maintenance payments, as it read on January 1, 2015, shall apply, except as otherwise provided. (b) Subdivision (a) shall not apply for any divorce or separation instrument executed after December 31, 2025, or for any divorce or separation instrument executed on or before December 31, 2025, and modified after that date, if the modification expressly provides that the amendments made by this subdivision apply to such modification. (c) This section shall remain in effect only until December 1, 2027, and as of that date is repealed.

Source: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026