California FTB issues new listed transaction description for "circular cash flow" - withdraws previous notice

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August 12, 2011

California FTB issues new listed transaction description for "circular cash flow" - withdraws previous notice

The California Franchise Tax Board, on August 4, 2011, issued FTB Notice 2011-04, providing a revised description of the "Circular Cash Flow" listed transaction, in which parent corporations "artificially increase their basis in the stock of their subsidiaries... without any outlay of cash or property, prior to the Parent selling the stock of Subsidiary to an unrelated third party."

The transaction described in the Notice, and substantially similar transactions, are subject to disclosure and reporting requirements and penalties under California's abusive tax shelter regime.

The Notice supersedes FTB Notice 2011-03, which also described the "Circular Cash Flow" transaction as a California listed transaction, because that Notice "did not clearly identify the abusive nature of the transactions that the department intended to identify[.]" As a result, FTB Notice 2011-03 is withdrawn. [Cal. Franchise Tax Bd., FTB Notice 2011-04, 8/4/2011]


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