California comment period on apportionment of partnership income begins

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February 2018


The California Franchise Tax Board (FTB) held a formal regulation meeting on December 18, 2017 to discuss proposed changes to California Code of Regulations (CCR) 23137-1 and 17951-4 relating to the apportionment and allocation of partnership income. After reviewing the most recent comments and feedback received, the FTB has revised the proposed regulations and opened up another commentary period that will close at 5pm on March 5, 2018.

While the proposed amendments do not create significant changes to the regulations, one item of particular interest is the FTB’s position on the sourcing of income from a partnership to non-resident individuals.

The takeaway

In summary, while the revised draft of the proposed regulation removes the explicit language requiring the apportionment of all income at the partnership level, the underlying position of the FTB has been confirmed during the drafting period and is consistent with their position on other ongoing cases.  The FTB’s position is inconsistent with the rule of mobilia sequuntur personam and the intent of CRTC 17952, taxpayers should take note and consider potential challenge upon review by the FTB when making filing decisions.

This Insight will be updated if additional amendments or administrative guidance is published addressing this issue.

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Caragh DeLuca

Partner, PwC US

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