California Appeals Court upholds FTB's LIFO dividend ordering method, sustains interest deduction


On September 12, 2011, the California Court of Appeal, First District, affirmed a superior court decision in favor of the Franchise Tax Board's ("FTB") method of ordering controlled foreign corporation ("CFC") dividends. Specifically, dividends from the accumulated earnings of a partially included CFC of a water's edge filer are governed by the last-in-first-out ("LIFO") ordering provisions and must be treated as coming from current year earnings until exhausted and then from the most recent years' earnings, without regard to whether the earnings represent previously taxed income. Also, the appeals court affirmed the superior court's holding that interest expense attributable to funds proven to have some economic connection to the generation of California taxable income qualify for deduction. [Apple, Inc. v. Franchise Tax Board, Cal. Ct. App., Dkt. Nos. A128091, A129090, 9/12/2011]

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