CHAPTER 6. Accounting Periods and Methods of Accounting [17551. - 17570.]

Cal. Revenue and Taxation Code - RTC 6.
in effect

Cal. Revenue and Taxation Code - RTC § 17551. Section 17551.

(a) Subchapter E of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to accounting periods and methods of accounting, shall apply, except as otherwise provided. (b) Section 444(c)(1) of the Internal Revenue Code, relating to effect of election, shall not apply. (c) Section 451(b) of the Internal Revenue Code, relating to inclusion not later than for financial accounting purposes, shall not apply to specified credit card fees, as defined in Treasury Regulations Section 1.451-3(j)(2). (d) (1) Notwithstanding the specified date contained in paragraph (1) of subdivision (a) of Section 17024.5, Section 457 of the Internal Revenue Code, relating to deferred compensation plans of state and local governments and tax-exempt organizations, shall apply, except as otherwise provided, without regard to taxable year to the same extent as applicable for federal income tax purposes. (2) The maximum deferred compensation for the taxable year that may be excluded from gross income under Section 457 of the Internal Revenue Code, as applicable for state purposes, shall not exceed the amount of deferred compensation that may be excluded from gross income under Section 457 of the Internal Revenue Code, as in effect on January 1, 2010, including additional elective deferrals under Section 414(v) of the Internal Revenue Code, as in effect on January 1, 2010. (e) (1) For taxable years beginning on or after January 1, 2002, the basis of any person in the plan shall be increased by the amount of compensation not allowed to be excluded under subdivision (a). (2) Any basis described in paragraph (1) shall be recovered in the manner specified in Section 17085. (f) Notwithstanding the limitations provided in subdivision (a), any income attributable to compensation deferred in a plan in taxable years beginning on or after January 1, 2002, in conformance with Section 457 of the Internal Revenue Code, as applicable for federal and state purposes, shall not be includable in the gross income of the individual for whose benefit the plan was established until distributed pursuant to the provisions of the plan or by operation of law. (g) Section 451(k) of the Internal Revenue Code, relating to special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy, shall not apply. (h) Section 457A of the Internal Revenue Code, relating to nonqualified deferred compensation from certain tax indifferent parties, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17552. Section 17552.

(a) Notwithstanding Section 17565, a return for a period of less than 12 months shall also be made when the Franchise Tax Board terminates the taxpayer’s taxable year under Section 19082 (relating to tax in jeopardy). (b) Section 443(c) of the Internal Revenue Code, relating to adjustment in deduction for personal exemption, is modified by substituting the phrase “the credit allowed under Section 17054” for the phrase “the exemptions allowed as a deduction under section 151 (and any deduction in lieu thereof).”

Cal. Revenue and Taxation Code - RTC § 17552.3. Section 17552.3.

(a) (1) The options under Sections 112(d)(2) and 112(d)(3) of the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. Sec. 7212(d)(2) and (3)), as in effect on October 21, 1998, shall be disregarded in determining the taxable year for which any payment under a production flexibility contract under Subtitle B of Title I of that act (as so in effect) is properly includable in gross income for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001). (2) In order to provide farmers with the same tax treatment for all payments in years beginning before January 1, 2002, with respect to production flexibility contract payments as provided under federal law as modified by Public Law 105-277, this subdivision shall apply to taxable years ending after December 31, 1995. (b) Any option to accelerate the receipt of any payment under a production flexibility contract entered into on or after January 1, 2002, that is payable under the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. Sec. 7200 et seq.) as in effect on December 17, 1999, shall be disregarded in determining the taxable year for which that payment is properly includable in gross income for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001).

Cal. Revenue and Taxation Code - RTC § 17555. Section 17555.

In any case where spouses file separate returns, the Franchise Tax Board may distribute, apportion, or allocate gross income between the spouses, if it is determined that such distribution, apportionment, or allocation is necessary in order to reflect the proper income of the spouses.

Cal. Revenue and Taxation Code - RTC § 17559. Section 17559.

(a) Section 451(g) of the Internal Revenue Code, relating to special rule for proceeds from livestock sold on account of drought, is modified by substituting the phrase “drought, flood, or other weather-related conditions, and that those conditions” in lieu of the phrase “drought conditions, and that these drought conditions” contained therein. (b) This section shall apply to sales and exchanges after December 31, 1996. (c) This section shall not apply to taxable years beginning on or after January 1, 1998.

Cal. Revenue and Taxation Code - RTC § 17560. Section 17560.

(a) The provisions of Sections 811(c)(4), 811(c)(6), and 811(c)(7) of Public Law 99-514, as modified by Section 1008(f) of Public Law 100-647, shall apply. (b) The provisions of Section 812 of Public Law 99-514, relating to the disallowance of use of installment method for certain obligations as modified by Section 1008(g) of Public Law 100-647, shall apply to taxable years beginning on or after January 1, 1987. (c) The repeal of Section 453C of the Internal Revenue Code by Section 10202(a) of Public Law 100-203, relating to repeal of the proportionate disallowance of the installment method, shall apply to dispositions in taxable years beginning on or after January 1, 1990. (d) (1) In the case of any installment obligation to which Section 453( l )(2)(B) of the Internal Revenue Code applies, in lieu of the provisions of Section 453( l )(3)(A) of the Internal Revenue Code, the tax imposed under Section 17041 or 17048 for any taxable year for which payment is received on that obligation shall be increased by the amount of interest determined in the manner provided under Section 453( l )(3)(B) of the Internal Revenue Code. (2) The provisions of Sections 10202 and 10204 of Public Law 100-203 are modified to provide for each of the following: (A) The provisions of Section 10202 shall apply to dispositions in taxable years beginning on or after January 1, 1990. (B) The provisions of Section 10204 shall apply to costs incurred in taxable years beginning on or after January 1, 1990. (C) Any adjustments required by Section 481 of the Internal Revenue Code shall be included in gross income as follows: (i) Fifty percent in the first taxable year beginning on or after January 1, 1990. (ii) Fifty percent in the second taxable year beginning on or after January 1, 1990. (e) (1) In the case of any installment obligation to which Section 453A of the Internal Revenue Code applies and which is outstanding as of the close of the taxable year, in lieu of the provisions of Section 453A(c)(1) of the Internal Revenue Code, the tax imposed by Section 17041 or 17048 for the taxable year shall be increased by the amount of interest determined in the manner provided under Section 453A(c)(2) of the Internal Revenue Code. (2) The provisions of Section 453A(c)(3)(B) of the Internal Revenue Code, relating to the maximum rate used in calculating the deferred tax liability, are modified to refer to the maximum rate of tax imposed under Section 17041 in lieu of the maximum rate of tax imposed under Section 1 or 11 of the Internal Revenue Code.

Cal. Revenue and Taxation Code - RTC § 17560.5. Section 17560.5.

(a) Section 461(j) of the Internal Revenue Code, relating to limitation on excess farm losses of certain taxpayers, shall not apply. (b) (1) Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), relating to limitation on excess business losses on noncorporate taxpayers, shall apply except as otherwise provided. (2) Section 461(l)(1) of the Internal Revenue Code, relating to limitation, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “beginning after December 31, 2018” for the phrase “beginning after December 31, 2017, and before January 1, 2026.” (3) Section 461(l)(2) of the Internal Revenue Code, relating to disallowed loss carryover, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “Any loss which is disallowed under paragraph (1) shall be treated as a carryover excess business loss for the following taxable year.” for “Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss carryover to the following taxable year under section 172.” (4) Section 461(l)(3)(A) of the Internal Revenue Code, as amended by Section 11012 (a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by inserting “(i) the sum of (I) Any prior year carryover excess business losses, plus” below “In general, the term ‘excess business loss’ means the excess (if any) of.” (5) Section 461(l)(3)(A)(i) of the Internal Revenue Code, as amended by Section 11012 (a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by inserting “(II)” for “(i).” (6) Section 461(l)(6) of the Internal Revenue Code, relating to coordination with section 469, as amended by Section 11012(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), is modified by substituting “Section 17561” for “section 469.” (c) The amendments to Section 461(l) of the Internal Revenue Code made by Section 2304(a) and (b) of Public Law 116-136, relating to the modification of limitation on losses for taxpayers other than corporations, shall not apply. (d) The amendments to Section 461(l)(1) of the Internal Revenue Code made by Section 9041(a) of Public Law 117-2, relating to the extension of limitation on excess business losses of noncorporate taxpayers, shall not apply. (e) The amendments to Section 461(l)(1) of the Internal Revenue Code made by Section 13903(b)(1) of Public Law 117-169, relating to the extension of limitation on excess business losses of noncorporate taxpayers, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17561. Section 17561.

(a) Section 469(c)(7) of the Internal Revenue Code, relating to special rules for taxpayers in real property business, shall not apply. (b) Section 469(d)(2) of the Internal Revenue Code, relating to passive activity credits, is modified to refer to the following credits: (1) The credit for research expenses allowed by Section 17052.12. (2) The credit for certain wages paid (targeted jobs) allowed by Section 17053.7. (3) The credit allowed by former Section 17057 (relating to clinical testing expenses). (4) The credit for low-income housing allowed by Section 17058. (c) Section 469(g)(1)(A) of the Internal Revenue Code is modified to provide that if all gain or loss realized on the disposition of the taxpayer’s entire interest in any passive activity (or former passive activity) is recognized, the excess of— (1) The sum of— (A) Any loss from that activity for that taxable year (determined after application of Section 469(b) of the Internal Revenue Code), plus (B) Any loss realized on that disposition, over (2) Net income or gain for the taxable year from all passive activities (determined without regard to losses described in paragraph (1)), shall be treated as a loss which is not from a passive activity. (d) (1) For purposes of applying the provisions of Section 469(i) of the Internal Revenue Code, relating to the twenty-five thousand dollars ($25,000) offset for rental real estate activities, the dollar limitation specified in Section 469(i)(2) of the Internal Revenue Code, relating to dollar limitation, for the credit allowed under Section 17058, relating to low-income housing, shall not apply. (2) The amendments made to this subdivision by the act adding this paragraph shall apply to each taxable year beginning on or after January 1, 2020. (e) Section 502 of the Tax Reform Act of 1986 (P.L. 99-514) shall apply. (f) For taxable years beginning on or after January 1, 1987, the provisions of Section 10212 of Public Law 100-203, relating to treatment of publicly traded partnerships under Section 469 of the Internal Revenue Code, shall be applicable.

Cal. Revenue and Taxation Code - RTC § 17563.5. Section 17563.5.

(a) The amendment made by Section 7001(a) of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-206) to Section 404(a)(11) of the Internal Revenue Code, regarding determinations relating to deferred compensation, shall apply to taxable years beginning on or after January 1, 2002. (b) In the case of any taxpayer required by enactment of this section to change the method of accounting, for that taxpayer’s first taxable year beginning on or after January 1, 2002, each of the following shall apply for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001): (1) The change shall be treated as initiated by the taxpayer. (2) The change shall be treated as made with the consent of the Franchise Tax Board. (3) The net amount of the adjustments required to be taken into account by the taxpayer under Chapter 6 (commencing with Section 17551) shall be taken into account ratably over the three-taxable-year period beginning with that taxpayer’s first taxable year beginning on or after January 1, 2002.

Cal. Revenue and Taxation Code - RTC § 17563.51. Section 17563.51.

(a) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13102(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 447 of the Internal Revenue Code, relating to method of accounting for corporations engaged in farming, shall apply, except as otherwise provided. (b) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13102(e)(2) of the Tax Cuts and Jobs Act (Public Law 115-97), relating to preservation of suspense account rules with respect to any existing suspense accounts, shall apply to any suspense account existing as of the effective date of the act adding this subdivision. (c) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13102(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 448 of the Internal Revenue Code, relating to limitation on use of cash method of accounting, shall apply, except as otherwise provided. (d) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13102(b) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 263A of the Internal Revenue Code, relating to capitalization and inclusion in inventory cost of certain expenses, shall apply, except as otherwise provided. (e) For taxable years beginning on or after January 1, 2019, the amendments made by Section 13102(c) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 471 of the Internal Revenue Code, relating to the general rule for inventories, shall apply, except as otherwise provided. (f) (1) Any change in method of accounting made pursuant to this section shall be treated for purposes of applying Section 481 of the Internal Revenue Code, as applicable for California purposes under Section 17551, as initiated by the taxpayer and made with the consent of the Franchise Tax Board. (2) Section 13102(e)(1) of the Tax Cuts and Jobs Act (Public Law 115-97) does not apply to subdivisions (a) to (e), inclusive. (3) (A) Notwithstanding paragraph (2) and except as provided in subparagraph (B), a taxpayer may elect to apply the provisions of this section to taxable years beginning on or after January 1, 2018, and before January 1, 2019. (B) Notwithstanding paragraph (2), a taxpayer may elect to apply the provisions of subdivision (b) to suspense accounts established before the effective date of the act adding this subdivision.

Cal. Revenue and Taxation Code - RTC § 17564. Section 17564.

(a) Long-term contracts shall be accounted for in accordance with the special rules set forth in Section 460 of the Internal Revenue Code. (b) (1) The provisions of Section 804(d) of Public Law 99-514, relating to the effective date of modifications in the method of accounting for long-term contracts, shall be applicable to taxable years beginning on or after January 1, 1987. (2) In the case of a contract entered into after February 28, 1986, during a taxable year beginning before January 1, 1987, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between state and federal law for the taxable year in which the contract began. (c) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 10203 of Public Law 100-203, relating to a reduction in the percentage of items taken into account under the completed contract method, shall apply to taxable years beginning on or after January 1, 1990. (2) In the case of a contract entered into after October 13, 1987, during a taxable year beginning before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between California and federal law for taxable years beginning prior to January 1, 1990. (d) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 5041 of Public Law 100-647, relating to a reduction in the percentage of items taken into account under the completed contract method, shall apply to taxable years beginning on or after January 1, 1990. (2) In the case of a contract entered into after June 20, 1988, during a taxable year beginning before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between California and federal law for taxable years beginning prior to January 1, 1990. (e) (1) The amendments to Section 460 of the Internal Revenue Code made by Section 7621 of Public Law 101-239, relating to the repeal of the completed contract method of accounting for long-term contracts, shall apply to taxable years beginning on or after January 1, 1990. (2) In the case of a contract entered into after July 10, 1989, during a taxable year beginning before January 1, 1990, an adjustment to income shall be made upon completion of the contract, if necessary, to correct any underreporting or overreporting of income, for purposes of this part, resulting from differences between California and federal law for taxable years beginning prior to January 1, 1990. (f) For purposes of applying paragraphs (2) to (6), inclusive, of Section 460(b) of the Internal Revenue Code, relating to the look-back method, any adjustment to income computed under paragraph (2) of subdivision (b), (c), (d), or (e) shall be deemed to have been reported in the taxable year from which the adjustment arose, rather than the taxable year in which the contract was completed. (g) (1) For contracts entered into on or after the effective date of the act adding this subdivision, the amendments made by Section 13102(d) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Section 460 of the Internal Revenue Code, relating to special rules for long-term contracts, shall apply, except as otherwise provided. (2) For contracts entered into on or after the effective date of the act adding this subdivision, the amendments made by Section 13102(e)(3) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), relating to exemption from percentage completion for long-term contracts, shall apply, except as otherwise provided. (3) (A) Any change in method of accounting made pursuant to this section shall be treated for purposes of applying Section 481 of the Internal Revenue Code, as applicable for California purposes under Section 17551, as initiated by the taxpayer and made with the consent of the Franchise Tax Board. (B) Section 13102(e)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) does not apply to this subdivision. (C) Notwithstanding subparagraph (B), a taxpayer may elect to apply the provisions of this subdivision, where otherwise allowed, to contracts entered into on or after January 1, 2018, in taxable years ending after January 1, 2018. (h) The amendments to Section 460(c)(6)(B)(ii) of the Internal Revenue Code made by Section 143(a)(2) and Section 143(b)(6)(I) of Public Law 114-113, relating to the special rule for federal long-term contracts, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17565. Section 17565.

(a) The taxable year of a taxpayer may not be different than the taxable year used for purposes of the Internal Revenue Code, unless initiated or approved by the Franchise Tax Board. (b) For purposes of this section, whenever a taxpayer is required to make a federal return for a period of less than 12 months, that period shall be deemed to be a taxable year, and Section 17552 shall apply.

Cal. Revenue and Taxation Code - RTC § 17567. Section 17567.

The amendments to Section 453B(e) of the Internal Revenue Code as enacted by Section 13512(b)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), relating to the repeal of the small life insurance company deduction, shall not apply.

Cal. Revenue and Taxation Code - RTC § 17570. Section 17570.

(a) Section 13233(c)(2)(C) of the Revenue Reconciliation Act of 1993 (Public Law 103-66), relating to the effective date for changes in the mark to market accounting method for securities dealers, is modified to provide that the amount taken into account under Section 481 of the Internal Revenue Code of 1986 shall be taken into account ratably over the five-taxable-year period beginning with the first taxable year beginning on or after January 1, 1997. (b) In the case of any taxpayer required by the enactment of the act adding this subdivision, which act incorporated by reference the amendments made by Section 7003 of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-206) to Section 475 of the Internal Revenue Code, for taxable years beginning on or after January 1, 2002, to change its method of accounting on its first taxable year beginning on or after January 1, 2002, then each of the following shall apply for purposes of this part, Part 10.2 (commencing with Section 18401), and Part 11 (commencing with Section 23001): (1) The change shall be treated as initiated by the taxpayer. (2) The change shall be treated as made with the consent of the Franchise Tax Board. (3) The taxpayer shall not be required to make a change in the method of accounting until the first taxable year beginning on or after January 1, 2002. (4) The net amount of the adjustments required to be taken into account by the taxpayer under Chapter 6 (commencing with Section 17551) shall be taken into account ratably over the three taxable year period beginning with that taxpayer’s first taxable year beginning on or after January 1, 2002. (c) (1) If a taxpayer has, at any time, made an election for federal purposes under Section 475(e) of the Internal Revenue Code, relating to election of mark to market for dealers in commodities, to have Section 475 of the Internal Revenue Code apply, Section 475 of the Internal Revenue Code shall apply to that dealer in commodities for state purposes, a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, and the federal election shall be binding for purposes of this part. (2) If a taxpayer fails to make, or has not previously made, an election for federal purposes under Section 475(e) of the Internal Revenue Code, relating to election of mark to market for dealers in commodities, to have Section 475 of the Internal Revenue Code apply, an election under Section 475(e) of the Internal Revenue Code shall not be allowed for state purposes, Section 475 of the Internal Revenue Code shall not apply to that dealer in commodities for state purposes, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5. (d) (1) If a taxpayer has, at any time, made an election for federal purposes under Section 475(f)(1) of the Internal Revenue Code, relating to election of mark to market for traders in securities, to have Section 475 of the Internal Revenue Code apply to a trade or business, Section 475 of the Internal Revenue Code shall apply to that trader in securities for state purposes with respect to that trade or business, a separate election for state purposes with respect to that trade or business shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, and the federal election shall be binding for purposes of this part. (2) If a taxpayer fails to make, or has not previously made, an election for federal purposes under Section 475(f)(1) of the Internal Revenue Code, relating to election of mark to market for traders in securities, to have Section 475 of the Internal Revenue Code apply to a trade or business, an election under Section 475(f)(1) of the Internal Revenue Code shall not be allowed for state purposes with respect to that trade or business, Section 475 of the Internal Revenue Code shall not apply to that trader in securities for state purposes with respect to that trade or business, and a separate election for state purposes shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5. (e) (1) If a taxpayer has, at any time, made an election for federal purposes under Section 475(f)(2) of the Internal Revenue Code, relating to election of mark to market for traders in commodities, to have Section 475 of the Internal Revenue Code apply to a trade or business, Section 475 of the Internal Revenue Code shall apply to that trader in commodities for state purposes with respect to that trade or business, a separate election for state purposes with respect to that trade or business shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5, and the federal election with respect to that trade or business shall be binding for purposes of this part. (2) If a taxpayer fails to make, or has not previously made, an election for federal purposes under Section 475(f)(2) of the Internal Revenue Code, relating to election of mark to market for traders in commodities, to have Section 475 of the Internal Revenue Code apply to a trade or business, an election under Section 475(f)(2) of the Internal Revenue Code shall not be allowed for state purposes with respect to that trade or business, Section 475 of the Internal Revenue Code shall not apply to that trader in commodities for state purposes with respect to that trade or business, and a separate election for state purposes with respect to that trade or business shall not be allowed under paragraph (3) of subdivision (e) of Section 17024.5. (f) (1) An election under Section 475(e) or (f) of the Internal Revenue Code made for federal purposes with respect to a taxable year beginning before January 1, 1998, shall be treated as having been made for state purposes with respect to the first taxable year beginning on or after January 1, 1998. (2) Section 1001(d)(4)(B) of the Taxpayer Relief Act of 1997 (Public Law 105-34), relating to the effective date for election of mark to market by securities traders and traders and dealers in commodities, is modified to provide that the requirement for timely identification shall be treated as timely made for state purposes if that identification is treated as timely made for federal purposes, and the amount taken into account under Section 481 of the Internal Revenue Code of 1986 shall be taken into account ratably over the four-taxable-year period beginning with the first taxable year beginning on or after January 1, 1998.
Source: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026

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