Forms & Instructions - ftb.ca.gov · Page 2 Form 100S Booklet 1998 Instructions for Form 100S...

CaliforniaForms & Instructions

100S

1998S Corporation Tax Booklet

This booklet contains copies of:Form 100S , California S Corporation Franchise or Income TaxReturn, page 29

Schedule B (100S) , S Corporation Depreciation and Amortization,page 33

Schedule C (100S) , S Corporation Tax Credits, page 33

Schedule D (100S) , S Corporation Capital Gains and Losses andBuilt-In Gains, page 34

Schedule H (100S) , S Corporation Dividend Income Deduction,page 35

FTB 2426, Water’s-Edge Cover Sheet, page 28

Schedule K-1 (100S) , Shareholder’s Share of Income, Deductions,Credits, etc., page 39

FTB 3539, Payment Voucher for Automatic Extension forCorporations and Exempt Organizations, page 45

FTB 3805Q, Net Operating Loss (NOL) Computation and NOL andDisaster Loss Limitations — Corporations, page 25

FTB 3830, S Corporation’s List of Shareholders and Consents,page 37

State of CaliforniaFranchise Tax Board

Do you need help? (800) 338-0505 & F.A.S.T

Most of your questions can be answered by reading the instructions in thisbooklet. If you need additional help, use our F.A.S.T. (Fast Answers about StateTaxes) toll-free phone service available 24 hours a day. Or, if you have Internetaccess, our website address is http://www.ftb.ca.gov . If you cannot get theanswer you need, call our general toll-free phone service listed on page 47.

Members of the Franchise Tax Board

Kathleen Connell, ChairDean Andal, Member

Craig L. Brown, Member

Bulk RateU.S. Postage PaidSacramento, CAPermit No. 312

Form 100S Booklet 1998

Instructions for Form 100SCalifornia S Corporation Franchise or Income Tax ReturnReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

What’s NewCalifornia has implemented the new federalPrincipal Business Activity (PBA) code chartthat is based on the North American IndustrialClassification System (NAICS). The new PBAcodes are 6-digits not 4-digits. See pages21-23 for a listing of the PBA codes.Form FTB 2426, Water’s-Edge Cover Sheet isnow available in this booklet on page 28.

Tax Law ChangesIn general, California tax law conforms to theIRC as of January 1, 1998. However, thereare continuing differences between Californiaand federal law. California law has not con-formed to any of the corporate provisions ofthe Internal Revenue Service Restructuringand Reform Act of 1998 (Public Law 105-206)or the Tax and Trade Relief Extension Act of1998 (Public Law 105-277).California law conforms to federal law forthe following provisions for income yearsbeginning on or after January 1, 1998:• Tax-exempt organizations may be share-

holders in an S corporation.• Deferral of gain on involuntary conversion.

For livestock sold after December 31,1996, an election may be made to deferthe recognition of gain or treat the sale asan involuntary conversion, if the sale wasdue to drought, floods, or other weatherrelated conditions.

• Deferral of income recognition of suspenseaccounts. Family farm corporations withincome over $25 million may defer tax onincome that was a result of changes inaccounting methods required of these cor-porations. For calendar year taxpayers, thesuspense account for these deferrals mustbe recaptured starting with income yearsbeginning on or after January 1, 1998. Forfiscal year taxpayers, the suspenseaccount should be recaptured starting inincome years beginning after June 8,1997, if the fiscal year taxpayer’s incomeyear ends on or after December 31, 1997.

• Expensing of Environmental RemediationCosts. Certain environmental remediationexpenditures that would otherwise bechargeable to capital accounts may beexpensed and taken as a deduction in theyear the expense was paid or incurred. Anelection to expense environmental reme-diation costs for federal purposes is con-sidered to be an election for statepurposes and a separate election is notallowed.

• Shrinkage Estimates for InventoryAccounting. For purposes of inventoryaccounting, an adjustment for shrinkage,based on an estimate, may be made. Tax-payers can voluntarily change their methodof accounting if the method currently beingused does not utilize estimates of inven-tory shrinkage and the taxpayer nowwishes to use that method.

• Temporary suspension of income limita-tions on percentage depletion for produc-tion from marginal wells. The percentagedepletion deduction, which may notexceed 65% of the taxpayer’s taxableincome, is no longer restricted to notexceed 100% of the net income derivedfrom the oil or gas well property.

• Required recognition of gain on certainappreciated financial positions in personalproperty.

• Election of mark-to-market for securitiesand commodities traders. Allows securitiestraders and commodities traders and deal-ers to elect to use mark-to-market account-ing similar to what is currently required forsecurities dealers. Commodities wouldinclude only commodities of a kind that aredealt with in the organized commoditiesexchange. An election to use the mark-to-market method for federal purposes is con-sidered an election for state purposes anda separate election is not allowed.

• Limitation on exception for investmentcompanies under IRC Section 351.

• Contributions of property. For certain con-tributions of ordinary income and capitalgain property, the IRC Section 170(e)(1)limitation is modified so that, in the case ofcharitable contribution of stock in an S cor-poration, rules similar to IRC Section 751(relating to unrealized receivables andinventory items) apply in determiningwhether gain on the stock was long-term, ifstock was sold by the S corporation.

• S corporations with Employee StockOption Plan (ESOP) shareholders. If anESOP is an S corporation shareholder,items of income or loss of the S corpora-tion that flow through to the ESOP are nottreated as unrelated business taxableincome (UBTI). Previously, such itemswere treated as UBTI.

• ESOPs and employees of S corporations.S corporations which establish and main-tain ESOPs are not required to give partici-pants the right to demand distributions inthe form of employer securities, if the parti-cipants have the right to receive such dis-tributions in cash.

• IRC 338 elections. An IRC Section 338election, relating to stock purchasestreated as asset acquisitions, is treated asan election for state purposes. A separateelection for state purposes is not allowed.

• Expansion of deduction for certain interestand premiums paid for company-owned lifeinsurance.

• Modification of holding period applicable todividends received deduction.

• Repeal of special installment sales rule formanufacturers of tangible personal prop-erty.

• Required registration for abusive tax shel-ters.

• Perfection of untimely S corporation elec-tion. If for any income year beginning on

or after January 1, 1987, a corporationfailed to qualify as an S corporation solelybecause it did not file federal Form 2553,Election by a Small Business Corporationtimely, the S corporation shall be treatedas an S corporation for California purposesfor the income year in which the federalelection was originally made and for eachsubsequent income year if both the follow-ing conditions are met:1. The corporation and all of its share-

holders reported their income forCalifornia tax purposes on originalreturns consistent with S corporationstatus for the year the S corporationelection should have been made, andfor each subsequent income year (ifany) until terminated; and

2. The corporation and its shareholdersfiled a federal Form 2553 with the IRSrequesting automatic relief with respectto the late S corporation election in fullcompliance with federal Rev. Proc.1997-48 I.R.B. 1997-43 and the S cor-poration received notification of accep-tance of the untimely filed S corporationelection from the IRS. The Scorporation shall provide a copy of thenotification to the FTB upon request.

California law does not conform to federallaw for the following:• Decreased capital gains tax rate.• Special tax rules for ESOPs. Certain spe-

cial tax rules relating to employee owner-ship plans (ESOPs) will not apply withrespect to S corporation stock held by theESOP. These include rules relating to cer-tain contributions to ESOPs, the deductionfor dividends paid on employer securitiesand the rollover of gain on the sale ofstock to an ESOP. See IRC Sections404(a)(9) and 404(k) for more information.

• Accelerated depreciation for property onIndian reservations.

• The elimination of the deduction for clubmembership fees. Also, California lawdoes not conform to the disallowance ofthe deduction for employee remunerationin excess of $1 million.

• The federal provisions disallowing thededuction for lobbying expenses. Theexpense is still deductible for Californiapurposes.

• The treatment of Subpart F and Sec-tion 936 income.

California law changes effective for incomeyears beginning on or after Janu-ary 1, 1998:• Dividends received from banks now qualify

for the water’s-edge dividend deduction.• The applicable percentage for estimate

basis is 100%. Get Form 100-ES instruc-tions, for more information.

• The qualified subchapter S subsidiary(QSSS) annual tax is subject to the esti-


mated tax rules and penalties. See Gen-eral Information DD, for more information.

• New Manufacturing Enhancement Areas(MEAs) provide incentives for businesseslocated in a MEA. Get form FTB 3808, formore information.

• A new Targeted Tax Area (TTA) Hiringand Sales or Use Tax Credit is available.Get form FTB 3809 for more information.

• Newly generated credits and NOLs for theLos Angeles Revitalization Zone (LARZ)are not allowed. LARZ credit and NOL car-ryovers may still be utilized.

• A number of Legal Rulings that the Fran-chise Tax Board (FTB) has issued are nolonger applicable due to subsequent courtdecisions and legislative changes. GetLegal Ruling 98-2, issued on May 12,1998, for a list of Legal Rulings that havebeen withdrawn.

• The FTB will follow IRS Rev. Proc. 97-44which grants relief to certain automobiledealers that elect the last-in, first-out(LIFO) inventory method of accounting.FTB will permit those taxpayers who qual-ify for relief to continue to use the LIFOmethod if a copy of the memorandum fur-nished to the IRS is attached to theForm 100S. See FTB Notice 98-10, formore information.

Important InformationCalifornia Tax Forms on the Internet!Do you need a California franchise or incometax form or publication? Do you have Internetaccess? If so, you may download, view andprint 1994 through 1998 California tax forms,instructions and publications. Legal Noticesand Rulings numbered 96-1 and later are alsoavailable. Our Internet Website address is:

http://www.ftb.ca.govRecords Maintenance RequirementsAny taxpayer filing on a water’s-edge orworldwide basis is required to keep and main-tain records and make available upon requestthe following:• Any records needed to determine the cor-

rect treatment of items reported on theworldwide or water’s-edge combined reportfor purposes of determining the incomeattributable to California;

• Any records needed to determine thetreatment of items as nonbusiness or busi-ness income;

• Any records needed to determine theapportionment factor; and

• Documents and information needed todetermine the attribution of income to theU.S. or foreign jurisdictions under IRCSubpart F, IRC Section 882, or othersimilar provisions of the IRC.

See R&TC Section 19141.6 and the regula-tions thereunder for more information. A cor-poration may be required to authorize anagent to act on its behalf in response torequests for information or records pursuant toR&TC Section 19504. The penalty for failureto maintain the above required records is$10,000 for each income year for which thefailure applies. In addition, if the failure contin-ues for more than 90 days after the FTB noti-

fies the S corporation of the failure, a penaltyof $10,000 may be assessed for each addi-tional 30-day period of continued failure. Forincome years beginning on or after January 1,1996, there is no maximum amount of penaltythat may be assessed. See General Informa-tion M, for more information.Note: A corporation that makes a valid elec-tion to be treated as an S corporation forCalifornia purposes is not allowed to beincluded in a combined report of a unitarygroup, except as provided by R&TCSection 23801(d)(1).

General InformationForm 100S is used if a corporation haselected to be a California small businesscorporation (S corporation).All federal S corporations subject to Californialaws that did not make a CaliforniaC corporation election must file Form 100Sand pay the greater of the minimum franchisetax or the 1.5% income or franchise tax. Thetax rate for financial S corporations is 3.5%.In addition, if an S corporation has one ormore shareholders who are nonresidents ofCalifornia or trusts with nonresident fiduciar-ies, the S corporation must file formFTB 3830, S Corporation’s List of Sharehold-ers and Consents (included in this booklet).This list must include the names and socialsecurity numbers or federal employer identifi-cation numbers (FEIN) of all shareholders andeach nonresident shareholder’s or fiduciary’ssigned consent to be subject to California’sjurisdiction to tax the shareholder’s pro ratashare of income attributable to Californiasources.R&TC Section 23801(b)(3) authorizes the FTBto retroactively revoke the S corporation sta-tus if the S corporation fails to file formFTB 3830 and meet the requirements outlinedabove.The taxable income of the S corporation iscalculated two different ways for two differentpurposes. First, it is calculated in the samemanner as for C corporations, with certainmodifications, for purposes of computing the1.5% income or franchise tax. Second, it iscalculated using federal rules for the pass-through of income and deductions, etc. forpurposes of pass-through to the shareholders.

A Franchise or Income TaxCorporation franchise taxEntities subject to the corporation franchisetax include all S corporations that are:• Incorporated in California; or• Qualified to do business in California; or• Doing business in California, whether or

not incorporated or qualified underCalifornia law.

The tax must be prepaid for the privilege ofdoing business. It is measured by the incomeof the preceding income year for the privilegeof doing business in the following taxableyear. For purposes of these instructions, theterm ‘‘income year’’ means taxable year forS corporations that are taxed under Chapter 3

(i.e., corporations that are not doing businesswithin California but derive income fromsources within California) of the Bank andCorporation Tax Law.The term ‘‘doing business’’ means activelyengaging in any transaction for the purpose offinancial gain or profit.Corporation income taxThe corporation income tax is imposed on allS corporations that derive income fromsources within California but are not doingbusiness in California.For purposes of the corporation income tax,the term ‘‘corporation’’ is not limited toincorporated entities, but also includes:• Associations;• Massachusetts or business trusts;• Real estate investment trusts; and• Other business entities classified as asso-

ciations under Title 18 Cal. Code Regs.Sections 23038(b)-1 through 23038(b)-3.

B Tax Rate and MinimumFranchise Tax

Tax rateThe tax rate for S corporations that are sub-ject to either the franchise or the income taxis 1.5%. The tax rate for certain capital gains,built-in gains and excess net passive incomeis 8.84%.Financial S corporations are required to use arate of 2% above the S corporation rate (cur-rently 1.5% or 8.84% for certain capital gains,built-in gains and excess net passive income).See R&TC Section 23186(f).Minimum franchise taxAll S corporations subject to the corporationfranchise tax and any S corporation ‘‘qual-ified’’ to do business in California must fileForm 100S and pay at least the minimumfranchise tax as required by law. The mini-mum franchise tax is $800 and must be paidwhether the S corporation is active, inactive,operates at a loss or files a return for a shortperiod of less than 12 months.There is no minimum franchise tax for:• Corporations that derive income from

sources within California but are subjectonly to income tax because they are not‘‘doing business’’ in California, and are notincorporated or qualified under the laws ofCalifornia (get FTB Pub. 1050, FTBPub. 1060, or FTB Pub. 1063 for moreinformation regarding ‘‘doing business’’);

• Credit unions;• Exempt homeowners’ associations;• Exempt political organizations;• Qualified non-profit farm cooperative

associations;• Exempt organizations; and• Corporations that are not incorporated

under the laws of California; whose soleactivities in this state are engaging in con-vention and trade show activities for sevenor fewer days during the income year; anddo not derive more than $10,000 of grossincome reportable to this state during theincome year. These S corporations are not


‘‘doing business’’ in California. Get FTBPub. 1060, for more information.

S corporations are not subject to the alterna-tive minimum tax.

C Elections and TerminationsElectionsCorporations that elect federal S corporationstatus and that have a California filing require-ment, are deemed to have made a CaliforniaS election on the same date as the federalelection. These corporations must report thefederal S election to the FTB using formFTB 3560, S Corporation Election orTermination/Revocation.If a federal S corporation wants to be aCalifornia C corporation, it must elect suchtreatment using form FTB 3560. Only corpora-tions incorporated or qualified to do businessin California may make this election. Such anelection is treated as a revocation of theCalifornia election and will be disregarded ifnot filed when due. Get form FTB 3560 forinformation on filing deadlines.A federal S corporation that previously electedto be a California C corporation may elect tobecome a California S corporation unless theCalifornia S corporation status was terminatedwithin the past 5 years. Use form FTB 3560 tomake this election.TerminationsA corporation may terminate its S corporationstatus by:• Revoking the election (federal or state); or• Ceasing to qualify as an S corporation; or• Violating the passive investment income

restrictions on corporations with earningsand profits.

An S corporation may terminate its S electionfor California, by revocation, without terminat-ing its federal S election. (R&TCSections 23801(a)(4)(A)(ii) or23801(a)(4)(F)(i)). However, terminating thetaxpayer’s federal S election simultaneouslyterminates its California S election.If the taxpayer terminates its S corporationstatus, short period returns are required forthe S corporation short year and the C corpo-ration short year, if applicable.During the 5 years after the termination of theS corporation status, the taxpayer may notmake another California S election unless theFTB consents.For more information about elections andterminations, get form FTB 3560.

D Accounting Period and MethodThe income year of the S corporation mustnot be different from the taxable year used forfederal purposes, unless initiated or approvedby the FTB (R&TC Section 24632).A change in accounting method requires con-sent from the FTB. However, an S corporationthat obtains federal approval to change itsaccounting method, or that is permitted orrequired by federal law to make a change inits accounting method without prior approval,and does so, is deemed to have the FTB’sapproval if: (1) the S corporation files a timely

Form 100S consistent with the change for the1st year the change is effective, and (2) thechange is consistent with California law. Acopy of federal Form 3115, Application forChange in Accounting Method, and a copy ofthe federal consent to the change must beattached to Form 100S for the 1st year thechange becomes effective. The FTB maymodify requested changes if the adjustmentswould distort income for California purposes.If the corporation is a bank, savings and loanassociation or financial corporation, it can nolonger use the bad debt reserve method ofaccounting and elect to be, or continue to be,an S corporation for income years beginningon or after January 1, 1997. However, the Scorporation status can be maintained orelected if the corporation changes its account-ing method from the bad debt reserve methodto the specific write-off method. Get FTBNotice 98-3, for more information.Note: California is not following the automaticconsent procedure for a change of accountingmethod involving previously unclaimed allow-able depreciation or amortization of FederalRevenue Procedure 96-31. Get FTB Notice96-3, for more information.

E When to FileFile Form 100S by the 15th day of the 3rdmonth after the close of the income yearunless the return is for a short period asrequired under R&TC Section 24634. SeeR&TC Section 18601(c) for the due date ofthe short period return. Generally, the duedate of a short period return is the same asthe due date of the federal short period return.Farmer’s cooperative associations must fileForm 100S by the 15th day of the 9th monthafter the close of the income year.See General Information O and General Infor-mation P, for information on final returns.

F Extension of Time to FileIf an S corporation cannot file its Californiareturn by the 15th day of the 3rd month afterthe close of the income year, it may file on orbefore the 15th day of the 10th month, withoutfiling a written request for an extension. If theS corporation is suspended on the originaldue date, the automatic extension will notapply. An automatic extension does notextend the time for payment. The full amountof tax must be paid by the original due date ofForm 100S. If there is an unpaid tax liabilityon the original due date, get form FTB 3539,Payment Voucher for Automatic Extension forCorporations and Exempt Organizations (in-cluded in this booklet) and send it with thepayment by the original due date of theForm 100S.Note: If the corporation must pay its tax liabil-ity using Electronic Funds Transfer (EFT), alltaxes due must be remitted by EFT to avoidpenalties. Do not send form FTB 3539.

G Electronic Funds Transfer (EFT)Corporations that meet certain requirementsmust remit all of their payments through EFTrather than by paper checks to avoid penal-ties. Once a corporation remits an estimated

tax payment or extension payment in excessof $20,000 or has a total tax liability in excessof $80,000 in any income year beginning onor after January 1, 1995, the FTB will notifythe corporation that all future payments mustbe made by EFT. Those that wish to partici-pate on a voluntary basis may do so. Formore information, call the FTB EFT Section at(916) 845-4025, or get FTB Pub. 3817,Electronic Funds Transfer ProgramInformation Guide.

H Where to FileIf tax is due, and the corporation is notrequired to use EFT, make the check ormoney order payable to the Franchise TaxBoard. Write the California corporation num-ber and ‘‘1998 Form 100S’’ on the check ormoney order. Mail the return and payment to:

FRANCHISE TAX BOARDPO BOX 942857SACRAMENTO CA 94257-0501

Mail all other returns, including those withpayment by EFT to:


Private Delivery ServicesCalifornia law conforms to federal law regard-ing the use of certain designated private deliv-ery services to meet the ‘‘timely mailing astimely filing/paying’’ rule for tax returns andpayments. See federal Form 1120S, U.S.Income Tax Return for an S Corporation, for alist of designated delivery services. If a privatedelivery service is used, address the return to:

FRANCHISE TAX BOARDSACRAMENTO CA 95827

Caution: Private delivery services cannotdeliver items to PO boxes. If using one ofthese services to mail any item to the FTB,DO NOT use an FTB PO box.

I Net Income ComputationThe computation of net income from tradeand business activities generally follows thedetermination of taxable income as providedin the IRC. However, there are differencesthat must be taken into account when com-pleting Form 100S. There are two ways tocomplete Form 100S, the federal reconcilia-tion method or the California computationmethod.1. Federal reconciliation method

a. Attach a copy of federal Form 1120S,Page 1, U.S. Income Tax Return for anS Corporation, and all pertinent sup-porting schedules, or transfer the infor-mation from federal Form 1120S,Page 1, to Schedule F and attach allpertinent supporting schedules;

b. Enter the amount of federal ordinaryincome (loss) from trade or businessactivities before any net operating loss(NOL) on Form 100S, Side 1, line 1;and

c. Enter the state adjustments (includingany adjustments necessary to reportitems not included in ordinary trade orbusiness income or loss) on line 2


through line 14, to arrive at net incomeafter state adjustments, Side 1, line 15.

See the specific line instructions for moreinformation.2. Schedule F – California computation

methodIf the S corporation has no federal filingrequirement, or if the S corporation main-tains separate records for state purposes,complete Form 100S, Schedule F, Compu-tation of Trade or Business Income, todetermine state ordinary income. If ordi-nary income is computed under Californialaws, generally no state adjustments arenecessary. Transfer the amount fromSchedule F, line 22, to Side 1, line 1.Complete Form 100S, Side 1, line 2through line 14, only if applicable.

Note: Regardless of the net income computa-tion method used, the corporation must attachany form, schedule or supporting documentreferred to on the return, schedules or formsfiled with FTB.Substitution of federal schedulesS corporations may not substitute federalschedules for California schedules.

J Certain Capital Gains/Built-inGains

For California purposes, when a C corporationelects to be an S corporation, certain items ofgain or loss recognized in S corporation yearsare subject to the C corporation 8.84% taxrate instead of the S corporation 1.5% tax rate(financial S corporations add 2%).Former IRC Section 1374 allowed a thresholdamount in determining if the S corporationwas subject to the 8.84% tax. However, for-mer IRC Section 1374 was replaced by cur-rent IRC Section 1374, which does not allowthe threshold amount and is applicable toother items of income in addition to capitalgains.Capital gains under former IRCSection 1374Generally, S corporations that made thefederal S election before January 1, 1987, orduring 1987 or 1988, and are under the tran-sitional relief rules applicable to built-in gainsmay be subject to a tax on capital gains(under former IRC Section 1374) for Californiapurposes for certain sales or dispositions.Based on former IRC Section 1374, a tax isimposed at 8.84% (or the financial C corpora-tion tax rate) if:• The S corporation is not subject to tax on

the gain under the new built-in gains rules(see below);

• The excess of the net long-term capitalgain over the net short-term capital loss ismore than $25,000;

• The excess is more than 50% of thecorporation’s taxable income; and

• The taxable income is more than $25,000.The capital gains tax under former IRC Sec-tion 1374 does not apply if the corporationwas an S corporation during each of the pre-ceding 3 years or for the entire period in thecase of new corporations in existence for less

than 4 years. However, see the instructionsfor federal Form 1120S, Schedule D, for rulesapplicable to certain carryover basis assets.Built-in gains under current IRCSection 1374For those S corporations that made the initialfederal S election after December 31, 1986,certain income items reported by theS corporation are taxed at 8.84% (or thefinancial C corporation tax rate). This provi-sion applies for a period of 10 years followingthe C corporation’s election to become anS corporation. The amount of built-in gain thatis taxed at 8.84% (or the financial C corpora-tion tax rate) is the excess of recognizedbuilt-in gains over recognized built-in losses,limited by taxable income as determinedunder IRC Section 1374(d)(2)(A). The follow-ing items are treated as built-in gains subjectto this tax:• Accounts receivable of cash basis taxpay-

ers from C corporation years;• Long-term contract deferred income from

C corporation years;• Deferred income from installment sales

made in C corporation years;• Recapture of depreciation from C corpora-

tion years;• Income from unreplaced LIFO inventory

from C corporation years; and• Any other income item that is attributable

to C corporation years.Note: For purposes of current IRCSection 1374, the effective date of any Cali-fornia S election made in 1987 and 1988reverts back to the date of the federal S elec-tion if the corporation was previously a federalS corporation.Transitional rules under IRC Section 1374The Tax Reform Act of 1986, Act Section633(d)(8), to which California conforms, pro-vides special transitional relief from the built-ingains tax for qualified S corporations. A ‘‘qual-ified S corporation’’ is any S corporation thathas an applicable value of $10 million or lesson August 1, 1986, all times thereafter andbefore the corporation is completely liqui-dated, and is more than 50% owned by 10 orfewer qualified persons. A ‘‘qualified person’’is an individual, an estate or a trust that isdescribed in IRC Section 1361(c)(2)(A)(ii) or(iii).This transitional relief applies to qualified cor-porations that elected S corporation statusafter December 31, 1986, and beforeJanuary 1, 1989. The relief is not available toan otherwise qualified S corporation in thecase of the sale or distribution of capitalassets held 6 months or less or in the case ofthe sale or distribution of assets which resultsin ordinary income (loss).

K Estimated TaxEvery S corporation, must pay estimated taxusing Form 100-ES, Corporation EstimatedTax.Estimated tax is generally due and payable in4 installments:• The 1st payment is due on the 15th day of

the 4th month of the income year (note

that this payment may not be less than theminimum franchise tax, and any QSSSannual tax if applicable); and

• The 2nd, 3rd and 4th installments are dueand payable on the 15th day of the 6th,9th and 12th months, respectively, of theincome year.

Note for first-time filers: The prepayment oftax made to the California SOS at the time ofincorporation or qualification is for the privi-lege of ‘‘doing business’’ during the S corpo-ration’s 1st taxable year. Do not claim thispayment as an estimated tax payment orcredit against the tax liability shown on thereturn for the S corporation’s 1st year.The 1st tax return the corporation files reportsthe income of its 1st income year. The taxshown on that return is the tax for the privi-lege of doing business in the corporation’s2nd taxable year.California law has conformed to the federalexpanded annualization periods for the com-putation of estimate payments. For incomeyears beginning on or after January 1, 1998,the applicable percentage for estimate basisis 100%.Get the instructions for Form 100-ES, formore information.Note: If the corporation must pay its tax liabil-ity using EFT, all estimate payments duemust be remitted by EFT to avoid penalties.

L Commencing S CorporationsThe tax measured by the income in the 1styear of business (1st income year) is for theprivilege of ‘‘doing business’’ during the 2ndyear.Even if the 1st income year is for a period ofless than 12 months or if the S corporation isinactive during the 1st income year, the S cor-poration must pay at least the minimum fran-chise tax by the 1st estimate installment duedate, and file Form 100S by the due date.Get FTB Pub. 1060, Guide for CorporationsStarting Business in California, for more infor-mation.

M PenaltiesFailure to file a timely returnAny S corporation that fails to file Form 100Son or before the extended due date isassessed a penalty. The penalty is 5% of theunpaid tax for each month, or part of themonth, the return remains unfiled from thedue date of the return until filed. The penaltymay not exceed 25% of the unpaid tax. If theS corporation does not file its return by theextended due date, the automatic extensionwill not apply and the late filing penalty will beassessed from the original due date of thereturn.Failure to pay total tax by the due dateAny S corporation that fails to pay the totaltax shown on Form 100S by the original duedate is assessed a penalty. The penalty is 5%of the unpaid tax, plus 0.5% for each month,or part of the month (not to exceed 40months) the tax remains unpaid. This penaltymay not exceed 25% of the unpaid tax.


Note: If an S corporation is subject to boththe penalty for failure to file a timely returnand the penalty for failure to pay the total taxby the due date, a combination of the twopenalties may be assessed, but the total willnot exceed 25% of the unpaid tax.Underpayment of estimated taxAny S corporation that fails to pay, pays lateor underpays an installment of estimated taxis assessed a penalty. The penalty is a per-centage of the underpayment for the under-payment period.Get form FTB 5806, Underpayment of Esti-mated Tax by Corporations, to determine boththe amount of underpayment and the amountof penalty.Note: If the S corporation uses Exception Bor Exception C to compute or eliminate any ofthe 4 installments, form FTB 5806 must beattached to the front of Form 100S.EFT PenaltyIf the S corporation must pay its tax liabilityusing EFT, all payments must be remitted byEFT to avoid penalties. The EFT penalty is10% of the amount not paid by EFT. SeeR&TC Section 19011 and General InformationG, for more information.Information reporting penaltiesFor income years beginning on or afterJanuary 1, 1997, U.S. taxpayers who have anownership interest in (directly or indirectly) aforeign corporation and were required to filefederal Form(s) 5471, Information Return ofU.S. Persons With Respect to Certain ForeignCorporations, with the federal return, mustattach a copy(s) to the California return. Apenalty for failure to include a copy of federalForm(s) 5471, as required, is $1,000 perrequired form for each year the failure occurs.The penalty applies for income years begin-ning on or after January 1, 1998. The penaltywill not be assessed if the taxpayer provides acopy of the form(s) within 90 days of requestfrom the FTB and the taxpayer agrees toattach a copy(s) of Form 5471 to all returnsfiled for subsequent years.Certain domestic corporations that are 25% ormore foreign-owned and foreign corporationsengaged in a U.S. trade or business, mustattach federal Form(s) 5472, InformationReturn of a 25% Foreign-Owned U.S. Corpo-ration or a Foreign Corporation Engaged in aU.S. Trade or Business, to Form 100S. Thepenalty for failing to include Form(s) 5472, asrequired, is $10,000 per required form foreach year the failure occurs. See R&TCSection 19141.5.If the S corporation does not file theForm 100S by the due date or extended duedate, whichever is later, copies of federalForm(s) 5472 must still be filed on time or thepenalty will be imposed. Attach a cover letterto the copies indicating the taxpayer’s name,California corporation number and incomeyear. Mail to the same address used forreturns without payments. See General Infor-mation H. When the S corporation filesForm 100S, also attach copies of the federalForm(s) 5472.

Record maintenance penaltiesThe penalty for failure to maintain certainrecords is $10,000 for each income year forwhich the failure applies. In addition, if thefailure continues for more than 90 days afterthe FTB notifies the S corporation of the fail-ure, in general, a penalty of $10,000 may beassessed for each additional 30-day period ofcontinued failure. For income years beginningon or after January 1, 1996, there is no maxi-mum amount of penalty that may beassessed.See the Important Information section for adiscussion of the records required to be main-tained. See R&TC Section 19141.6 and theregulations thereunder, for more information.Accuracy and fraud related penaltiesCalifornia conforms to IRC Sections 6662through 6665 that authorize the imposition ofan accuracy-related penalty equal to 20% ofthe related underpayment and the impositionof a fraud penalty equal to 75% of the relatedunderpayment. See R&TC Section 19164, formore information.Secretary of State penaltyThe California Corporations Code requires theFTB to assess a penalty for failure to file anannual statement of corporate officers with theCalifornia SOS. See R&TC Section 19141.For more information, contact the:

CALIFORNIA SECRETARY OF STATEPO BOX 944230SACRAMENTO CA 94244-2300Telephone: (916) 657-3537

Other penaltiesOther penalties may be imposed for a checkreturned for insufficient funds, non-U.S. for-eign corporations operating while forfeited orwithout qualifying to do business in Californiaand domestic corporations operating whilesuspended in California. See R&TC Sections19134 and 19135, for more information.

N InterestInterest is due and payable on any tax due ifnot paid by the original due date ofForm 100S. Interest is also due on some pen-alties. The automatic extension of time to fileForm 100S does not stop interest from accru-ing. California follows federal rules for the cal-culation of interest. Get FTB Pub. 1138,Refund/Billing Information, for moreinformation.

O Dissolution/WithdrawalThe franchise tax for the period in which theS corporation formally dissolves or withdrawsis measured by the income of the year inwhich it ceased doing business in California,unless such income has already been taxedat the rate prescribed for the taxable year ofdissolution or withdrawal.An S corporation that is a successor to a cor-poration that commenced doing business inCalifornia before January 1, 1972, is alloweda credit that may be refunded in the year ofdissolution or withdrawal. The amount of therefundable credit is the difference between the

minimum franchise tax for the corporation’sfirst full 12 months of doing business and thetotal tax paid for the same period.To claim this credit, enter the amount online 33. To the left of line 33, write ‘‘Dis-solving/ Withdrawing.’’The return for the final taxable period is dueon or before the 15th day of the 3rd full monthafter the month during which the S corpora-tion formally dissolved or withdrew.Get FTB Pub. 1038, Guide for CorporationsDissolving, Surrendering (Withdrawing) orMerging, for more information.Samples and/or forms for a dissolution, sur-render or merger agreement filing may beobtained by addressing your request to:

CALIFORNIA SECRETARY OF STATEATTN: LEGAL REVIEW1500 11TH ST 3RD FLOORSACRAMENTO CA 95814-5701

P Ceasing BusinessBecause the corporation franchise tax is aprepaid tax, a special tax computation is nec-essary when an S corporation ceases to dobusiness in California. The tax for the finalyear in which the S corporation does businessin California is:• The tax measured by the income of the

preceding year; PLUS• The tax measured by the income of the

year in which the corporation ceases to dobusiness; PLUS

• The tax due on unreported income attribut-able to installment obligations.

The tax due must be at least the minimumfranchise tax. Generally, the S corporation willremain subject to the minimum franchise taxfor each year it is in existence until it files acertificate of dissolution or withdrawal with theCalifornia SOS. See General Information Oand R&TC Sections 23331 through 23335 formore information.

Q Suspension/ForfeitureIf an S corporation fails to file Form 100Sand/or fails to pay any tax, penalty or interestdue, its powers, rights and privileges may besuspended (in the case of a domestic S cor-poration) or forfeited (in the case of a foreignS corporation).S corporations that operate while suspendedor forfeited are subject to a $2,000 penaltyper income year, which is in addition to anytax, penalties and interest already accrued.Also, any contracts entered into during sus-pension or forfeiture are voidable at therequest of any party to the contract other thanthe suspended or forfeited corporation.Such contracts will remain voidable andunenforceable unless the S corporationapplies for relief from contract voidability andthe FTB grants relief.See R&TC Sections 19135, 19719, 23301,23305.1 and 23305.2, for more information.

R Apportionment of IncomeS corporations with business income attribut-able to sources both within and outside of


California are required to apportion suchincome. To calculate the apportionment per-centage, use Schedule R, Apportionment andAllocation of Income. Be sure to answerQuestion P on Form 100S, Side 2.Note: A corporation that has made a validelection to be treated as an S corporation isgenerally not included in a combined report.However, in some cases, the FTB may usecombined reporting methods to clearly reflectincome of an S corporation (R&TCSection 23801(d)(1)).

S Excess Net Passive InvestmentIncome

California conforms to IRC Section 1375 forincome years beginning on or after January 1,1987. If an S corporation does not haveexcess net passive investment income for fed-eral purposes, then the S corporation will nothave excess net passive investment incomefor California purposes.If at the close of the income year, an S corpo-ration has undistributed earnings and profits(defined in IRC Section 1362(d)(3)) from pre-vious years as a C corporation and has pas-sive investment income that represents morethan 25% of total gross receipts, then theS corporation may be subject to a tax on theexcess net passive investment income (R&TCSection 23811).If an S corporation has an 80% or greaterownership stake in a C corporation, dividendsreceived from that C corporation are nottreated as passive investment income, for pur-poses of IRC Sections 1362 and 1375, if thedividends are attributable to the earnings andprofits of the C corporation derived from theactive conduct of a trade or business.

T Water’s-Edge ReportingTo make the water’s-edge election, an S cor-poration must enter into a contract with theFTB by filing Form 100-WE, Water’s-EdgeContract. For the election to be valid for anyincome year, Form 100-WE must be signedand attached to the original Form 100S. Acopy must be attached to all subsequentreturns filed during the contract period.In consideration for being allowed to file on awater’s-edge basis, the S corporation must,among other things:• File returns on a water’s-edge basis for a

period of 84 months;• Agree to business income treatment of div-

idends received from certain corporations;and

• Consent to the taking of certain deposi-tions and the acceptance of subpoenasduces tecum requiring the reasonable pro-duction of documents.

Water’s-edge returns must have formFTB 2426, Water’s-Edge Cover Sheet, (in-cluded in this booklet) attached to the front ofForm 100S.Get Form 100-WE, Water’s-Edge Booklet formore information.

U Amended ReturnTo correct or change Form 100S, file the mostcurrent Form 100X, Amended CorporationFranchise or Income Tax Return. Using theincorrect form may delay processing of theamended return. If the IRS examined andchanged the S corporation’s federal return orif the S corporation filed an amended federalreturn, file Form 100X within 6 months of thefinal federal determination.

V Information ReturnsEvery S corporation engaged in a trade orbusiness and making or receiving certain pay-ments in the course of the trade or businessis required to file information returns whichreport the amount of these payments.Payments that must be reported include, butare not limited to, compensation for servicesnot subject to withholding, commissions, fees,prizes and awards, payments to independentcontractors, rents, royalties and pensionsexceeding $600 annually, interest and divi-dends exceeding $10 annually, and cash pay-ments over $10,000 received in a trade orbusiness. Payments of any amount by a bro-ker or barter exchange must also be reported.S corporations must report payments made toCalifornia residents by providing copies of fed-eral Form 1099. Reports must be made forthe calendar year and are due to the IRS nolater than February 28th of the year followingpayment. S corporations must also submitfederal Form 8300, Report of Cash PaymentsOver $10,000 Received in a Trade or Busi-ness, within 15 days after the date of thetransaction.S corporations must report interest paid onmunicipal bonds held by California taxpayersand issued by a state other than California, ora municipality other than a California munici-pality. Entities paying interest to California res-idents on these types of bonds are required toreport interest payments aggregating $10 ormore and paid after January 1, 1998. Informa-tion returns are due June 1, 1999. Get formFTB 4800, Federally Tax Exempt Non-California Bond Interest and Interest-DividendPayment, for more information.California conforms to the information report-ing requirements of IRC Section 6045(f) forcertain payments made to attorneys. If theS corporation has complied with the require-ments for federal purposes, the S corporationwill be treated as having complied with therequirements for California purposes and nopenalty will be imposed.California conforms to the information report-ing requirements imposed under IRC Sections6038, 6038A and 6038B. Any informationreturns required to be filed for federal pur-poses under these IRC Sections are alsorequired to be filed for California purposes.Required federal information returns should beattached to the Form 100S when filed. Ifthese information returns are not provided,penalties may be imposed under R&TC Sec-tions 19141.2 and 19141.5.Mail all information returns required to be filedseparate from the tax return to:


W Net Operating Loss (NOL)Carryover periods varying from 5 to 15 yearsand carryover deductions varying from 50% to100% are allowed for NOLs sustained byqualified corporations.R&TC Sections 24416 through 24416.6 and25108 provide for NOL carryovers incurred inthe conduct of a trade or business.R&TC Section 24347.5 provides special treat-ment for the carryover of disaster lossesincurred in an area designated by the Presi-dent of the United States or the Governor ofCalifornia as a disaster area.For more information, see form FTB 3805Q,Net Operating Loss (NOL) Computation andNOL and Disaster Loss Limitations — Corpo-rations (included in this booklet), or get formFTB 3805Z, Enterprise Zone Business Book-let, form FTB 3806, Los Angeles RevitalizationZone Booklet and form FTB 3807, LocalAgency Military Base Recovery Area Bookletor form FTB 3809, Targeted Tax Area Busi-ness Booklet.

X At-Risk RulesCalifornia S corporations are subject to IRCSection 465 relating to the at-risk rules. Formore information, see federal Form 6198,At-Risk Limitations. Losses from passive activ-ities are first subject to the at-risk rules andthen to the passive activity rules.

Y Qualified New Corporations(QNCs)

SOS prepayment taxEffective for income years beginning on orafter January 1, 1997, and before January 1,1999, the minimum tax prepaid to the Califor-nia SOS for the 1st income year is $600 for aQNC. For purposes of the $600 prepaid mini-mum tax a QNC is a corporation that reasona-bly estimates it will:• Have gross receipts, less returns and

allowances, reportable to California of $1million or less;

• Have tax liability that does not exceed$800; and

• Not have 50% or more of its stock owned,upon initial issuance, by another corpora-tion.

Gross receipts includes the gross receipts ofeach member of the commonly controlledgroup, as defined in R&TC Section 25105, ofwhich the bank or corporation is a member.For income years beginning on or after Janu-ary 1, 1999, the prepaid minimum tax for aQNC is $300. For purposes of the $300 pre-paid minimum tax, a QNC is a corporationthat meets the criteria listed above and alsomust:• Begin operations at or after the time of its

incorporation; and• Not have begun business prior to its incor-

poration as a single proprietorship, partner-ship or other form of business entity.


If during the 1st income year, the corpora-tion’s gross receipts exceed $1 million or taxliability exceeds $800, the corporation mustpay an additional amount of:• $200, if the corporation prepaid the $600

minimum tax to the SOS; or• $500, if the corporation prepaid the $300

minimum tax to the SOS.The corporation must pay the additional taxon or before the original due date of its 1strequired return without regard to extension.See R&TC Section 23221, for moreinformation.Minimum franchise taxFor income years beginning on or after Janu-ary 1, 1999, the minimum franchise tax for aQNC for the 1st return required to be filed is$500. The minimum franchise tax for the 1streturn is due as an estimate payment on the15th day of the 4th month of the QNC’s 1stincome year. For purposes of the QNC mini-mum franchise tax, the corporation must meetthe following criteria:• Incorporate on or after January 1, 1999;• Begin business operations at or after the

time of incorporation;• Reasonably estimate that it will have gross

receipts, less returns and allowances,reportable to California of $1 million orless;

• Reasonably estimate it will not have a taxliability that exceeds the minimum fran-chise tax of $800; and

• Did not begin business as a single proprie-torship, partnership or other form of busi-ness entity prior to its incorporation.

Gross receipts includes the gross receipts ofeach member of the commonly controlledgroup, as defined in R&TC Section 25105, ofwhich the bank or corporation is a member.If during the income year, the corporation’sgross receipts exceed $1 million or the tax lia-bility exceeds the minimum franchise tax of$800, the corporation must pay an additionalamount of $300. The corporation must paythe additional amount on or before the originaldue date of its 1st required return withoutregard to extension. See R&TC Section23153, for more information.

Z Passive Activity Loss LimitationCalifornia S corporations generally follow IRCSection 469 and the regulations thereunderthat allow losses from passive activities to beapplied only against income from passiveactivities.California differs from federal law in that rentalreal estate activities of taxpayers engaged ina real property business are still treated as apassive activity.California law also differs from federal law inthat the passive activity loss rules are appliedat both the S corporation level and at theshareholder level. The passive activity lossrules must be applied in determining the netincome of the S corporation that will be taxedusing the 1.5% tax rate. Subsequent to theincome and deductions flowing through to theshareholders, the rules are again applied indetermining the net income of the share-

holder. Treatment at the shareholder level isthe same as the federal treatment prior toJanuary 1, 1994.The passive activity loss rules apply to theS corporation as if it were an individual (i.e.,losses from passive activities may not beused to offset other income, except for$25,000 in losses from rental real estate).However, when determining whether theS corporation materially participates in theactivity, the material participation rules thatapply to a ‘‘closely held C corporation’’ shouldbe applied to the S corporation. For moreinformation, see IRC Section 469(h)(4).S corporations must use form FTB 3801, Pas-sive Activity Loss Limitations, to figure theallowable net loss and credits from passiveactivities.

AA Passive Activity CreditsS corporation credits subject to the passiveactivity credit limitation rules include:• Research credit;• Orphan drug credit carryover; and• Low-income housing credit.Get form FTB 3801-CR, Passive ActivityCredit Limitations, for more information.

BB Tax CreditsIf a C corporation had unused credit carry-overs when it elected S corporation status,the carryovers were reduced to 1/3 and trans-ferred to the S corporation. The remaining 2/3were disregarded. The allowable carryoversmay be used to offset the 1.5% tax on netincome in accordance with the respective car-ryover rules. These C corporation carryoversmay not be passed through to shareholders.Refer to Schedule C (100S), S CorporationTax Credits, included in this booklet.S corporations may generate credits from boththe Bank and Corporation Tax Law and thePersonal Income Tax Law. Follow the guide-lines below:• If a credit listed on page 12 is allowed only

under the Bank and Corporation Tax Law,1/3 of the credit may be used to offset theS corporation tax or may be carried over, ifallowed. The remaining 2/3 must be disre-garded and may not be carried over. Nopart of the credit may be passed throughto the shareholders.

• If the credit is allowed only under PersonalIncome Tax Law, the full credit may bepassed through to the shareholders. Nopart of the credit may be used by theS corporation to offset the S corporationtax or to be carried over.

• If a credit is allowed under both the Bankand Corporation Tax Law and PersonalIncome Tax Law, the S corporation mayuse 1/3 of the credit to offset the S corpo-ration tax or it may be carried over, ifallowed. The remaining 2/3 must be disre-garded and may not be carried over. Thefull amount of the credit, as calculatedunder the Personal Income Tax Law, mayalso be passed through to the sharehold-ers.

Credits and credit carryovers may not reducethe minimum franchise tax, the QSSS annualtax, built-in gains tax, excess net passiveincome tax, credit recaptures, the increase intax imposed for the deferral of installment saleincome, or an installment of LIFO recapturetax.

CC Group Nonresident ShareholderReturn

Nonresident shareholders of an S corporationdoing business in California may elect to file agroup nonresident return on Form 540NR,California Nonresident or Part-Year ResidentIncome Tax Return. Get FTB Pub. 1067,Guidelines for Filing a Group Form 540NR, formore information.

DD Qualified Subchapter SSubsidiary (QSSS)

California has conformed to the sections ofthe IRC that allow S corporations to own aQSSS. A QSSS is a domestic corporation thatis not an ineligible corporation (i.e., it must beeligible to be an S corporation as defined byIRC Section 1361(b)(2)). In addition, 100% ofthe stock of the subsidiary must be held bythe S corporation parent and the parent mustelect to treat the subsidiary as a QSSS. AQSSS is not treated as a separate entity andall assets, liabilities and items of income,deduction and credit of the QSSS are treatedas belonging to the parent S corporation. Theactivities of the QSSS are treated as activitiesof the parent S corporation. An election madeby the parent S corporation under IRC Sec-tion 1361(b)(3) to treat the corporation as aqualified subchapter S subsidiary for federalpurposes is treated as a binding election forCalifornia purposes. A separate election maynot be filed for California.The federal election is made on federalForm 966, Corporate Dissolution or Liquida-tion. For information on making the election,get IRS Notice 97-4, 1997-1 C.B. 351. Califor-nia requires that an S corporation parentattach a copy of the Form 966 for each QSSSdoing business or qualified to do business inCalifornia to the return for the income yearduring which the QSSS election was made.California follows the federal transitional reliefprocedures for perfecting a QSSS election.A QSSS is subject to an $800 annual taxwhich is paid by the S corporation parent. TheQSSS annual tax is due and payable whenthe S corporation’s first estimated tax paymentis due. If the QSSS is acquired, or a QSSSelection is made, during the income year, theQSSS annual tax is due with the S corpora-tion’s next estimated tax payment after thedate of the QSSS election or acquisition. TheQSSS annual tax is subject to the estimatedtax rules and penalties.An S corporation that owns a QSSS does notfile a combined return. Instead, the QSSS isdisregarded, and the activities, assets, liabili-ties, income, deductions and credits of theQSSS are considered to be the assets, liabili-ties, income and credits of the S corporation.If the QSSS is not unitary with the S corpora-


tion, then it is treated as a separate divisionand separate computations must be made tocompute business income and apportionmentfactors for the QSSS and the S corporaiton,and to apportion to California the businessincome of each.An S corporation parent must complete theQualified Subchapter S Subsidiary InformationWorksheet on page 24 and attach it to theForm 100S for each income year in which aQSSS is acquired or a QSSS election ismade.

Specific Line InstructionsFiling Form 100S without errors will expediteprocessing. Before mailing Form 100S, makesure entries have been made for:• California corporation number (7 digits);• Federal employer identification number

(FEIN) (9 digits); and• Corporation name and address.File the 1998 Form 100S for calendar year1998 and fiscal years that begin in 1998.Enter income year beginning and endingdates only if the return is for a short year or afiscal year. If the S corporation reports itsincome using a calendar year, leave blank. Ifthe return is filed for a short period (less than12 months), write ‘‘short year’’ in red in thetop margin.Note: The 1998 Form 100S may also beused if:• The corporation has an income year of

less than 12 months that begins and endsin 1999; and

• The 1999 Form 100S is not available atthe time the corporation is required to fileits return. The S corporation must show its1999 income year on the 1998 Form 100Sand incorporate any tax law changes thatare effective for income years beginningafter December 31, 1998.

Convert all foreign monetary amounts to U. S.dollars.Caution: California law is different from fed-eral law. California taxes S corporations underChapter 2 (commencing with Section 23101)or Chapter 3 (commencing with Section23501) of the Bank and Corporation Tax Law.

Questions A through QAnswer all applicable questions. Be sure toanswer questions E through Q on Side 2.Note the following instructions whenanswering:

Question B – Transfer or acquisition ofvoting stockAll S corporations must answer Question B. Ifthe answer is ‘‘Yes,’’ a ‘‘Statement of Changein Control and Ownership of Legal Entities’’(BOE-100-B) must be filed with the StateBoard of Equalization, or substantial penaltiesmay result. Forms and information may beobtained from the Board of Equalization at(916) 323-5685.Answer ‘‘yes’’ to Question B on Side 1 if:

• The percentage of outstanding votingshares of this S corporation or its subsidi-ary(ies) owned by one person or oneentity cumulatively surpassed 50% duringthis year; or

• The total percentage of voting sharestransferred to one irrevocable trust cumu-latively surpassed 50% this year; or

• One or more irrevocable proxies trans-ferred voting rights to more than 50% ofthe outstanding shares to one person orone entity during this year; or

• This S corporation’s cumulative ownershipor control of the stock or other ownershipinterest in any legal entity surpassed 50%during this year; or

• Cumulatively more than 50% of the totaloutstanding shares of this S corporationhave been transferred or changed owner-ship or control this year.

R&TC Section 64(e) requires this informationfor use by the California State Board ofEqualization.

Question C – Principal business activitycodeAll S corporations must answer Question C.Include the 6 digit PBA code from the chartfound on page 21 through page 23 of thisbooklet.The code should be the number for the spe-cific industry group from which the greatestpercentage of California ‘‘total receipts’’ isderived. ‘‘Total receipts’’ means gross receiptsplus all other income. The California codenumber may be different from the federalcode number.If, as its principal business activity, the corpo-ration: (1) purchases raw material; (2) subcon-tracts out for labor to make a finished productfrom the raw materials; and (3) retains title tothe goods, the corporation is considered to bea manufacturer and must enter one of thecodes under ‘‘Manufacturing.’’ Also, write inthe business activity and principal product orservice on the lines provided.

Question D – Does this return includeQualified Subchapter S Subsidiaries(QSSSs)?Answer yes if the S corporation owns aQSSS. Refer to the instructions for line 22and line 35 to report the QSSS annual tax. Besure to complete the worksheet on page 24 ofthis booklet and attach the worksheet toForm 100S when filed.

Question E – 1999 tax formsIf the S corporation’s return is prepared bysomeone else, or if the S corporation doesnot need Form 100S mailed to it next year,check the box at Question E.

Line 1 – Ordinary income (loss) from tradeor businessS corporations using federal reconciliation tofigure net income (see General Information I)must:• Transfer the amount from federal

Form 1120S, line 21 to line 1 and attach acopy of the federal return and all pertinentsupporting schedules; or copy the informa-tion from federal Form 1120S, Page 1,

onto Side 2, Schedule F and transfer theamount from Schedule F, line 22, to line 1.

• Then, complete Form 100S, Side 1, line 2through line 14, State Adjustments.

S corporations using the California computa-tion to figure ordinary income (see GeneralInformation I) must transfer the amount fromSide 2, Schedule F, line 22, to line 1. Com-plete Form 100S, Side 1, line 2 through line14, only if applicable.

Line 2 through Line 14 – State adjustmentsTo figure net income for California purposes,corporations using the federal reconciliationmethod (see General Information I) must enterCalifornia adjustments to the federal netincome on line 2 through line 14. If a specificline for the adjustment is not on Form 100S,enter the adjustment on line 7, Other Addi-tions, or line 13, Other Deductions, and attacha schedule.

Line 2 – Taxes not deductibleCalifornia law does not permit a deduction forCalifornia corporation franchise or incometaxes or any other taxes on, according to, ormeasured by income or profits. Add thesetaxes to income on line 2. Examples of thesetaxes are California’s minimum franchise tax,the 1.5% income or franchise tax and theenvironmental taxes imposed by IRCSection 59A.

Line 3 – Interest on governmentobligationsS corporations subject to the California fran-chise tax must report interest received on gov-ernment obligations even though it may beexempt from state or federal individual incometax. This interest must be added to income online 3. See line 13 instructions for S corpora-tions subject to the California corporationincome tax.

Line 4 – Net capital gainEnter on this line any net capital gain subjectto the 1.5% tax rate (3.5% for financialS corporations) shown on Schedule D (100S),Section B, and any gains subject to the 8.84%tax rate (10.84% for financial S corporations)shown on Schedule D (100S), Section A,line 3a and line 6a.

Line 5 – Depreciation and amortizationDepreciation for S corporations follows thedepreciation rules provided under CaliforniaPersonal Income Tax Law. Unlike other corpo-rations, an S corporation is allowed to com-pute depreciation using the ModifiedAccelerated Cost Recovery System (MACRS).Complete Schedule B (100S) for assets sub-ject to depreciation and for assets subject toamortization. Enter the total of Schedule B,Part I, line 4 and Part II, line 4, on Form 100SSide 1, line 5.

Line 6 – Portfolio incomeEnter on this line net portfolio income notincluded in line 1 but that must be included inthe S corporation’s net income for computingthe 1.5% tax. Include interest, dividends androyalties. Do not include any passive activityamounts on this line. Instead, include passiveactivity amounts on line 7 or line 13.


Line 7 – Other additionsInclude on this line other items not added onany other line to arrive at California netincome. Attach a schedule that clearly showshow each item was computed and explain thebasis for the adjustment.If a federal contribution deduction was takenin arriving at the amount entered on line 1,include that amount in the computation ofline 7. See line 11.Enter any passive activity income on line 7.California ordinary net gain or lossBefore entering the amount fromSchedule D-1, line 18, determine whether thegain is subject to built-in gains tax. If the gainis subject to built-in gains tax, enter theamount on Schedule D (100S), Part IV so thebuilt-in gains tax can be computed, and enterthe difference between the amount on Sched-ule D-1, line 18 and the amount subject tobuilt-in gains tax on 100S, Side 1, line 7.Note: Business expense deductions are notallowed with respect to payments to a clubthat restricts membership or the use of itsservices or facilities on the basis of age, sex,race, religion, color, ancestry or national ori-gin. ‘‘Club’’ means a club as defined in theBusiness and Professions Code, Div. 9, Ch. 3,Art. 4, beginning with Section 23425. Addback such deductions on this line.

Line 9 and Line 10 – DividendsSee Schedule H, Dividend Income Deduction,instructions.

Line 11 – ContributionsFor income years beginning on or afterJanuary 1, 1996, the contribution deduction is10% of California net income, without regardto charitable contributions and special deduc-tions (e.g., the deduction for dividendsreceived). The definition of California netincome differs from federal taxable income forcomputing the contribution deduction.Five-year carryover provisions per IRCSection 170(d)(2) shall apply for excess con-tributions made during income years begin-ning on or after January 1, 1996.On a separate worksheet, using theForm 100S format, complete Form 100S, Side1, through line 15 (without regard to line 11).Then complete the worksheet below to deter-mine the contribution deduction to enter onthis line.1. Net income after state adjust-

ments from Side 1, line 15. .2. Deduction for dividends

received . . . . . . . . . . . .3. Net income for contribution cal-

culation purposes. Add line 1and line 2. . . . . . . . . . . .

4. Allowable contributions. Multiplyline 3 by 10% (.10) . . . . . .

5. Enter the amount actuallycontributed . . . . . . . . . . .

6. Enter the smaller of line 4 orline 5 here and on Side 1,line 11 . . . . . . . . . . . . .

If any federal contribution deduction wastaken in arriving at the amount entered onSide 1, line 1, enter that amount as an addi-tion on line 7.Get Schedule R, Apportionment and Alloca-tion of Income, to figure the contribution com-putation for apportioning corporations.

Line 12 – EZ, LARZ, LAMBRA or TTA busi-ness expense and/or net interest deductionBusinesses conducting a trade or businesswithin an EZ, LARZ, LAMBRA or TTA mayelect to treat a portion of the cost of qualifiedproperty as a business expense rather than acapital expense. For the year the property isplaced in service, the business may deduct apercentage of the cost in that year rather thandepreciate it over the life of the asset. Formore information, get form FTB 3805Z, formFTB 3806, form FTB 3807 or form FTB 3809.Also, a deduction may be claimed on this linefor the amount of net interest on loans madeto an individual or company doing businessinside an EZ or LARZ. For more information,get form FTB 3805Z or form FTB 3806.Be sure to attach form FTB 3805Z, formFTB 3806, form FTB 3807 or form FTB 3809if any of these benefits are claimed. If theproper form is not attached, these tax benefitsmay be disallowed.

Line 13 – Other deductionsInclude on this line deductions not claimed onany other line. Attach a schedule that clearlyshows how each deduction was computedand explain the basis for the deduction.Include in the computation for line 13 anypassive activity loss. Also enter any IRC Sec-tion 179 expense from Schedule B (100S),line 5a.For S corporations subject to income (and notfranchise) tax, interest received on obligationsof the federal government and on obligationsof the State of California and its political sub-divisions is exempt from income tax. If suchinterest is reported on line 3, deduct it on thisline.Federal ordinary net gain or loss. Enter anyfederal ordinary net gain or loss from federalForm 4797, Sales of Business Property,line 18, if the amount is included in income online 1.

Line 16 – Net income (loss) for statepurposesIf all the S corporation income is derived fromCalifornia sources, transfer the amount fromline 15 to this line.If only a portion of income is derived fromCalifornia sources, complete Schedule R,before entering any amount on this line.Transfer the amount from Schedule R, line 24,to this line. Be sure to answer ‘‘Yes’’ to Ques-tion P on Form 100S, Side 2.If this line is a net loss, complete and attachthe 1998 form FTB 3805Q, to Form 100S.

Line 17 – R&TC Section 23802(e) deductionIf the S corporation has a tax imposed onexcess net passive investment income, certaincapital gains and built-in gains, a deduction isallowed against the net income taxed at the

1.5% rate. See the ‘‘Excess Net PassiveIncome and Income Tax Worksheet,’’ to deter-mine if the S corporation is subject to the taxon excess net passive investment income. If atax is shown on this worksheet, enter theamount of excess net passive income fromline 8 of the worksheet on Form 100S, Side 1,line 17.For purposes of the built-in gains tax, enterthe smaller amount of line 11 or line 13 fromSection A, Part III of Schedule D, or line 20from Section A, Part IV of Schedule D.

Line 18, Line 19 and Line 20NOTE: The order in which line 18, line 19 andline 20 appear is not meant to imply that thisis the order in which any type of NOL carry-over deduction or disaster loss deduction betaken if more than one type of deduction isavailable. See form FTB 3805Q for moreinformation.

Line 18 – Net operating loss (NOL) carry-over deductionThe NOL deduction is the amount of the NOLcarryover from prior years that may bededucted from income in this income year.However, the loss may not reduce theS corporation’s current year income belowzero. Any excess loss must be carriedforward.If line 16 less line 17 is a positive amount,enter the NOL carryover (but not more thanline 16 less line 17) from the S corporation’s1998 form FTB 3805Q, Part III, line 3 onForm 100S, Side 1, line 18. Attach a copy ofthe 1998 form FTB 3805Q to Form 100S. Ifthe full amount of the NOL carryover may notbe deducted this year, complete and attach a1998 form FTB 3805Q showing the computa-tion of the NOL carryover to future years.If line 16 less line 17 is a negative amount,enter -0- on this line and see formFTB 3805Q instructions for the computation ofthe NOL carryover to future years.No NOL carryover arising from a year inwhich an S corporation was a C corporationmay be applied against the 1.5% tax. SeeIRC Section 1371(b)(1) and R&TCSection 23802(d). However, if the corporationterminates its S election, thus becoming aC corporation, then the prior year NOL carry-over may be used to the extent it has notexpired.Note: NOL carryovers arising from a year inwhich the S corporation was a C corporationmay be used in computing the tax on built-ingains.

Line 19 – EZ, LARZ or LAMBRA NOL carry-over deductionAn NOL generated by a business that oper-ates or invests within an EZ, the LARZ or aLAMBRA may receive special tax treatment.100% of the NOL generated can be carriedforward for up to 15 years. Get formFTB 3805Z, form FTB 3806 or formFTB 3807, for more information.Enter the EZ, LARZ or LAMBRA NOL carry-over deduction from the S corporation’s formFTB 3805Z, form FTB 3807 or form FTB3806, on Form 100S, line 19. Attach a copy of


the form FTB 3805Z, form FTB 3807 or formFTB 3806 to the Form 100S.

Line 20 – Disaster loss carryoverdeductionIf the S corporation has a disaster loss carry-over deduction, enter the total amount fromPart III, line 2 of the 1997 FTB 3805Q only ifthe corporation has income in the currentyear.

Line 22 – TaxS corporations must use a tax rate of 1.5%.Financial S corporations must use the finan-cial tax rate of 3.5%. The tax on this line maynot be less than the sum of the minimum fran-chise tax and QSSS annual tax, if applicable.See General Information B.If the S corporation is the parent of a QSSSand paid the $800 annual tax on behalf ofeach QSSS, add the total amount of QSSSannual tax to the tax on net income or theminimum franchise tax, whichever is applica-ble, and enter the result on line 22. Use theQSSS information worksheet on page 24 ofthis booklet.Example 1: Corporation A, an S corporation,is the parent of two QSSS’s. Corporation Areports net income for tax purposes on line 21of $50,000. Tax on net income is $750($50,000 X 1.5%). Since tax on net income is$750, Corporation A is subject to at least theminimum franchise tax. Corporation A is alsoliable for the $800 annual tax for each of itstwo QSSSs. On line 22, Corporation A willreport tax of $2,400.Example 2: Corporation B, an S corporation,is the parent of four QSSSs. Corporation Breports net income for tax purposes on line 21of $500,000. Tax on net income is $7,500. Online 22, Corporation B will report tax of$10,700. The $10,700 includes tax on netincome of $7,500 plus $3,200 of QSSSannual tax payment for the four QSSSs.

Line 23 through Line 26 – Tax creditsCredits may be used to reduce the Californiatax liability but may not be used to reduce thetax on line 22 to an amount less than the sumof the minimum franchise tax and the QSSSannual taxes, if applicable. Also, the S corpo-ration is allowed to claim only 1/3 of the totalcredit generated against the 1.5% franchisetax. See General Information AA and BB.Complete the applicable credit form for eachcredit claimed. For any carryover only credits,complete form FTB 3540, Credit Carryover

Summary. See page 12 for a list of availablecredits.Transfer the credit(s) from the respectivecredit forms to Schedule C to compute theamount of credit to claim on Form 100S. Thentransfer the credit(s) from Schedule C toForm 100S. Each credit is identified by a codenumber. To claim one, two or three credits,enter the credit name, code number and theamount of the credit on line 23, line 24 andline 25. Enter the total of any remaining cred-its from Schedule C on line 26. Do not makean entry on line 26 unless line 23 through line25 are complete.Attach all credit forms, schedules andSchedule C to Form 100S.

Line 29 – Tax from Schedule D (100S)S corporations must enter the tax fromSchedule D (100S) (included in this booklet).See General Information J for moreinformation.

Line 30 – Excess net passive income taxIf the corporation has always been an S cor-poration for California purposes or has no fed-eral excess net passive investment income,the excess net passive investment income taxdoes not apply. See General Information S formore information.To determine if the S corporation owes thistax, complete line 1 through line 3 and line 9of the ‘‘Excess Net Passive Income andIncome Tax Worksheet’’ on page 13. If line 2is greater than line 3 and the S corporationhas taxable income, it must pay the tax. Com-plete a separate schedule using the format ofline 1 through line 11 of the worksheet to fig-ure the tax. Enter the tax from line 11 of theworksheet on Form 100S, Side 1, line 30.Attach the schedule showing the computation.Reduce each item of passive income passedthrough to shareholders by its portion of thetax on line 30. See IRC Section 1366(f)(3)and R&TC Section 23803(b)(2).R&TC Section 23811(e) provides a deductionfor C corporation earnings and profits attribut-able to California sources for any income yearby the amount of a consent dividend paidafter the close of the income year. Theamount of the consent dividend is limited tothe difference between the C corporationearnings and profits attributable to Californiasources and the C corporation earnings andprofits for federal purposes.

Line 32 – Additional SOS prepayment taxFor income years beginning on or afterJanuary 1, 1997 and before January 1, 1999,the corporation must pay an additional $200on the original due date of the 1st requiredreturn if it:• Incorporated as a qualified new corpora-

tion with the California SOS;• Paid the $600 prepaid minimum tax to the

California SOS; and• Had gross receipts, less returns and allow-

ances, exceeding $1 million or tax on netincome exceeding $800, during the 1stincome year.

If the corporation is required to pay the addi-tional SOS prepayment tax, enter $200 onthis line. If the SOS prepayment tax is notrequired, enter -0-. See General InformationY, for more information.

Line 33 – Adjusted total taxAdd line 31 and line 32. Enter the result onthis line.

Line 35 – 1998 estimated tax payments andexcess SOS prepayment taxEnter the total amount of estimated tax pay-ments made during the 1998 income year onthis line. If the S corporation is the parent of aQSSS and made payments for the QSSSannual tax, include the total amount of QSSSannual tax payment made during 1998 on thisline along with the total estimated tax pay-ments. See General Information DD, for moreinformation. Be sure to complete the scheduleon page 24 of this booklet and attach it to thereturn.If the S corporation prepaid an $800 minimumtax to the SOS, but met the QNC criteria dur-ing its 1st income year, the S corporation isentitled to a refund of the excess prepaid tax.Include an additional $200 on this line. SeeGeneral Information Y, for more information.

Line 38 and Line 39 – Tax due oroverpaymentIn addition to any amount entered on line 38or line 39, tax due or overpayment, alsoinclude any amounts required to be includedfrom Schedule J, Add-On Taxes or Recaptureof Tax Credits. See Schedule J instructions,for more information.

Line 42 – Penalties and interestComplete and attach form FTB 5806, Under-payment of Estimated Tax by Corporations, tothe front of Form 100S only if Exception B orException C is used to compute or eliminatethe penalty.


CREDIT NAME CODE DESCRIPTIONCommunity Development Financial Institution Deposits –Obtain certification from:

CALIFORNIA ORGANIZED INVESTMENTNETWORK (COIN)DEPARTMENT OF INSURANCE300 CAPITOL MALL, SUITE 1460SACRAMENTO CA 95814

209 20% of a qualified deposit made into a community development financial institution

Disabled Access for Eligible Small Businesses –FTB 3548

205 Similar to the federal credit, but limited to $125 per eligible small business, and based on 50% ofqualified expenditures that do not exceed $250

Donated Agricultural Products Transportation –FTB 3547

204 50% of the costs paid or incurred for the transportation of agricultural products donated to nonprofitcharitable organizations

Employer Child Care Contribution – FTB 3501 190 Employer: 30% of contributions to a qualified plan.Employer Child Care Program – FTB 3501 189 Employer: Cost of establishing a child care program or constructing a child care facilityEnhanced Oil Recovery – FTB 3546 203 1/3 of the similar federal credit but limited to qualified enhanced oil recovery projects located within

CaliforniaEnterprise Zone Hiring & Sales or Use Tax –

FTB 3805Z176 Business incentives for enterprise zone businesses

Farmworker Housing – ConstructionFarmworker Housing – LoanObtain certification from:

FARMWORKER HOUSING ASSISTANCE PROGRAMCALIFORNIA TAX CREDIT ALLOCATIONCOMMITTEE916 CAPITOL MALL, ROOM 485SACRAMENTO CA 95814

207208

50% of qualified costs paid or incurred to construct or rehabilitate qualified farmworkers housingBanks and financial corporations: 50% of foregone interest income on qualified farmworker housingloans

Local Agency Military Base Recovery Area(LAMBRA) Hiring & Sales or Use Tax –FTB 3807

198 Business incentives for LAMBRAs

Low-Income Housing – FTB 3521 172 Similar to the federal credit but limited to low-income housing in CaliforniaManufacturing Enhancement Area – FTB 3808 211 Hiring Credit for Manufacturing Enhancement AreaManufacturers’ Investment – FTB 3535 199 6% of the cost of qualified propertyPrior Year Alternative Minimum Tax – FTB 3510 188 Must have paid alternative minimum tax in a prior year and have no alternative minimum tax liability

in 1998Prison Inmate Labor – FTB 3507 162 10% of wages paid to prison inmatesResearch – FTB 3523 183 Similar to the federal credit but limited to costs for research activities in CaliforniaRice StrawObtain certification from:

DEPARTMENT OF FOOD AND AGRICULTURE1220 N STREET, ROOM 409SACRAMENTO CA 95814

206 $15 per ton of rice straw grown in California

Salmon & Steelhead Trout Habitat Restoration –Obtain certification from:

DEPARTMENT OF FISH AND GAMEC/O FISH TIMBER TAX CREDITS PROGRAMPO BOX 944209SACRAMENTO CA 95244-2090

200 The lesser of 10% of qualified costs or other amount determined by the Department of Fish andGame

Targeted Tax Area (TTA) Hiring & Sales or Use Tax –FTB 3809

210 Business incentives for TTAs

Agricultural ProductsCommercial Solar Electric SystemCommercial Solar EnergyContribution of Computer SoftwareEmployer Child Care Contribution – FTB 3501Employer Child Care Program – FTB 3501Employer Ridesharing – Large employerEmployer Ridesharing – Small employerEmployer Rideshare – TransitEnergy ConservationLos Angeles Revitalization Zone (LARZ) Hiring & Salesor Use TaxLow Emission VehiclesOrphan DrugRecycling EquipmentRidesharingSolar EnergySolar PumpTechnology Property Contributions

175196181202190189191192193182

159160185174171180179201

The expiration dates for these credits have passed. However, these credits had carryover features.You may claim these credits if there is a carryover availablefrom prior years. If you are not required to complete Schedule P (100),get form FTB 3540, Credit Carryover Summary, to figure your creditcarryover to future years.


123456789

10

11

123456789

1011

Enter gross receipts for the income year (see IRC Section 1362(d)(3)(B) for gross receipts from the sale of capital assets)*.Enter passive investment income as defined in IRC Section 1362(d)(3)(C)* . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter 25% (.25) of line 1. If line 2 is less than line 3, the corporation is not liable for this tax . . . . . . . . . . . . . . . . . .Excess passive investment income. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter expenses directly connected with the production of income on line 2 (see IRC Section 1375(b)(2))* . . . . . . . . . . .Net passive income. Subtract line 5 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Divide the amount on line 4 by the amount on line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Excess of net passive income. Multiply line 6 by line 7 (see instructions on line 11 below) . . . . . . . . . . . . . . . . . . .Enter taxable income** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Enter the smaller of line 8 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Excess net passive income tax. Enter 8.84% (financial S corporations must use 10.84%) of line 10 here and on Form 100S,Side 1, line 30. (If an amount is entered here, go to line 8 above and carry the line 8 amount to Form 100S, line 17.) . . .

* Income and expenses on line 1, line 2 and line 5 are from total operations for the income year. This includes applicable income and expenses fromForm 100S, Side 1. See IRC Sections 1362(d)(3)(C) and 1375(b)(4) for exceptions regarding line 2 and line 5.

** Taxable income is defined in federal Treas. Regulations Section 1.1374-1A(d). Figure taxable income by completing line 1 through line 17 of Form 100, California Corporation Franchise or Income Tax Return. Clearly mark ‘‘ENPI Taxable Income’’ on the Form 100 computation and attach it to Form 100S.

Excess Net Passive Income and Income Tax Worksheet

SchedulesSchedule B (100S)Effective January 1, 1998, California law con-forms to federal law regarding the incomeforecast method and the exemption of limitson depreciation for incremental costs of cleanfuel vehicles.California generally conforms to the provisionsof IRC Section 197 for amortization of intan-gibles for income years beginning on or afterJanuary 1, 1994. However, there may be dif-ferences in the federal and California amountsfor intangible assets acquired in income yearsbeginning prior to January 1, 1994. SeeR&TC Section 24355.5 for more information.California did not allow depreciation under thefederal accelerated cost recovery system(ACRS) for years prior to 1987. California alsodoes not allow depreciation under MACRS forassets placed in service while the corporationwas taxable as a C corporation.S corporations must continue calculating theCalifornia depreciation deduction for assetsplaced in service before January 1, 1987, inthe same manner as in prior years. Get formFTB 3885, Corporation Depreciation andAmortization, to determine how to continuedepreciating these assets. The following werethe most common methods used to calculatedepreciation for years prior to 1987:• Straight-line;• Declining balance; and• Sum-of-the-years digits.For assets placed in service in 1987 andafter, S corporations may use the samemethod for California as was used for federalpurposes. S corporations conducting a tradeor business inside an EZ, the LARZ, aLAMBRA or a TTA may elect to treat a por-tion of the cost of qualified property as a busi-ness expense in the first year it is placed inservice. This expense deduction is in lieu ofthe IRC Section 179 expense deduction. Formore information, get form FTB 3805Z, formFTB 3806, form FTB 3807 or form FTB 3809.

Schedule C (100S)Use Schedule C (100S) to determine theallowable amount of credits to claim on the1998 Form 100S and the credit carryover tofuture years. For more information, see Gen-eral Information Z, AA and BB.Column (a)The amount entered in column (a) must belimited to 1/3 the amount of the total credit.

Schedule D (100S)Schedule D (100S) is divided into Section Aand Section B. Use Section A to report allbuilt-in gains and certain capital gains subjectto the 8.84% tax rate (10.84% for financialS corporations). Use Section B to report allother capital gains subject to the 1.5% taxrate (3.5% for financial S corporations). SeeGeneral Information J, for more information.Note: Use California amounts when comput-ing gain from like-kind exchanges on federalForm 8824.

Section A

Part I and Part IIS corporations use Part I to report and sum-marize gains and losses attributable to:(1) sale or exchange of capital assets; and (2)gains on distributions to shareholders ofappreciated assets that are capital assets. Besure to use the California basis for all assetswhen computing the gain or loss. See theinstructions for federal Schedule D(Form 1120S) for more information.

Line 2 and Line 5Use California numbers when figuring theamount to enter for short- or long-term capitalgains or losses from like-kind exchanges fromfederal Form 8824.

Part IIITo determine if the S corporation is subject tothe tax on certain capital gains, see theinstructions for federal Schedule D(Form 1120S) and General Information J.

Line 9If the S corporation is liable for the tax onexcess net passive income (Form 100S,

Side 1, line 30) or the built-in gains tax (seePart IV below), and capital gain or loss wasincluded in the computation of either tax, fig-ure the amount to enter on line 9 as follows:Step 1: Refigure line 1, line 2, and line 4through line 6c in column (f) and line 7 ofSchedule D (100S) by:• Excluding the portion of any recognized

built-in capital gain or loss that does notqualify for transitional relief; and

• Reducing any capital gain taken intoaccount in determining passive investmentincome (line 2 of the Excess Net PassiveIncome and Income Tax Worksheet onpage 13) by the portion of excess net pas-sive income attributable to such gain. Theattributable portion is figured by multiplyingexcess net passive income by a fraction,the numerator of which is the capital gain(less any expenses attributable to suchgain), and the denominator of which is netpassive income.

Step 2: Refigure line 3a, line 6a, line 8 andline 9 of Schedule D (100S) using theamounts determined in Step 1. See GeneralInformation J, for more information.

Part IV

Line 16To determine if the S corporation is subject totax on built-in gains, see the instructions forfederal Schedule D (Form 1120S) and Gen-eral Information J.Apportioning corporations only: All recog-nized built-in gains and all recognized built-inlosses apportioned and allocated to Californiamust be included on line 16.

Line 18If the S corporation:• Filed its election to be an S corporation

after 1986;• Was a C corporation before it elected to

be an S corporation, or acquired an assetwith a basis determined by reference to itsbasis (or the basis of any other property)in the hands of a C corporation; and

• Has a California net unrealized built-in gainas defined in IRC Section 1374(d)(1), that


is in excess of the California net recog-nized built-in gain from prior years;

Then compute the California net unrealizedbuilt-in gain reduced by the California net rec-ognized built-in gain from prior years.On line 18, enter the smaller of line 16,line 17 or the amount computed above.

Line 19Enter on this line the amount from formFTB 3805Q that reflects NOLs from the yearsthe corporation was a C corporation. Reducefuture NOL carryovers from C corporationyears by the amount applied on this line.

Section BS corporations use Part I and Part II to reportthe sale or disposition of all capital assetsacquired as an S corporation or which are notreported in Section A. For more information,see the instructions for federal Schedule D(Form 1120S).

Schedule FSee General Information I for information onnet income computation methods.Line 7 – Compensation of OfficersIf the S corporation’s total receipts are$150,000 or more, complete and attach aschedule showing the compensation of offi-cers. On the schedule list:• Name of officer;• Social security number of officer;• Percentage of time devoted to the

business;• Percentage of stock owned; and• Amount of compensation.Also show the calculation of compensation ofofficers deducted:• Total compensation of officers, minus• Compensation of officers claimed in the

cost of goods sold schedule and else-where on the return.

Line 8 – Salaries and wagesGain from the exercise of California QualifiedStock Options (CQSOs) issued and exercisedafter 1996 and before 2002, can be excludedfrom gross income if the individual’s earnedincome is $40,000 or less. The exclusion fromgross income is subject to the alternative mini-mum tax and the S corporation is not alloweda deduction for the compensation excludedfrom the employee’s gross income.

Schedule HS corporations may claim a deduction for divi-dends paid by a corporation taxed byCalifornia on earnings from which the divi-dends are paid.

Part IIntercompany DividendsDividends paid to an electing S corporationfrom earnings and profits accumulated duringany income year in which the dividend payerwas included in the combined report, whichincluded the dividend payee, qualify for the100% intercompany dividend elimination.

Complete Schedule H, Part I. Enter the totalof Part I, column (d) on Form 100S, Side 1,line 9.

Part II and Part IIIOther DividendsTo determine the deductible percentage of adividend (Schedule H, Part II, column (f)) senda written request showing the complete nameof the dividend paying corporation to:

DEDUCTIBLE DIVIDENDSFRANCHISE TAX BOARDPO BOX 1468SACRAMENTO CA 95812-1468

Or call the FTB at the phone numbers listedon page 47 of this booklet. Allow 6 to 8 weeksfor a written reply. Enter this percentageamount on Schedule H, Part II, column (f).To figure the amount of dividends to enter onForm 100S, line 9, fill out Part II and Part IIIof Schedule H.To complete Part II:1. Fill in columns (a) through (c)

For Part II, column (b), if any portion of adividend also qualifies for the intercom-pany elimination in Part I, enter the bal-ance from Part I, column (g) in Part II,column (b).

2. Enter the corporation’s percentage of own-ership of the dividend paying corporationon Schedule H, Column (d).

3. Determine the limitation percentage andenter it on Schedule H, Part II, column (e).Refer to the ownership percentages in col-umn (d) and the limitation percentagesbelow to determine the applicable limitationpercentage.If the dividend then the limitationpaying corporation is: percentage is:Less than 20% owned . . . . . . . . 70%At least 20% but

not more than 50% owned . . . . 80%More than 50% owned . . . . . . . 100%

4. Multiply the dividend received (column (b))by the limitation percentage (column(e)).

5. Multiply the result of line 4 by the deduct-ible percentage (column (f)).

6. Enter the result of line 5 in column (g).To complete Part III:1. Follow steps 1 and 2 above.

For Part III, column (e), if any portion of adividend also qualifies for the intercom-pany elimination in Part I, enter the bal-ance from Part I, column (g) in Part III,column (e).

2. Enter in column (e) the amount of qualifiedinsurance dividends received from Sched-ule H, Part I, column (g) for which adeduction under Part I and Part II has notbeen claimed.

3. Enter the apportionment factors for theinsurance corporation in column (f).Note: The apportionment factors used inthis computation are different from theapportionment factors used for Schedule Rapportionment. See R&TC Section 24410for more information.

4. Multiply the amount in column (e) by theamount in column (f) and enter the resultin column (g).

Total the amounts on Schedule H, Part II, col-umn (g), line 7 and Part III, column (g), line 7.Enter the result on Part III, column (g), line 8and on Form 100S, Side 1, line 9.Dividends received from a corporation, inwhich the S corporation owns less than 80%of the stock, are considered passive invest-ment income.

Part IVWater’s-Edge DividendsCalifornia R&TC Section 24411 allows for a75% deduction of a portion of the dividendsreceived and included in the water’s-edgereturn. For income years beginning on or afterJanuary 1, 1998, dividends received frombanks qualify for the water’s-edge dividenddeduction. Both business and nonbusinessdividends qualify for the dividend deduction.The allowable business dividend deduction isdetermined by multiplying the total dividenddeduction (business and nonbusiness) by theratio of business dividends to total dividends.The remaining dividend deduction is the non-business dividend deduction.In no event will a R&TC Section 24411deduction be allowed with respect to a divi-dend for which a deduction was allowedunder R&TC Sections 24402 or 24410 orwhich was eliminated under R&TCSection 25106.Current year qualifying dividends are divi-dends received by any current member of thewater’s-edge group from a corporation (re-gardless of the place of incorporation) if:• The average of the payer’s property, pay-

roll and sales factors within the U.S. is lessthan 20%; and

• More than 50% of the total combined vot-ing power of all classes of voting stock isowned directly or indirectly by a member ofthe water’s-edge group at the time the divi-dend is received.

Interest Expense DeductionFor income years beginning on or after Janu-ary 1, 1997, the amount of interest expenseincurred for purposes of foreign investmentsthat must be offset against deductible foreigndividends must be computed by multiplyingthe amount of interest expense by the samepercentage used to compute the deductibleportion of the qualifying foreign dividends.The payer need not be in a unitary relation-ship with the recipient or any other member ofthe water’s-edge group.Intercompany dividends received within thecurrent year’s water’s-edge group should beeliminated pursuant to R&TC Section 25106before computing the dividend deduction.A deduction of 100% is provided for dividendsderived from certain foreign construction proj-ects. A construction project is defined as anactivity attributable to an alteration of land orany improvement thereto. The constructionproject, the location of which is not subject tothe taxpayers’ control, must be undertaken foran entity, including a governmental entity, that


is not affiliated with the water’s-edge group.For more information, see R&TC Section24411 and Form 100-WE, Water’s-EdgeBooklet and instructions.Complete Form 100S, Schedule H, Part IVand enter the total of column (g) onForm 100S, Side 1, line 10. For Part IV, col-umn (d), if any portion of a dividend also qual-ifies for the intercompany elimination in Part I,enter the balance from Part I, column (g) inPart IV, column (d).

Schedule JComplete Schedule J if the S corporation hascredit amounts to recapture or is required toinclude installment payments of ‘‘add-on’’taxes for:• LIFO recapture resulting from an S corpo-

ration election;• Interest computed under the look-back

method for completed long-term contracts;• Interest on tax attributable to installment

sales of certain property or use of theinstallment method for non-dealer install-ment obligations; or

• IRC Section 197(f)(9)(B)(ii) election to rec-ognize gain on the disposition of an IRCSection 197 intangible.

Revise the tax due or overpayment onForm 100S, line 38 or line 39, as appropriate,by the amount from Schedule J, line 6.LIFO recapture tax. If the S corporation com-puted the LIFO recapture tax in the final yearas a C corporation, include on Schedule J,line 1, any LIFO installment due this incomeyear.Long-term contracts. If the S corporationmust compute interest under the look-backmethod for completed long-term contracts,complete form FTB 3834, Interest Computa-tion Under the Look-Back Method for Com-pleted Long-Term Contracts, and include theamount of interest the S corporation owes orthe amount of interest to be credited orrefunded to the S corporation on Schedule J,line 2. Attach form FTB 3834 to Form 100S. Ifinterest is to be credited or refunded, enter asa negative amount.Interest on tax attributable to paymentsreceived on installment sales of certaintimeshares and residential lots. If the S cor-poration elected to pay interest on the amountof tax attributable to payments received oninstallment obligations arising from the dispo-sition of certain timeshares and residential lotsunder IRC Section 453(l)(3) (R&TC Section24667), it must include the interest due onSchedule J, line 3a. For the applicable inter-est rates, get FTB Pub. 1138, Refund/BillingInformation. Attach a schedule showing thecomputation.Interest on tax deferred under the install-ment method for certain nondealer install-ment obligations. If an obligation arising fromthe disposition of property to which IRCSection 453A (R&TC Section 24667) appliesis outstanding at the close of the income year,the corporation must include the interest dueunder IRC Section 453A(c) on Schedule J,line 3b. Attach a schedule showing the com-

putation. For the applicable interest rates, getFTB Pub. 1138, Refund/Billing Information.IRC Section 197(f)(9)(B)(ii) election. Com-plete Schedule J, line 4 if the corporationelected to pay tax on the gain from the sale ofan intangible under the related person excep-tion to the anti-churning rules.Credit recaptures. Complete Schedule J, line5, if the S corporation completed the creditrecapture portion of:• FTB 3501, Employer Child Care Pro-

gram/Contribution Credit; or• FTB 3805Z, Part VI, Hiring Credit — Enter-

prise Zone Recapture of Deduction andCredits; or

• FTB 3806, Los Angeles RevitalizationZone Recapture of Deduction and Credits;or

• FTB 3807, Part VI, Local Agency MilitaryBase Recovery Area Recapture of Deduc-tion and Credits; or

• FTB 3535, Manufacturers’ InvestmentCredit.

Schedule K and Schedule K-1Shareholders’ share of income, deduc-tions, credits, etc.Purpose of schedulesSchedule K (100S) is a summary schedule ofall the shareholders’ shares of the S corpora-tion’s income, deductions, credits, etc. Sched-ule K-1 (100S) shows each shareholder’sseparate share of pass-through items andadjusted basis. Use federal Schedule K andSchedule K-1 (Form 1120S) as a basis forpreparing California Schedule K andSchedule K-1 (Form 100S).Note: Amounts on Schedule K-1 (100S) maynot add up to amounts reflected onForm 100S, Side 1 amounts because Side 1calculates tax at the S corporation level whileSchedule K-1 amounts are calculated usingdifferent rules.Attach one copy of each Schedule K-1 (100S)to the Form 100S filed with the FTB. Keepone copy of each Schedule K-1 (100S) for theS corporation’s records, and give each share-holder a copy of Schedule K-1 (100S) on orbefore the due date of Form 100S.Note: Be sure to give each shareholder acopy of either the Shareholder’s Instructionsfor Schedule K-1 (100S) (included in thisbooklet) or specific instructions for each itemreported on the shareholder’s Schedule K-1(100S).Substitute formsYou need approval from the FTB to use asubstitute Schedule K-1 (100S). The substi-tute schedule must include the Shareholder’sInstructions for Schedule K-1 (100S) or otherprepared specific instructions. For more infor-mation, get FTB Pub. 1098, Guidelines for theDevelopment and Use of Substitute, Scan-nable and Reproduced Tax Forms.

General InstructionsWhat’s NewFor income years beginning on or afterJanuary 1, 1998, tax-exempt organizations as

described in IRC Sections 401(a) and501(c)(3) (qualified tax-exempt shareholder)may be shareholders in an S corporation. Forpurposes of determining the number of share-holders of an S corporation, a qualified tax-exempt shareholder will count as oneshareholder. Items of income (loss) will pass-through to the qualified tax-exempt share-holder as unrelated business taxable income(UBTI) regardless of the source or nature ofthe income.If a husband and wife each had a separateinterest in the S corporation, the S corporationmust prepare a separate Schedule K-1 (100S)for each spouse.If a husband and wife held an interesttogether, prepare one Schedule K-1 (100S) ifthe two are considered one shareholder.On each Schedule K-1 (100S), enter thename, address and identifying number of theshareholder and the S corporation and theshareholder’s distributive share for each item.For an individual shareholder, enter the share-holder’s social security number. For all othershareholders, enter their federal employeridentification number (FEIN).In column (b) on Schedules K and K-1(100S), enter the corresponding amounts fromfederal Schedules K and K-1 (Form 1120S).In column (c), enter adjustments resultingfrom differences between California and fed-eral law for each of the specific line items. Incolumn (d), enter the California amount, whichis the result of combining column (b) andcolumn (c).Reminder: When entering California adjust-ments in column (c) of Schedule K (100S) orSchedule K-1 (100S), be sure to adjust for dif-ferences between federal and Californiaamounts (or taxes), as applicable toindividuals, for:• Built-in gains tax (Schedule D (100S));• Capital gains tax (Schedule D (100S)); and• Excess net passive income tax

(Form 100S, Side 1, line 30).This column must not be used to adjust forapportionment or allocation of income.Column (d) of Schedule K-1 (100S) reflectsthe shareholder’s share of S corporation itemsunder California law. Column (e) of ScheduleK-1 (100S) reflects income that is taxable toCalifornia based on the sourcing and appor-tioning rules of California. The computation ofthese amounts is a matter of law and regula-tion, and the residency of the shareholders isnot a factor in the computations of column (d)and column (e). For an S corporation that isdoing business only in California, column (e)will generally be the same as column (d),except for nonbusiness intangible income (forexample, nonbusiness interest, dividends, andgain or loss from sales of securities). For anS corporation that is doing business withinand outside California, the amounts in column(d) and column (e) will be different, even forCalifornia residents. When the S corporationis uncertain of the residency status of anyshareholder, the S corporation must completecolumn (d) and column (e) for the shareholderand Table 1 and if appropriate, Table 2. The


final determination of residency is made at theshareholder level. If the S corporation is cer-tain that a shareholder is a resident of Califor-nia and the S corporation is nonapportioning,the S corporation should answer ‘‘No’’ toQuestion E on Schedule K-1 and completecolumn (d) only. Apportioning S corporationsmust always complete column (d), column (e),and Table 1 (if the S corporation has nonbusi-ness intangible income) and if appropriate,Table 2.Column (e) of Schedule K-1 (100S) is used toreport California source income amounts andcredits. Include the following items incolumn (e):• Gross income less allowable deductions

from separate businesses, trades or pro-fessions conducted wholly within California(see Title 18 Cal. Code Reg. Section17951-4 (a));

• Business income from unitary businesses,trades or professions of the S corporationapportioned to California determined byapplication of R&TC Sections 25128through 25137, inclusive (see Title 18 Cal.Code Reg. Section 17951-4 (c)). Gener-ally, income will be apportioned usingeither a 3 or 4 factor formula. If more than50% of the business receipts of the appor-tioning activity are from agricultural, extrac-tive, savings and loan, or bank or financialactivities, the 3 factor formula is used; oth-erwise, the 4 factor formula is used. Inmost cases, the determination of whetheror not the 3 or 4 factor apportionmentapplies is made by reference to the grossbusiness receipts of the S corporationitself. Apply the apportionment factors fromSchedule R, Apportionment and Allocationof Income, to the business income portionof each line item. However, if the share-holder conducts a trade or business that isunitary with the S corporation, the determi-nation of whether the 3 or 4 factor appor-tionment applies must be determined atthe shareholder level. In such cases, theapportionment items on Schedule K-1(100S), Table 2 will be used by the share-holder in making that determination.Amounts in column (e) will only be used ifthe shareholder is not unitary with theS corporation (For more information, seeTotal amounts using California law onpage 42). Note: A 4 factor formula isdefined as property, payroll and a double-weighted sales factor;

• Nonbusiness income allocated to Californiaunder the provisions of R&TC Sections25124 through 25127 (see Title 18 Cal.Code Reg. Sections 17951-3, 17951-4 (c)and 17952). Do not enter nonbusinessitems whose source is based on the resi-dency or commercial domicile of the share-holder. Enter these amounts on theapplicable lines on Schedule K-1 (100S),Table 1 (attach a schedule if necessary);and

• California tax credits.Special reporting requirements for passiveactivitiesIf items of income (loss), deduction or credit

from more than one activity are reported onSchedule K-1 (100S), the S corporation mustattach a statement to Schedule K-1 (100S) foreach activity that is a passive activity to theshareholder. Rental activities are passiveactivities to all shareholders. Trade or busi-ness activities are passive activities to share-holders who do not materially participate inthe activity.The attachment must include all the informa-tion explained in the instructions for federalSchedule K-1 (Form 1120S).

Specific Line InstructionsItem A through Item E (Schedule K-1(100S) only)To insure correct processing of Schedule K-1(100S), answer all items that are appropriate.Item A and Item B (Schedule K-1 (100S)only)See the instructions for Item A and Item C offederal Schedule K-1 (Form 1120S).

IncomeLine 1 – Ordinary income (loss) from tradeor business activitiesEnter in column (c) any California adjustmentsto ordinary income that do not need to beseparately stated. Include in this column theadjustment to add back the minimum fran-chise tax or the 1.5% tax deducted for federalpurposes.

Line 2 – Net income (loss) from rental realestate activitiesEnter the net of income and expenses of anyrental real estate activity of the S corporation.If the S corporation has more than one rentalreal estate activity reported on these lines,attach a separate schedule or use ScheduleK-1 (100S), line 23 to list the income or lossfrom each activity, plus any other informationrequired under the rules for passive activities.Attach form FTB 3801, Passive Activity LossLimitations, to Form 100S.

Line 3a, Line 3b and Line 3c – Net income(loss) from other rental activities (ScheduleK (100S) only)Enter the net of income and expenses ofother rental activities not listed on line 2above. If the S corporation has more than onerental activity reported on these lines, attach aseparate schedule listing the income or lossfrom each activity, plus any other informationrequired under the rules for passive activities.

Line 4a through Line 4f – Portfolio income(loss)Portfolio income (loss) is any gross incomefrom interest, dividends, annuities or royaltiesthat is not derived in the ordinary course ofbusiness. Portfolio income must be separatelyaccounted for as such. Portfolio income alsoincludes gains or losses from the sale or otherdisposition of property (other than an interestin a passive activity) producing portfolioincome or held for investment.

Line 4a, Line 4b and Line 4c – Interest,dividend and royalty incomeEnter only taxable interest, dividend and roy-alty income that is portfolio income.

Line 4d and Line 4e – Net capitalgain (loss)Enter on line 4d and line 4e the amount ofcapital gains and losses that is portfolioincome (loss). If any of the income (loss) isnot portfolio income (loss), include it on line 6.

Line 4f – Other portfolio income (loss)Enter any other portfolio income (loss) notentered on line 4a through line 4e.Line 5 – Net gain (loss) under IRCSection 1231The amount for line 5 comes from ScheduleD-1, Sales of Business Property. Do notinclude specially allocated ordinary gains andlosses or net gains or losses from involuntaryconversions due to casualties or thefts on thisline. Instead, report these gains or losses online 6.If the S corporation has more than one activityand the amount on line 5 is a passive activityamount to the shareholder, attach a statementto Schedule K-1 (100S) (or use Schedule K-1(100S), line 23) to identify to which activity theIRC Section 1231 gain (loss) relates.Line 6 – Other income (loss)Enter any other item of income or loss notincluded on line 1 through line 5, such as:a. Wagering gains and losses. See IRC

Section 165(d).b. Recovery of tax benefit items. See IRC

Section 111.c. Any gain or loss where the S corporation

was a trader or dealer in IRC Section 1256contracts or property related to such con-tracts. See IRC Section 1256(f).

d. Net gain (loss) from involuntary conver-sions due to casualty or theft.

e. Loss(es) from qualified low-income hous-ing projects for shareholders that are quali-fied investors.

f. Eligible gain from the sale or exchange ofqualified small business stock (defined inR&TC Section 18152.5). Also report on anattachment to Schedule K (100S) andSchedule K-1 (100S) the name of the cor-poration that issued the stock and theadjusted basis of that stock.

Note: The exclusion allowed under R&TCSection 18152.5 for small business stock isnot allowed for an S corporation but isallowed for the shareholder.

DeductionsLine 7 – Charitable contributionsEnter the total amount of charitable contribu-tions made by the S corporation during itsincome year on Schedule K (100S) and eachshareholder’s distributive share onSchedule K-1 (100S). On an attachment toeach schedule, separately show the dollaramount of contributions subject to each of the50%, 30% and 20% of adjusted gross incomelimits.


A resident shareholder is allowed a deductionfor contributions to a qualified organization asprovided in IRC Section 170.Line 8 – Expense deduction for recoverypropertyThe amount of expense deduction for recov-ery property that can be claimed from allsources will vary depending on the type ofproperty and the year of designation. Formore information, see IRC Section 179 andR&TC Sections 17201, 17266, 17267.2,17267.6 and 17268.Line 9 – Deductions related to portfolioincome (loss)Enter on this line the deductions allocable toportfolio income (loss) other than interestexpenses. Generally, these deductions areIRC Section 212 expenses and are subject toIRC Section 212 limitations at the shareholderlevel. However, interest expense related toportfolio income (loss) is generally investmentinterest expense and is reported on line 11a.

Investment InterestLine 11a through Line 11b(2)These lines must be completed whether ornot a shareholder is subject to the investmentinterest rules.Line 11a – Interest expense on investmentdebtsInclude on this line interest paid or accrued topurchase or carry property held for invest-ment. Property held for investment includesproperty that produces portfolio income (in-terest, dividends, annuities, royalties, etc.).Therefore, interest expense allocable to port-folio income should be reported on Sched-ules K and K-1 (100S), line 11a rather thanSchedules K and K-1 (100S), line 9. Invest-ment interest does not include interestexpense allocable to a passive activity. A pas-sive activity is a rental activity or a trade orbusiness activity in which the shareholderdoes not materially participate.Property held for investment includes a share-holder’s interest in a trade or business activitythat is not a passive activity to the share-holder and in which the shareholder does notmaterially participate. An example would be ashareholder’s working interest in oil and gasproperty (i.e., the shareholder’s interest is notlimited) if the shareholder does not materiallyparticipate in the oil and gas activity.The amount on line 11a will be reflected (afterapplying the investment interest expense limi-tations) by individual shareholders on theirSchedule CA (540 or 540NR), CaliforniaAdjustments.For more information, get form FTB 3526,Investment Interest Expense Deduction.Line 11b(1) and Line 11b(2) – Investmentincome and expensesEnter on line 11b(1) only the investmentincome included on Schedules K and K-1(100S), line 4a, line 4b, line 4c and line 4f.Enter on line 11b(2) only the investmentexpense included on Schedules K and K-1(100S), line 9.

If there are items of investment income orexpense included in the amounts that arerequired to be passed through separately tothe shareholder on Schedule K-1 (100S),such as net short-term capital gain or loss,net long-term gain or loss and other portfoliogains or losses, give each shareholder aschedule identifying these amounts. See theForm 1120S instructions for more informationon portfolio income.Investment income includes gross incomefrom property held for investment, gain attrib-utable to the disposition of property held forinvestment and other amounts that are grossportfolio income. Investment income andinvestment expenses do not include anyincome or expenses from a passive activity.Property subject to a net lease is not treatedas investment property because it is subjectto the passive loss rules. Do not reduceinvestment income by losses from passiveactivities.Investment expenses are deductible expenses(other than interest) directly connected withthe production of investment income.Get form FTB 3526 for more information.

Tax CreditsLine 12a – Low-income housing creditR&TC Section 23610.5 provides a credit thatmay be claimed by owners of residentialrental projects providing low-income housing.The credit is generally effective for buildingsplaced in service after 1986. If the sharehold-ers are eligible to claim the low-income hous-ing credit, attach a copy of form FTB 3521,Low-Income Housing Credit, to Form 100Sand to each shareholder’s Schedule K-1(100S).

Line 12b – Credits related to rental realestate activitiesReport any information that the shareholderneeds to figure credits related to a rental realestate activity other than the low-incomehousing credit. Attach to each shareholder’sSchedule K-1 (100S) a schedule showing theamount to be reported and the form on whichthe amount should be reported.

Line 12c – Credits related to other rentalactivitiesUse this line to report information that theshareholder needs to figure credits related toa rental activity other than a rental real estateactivity. Attach to each shareholder’s Sched-ule K-1 (100S) a schedule showing theamount to be reported and the form on whichthe amount should be reported.Line 13 – Other creditsEnter on an attached schedule each share-holder’s allocable share of any credit or creditinformation reported on Schedule C (100S)that is related to a trade or business activity.The following are examples of credits thatmay apply to each shareholder:• Enterprise zone hiring & sales or use tax

credit (get form FTB 3805Z);

• Local Agency Military Base Recovery Area(LAMBRA) hiring & sales or use tax credit(get form FTB 3807);

• Employer child care program/contributioncredit (get form FTB 3501);

• Research credit (get form FTB 3523);• Manufacturers’ investment credit (get form

FTB 3535);• Targeted tax area (TTA) hiring and sales

or use tax credit (get form FTB 3809); or• Manufacturing enhancement area (MEA)

hiring credit.

Adjustments and Tax PreferenceItemsLine 14a through Line 14eEnter the items of income and deductions thatenter into each shareholder’s computation ofadjustments and tax preference items. Ashareholder with alternative minimum taxitems may be required to file Schedule P(540, 540NR or 541), Alternative MinimumTax and Credit Limitations.Get the instructions for federal Schedules Kand K-1 (Form 1120S), Adjustments and TaxPreference Items, line 14a through line 14efor more information,

Other State TaxesLine 15a through Line 15eSubject to certain conditions, shareholdersmay claim a credit against their individual taxfor net income taxes paid by the S corporationto another state that either taxes the corpora-tion as an S corporation or does not recog-nize S corporation status. For purposes of thiscredit, net income taxes include the share-holder’s share of taxes on, according to, ormeasured by income. Enter the name of theother state(s), the income reported to theother state(s) and the amount of tax paid.Attach a copy of the return filed with the otherstate.Residents are taxable on all their pro ratashare of income and generally receive a creditfor taxes paid to other states. Nonresidentsmust use the amounts shown in column (e).See R&TC Sections 18001, 18002 and 18006for more information.

Other ItemsLine 16a through Line 19Refer to the instructions for federal SchedulesK and K-1 (Form 1120S).

Line 20 (Schedule K only)Enter total distributions made to shareholdersother than dividends reported on line 22 ofSchedule K. Noncash distributions of appreci-ated property are valued at fair market value.Refer to the instructions for federalForm 1120S for the ordering rules on distribu-tions.

Line 21 (Schedule K only)The S corporation may need to report supple-mental information separately to each share-holder that is not specifically requested on theSchedule K-1 (100S).Attach a schedule to the Schedule K showingthe computation of those items that must be


reported separately to shareholders includingany credit recapture reported by shareholderson line 23 of Schedule K-1. Refer to theinstructions for line 21 of the federal Sched-ule K (1120S).Shareholders may need to obtain the amountof their proportionate interest of aggregategross receipts, less returns and allowances,from the S corporation. As a result of legisla-tion enacted in 1996, alternative minimum tax-able income shall not include income,adjustments and items of tax preferencerelated to any trade or business of a qualifiedtaxpayer who has gross receipts, less returnsand allowances, during the taxable year ofless than $1,000,000 from all trades or busi-nesses. The S corporation can provide theshareholder’s proportionate interest of aggre-gate gross receipts on Schedule K-1 (100S),line 23. For purposes of R&TC Section17062(b)(4), ‘‘gross receipts’’ means the sumof gross receipts from the production of busi-ness income (within the meaning of subdivi-sions (a) and (c) of R&TC Section 25120) andthe gross receipts from the production of non-business income (within the meaning of subdi-vision (d) of R&TC Section 25120).‘‘Proportionate interest’’ includes an interest ina pass-through entity. See R&TCSection 17062 for more information. SeeSchedule K-1 (100S) instructions for moreinformation.

Line 22 (Schedule K only)Report the distribution amount made out ofprior C corporation years accumulated earn-ings and profits (E&P). The corporation shouldissue a federal Form 1099-DIV to each of theshareholders reporting their proportionate dis-tribution amounts.

Line 20 (Schedule K-1 only)Report the distribution amount for each share-holder that was paid out of prior C corporationyears accumulated earnings and profits(E&P). Each shareholder should receive afederal Form 1099-DIV reporting the propor-tionate distribution amount shown on line 20of Schedule K-1 (100S).

Line 21 (Schedule K-1 only)Report the distribution amount for each share-holder for distributions other than dividendsreported on line 20 of Schedule K-1 (100S).Noncash distributions of appreciated propertyare valued at fair market value. Refer to theinstructions for federal Form 1120S for theordering rules on distributions.

Line 22 (Schedule K-1 only)Report the amount of loan repayments theS corporation has made to each shareholderwho has loaned the S corporation money.

Supplemental InformationLine 23 (Schedule K-1 only)The S corporation will provide supplementalinformation required to be reported to eachshareholder on this line.The S corporation should provide an amountshowing each shareholder’s proportionateinterest in the S corporation’s aggregate grossreceipts, less returns and allowances, on

Schedule K-1 (100S), line 23. See the instruc-tions above for line 21, Schedule K (100S).Report the credit recapture amount on line 23if the S corporation completed the creditrecapture portion of:• FTB 3501, Employer Child Care Program/

Contribution Credit; or• FTB 3805Z, Part VI, Hiring Credit Enter-

prise Zone or• FTB 3806, Los Angeles Revitalization

Zone (LARZ) Hiring Credit & Sales or UseTax Credit; or

• FTB 3807, Local Agency Military BaseRecovery Area (LAMBRA) HiringCredit/Sales or Use Tax Credit;

• FTB 3535, Manufacturers’ InvestmentCredit; or

• FTB 3809, Targeted Tax Area (TTA) HiringCredit & Sales or Use Tax Credit.

Also show on line 23 a statement showingeach of the following:1. Each shareholder’s share of business

income apportioned to an enterprise zone,LARZ, LAMBRA, MEA or TTA; and

2. Each shareholder’s pro rata share of busi-ness capital gain or loss included in 1above.

Table 1 and Table 2Table 1 – Enter the shareholder’s pro ratashare of nonbusiness income from intangibles.Because the source of this income must bedetermined at the shareholder level, do notenter income in this category in column (e). Ifthe income (loss) for an income item is a mix-ture of income (loss) in different subclasses(for example, short and long term capitalgain), attach a supplemental schedule provid-ing a breakdown of income in each subclass.Nonbusiness income is all income other thanbusiness income. See definition of businessincome below.Table 2 – In Part A, enter the shareholder’spro rata share of the S corporation’s businessincome. The shareholder will then add thatincome to its own business income andapportion the combined business income.Business income is defined by Title 18 Cal.Code Regs. Section 25120(a) as income aris-ing in the regular course of the taxpayer’strade or business. Business income includesincome from tangible and intangible property ifthe acquisition, management and dispositionof the property constitutes integral parts of thetaxpayer’s regular trade or business.In Part B, enter the shareholder’s pro ratashare of nonbusiness income from real andtangible property that is located in California.Because this income has a California source,this income should also be included on theappropriate line in column (e).In Part C, enter the shareholder’s pro ratashare of the S corporation’s payroll, propertyand sales factors.

Schedule LLine 23Retained earnings include balances in theaccumulated adjustments account (AAA), the

other adjustments account, and other retainedearnings.

Schedule M-1Schedule M-1 is used to reconcile the differ-ence between book and tax accounting for anincome or expense item. The S corporationmust complete Schedule M-1 if total assets ofthe entity are at least $25,000. The federaland state Schedule M-1 may be the samewhen you use the federal reconciliationmethod for net income computation. See Gen-eral Information I, for more information. TheSchedule M-1 will be different if using theCalifornia computation method for net income.The California computation method is gener-ally used when the S corporation has no fed-eral filing requirement, or if the S corporationmaintains separate records for state purposes.

Schedule M-2The computation of the California AAA andother adjustments account (OAA) is similar tothe federal computation applying Californiaamounts. Get the instructions for federalForm 1120S and IRC Section 1368 for addi-tional information.Column (a) – The AAA is an account of theS corporation that generally reflects the accu-mulated undistributed net income of the cor-poration for the corporation’s post-1986 years.S corporations with accumulated E&P fromC corporation years must maintain the AAA todetermine the tax effect of distributions duringS years and the post-termination transitionperiod. An S corporation without accumulatedE&P does not need to maintain the AAA inorder to determine the tax effect of distribu-tions. However, if an S corporation withoutaccumulated E&P engages in certain transac-tions to which IRC Section 381(a) applies,such as a merger into an S corporation withaccumulated E&P, the S corporation must beable to calculate its AAA at the time of themerger for purposes of determining the taxeffect of post-merger distributions. Therefore,it is recommended that all S corporationsmaintain the AAA.At the end of the income year the AAA isdetermined by taking into account all items ofincome, loss and deductions for the incomeyear (including nondeductible losses andexpenses that are not capitalized but exclud-ing certain exempt income and state taxesattributable to C years). After the year-endincome and expense adjustments are made,the account is reduced by distributions madeduring the income year. The AAA should bereduced by the California built-in gains taxamount and the minimum franchise tax.Note: The amount on Form 100S, Side 1,line 2, should be included as an other additionon Schedule M-2, line 3, and as an otherreduction on Schedule M-2, line 5. Alsoinclude any other adjustments to arrive atCalifornia income.Note: The AAA may have a negative balanceat year end as a result of losses from theS corporation.Column (b) – The other adjustments accountis adjusted for tax-exempt income (and related


expenses) of the S corporation. After adjust-ing for tax-exempt income, the account isreduced for any distributions made during theyear.Note: Cancellation of debt income excludedfrom gross income is not considered taxexempt income for purposes of determiningAAA or OAA.Column (c) – Other retained earnings includeappropriated and unappropriated retainedearnings accumulated in prior years when theS corporation was a C corporation. Line 1,column (c) for the first S corporation return willbe the sum of the ending balances of appro-priated and unappropriated retained earningsfor the previous year.DistributionsGenerally, property distributions (includingcash) are applied in the following order toreduce accounts of the S corporation that areused to compute the tax effect of distributionsmade by the S corporation to its shareholders:1. Reduce the AAA determined without

regard to any net negative adjustment forthe income year (but not below zero). Ifdistributions during the income yearexceed the AAA at the close of the incomeyear determined without regard to any netnegative adjustment for the income year,the AAA is allocated pro rata to each dis-tribution made during the income year.See IRC Section 1368(c). The term ‘‘netnegative adjustment’’ means the excess, ifany, of the reductions in the AAA for theincome year (other than distributions) overthe increases in the AAA for the incomeyear.

2. Reduce accumulated E&P. Generally, theS corporation has accumulated E&P only ifit has not distributed E&P accumulated inprior years when the S corporation was aC corporation (IRC Section 1361(a)(2)), orwhen the S corporation merged withanother corporation that has C corporationaccumulated E&P. The only adjustmentsthat can be made to the accumulated E&Pof an S corporation are:

a. Reductions for dividend distributions;and

b. Adjustments for redemptions, liquida-tions, reorganizations, etc.

3. Reduce the other adjustment account.4. Reduce any remaining shareholders’

equity account.Note: Shareholders’ previously taxed income(PTI) (Column (c), federal Form 1120S,Schedule M-2, 1120S) — California S corpo-rations will never have undistributed PTI. Thefederal code section that created PTI wasremoved from the IRC before California incor-porated the federal S corporation provisionsinto the R&TC.

Elections relating to the order ofdistributionsThe corporation may modify the ordering rulesby making one or more of the followingelections:• Election to distribute accumulated E&P

first. If the corporation has accumulatedE&P and wants to distribute E&P beforemaking distributions from the AAA, it mayelect to do so with the consent of all itsaffected shareholders (IRCSection 1368(e)(3)(B)). This election isirrevocable and applies only for the taxyear for which it is made. For more infor-mation regarding this election, see State-ment Regarding Elections.

• Election to make a deemed dividend. If thecorporation wants to distribute all or part ofits C corporation accumulated E&Pthrough a deemed dividend, it may elect todo so with the consent of all its affectedshareholders (IRC Section 1368(e)(3)(B)).Under this section, the corporation will betreated as also having made the electionto distribute E&P first. The amount of thedeemed dividend cannot exceed the accu-mulated E&P at the end of the incomeyear reduced by any actual distributions ofaccumulated E&P made during the incomeyear. A deemed dividend is treated as if itwere a pro rata distribution of money tothe shareholders, received by the share-

holders, and immediately contributed backto the corporation all on the last day of thetax year. This election is irrevocable andapplies only for the tax year for which it ismade.

Statement Regarding ElectionsTo make any of the above elections, the cor-poration must attach a statement to a timelyfiled original Form 100S or amendedForm 100S for the year in which the electionis made. The corporation must identify theelection it is making and state that eachshareholder consents to the election. Acorporate officer must sign the statementunder penalties of perjury on behalf of thecorporation. The statement of election tomake a deemed dividend must include theamount of the deemed dividend distributed toeach shareholder.When making either of the above elections,the corporation must prepare copies of federalForm 1099-DIV for shareholders to report thisdividend as taxable income.Note: The corporation may file the election forCalifornia purposes only. It is not necessaryfor the corporation to have the same electionfor federal purposes in order to make aCalifornia election. However, regardless ofwhether or not the corporation makes thesame election on the federal return, the cor-poration must attach a separate electionstatement to the California return.C corporation E&PCheck the box below Schedule M-2, line 9, ifthe S corporation was a C corporation in aprior year(s) and has C corporation E&P atthe end of the income year. For this purpose,C corporation E&P means the remaining bal-ance of E&P of any S corporation for anyincome year when it was not an S corpora-tion. If the S corporation has C corporationE&P, it may be liable for excess net passiveincome tax and the distributions to sharehold-ers may have different tax consequences forfederal and California purposes. See instruc-tions for Form 100S, Side 1, line 29 andline 30, for details on these taxes.

CodeCode

Codes for Principal Business ActivityThis list of principal business activities and their associated codes isdesigned to classify an enterprise by the type of activity in which it isengaged to facilitate the administration of the California Revenue andTaxation Code. For income years beginning after 1997, these principalbusiness activity codes are based on the North American IndustryClassification System.

Using the list of activities and codes below, determine from which activitythe company derives the largest percentage of its ‘‘total receipts.’’ Totalreceipts is defined as the sum of gross receipts or sales (Side 2,Schedule F, line 1a) plus all other income (Side 2, Schedule F, lines 4 and5). If the company purchases raw materials and supplies them to asubcontractor to produce the finished product, but retains title to the product,the company is considered a manufacturer and must use one of themanufacturing codes (311110-339900).

Once the principal business activity is determined, entries must be madeon Form 100S, Question C. For the business activity code number, enter thesix digit code selected from the list below. On the next line enter a briefdescription of the company’s business activity. Finally, enter a description ofthe principal product or service of the company on the next line.

Computer and Electronic ProductManufacturing

Agriculture, Forestry, Fishingand Hunting

111100 Oilseed & Grain Farming111210 Vegetable & Melon Farming

(including potatoes & yams)111300 Fruit & Tree Nut Farming111400 Greenhouse, Nursery, &

Floriculture Production111900 Other Crop Farming (including

tobacco, cotton, sugarcane,hay, peanut, sugar beet & allother crop farming)

Animal Production112111 Beef Cattle Ranching &

Farming112112 Cattle Feedlots112120 Dairy Cattle & Milk Production112210 Hog & Pig Farming112300 Poultry & Egg Production112400 Sheep & Goat Farming112510 Animal Aquaculture (including

shellfish & finfish farms &hatcheries)

112900 Other Animal ProductionForestry and Logging113110 Timber Tract Operations113210 Forest Nurseries & Gathering

of Forest Products113310 LoggingFishing, Hunting and Trapping114110 Fishing114210 Hunting & TrappingSupport Activities for Agricultureand Forestry115110 Support Activities for Crop

Production (including cottonginning, soil preparation,planting, & cultivating)

115210 Support Activities for AnimalProduction

115310 Support Activities For Forestry

Mining 211110 Oil & Gas Extraction 212110 Coal Mining 212200 Metal Ore Mining

212320 Sand, Gravel, Clay, &Ceramic & RefractoryMinerals Mining & Quarrying

212390 Other Nonmetallic MineralMining & Quarrying

213110 Support Activities for Mining

221100 Electric Power Generation,Transmission & Distribution

221210 Natural Gas Distribution 221300 Water, Sewage & Other

Systems

Construction

233110 Land Subdivision & LandDevelopment

233200 Residential BuildingConstruction

233300 Nonresidential BuildingConstruction

Heavy Construction 234100 Highway, Street, Bridge, &

Tunnel Construction 234900 Other Heavy Construction Special Trade Contractors 235110 Plumbing, Heating, &

Air-Conditioning Contractors 235210 Painting & Wall Covering

Contractors 235310 Electrical Contractors235400 Masonry, Drywall, Insulation,

& Tile Contractors 235500 Carpentry & Floor Contractors235610 Roofing, Siding, & Sheet

Metal Contractors 235710 Concrete Contractors 235810 Water Well Drilling

Contractors 235900 Other Special Trade

Contractors

Manufacturing Food Manufacturing 311110 Animal Food Mfg 311200 Grain & Oilseed Milling 311300 Sugar & Confectionery

Product Mfg311400 Fruit & Vegetable Preserving

& Specialty Food Mfg

311610 Animal Slaughtering andProcessing

311710 Seafood Product Preparation& Packaging

212310 Stone Mining & Quarrying

Building, Developing, and General Contracting

311800 Bakeries & Tortilla Mfg 311900 Other Food Mfg (including

coffee, tea, flavorings &seasonings)

Beverage and Tobacco ProductManufacturing 312110 Soft Drink & Ice Mfg 312120 Breweries 312130 Wineries 312140 Distilleries 312200 Tobacco Manufacturing Textile Mills and Textile ProductMills 313000 Textile Mills 314000 Textile Product Mills Apparel Manufacturing 315100 Apparel Knitting Mills 315210 Cut & Sew Apparel

Contractors315220 Men’s & Boys’ Cut & Sew

Apparel Mfg

315230 Women’s & Girls’ Cut & SewApparel Mfg

315290 Other Cut & Sew Apparel Mfg315990 Apparel Accessories & Other

Apparel Mfg Leather and Allied ProductManufacturing 316110 Leather & Hide Tanning &

Finishing316210 Footwear Mfg (including

rubber & plastics) 316990 Other Leather & Allied

Product Mfg Wood Product Manufacturing 321110 Sawmills & Wood

Preservation 321210 Veneer, Plywood, &

Engineered Wood ProductMfg

321900 Other Wood Product Mfg Paper Manufacturing 322100 Pulp, Paper, & Paperboard

Mills 322200 Converted Paper Product MfgPrinting and Related SupportActivities 323100 Printing & Related Support

Activities Petroleum and Coal ProductsManufacturing324110 Petroleum Refineries

(including integrated)324120 Asphalt Paving, Roofing, &

Saturated Materials Mfg 324190 Other Petroleum & Coal

Products Mfg Chemical Manufacturing 325100 Basic Chemical Mfg 325200 Resin, Synthetic Rubber, &

Artificial & Synthetic Fibers &Filaments Mfg

325300 Pesticide, Fertilizer, & OtherAgricultural Chemical Mfg

325410 Pharmaceutical & MedicineMfg

325500 Paint, Coating, & AdhesiveMfg

325600 Soap, Cleaning Compound, &Toilet Preparation Mfg

325900 Other Chemical Product &Preparation Mfg

Plastics and Rubber ProductsManufacturing326100 Plastics Product Mfg 326200 Rubber Product Mfg Nonmetallic Mineral ProductManufacturing 327100 Clay Product & Refractory Mfg

327210 Glass & Glass Product Mfg 327300 Cement & Concrete Product

Mfg 327400 Lime & Gypsum Product Mfg 327900 Other Nonmetallic Mineral

Product Mfg Primary Metal Manufacturing 331110 Iron & Steel Mills & Ferroalloy

Mfg 331200 Steel Product Mfg from

Purchased Steel 331310 Alumina & Aluminum

Production & Processing 331400 Nonferrous Metal (except

Aluminum) Production &Processing

331500 Foundries Fabricated Metal ProductManufacturing 332110 Forging & Stamping 332210 Cutlery & Handtool Mfg332300 Architectural & Structural

Metals Mfg 332400 Boiler, Tank, & Shipping

Container Mfg 332510 Hardware Mfg 332610 Spring & Wire Product Mfg 332700 Machine Shops; Turned

Product; & Screw, Nut, & BoltMfg

332810 Coating, Engraving, HeatTreating, & Allied Activities

332900 Other Fabricated MetalProduct Mfg

Machinery Manufacturing 333100 Agriculture, Construction, &

Mining Machinery Mfg 333200 Industrial Machinery Mfg 333310 Commercial & Service

Industry Machinery Mfg 333410 Ventilation, Heating,

Air-Conditioning, &Commercial RefrigerationEquipment Mfg

333510 Metalworking Machinery Mfg 333610 Engine, Turbine & Power

Transmission Equipment Mfg 333900 Other General Purpose

Machinery Mfg

334110 Computer & PeripheralEquipment Mfg

334200 Communications EquipmentMfg

334310 Audio & Video Equipment Mfg334410 Semiconductor & Other

Electronic Component Mfg 334500 Navigational, Measuring,

Electromedical, & ControlInstruments Mfg

334610 Manufacturing & ReproducingMagnetic & Optical Media

Electrical Equipment, Appliance, andComponent Manufacturing335100 Electric Lighting Equipment

Mfg 335200 Household Appliance Mfg 335310 Electrical Equipment Mfg 335900 Other Electrical Equipment &

Component Mfg Transportation EquipmentManufacturing 336100 Motor Vehicle Mfg 336210 Motor Vehicle Body & Trailer

Mfg 336300 Motor Vehicle Parts Mfg 336410 Aerospace Product & Parts

Mfg 336510 Railroad Rolling Stock Mfg 336610 Ship & Boat Building 336990 Other Transportation

Equipment Mfg Furniture and Related ProductManufacturing 337000 Furniture & Related Product

Manufacturing Miscellaneous Manufacturing 339110 Medical Equipment &

Supplies Mfg 339900 Other Miscellaneous

Manufacturing

Wholesale Trade Wholesale Trade, Durable Goods 421100 Motor Vehicle & Motor Vehicle

Parts & Supplies Wholesalers421200 Furniture & Home Furnishing

Wholesalers 421300 Lumber & Other Construction

Materials Wholesalers 421400 Professional & Commercial

Equipment & SuppliesWholesalers

421500 Metal & Mineral (exceptPetroleum) Wholesalers

421600 Electrical Goods Wholesalers 421700 Hardware, & Plumbing &

Heating Equipment &Supplies Wholesalers

421800 Machinery, Equipment, &Supplies Wholesalers

421910 Sporting & RecreationalGoods & SuppliesWholesalers

421920 Toy & Hobby Goods &Supplies Wholesalers

421930 Recyclable MaterialWholesalers

421940 Jewelry, Watch, PreciousStone, & Precious MetalWholesalers

421990 Other Miscellaneous DurableGoods Wholesalers

Crop Production

Utilities

Form 100S

CodeCode

311500 Dairy Product Mfg

Form 100S Booklet 1998 Page 21

CodeCodeCode Code

441110 New Car Dealers 441120 Used Car Dealers 441210 Recreational Vehicle Dealers 441221 Motorcycle Dealers 441222 Boat Dealers 441229 All Other Motor Vehicle

Dealers 441300 Automotive Parts,

Accessories, & Tire Stores

442110 Furniture Stores 442210 Floor Covering Stores442291 Window Treatment Stores 442299 All Other Home Furnishings

Stores

Retail TradeMotor Vehicle and Parts Dealers

Furniture and Home FurnishingsStores

Electronics and Appliance Stores 443111 Household Appliance Stores 443112 Radio, Television, & Other

Electronics Stores 443120 Computer & Software Stores 443130 Camera & Photographic

Supplies StoresBuilding Material and GardenEquipment and Supplies Dealers 444110 Home Centers 444120 Paint & Wallpaper Stores 444130 Hardware Stores 444190 Other Building Material

Dealers444200 Lawn & Garden Equipment &

Supplies Stores Food and Beverage Stores 445110 Supermarkets and Other

Grocery (exceptConvenience) Stores

445120 Convenience Stores 445210 Meat Markets 445220 Fish & Seafood Markets 445230 Fruit & Vegetable Markets 445291 Baked Goods Stores 445292 Confectionery & Nut Stores 445299 All Other Specialty Food

Stores445310 Beer, Wine, & Liquor Stores Health and Personal Care Stores 446110 Pharmacies & Drug Stores 446120 Cosmetics, Beauty Supplies,

& Perfume Stores446130 Optical Goods Stores446190 Other Health & Personal Care

Stores Gasoline Stations 447100 Gasoline Stations (including

convenience stores with gas)

Clothing and Clothing AccessoriesStores 448110 Men’s Clothing Stores 448120 Women’s Clothing Stores 448130 Children’s & Infants’ Clothing

Stores 448140 Family Clothing Stores 448150 Clothing Accessories Stores 448190 Other Clothing Stores448210 Shoe Stores 448310 Jewelry Stores 448320 Luggage & Leather Goods

Stores Sporting Goods, Hobby, Book, andMusic Stores 451110 Sporting Goods Stores 451120 Hobby, Toy, & Game Stores451130 Sewing, Needlework, & Piece

Goods Stores451140 Musical Instrument & Supplies

Stores 451211 Book Stores 451212 News Dealers & Newsstands 451220 Prerecorded Tape, Compact

Disc, & Record StoresGeneral Merchandise Stores 452110 Department stores 452900 Other General Merchandise

Stores Miscellaneous Store Retailers453110 Florists 453210 Office Supplies & Stationery

Stores 453220 Gift, Novelty, & Souvenir

Stores453310 Used Merchandise Stores 453910 Pet & Pet Supplies Stores 453920 Art Dealers 453930 Manufactured (Mobile) Home

Dealers 453990 All Other Miscellaneous Store

Retailers (including tobacco,candle, & trophy shops)

Nonstore Retailers 454110 Electronic Shopping &

Mail-Order Houses 454210 Vending Machine Operators 454311 Heating Oil Dealers 454312 Liquefied Petroleum Gas

(Bottled Gas) Dealers 454319 Other Fuel Dealers 454390 Other Direct Selling

Establishments (includingdoor-to-door retailing, frozenfood plan providers, partyplan merchandisers, &coffee-break serviceproviders)

Transportation andWarehousing Air, Rail, and Water Transportation 481000 Air Transportation 482110 Rail Transportation 483000 Water Transportation Truck Transportation 484110 General Freight Trucking,

Local484120 General Freight Trucking,

Long-distance 484200 Specialized Freight Trucking Transit and Ground PassengerTransportation 485110 Urban Transit Systems 485210 Interurban & Rural Bus

Transportation 485310 Taxi Service 485320 Limousine Service 485410 School & Employee Bus

Transportation 485510 Charter Bus Industry 485990 Other Transit & Ground

Passenger Transportation Pipeline Transportation 486000 Pipeline Transportation

487000 Scenic & SightseeingTransportation

Support Activities for Transportation488100 Support Activities for Air

Transportation 488210 Support Activities for Rail

Transportation 488300 Support Activities for Water

Transportation 488410 Motor Vehicle Towing488490 Other Support Activities for

Road Transportation 488510 Freight Transportation

Arrangement 488990 Other Support Activities for

Transportation Couriers and Messengers 492110 Couriers 492210 Local Messengers & Local

Delivery Warehousing and Storage 493100 Warehousing & Storage

(except lessors ofminiwarehouses & self-storage units)

Information Publishing Industries 511110 Newspaper Publishers 511120 Periodical Publishers 511130 Book Publishers 511140 Database & Directory

Publishers 511190 Other Publishers 511210 Software PublishersMotion Picture and Sound RecordingIndustries 512100 Motion Picture & Video

Industries (except videorental)

512200 Sound Recording Industries

513100 Radio & TelevisionBroadcasting

513200 Cable Networks & ProgramDistribution

513300 Telecommunications(including paging, cellular,satellite, & othertelecommunications)

Information Services and DataProcessing Services 514100 Information Services

(including news syndicates,libraries, & on-line informationservices)

514210 Data Processing Services

Finance and Insurance Depository Credit Intermediation 522110 Commercial Banking 522120 Savings Institutions 522130 Credit Unions 522190 Other Depository Credit

Intermediation Nondepository Credit Intermediation522210 Credit Card Issuing 522220 Sales Financing 522291 Consumer Lending 522292 Real Estate Credit (including

mortgage bankers &originators)

522293 International Trade Financing 522294 Secondary Market Financing 522298 All Other Nondepository Credit

IntermediationActivities Related to CreditIntermediation 522300 Activities Related to Credit

Intermediation (including loanbrokers)

Securities, Commodity Contracts,and Other Financial Investments andRelated Activities523110 Investment Banking &

Securities Dealing 523120 Securities Brokerage 523130 Commodity Contracts Dealing 523140 Commodity Contracts

Brokerage

523210 Securities & CommodityExchanges

523900 Other Financial InvestmentActivities (including portfoliomanagement & investmentadvice)

Insurance Carriers and RelatedActivities 524140 Direct Life, Health, & Medical

Insurance & ReinsuranceCarriers

524150 Direct Insurance &Reinsurance (except Life,Health & Medical) Carriers

524210 Insurance Agencies &Brokerages

524290 Other Insurance RelatedActivities

Funds, Trusts, and Other FinancialVehicles525100 Insurance & Employee Benefit

Funds 525910 Open-End Investment Funds

(Form 1120-RIC) 525920 Trusts, Estates, & Agency

Accounts 525930 Real Estate Investment Trusts

(Form 1120-REIT) 525990 Other Financial Vehicles

Real Estate and Rental andLeasing Real Estate 531110 Lessors of Residential

Buildings & Dwellings 531120 Lessors of Nonresidential

Buildings (exceptMiniwarehouses)

531130 Lessors of Miniwarehouses &Self-Storage Units

531190 Lessors of Other Real EstateProperty

531210 Offices of Real Estate Agents& Brokers

531310 Real Estate PropertyManagers

531320 Offices of Real EstateAppraisers

531390 Other Activities Related toReal Estate

Rental and Leasing Services 532100 Automotive Equipment Rental

& Leasing 532210 Consumer Electronics &

Appliances Rental 532220 Formal Wear & Costume

Rental 532230 Video Tape & Disc Rental 532290 Other Consumer Goods

Rental532310 General Rental Centers 532400 Commercial & Industrial

Machinery & EquipmentRental & Leasing

Lessors of Nonfinancial IntangibleAssets (except copyrighted works)533110 Lessors of Nonfinancial

Intangible Assets (exceptcopyrighted works)

Professional, Scientific, andTechnical Services

541110 Offices of Lawyers 541190 Other Legal Services Accounting, Tax Preparation,Bookkeeping, and Payroll Services541211 Offices of Certified Public

Accountants 541213 Tax Preparation Services 541214 Payroll Services 541219 Other Accounting Services Architectural, Engineering, andRelated Services541310 Architectural Services541320 Landscape Architecture

Services 541330 Engineering Services 541340 Drafting Services 541350 Building Inspection Services

Broadcasting andTelecommunications

Legal Services

422400 Grocery & Related ProductWholesalers

422500 Farm Product Raw MaterialWholesalers

422600 Chemical & Allied ProductsWholesalers

422700 Petroleum & PetroleumProducts Wholesalers

422800 Beer, Wine, & DistilledAlcoholic BeverageWholesalers

422910 Farm Supplies Wholesalers 422920 Book, Periodical, &

Newspaper Wholesalers 422930 Flower, Nursery Stock, &

Florists’ Supplies Wholesalers422940 Tobacco & Tobacco Product

Wholesalers 422950 Paint, Varnish, & Supplies

Wholesalers 422990 Other Miscellaneous

Nondurable GoodsWholesalers

Wholesale Trade, Nondurable Goods422100 Paper & Paper Product

Wholesalers422210 Drugs & Druggists’ Sundries

Wholesalers 422300 Apparel, Piece Goods, &

Notions Wholesalers

Scenic & Sightseeing Transportation

Page 22 Form 100S Booklet 1998

CodeCodeCode Code

Management of Companies(Holding Companies) 551111 Offices of Bank Holding

Companies 551112 Offices of Other Holding

Companies

Administrative and Supportand Waste Management andRemediation Services Administrative and Support Services561110 Office Administrative Services561210 Facilities Support Services 561300 Employment Services 561410 Document Preparation

Services 561420 Telephone Call Centers561430 Business Service Centers

(including private mail centers& copy shops)

561440 Collection Agencies 561450 Credit Bureaus 561490 Other Business Support

Services (includingrepossession services, courtreporting, & stenotypeservices)

561500 Travel Arrangement &Reservation Services

561600 Investigation & SecurityServices

561710 Exterminating & Pest ControlServices

561720 Janitorial Services 561730 Landscaping Services 561740 Carpet & Upholstery Cleaning

Services 561790 Other Services to Buildings &

Dwellings 561900 Other Support Services

(including packaging &labeling services, &convention & trade showorganizers)

Waste Management and RemediationServices 562000 Waste Management &

Remediation Services

Educational Services 611000 Educational Services

(including schools, colleges, &universities)

Offices of Physicians and Dentists 621111 Offices of Physicians (except

mental health specialists) 621112 Offices of Physicians, Mental

Health Specialists 621210 Offices of Dentists

621310 Offices of Chiropractors 621320 Offices of Optometrists 621330 Offices of Mental Health

Practitioners (exceptPhysicians)

621340 Offices of Physical,Occupational & SpeechTherapists, & Audiologists

Offices of Other Health Practitioners

621391 Offices of Podiatrists621399 Offices of All Other

Miscellaneous HealthPractitioners

Outpatient Care Centers 621410 Family Planning Centers 621420 Outpatient Mental Health &

Substance Abuse Centers 621491 HMO Medical Centers 621492 Kidney Dialysis Centers 621493 Freestanding Ambulatory

Surgical & EmergencyCenters

621498 All Other Outpatient CareCenters

Medical and Diagnostic Laboratories621510 Medical & Diagnostic

Laboratories Home Health Care Services 621610 Home Health Care Services

Other Ambulatory Health CareServices 621900 Other Ambulatory Health Care

Services (includingambulance services & blood& organ banks)

Hospitals 622000 Hospitals Nursing and Residential CareFacilities 623000 Nursing & Residential Care

Facilities Social Assistance 624100 Individual & Family Services 624200 Community Food & Housing,

& Emergency & Other ReliefServices

624310 Vocational RehabilitationServices

624410 Child Day Care Services

Arts, Entertainment, andRecreation Performing Arts, Spectator Sports,and Related Industries 711100 Performing Arts Companies 711210 Spectator Sports (including

sports clubs & racetracks)711300 Promoters of Performing Arts,

Sports, & Similar Events711410 Agents & Managers for

Artists, Athletes, Entertainers,& Other Public Figures

711510 Independent Artists, Writers,& Performers

Museums, Historical Sites, andSimilar Institutions 712100 Museums, Historical Sites, &

Similar InstitutionsAmusement, Gambling, andRecreation Industries 713100 Amusement Parks & Arcades 713200 Gambling Industries 713900 Other Amusement &

Recreation Industries(including golf courses, skiingfacilities, marinas, fitnesscenters, & bowling centers)

Accommodation and FoodServicesAccommodation 721110 Hotels (except casino hotels)

& Motels 721120 Casino Hotels 721191 Bed & Breakfast Inns 721199 All Other Traveler

Accommodation 721210 RV (Recreational Vehicle)

Parks & Recreational Camps 721310 Rooming & Boarding Houses

Food Services and Drinking Places722110 Full-Service Restaurants 722210 Limited-Service Eating Places722300 Special Food Services

(including food servicecontractors & caterers)

722410 Drinking Places (AlcoholicBeverages)

Other Services Repair and Maintenance 811110 Automotive Mechanical &

Electrical Repair &Maintenance

811120 Automotive Body, Paint,Interior, & Glass Repair

811190 Other Automotive Repair &Maintenance (including oilchange & lubrication shops &car washes)

811210 Electronic & PrecisionEquipment Repair &Maintenance

811310 Commercial & IndustrialMachinery & Equipment(except Automotive &Electronic) Repair &Maintenance

811410 Home & Garden Equipment &Appliance Repair &Maintenance

811420 Reupholstery & FurnitureRepair

811430 Footwear & Leather GoodsRepair

811490 Other Personal & HouseholdGoods Repair & Maintenance

Personal and Laundry Services 812111 Barber Shops 812112 Beauty Salons 812113 Nail Salons 812190 Other Personal Care Services

(including diet & weightreducing centers)

812210 Funeral Homes & FuneralServices

812220 Cemeteries & Crematories 812310 Coin-Operated Laundries &

Drycleaners 812320 Drycleaning & Laundry

Services (exceptCoin-Operated)

812330 Linen & Uniform Supply 812910 Pet Care (except Veterinary)

Services 812920 Photofinishing812930 Parking Lots & Garages 812990 All Other Personal Services Religious, Grantmaking, Civic,Professional, and SimilarOrganizations 813000 Religious, Grantmaking, Civic,

Professional, & SimiliarOrganizations

Other Professional, Scientific, andTechnical Services541600 Management, Scientific, &

Technical Consulting Services541700 Scientific Research &

Development Services 541800 Advertising & Related

Services 541910 Marketing Research & Public

Opinion Polling 541920 Photographic Services 541930 Translation & Interpretation

Services 541940 Veterinary Services 541990 All Other Professional,

Scientific, & TechnicalServices

541360 Geophysical Surveying &Mapping Services

541370 Surveying & Mapping (exceptGeophysical) Services

541380 Testing Laboratories

541400 Specialized Design Services(including interior, industrial,graphic, & fashion design)

Computer Systems Design andRelated Services 541511 Custom Computer

Programming Services 541512 Computer Systems Design

Services 541513 Computer Facilities

Management Services 541519 Other Computer Related

Services

Specialized Design Services

Health Care and SocialAssistance


Qualified Subchapter S Subsidiary (QSSS)Information Worksheet

California corporation number Federal employer identification number (FEIN)Name of parent corporationPart I

Part II(a)

Name of QSSS(b)

CaliforniaCorporation

Number

(c)Federal Employer

IdentificationNumber

(d)Effective Date of

Federal QSSSElection

(MM/DD/YY)

(e)Date of QSSS

Annual TaxPayment

(MM/DD/YY)

(f)Amount of

QSSS AnnualTax Paid

INCOME YEAR

1998CALIFORNIA SCHEDULE

QS

General InformationFor income years beginning on or after Janu-ary 1, 1997, California law has conformed tothe federal treatment of Qualified SubchapterS Subsidiaries (QSSS), with certain excep-tions. The QSSS is subject to an annual taxof $800 which is paid by the S corporationsparent. See General Information DD, for moreinformation.

PurposeThe Qualified Subchapter S Subsidiary Infor-mation Worksheet is used by the S corpora-tion parent of a QSSS to inform the FranchiseTax Board (FTB) of the QSSS(s) it owns. Thiswill notify the FTB that the QSSS items ofincome, deductions and credits will beincluded in the parent’s return and the QSSSwill not be filing a separate California fran-chise or income tax return.

Specific InstructionsPart IEnter in Part I the name of the parent S cor-poration, the S corporation’s California corpo-ration number (7 digits) and the FederalEmployer Identification Number (FEIN) (9 dig-its).

Part IIEnter in Part II the information for each QSSSrequired to be included in the California SCorporation Franchise or Income Tax Return.In column (a), enter the name of each QSSSincluded in this return. If the QSSS has or hada California corporation number, enter thenumber in column (b). If the QSSS has or hada FEIN, enter the number in column (c). If thecorporation does not have a California corpo-ration number and/or a FEIN, enter ‘‘none.’’

Enter the effective date of the federal QSSSelection made for the subsidiary, in column(d). An election made by the parent S corpo-ration under IRC Section 1361(b)(3) to treat acorporation as a qualified subchapter S sub-sidiary for federal purposes is treated as abinding election for California purposes. Aseparate election cannot be filed for Califor-nia. If the effective date falls on a date otherthan the first day of the subsidiary’s incomeyear, the subsidiary must file a short periodreturn if it was subject to tax in California priorto the effective date.The S corporation parent is required to pay$800 annual tax for each QSSS it owns. TheQSSS annual tax is due and payable whenthe S corporation’s first estimated tax paymentis due. If the QSSS is acquired during theincome year, the QSSS annual tax is due withthe S corporation’s next estimated tax install-ment. Enter the date of payment in column (e)and amount of QSSS annual tax paid incolumn (f).

QS98109Schedule QS 1998

INCOME YEAR

1998 3805QAttach to your California tax return.Corporation name as shown on the return California corporation number

FTB 3805Q 1998 Side 1

PART I Computation of current year NOL. If you do not have a current year NOL, go to Part II.

Net Operating Loss (NOL) Computation and NOLand Disaster Loss Limitations – Corporations

1 Net loss for state purposes from Form 100, line 18; Form 109, line 2; or Form 100S, line 16.Enter as a positive number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 1998 disaster loss included in line 1. Enter as a positive number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Subtract line 2 from line 1. If zero or less enter -0- and see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

During the year the corporation incurred the NOL the corporation was a(n): ■ C Corporation ■ S Corporation ■ Exempt Organization■ Limited Liability Company (corporations only)

If the corporation previously filed California returns under another corporate name, enter the corporation name and California corporation number:

Note: If the corporation is included in a combined report of a unitary group, see instructions, General Information C.

PART II NOL carryover and disaster loss carryover limitations. See Instructions.

4 a Enter the amount of the loss incurred by a new business included in line 3 . . . . . . . . . . 4ab Enter the amount of the loss incurred by an eligible small business included in line 3. . . . . 4bc Add line 4a and line 4b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c

5 Subtract line 4c from line 3. If zero skip to line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 General NOL. Multiply line 5 by 50% (.50) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 1998 NOL carryover. Add line 2, line 4c and line 6. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

PART III 1998 NOL deduction

1 Total the amounts in column (f) for Part II, line 2, except current year disaster losses. . . . . . . . . . . . . . . . . . . . . . . 12 Enter the total amount from column (f) that represents disaster loss carryover deduction here and on Form 100,

line 21; or Form 100S, line 20. For Form 109, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Subtract line 2 from line 1. Enter this amount on Form 100, line 19; Form 109, line 4; or Form 100S, line 18 . . . . . . . . . 3

(g)Available Balance1 Net income (loss) – Enter the amount from Form 100, line 18; Form 109, line 2;

or Form 100S, line 16 less line 17 (but not less than -0-) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a)Year ofloss

(b)Code (See instructions forPart II, Column (b))

(c)Type of NOL(See below)

(d)Initial loss

(e)Carryoverfrom 1997

(f)Amount usedin 1998

(h)Carryover to 1999(col. (e) – col. (f) )

Current Year NOLs

1998

1998

1998

1998

1998

18 DIS

Type of NOL: General (GEN), New Business (NB), Eligible Small Business (ESB), Title 11 (T11), or Disaster (DIS).

Prior Year NOLs

2

3

4

CALIFORNIA FORM

3805Q98109

(col. (d) – col. (f) )

FTB 3805Q 1998 Page 26

1998 Instructions for Form FTB 3805QNet Operating Loss (NOL) Computation and NOL and Disaster Loss Limitation s – CorporationsReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

General InformationIn general, California tax law conforms to the InternalRevenue Code (IRC) as of January 1, 1998.However, there are continuing differences betweenCalifornia and federal tax law. California has notconformed to the changes made to the IRC by thefederal Internal Revenue Service (IRS) Restructuringand Reform Act of 1998 (Public Law 105-206) or theTax and Trade Relief Extension Act of 1998 (PublicLaw 105-277).

What’s NewIn 1998, the Franchise Tax Board (FTB)implemented the new principal business activity(PBA) code chart that is based on the NorthAmerican Industrial Classification System (NAICS) inthe corporate tax booklets. However, the CaliforniaR&TC still uses the Standard Industrial Codes (SIC)for purposes of the new business and eligible smallbusiness NOL.

A PurposeUse form FTB 3805Q to figure the current year NOLand to limit NOL and disaster loss carryoverdeductions.Note: Exempt trusts should use form FTB 3805V,Net Operating Loss (NOL) Computation and NOLand Disaster Loss Limitations – Individuals, Estatesand Trusts.The California NOL is figured the same way as thefederal NOL, except that for California:• An NOL may be carried over only to future years

(no carrybacks are allowed); and• The carryover period and percentages differ from

federal allowances.Only a portion of the NOL may be eligible forcarryover to future years because California hasestablished different categories of NOL. See GeneralInformation F for more information.

Note: If the corporation has a current year NOLunder R&TC Section 24416.2, 24416.5 and 24416.6(relating to EZ, LAMBRA or TTA NOLs), it mustelect on its return for the income year in which theloss is incurred, to carry over the loss either underthat section or the loss under R&TC Section 24416(relating to general NOLs). The election isirrevocable. Get form FTB 3805Z, form FTB 3807 orform FTB 3809 for more information.

B Apportioning CorporationsThe loss carryover for a corporation that apportionsincome is the amount of the corporation’s loss, ifany, after adding income or loss apportioned toCalifornia with income or loss allocable to Californiaunder Chapter 17 of the Bank and Corporation TaxLaw. The loss carryover may be deducted fromincome apportioned and allocable to California insubsequent years.

C Combined ReportingCorporations that are members of a unitary groupfiling a single return must use intrastateapportionment, separately computing the losscarryover for each corporation in the group using itsindividual apportionment factors (R&TCSection 25108). Complete a separate formFTB 3805Q for EACH taxpayer included in thecombined report. Attach the form FTB 3805Q forEACH taxpayer member included in the combinedreport BEHIND the combined form FTB 3805Q for allmembers.Unlike the loss treatment for a federal consolidatedreturn, a California loss carryover for one member ina combined report may not be applied to the incomeof another member included in the combined report.Get FTB Pub. 1061, Guidelines for CorporationsFiling a Combined Report, for more information.

D Water’s-EdgeEach taxpayer’s NOL carryover is limited to theamount determined by recomputing the income andfactors of the original worldwide combined reportinggroup as if the water’s-edge election had been inforce for the year of the loss. The NOL carryovermay not be increased as a result of therecomputation.

E S CorporationsAn S corporation is allowed to carry over a loss thatis incurred during a year in which it has in effect avalid election to be treated as an S corporation. Theloss is also passed through to the shareholders inthe year incurred and is taken into account indetermining each shareholder’s NOL carryover,if any.If a corporation changes from a C corporation to anS corporation, the loss incurred while the corporationwas a C corporation may not be applied to offsetincome subject to the 1.5% tax imposed on anS corporation. However, losses incurred while thecorporation was a C corporation may be appliedagainst the built-in gains which is subject to tax.If the corporation incurred losses while it was aC corporation and an S corporation, and the Scorporation is using C corporation losses to offset itsbuilt-in gains, the corporation must complete twoforms FTB 3805Q and attach them to Form 100S,California S Corporation Franchise or Income TaxReturn. The unused losses incurred while thecorporation was a C corporation are ‘‘unavailable’’except as provided for above until the S corporationreverts back to a C corporation or the carryoverperiod expires.

F Types of NOLsThe following table shows the types of NOLavailable, a description, and the percentages andcarryover periods for each type of loss.

Type of NOL and Description Year NOLIncurred

NOLCarried Over

CarryoverPeriod

1992-19981991

1987-1990

50%50%50%

5 Years6 Years7 Years

New Business NOL (NB) Get Legal Ruling 96-5 for more information.Incurred by a trade or business that first commenced in California on or after January 1, 1994.During the first three years of business, 100% of an NOL may be carried over for an extended period, but only to theextent of the net loss from the new business.If a taxpayer’s NOL exceeds the net loss from the new business, the excess may be carried over as a general NOL.If a taxpayer acquires assets of an existing trade or business which is doing business in California, the trade or businessthereafter conducted by the taxpayer or related person is not a new business if the fair market value (FMV) of theacquired assets exceeds 20% of the FMV of the total assets of the trade or business conducted by the taxpayer or anyrelated person. To determine whether the acquired assets exceed 20% of the total assets, include only the assets thatcontinue to be used in the same trade or business activity as they were used in immediately prior to the acquisition. Forthis purpose, the same trade or business activity means the same division classification listed in the SIC Manual, 1987edition.If a taxpayer or related person has been engaged in a trade or business in California within the preceding 36 months andthereafter commences an additional trade or business in California, the additional trade or business qualifies as a newbusiness only if the activity is classified under a different division of the SIC Manual, 1987 edition.Business activities conducted by the taxpayer or related persons wholly outside California are disregarded in determiningwhether the trade or business conducted within California is a new business. Related persons are defined in IRCSections 267 or 318.Effective January 1, 1997, the term ‘‘new business’’ includes any taxpayer engaged in biopharmaceutical activities or otherbiotechnology activities described in Codes 2833 to 2836 of the SIC Manual. It also includes any taxpayer that has notreceived regulatory approval for any product from the United States Food and Drug Administration. See R&TCSection 24416(g)(7)(A), for more information. (continued on next page)

Year ofOperation

Year 1Year 2Year 3

100%100%100%

8 Years7 Years6 Years

General NOL (GEN)Available as a result of a loss incurred in years after 1986 and allowed under R&TC Section 24416.Does not include losses incurred from activities that qualify as a new business or an eligible small business, an EZ,LARZ, LAMBRA, TTA or disaster loss.

FTB 3805Q 1998

Eligible Small Business (ESB) Get Legal Ruling 96-5 for more information.Operates a trade or business activity that has gross receipts, less returns and allowances, of less than $1 million duringthe income year.100% of an NOL may be carried over, but only to the extent of the net loss from the eligible small business. If ataxpayer’s NOL exceeds the net loss from an eligible small business, the excess may be carried over at 50% as ageneral NOL.The corporation should use the same SIC Code tests described in the new business NOL section to group trade orbusiness activities for the eligible small business NOL.

IncomeYears

Beginningon or After

1/1/94

100% 5 Years

Title 11 Bankruptcy (T11)If the corporation is claiming an NOL carryover deduction under the provisions of R&TC Section 24416(e)(4)(A), enter thecarryover amount on Side 1, Part II, line 2.

1987-1993 50% 10 Years

Disaster Losses (DIS)Casualty losses in areas of Callifornia declared by the President of the United States or the Governor of California to bein a state of disaster.An election may be made under IRC 165(i) permitting the disaster loss to be taken against the previous year’s income.If you made this election, see current year NOLs, Part II, line 3. If special legislation is enacted under R&TCSection 24347.5 and the specified disaster loss exceeds income in the year it is claimed, 100% of the excess may becarried over for up to 5 income years. If any excess loss remains after the 5-year period, 50% of that remaining loss maybe carried over for up to 10 additional income years.

See listin the

Instructionsfor Part II

100%50%

5 Years10 Years

Type of NOL and Description (continued) Year NOLIncurred

NOLCarried Over

CarryoverPeriod

Specific Line InstructionsPart IUse Part I of this form to figure the current yearNOL, if any, eligible for carryover.Line 2 – If the corporation incurred a disaster lossduring 1998, enter the amount of the loss on thisline. Enter as a positive number.Line 3 – If the amount is zero or less the corporationdoes not have a current year general NOL. Go toPart II for computation of general NOL carryovers,the current year disaster loss and carryover fromdisaster losses.Line 7 – Go to Part II, Current Year NOLs, to recordyour 1998 NOL carryover to 1999. Completecolumns (b), (c), (d) and (h) only, for each type ofloss that you incurred.If you have a business that qualifies as a newbusiness or a small business and your NOL isgreater than the amount of net loss from such abusiness, use the general NOL first. If you operateone or more new businesses and one or moreeligible small businesses, determine the amount ofthe loss attributable to the new business(es) and tothe small business(es). The NOL deduction will betaken in the following manner. The NOL is firsttreated as a new business NOL to the extent of theloss from the new business. Any remaining NOL isthen treated as an eligible small business NOL tothe extent of the loss from the eligible smallbusiness. Any further remaining NOL is treated asan NOL under the general rules.

Part IIUse Part II to limit current year disaster loss andloss carryover deductions to current year incomeand to record all of the corporation’s loss carryoverinformation.If the corporation has losses from more than onesource and/or more than one category, thecorporation must compute the allowable NOLcarryover for each loss separately.When to use an NOL carryove r – Use your NOLsin the order the losses were incurred. There is norequirement to deduct NOL carryovers beforedisaster loss carryovers.Prior Year NOLsColumn (a ) – Enter the year the loss was incurred.

Column (b ) – If the loss is due to a disaster, enterthe disaster code from the list below. If the loss isfrom a new business or eligible small business, enterthe SIC Code for the new business or eligible smallbusiness from the Standard Industrial ClassificationManual, 1987 edition. DO NOT enter the code fromthe PBA chart available in the 1998 Form 100 orForm 100S booklets. If the loss was from apass-through entity, enter the entity’s federalemployer identification number from Schedule K-1(100S).Following is a list of events that have been declareddisasters:

Year Event

1992 Wildfires and other related casualties inCalaveras and Shasta Counties.San Bernardino County earthquake and otherrelated casualties.Riots, arson and related casualties in Californiaduring April and May.Humboldt County earthquake and related casualties.

Storms, floods and other related casualties.Oakland/Berkeley fire and other related casualties.Santa Barbara fires and other related casualties.Bay Area earthquake and other related casualties.Forest fires, October earthquake and otherrelated casualties.

Forest fires and related casualties occuring inCalifornia.

1992

1992

199219921991199019891987

1985

1993 Storms, floods and other related casualties.

Code

Los Angeles, Orange, and Ventura Countyearthquake and other related casualties.

1994 13

1211

10

9

876543

1

San Luis Obispo fire and other related casualties.141994

Storms, floods, and other related casualties.1986 2

Storms, flooding and other related casualties.151995Firestorms ’96.*161996

Disaster floods ’96/97.1719971996

*The carryover period is limited to 5 years at 50%, no speciallegislation was enacted.

El Nino ’98.181998

Column (c ) – Enter the type of NOL from the tablein General Information F.

Column (d ) – Enter the amount of the initial loss forthe year given in column (a).Column (e ) – Enter the carryover amount from the1997 form FTB 3805Q, Part II, column (h).Column (f ) – Enter the smaller of the amount incolumn (e) or the amount in column (g) of theprevious line.Column (g ) – Enter the result of subtracting column(f) from the balance in column (g) of the previousline.Column (h ) – Subtract the amount in column (f)from the amount in column (e) and enter the result.Current Year NOLsLine 3, Column (d ) – Enter your 1998 disaster lossfrom Part I, line 2. If you did not elect to deduct yourdisaster loss in the prior year:• In column (f), enter the disaster loss used in

1998.• In column (h), enter column (d) less column (f).If you elected to deduct your 1998 disaster loss onyour 1997 return, and you have an excess amountto be carried over to 1998, enter the carryoveramount from your 1997 form FTB 3805Q, Part II,line 3, in Part II, line 2, column (e). Use the PriorYear NOL instructions for column (a) through column(h) except:• In column (a), enter 1998;• In column (b), enter 18; and• In column (d), enter the total disaster loss

incurred in 1998.Line 4 – Enter your 1998 NOL from Part I, line 3. Ifyou have different types of NOLs in the current year,list each type of loss separately. Enter the initial lossin column (d) and the loss to be carried over tosubsequent years in column (h) for each NOL.

Part IIILine 1 – If a current year disaster loss amount isentered in Part II, line 2, column (f), but is alsoincluded in the amount in Part 1, line 1, do notinclude that amount on this line.

INCOME YEAR

1998 2426Water’s-Edge Cover Sheet

PleaseSignHere

Signature of officer Date

Telephone

( )

Attach this form to the face of Form 100 or Form 100S.

Corporation and Contract InformationCorporation name

THE WATER’S-EDGE CONTRACT PERIOD BEGINS AND ENDS .

Indicate which of the following forms are included with this return by checking all applicable boxes:

FTB 2416 FTB 2424 Form 100-FEE-A Form 100-FEE-X

THIS FORM MUST BE ATTACHED TO THE FRONT OF FORM 100 OR FORM 100S

PurposeUse form FTB 2426 as a cover sheetwhenever a corporation files a returndetermining its California income on awater’s-edge basis.

General InstructionsForm FTB 2426 should be attached tothe front of Form 100 or Form 100S.Do not attach form FTB 1116, Notice ofNonrenewal of Water’s-Edge Contract, orform FTB 1117, Request to TerminateWater’s-Edge Election, to this form. Maileach of these forms separately from anyother form.For a proper election, Form 100-WE,Water’s-Edge Contract, must be attachedto the original return. Any taxpayer elect-ing water’s-edge should be in good

Form 100-WE

General Information

MONTH DAY YEAR MONTH DAY YEAR

FTB 2426 C2 1998 Page 28

Copy of Form 100-WEfrom prior year election

Print or type name of signing officer

Print or type title

California corporation number

standing with both the Franchise TaxBoard and California Secretary of State.A copy of the applicable contract mustbe attached to all subsequent returnsfiled during the contract period.

California Corporation Number forUnitary Group Single ReturnEnter the California corporation numberof the key corporation designated in theelection to file a Unitary Group SingleReturn.

For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______

CALIFORNIA FORM

242698109

INCOME YEAR

1998 100SCalifornia S CorporationFranchise or Income Tax Return

Form 100S C1 1998 Side 1

California corporation number Federal employer identification number

Corporation name

Address

City State ZIP Code

A Final return? • ■ Dissolved ■ Surrendered (withdrawn) ■ Merged/Reorganized

■ IRC Section 338 sale If a box is checked, enter date • B Did this S corporation have a change in control or ownership, or

acquire ownership or control of any other legal entity this year? • ■ Yes ■ No

C Principal business activity code. (Do not leave blank): •Business activity

Product or service

D Does return include Qualified Subchapter S Subsidiaries . . . • ■ Yes ■ No

StateAdjust-ments

Calif.NetIncome

Taxes

12345678

910111213

141516

17181920

2122

23242526

29303132

33343536

37383940

42

1 Ordinary income (loss) from trade or business activities from Schedule F (Form 100S, Side 2) or federal Form 1120S,

line 21. If Schedule F (Form 100S, Side 2) was not completed, attach federal Form 1120S, page 1, and supporting schedules .

2 Foreign or domestic tax based on income or profits and California franchise or income tax deducted . . . .3 Interest on government obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Net capital gain from Schedule D (100S), Section A & Section B. Attach Schedule D (100S). See instructions . .5 Depreciation and amortization adjustments. Attach Schedule B (100S). . . . . . . . . . . . . . . . . . . . . .6 Portfolio income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Other additions. Attach schedule(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Total. Add line 1 through line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Deductible dividends. Attach Schedule H (100S) . . . . . . . . . . . . .

10 Water’s-edge dividend deduction. Attach Schedule H (100S) . . . . . .11 Contributions. See instructions . . . . . . . . . . . . . . . . . . . . . . .12 EZ, LARZ, LAMBRA or TTA business expense and/or net interest deduction . .13 Other deductions. Attach schedule(s) . . . . . . . . . . . . . . . . . . .14 Total. Add line 9 through line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Net income (loss) after state adjustments. Subtract line 14 from line 8 . . . . . . . . . . . . . . . . . . . . .16 Net income (loss) for state purposes. Use Schedule R if apportioning income . . . . . . . . . . . . . . . . .17 R&TC Section 23802(e) deduction. See instructions . . . . . . . . . .18 Net operating loss carryover deduction. See instructions. . . . . . . . .19 EZ, LARZ or LAMBRA NOL carryover deduction. See instructions . . .20 Disaster loss carryover deduction. See instructions. . . . . . . . . . . .21 Net income for tax purposes. Combine line 17 through line 20 and subtract from line 16 . . . . . . . . . . .22 Tax. % x line 21 (at least minimum franchise tax and/or QSSS annual tax, if applicable). See instructions23 Enter credit name code no. __ __ __ and amount . .24 Enter credit name code no. __ __ __ and amount . .25 Enter credit name code no. __ __ __ and amount . .26 To claim more than three credits, see instructions . . . . . . . . . . . .

28 Balance. Subtract line 27 from line 22 (at least minimum franchise tax and/or QSSS annual tax, if applicable) .29 Tax from Schedule D (100S). Attach Schedule D (100S). See instructions .30 Excess net passive income tax. See instructions . . . . . . . . . . . . . .31 Total tax. Add line 28 through line 30 . . . . . . . . . . . . . . . . . . .32 Additional SOS prepayment tax. See instructions. . . . . . . . . . . . .

34 Overpayment from prior year allowed as a credit . . . . . . . . . . . . .35 1998 estimated tax payments/excess SOS prepayment tax/QSSS payments. See instr . .36 Amount paid with extension of time to file return . . . . . . . . . . . . .37 Total payments. Add line 34 through line 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Tax due. If line 33 is more than line 37, subtract line 37 from line 33. Go to line 42 . . . . . . . . . . . . .39 Overpayment. If line 37 is more than line 33, subtract line 33 from line 37. . . . . . . . . . . . . . . . . . .40 Amount of line 39 to be credited to 1999 estimated tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41 Amount of line 39 to be refunded. Line 39 less line 40 . . . . . . . . . . . . . ■ 4142 Penalties and interest. See General Information M and N . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

43 Total amount due. Add line 38 and line 42. Pay with return . . . . . . . . . . . . 43

• ■ Check if estimate penalty computed using Exception B or C. Attach form FTB 5806.

••••

•

•■

■

■

■

■

■

■

■

■

■

••

•••••

••••••••

27 Add line 23 through line 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2728

▲▲

•

▲

■

■

■

■

■

33 Adjusted total tax. Add line 31 and line 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pay-ments

AmountDue orRefund

For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______ .

FORM

100S98109

•,, •,,,, ,,

•,, •,,,, ,,

Schedule F Computation of Trade or Business Income. See General Information I.

Income

Deduc-tions

1c23456789

101112131415161718

19b20

22

12

3a3b45

6

1 a) Gross receipts or sales b) Less returns and allowances Balance2 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Net gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Other income (loss). Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •6 Total income (loss). Combine line 3 through line 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Compensation of officers. Attach schedule. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •9 Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 a) Depreciation b) Less depreciation reported elsewhere on return Balance •15 Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Pension, profit-sharing, etc. plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20 Other deductions. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •22 Ordinary income (loss) from trade or business. Subtract line 21 from line 6. Enter here and on Side 1, line 1 •

Schedule V Cost of Goods Sold1 Inventory at beginning of year . . . . . . . . . . .2 Purchases . . . . . . . . . . . . . . . . . . . •3 Cost of labor . . . . . . . . . . . . . . . . . •4 Other IRC Sec. 263A costs. Attach schedule •

5 Other costs. Attach schedule . . . . . . . . . . .6 Total. Add line 1 through line 5. . . . . . . . . .7 Inventory at end of year . . . . . . . . . . . . . .8 Cost of goods sold. Subtract line 7 from line 6•

Was there any substantial change in the manner of determining quantities, costs or valuations between opening and closing inventory? . . . ■ Yes ■ NoIf ‘‘Yes,’’ attach an explanation. Enter California seller’s permit number, if any P Method of inventory valuationCheck if the LIFO inventory method was adopted this income year for any goods. If checked, attach federal Form 970 . . . . . . . . . . . . . . . . . • ■

If the LIFO inventory method was used for this income year, enter the amount of closing inventory computed under LIFO. . . . . . . . . • Do the rules of IRC Section 263A (with respect to property produced or acquired for resale) apply to the corporation? . . . . . . . . . . . . ■ Yes ■ NoSchedule J Add-On Taxes or Recapture of Tax Credits. See instructions.1 LIFO recapture due to S corporation election (IRC Sec. 1363(d) deferral: $ ) . . . . . . . . . . . . •2 Interest computed under the look-back method for completed long-term contracts (attach FTB 3834) . . . . . . . . . . •3 Interest on tax attributable to installment: a) Sales of certain timeshares and residential lots . . . . . . . . . . . . . . •

b) Method for nondealer installment obligations . . . . . . . . . . . . . . . •4 IRC Section 197(f)(9)(B)(ii) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •5 Credit recapture name: . . . . . . . . . . . . •6 Combine line 1 through line 5. Revise the amount on Side 1, line 38 or line 39, whichever applies, by this amount.

Write ‘‘Schedule J’’ to the left of line 38 or line 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •E Check here if the corporation does not need tax forms mailed next year • ■

G Maximum number of shareholders in the corporation at any time duringthe year: •

H Date business began in California or date income was first derived fromCalifornia sources: •

I Is the corporation under audit by the IRS or hasit been audited in a prior year? . . . . . . . . . . . . . . . • ■ Yes ■ No

J Effective date of federal S election: •

K Effective date of California S election: • L Accounting method: • (1) ■ Cash (2) ■ Accrual (3) ■ OtherM Location of principal accounting records:N ‘‘Doing business as’’ name: • O Have all required information returns (e.g., federal Form 1099,

8300, etc.) been filed with the Franchise Tax Board? . ■ N/A ■ Yes ■ NoP Is this corporation apportioning income to California using

Schedule R? . . . . . . . . . . . . . . . . . . . . . . . • ■ Yes ■ NoQ During the income year, were gross receipts (less returns and

allowances) of this corporation more than $1 million? . . . . • ■ Yes ■ No

21 Total deductions. Add line 7 through line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . • 21

19 a) Total travel and entertainment b) Deductible amount . . . . . . . . . . . .

F Date incorporated: • Where: State Country

Side 2 Form 100S C1 1998

PleaseSignHere

PaidPreparer’sUse Only

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true,correct and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Signature of officer Title Date

P

P

P

Preparer’s signature

Firm’s name(or yours, ifself-employed)and address

Date Check if self-employed ■

Preparer’s SSN / FEIN

FEIN

Telephone

( )

100S98209

Telephone

( )

For Privacy Act Notice, get form FTB 1131.

Form 100S C1 1998 Side 3

Schedule K S Corporation Shareholders’ Shares of Income, Deductions, Credits, etc.

Income(Loss)

Deduc-tions

Invest-mentInterest

TaxCredits

OtherStateTaxes

OtherItems

Adjust-mentsand TaxPreferenceItems

(a) Pro rata share items(b) Amount from federal

Schedule K (1120S)(c) Californiaadjustment

(d) Total amountusing California law.Combine (b) and (c)

where applicable

1 Ordinary income (loss) from trade or business activities . . . . . . . . . . . . .2 Net income (loss) from rental real estate activities . . . . . . . . . . . . . . . .3 a Gross income from other rental activities. . . . . . . . . . . . . . . . . . . .

b Expenses from other rental activities. Attach schedule . . . . . . . . . . . .c Net income (loss) from other rental activities. Subtract line 3b from line 3a

4 Portfolio income (loss):a Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .b Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .c Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .d Net short-term capital gain (loss). Attach Schedule D (100S) . . . . . . . .e Net long-term capital gain (loss). Attach Schedule D (100S) . . . . . . . . .f Other portfolio income (loss). Attach schedule . . . . . . . . . . . . . . . . .

5 Net gain (loss) under IRC Section 1231 (other than due to casualty or theft) .6 Other income (loss). Attach schedule . . . . . . . . . . . . . . . . . . . . . . .7 Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Expense deduction for recovery property (R&TC Section 17267.2,

Section 17266, Section 17268 and Section 17267.6 and IRC Section 179and R&TC Section 17201). Attach Schedule B (100S). . . . . . . . . . . . . .

9 Deductions related to portfolio income (loss). Attach schedule . . . . . . . . .10 Other deductions. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . .11 a Interest expense on investment debts . . . . . . . . . . . . . . . . . . . . .

b (1) Investment income included on line 4a, line 4b, line 4c and line 4f . .(2) Investment expenses included on line 9 above. . . . . . . . . . . . . .

12 a Low-income housing credit. See instructions. Attach schedule . . . . . . . .b Credits related to rental real estate activities other than on

line 12(a). Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . .c Credits related to other rental activities. See instructions. Attach schedule .

13 Other credits. Attach schedule . . . . . . . . . . . . . . . . . . . . . . . . . . .14 a Depreciation adjustment on property placed in service after 12/31/86 . . . .

b Adjusted gain or loss. See instructions. . . . . . . . . . . . . . . . . . . . .c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . . . . .d (1) Gross income from oil, gas and geothermal properties . . . . . . . . .

(2) Deductions allocable to oil, gas and geothermal properties . . . . . . .e Other adjustments and tax preference items. Attach schedule . . . . . . . .

15 a Type of incomeb Name of statec Total gross income from sources outside California. Attach schedule . . . .d Total applicable deductions and losses. Attach schedule . . . . . . . . . . .e Total other state taxes. Check one: ■ Paid ■ Accrued . . . . . . . . . .

16 a Total expenditures to which an IRC Section 59(e) election may apply . .b Type of expenditures

17 Tax-exempt interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Total property distributions (including cash) other than dividend

distributions reported on line 22 below . . . . . . . . . . . . . . . . . . . . .21 Other items and amounts not included in line 1 through line 20 above that

are required to be reported separately to shareholders. Attach schedule . .22 Total dividend distributions paid from accumulated earnings and profits . . .23 Income (loss) (required only if Schedule M-1 must be completed). Combine

line 1, line 2 and line 3c through line 6. From the result, subtract the sumof line 7 through line 11a and line 16a . . . . . . . . . . . . . . . . . . . . .

••

••••••••

•

••••

•

•••

•

•

•

100S98309

•

Side 4 Form 100S C1 1998

Schedule L Balance Sheets Beginning of income year End of income year(a) (b) (c) (d)

( ) ( )

Assets1 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .2 a Trade notes and accounts receivable . . . . . . . .

b Less allowance for bad debts . . . . . . . . . . . .3 Inventories . . . . . . . . . . . . . . . . . . . . . . . .4 Federal and state government obligations . . . . . . .5 Other current assets. Attach schedule(s) . . . . . . .6 Loans to shareholders. Attach schedule(s) . . . . . .7 Mortgage and real estate loans . . . . . . . . . . . .8 Other investments. Attach schedule(s) . . . . . . . . .

b Less accumulated depreciation . . . . . . . . . . .10 a Depletable assets . . . . . . . . . . . . . . . . . . .

11 Land (net of any amortization) . . . . . . . . . . . . .12 a Intangible assets (amortizable only) . . . . . . . . .

b Less accumulated amortization . . . . . . . . . . .13 Other assets. Attach schedule(s) . . . . . . . . . . . .14 Total assets. . . . . . . . . . . . . . . . . . . . . . .Liabilities and shareholders’ equity15 Accounts payable . . . . . . . . . . . . . . . . . . . .16 Mortgages, notes, bonds payable in less than 1 year . .17 Other current liabilities. Attach schedule(s) . . . . . .18 Loans from shareholders. Attach schedule(s) . . . . .19 Mortgages, notes, bonds payable in 1 year or more . .20 Other liabilities. Attach schedule(s). . . . . . . . . . .21 Capital stock . . . . . . . . . . . . . . . . . . . . . . .22 Paid-in or capital surplus . . . . . . . . . . . . . . . .23 Retained earnings . . . . . . . . . . . . . . . . . . . .24 Adjustments to shareholders’ equity. Attach schedule(s) .

25 Less cost of treasury stock . . . . . . . . . . . . . . .26 Total liabilities and shareholders’ equity . . . . . .

9 a Buildings and other fixed depreciable assets . . . . .

Schedule M – 1 Reconciliation of income (loss) per books with income (loss) per return Do not complete this schedule if the amount onSchedule L, line 14, column (d), is less than $25,000.

Schedule M – 2 CA accumulated adjustments account, other adjustments account, and other retained earnings See instructions.

1 Net income per books . . . . . . . . . . . . . . . . . .

3 Expenses recorded on books this year not included on

Schedule K, line 1 through line 11a and line 16a (itemize)

a Depreciation . . . . $

b State taxes . . . . . $

c Travel and entertainment $

5 Income recorded on books this year not included on

Schedule K, line 1 through line 6 (itemize)

a Tax-exempt interest $

6 Deductions included on Sch. K lines 1 through 11a and line

16a, not charged against book income this year (itemize)

a Depreciation . . . . $

b State tax refunds. . $

8 Income (loss) (Sch. K, line 23, col. d). Line 4 less line 7 . .

2 Income included on Schedule K, line 1 through line 6,

not recorded on books this year (itemize)

4 Total. Add line 1 through line 3. . . . . . . . . . . . . .

7 Total. Add line 5 and line 6 . . . . . . . . . . . . . .

(a) Accumulatedadjustments account

(b) Other adjustmentsaccount

(c) Other retained earnings(see instructions)

Important: Use California figures and federal procedures.

1 Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Ordinary income from Form 100S, Side 1, line 1 . . . . . . . . . . . . . . . .3 Other additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Loss from Form 100S, Side 1, line 1 . . . . . . . . . . . . . . . . . . . . . . .5 Other reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Combine line 1 through line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Distributions other than dividend distributions. . . . . . . . . . . . . . . . . . .8 Balance at end of year. Subtract line 7 from line 6 . . . . . . . . . . . . . . .9 Retained earnings at end of year. Add line 8, column (a) through column (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• ■ If the corp. has C corp. E&P at the end of the income year, check the box and enter the amount. See instructions . . . .

( )( ) ( )

( ) ( )

( )b Less accumulated depletion . . . . . . . . . . . . . ( )

( )

( )

( )

( )

•••

•

•

•••

•

•

•

•••

•

•

•

••

••

•

•

100S98409

•

INCOME YEAR

1998 B (100S)S Corporation Depreciation and Amortization

Schedules B/C/D/H (100S) 1998 Side 1

INCOME YEAR CALIFORNIA SCHEDULE

1998 C (100S)S Corporation Tax Credits

For use by S corporations only. Attach to Form 100S.Corporation name as shown on Form 100S California corporation number

1

34

5a5b5c

1

34

Part I Depreciation. Use additional sheet(s) if necessary.1 Enter federal depreciation from federal Form 4562, line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 California depreciation:

3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Subtract line 3 from line 1. Enter here and on Form 100S, Side 1, line 5 and on the applicable line of Schedule K . . . . .5a Enter the IRC 179 expense for California purposes. Enter here and on Form 100S, Side 1, line 13. Do not enter more than $16,0005b Enter the IRC Section 179 expense for federal purposes. Do not enter more than $18,500 . . . . . . . . . . . . . . . . . . .5c Subtract line 5b from line 5a. Enter here and on Schedule K, line 8, column (c) . . . . . . . . . . . . . . . . . . . . . . . . .Part II Amortization. Use additional sheet(s) if necessary.1 Enter federal amortization from federal Form 4562, line 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 California amortization:

3 Add the amounts on line 2, column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 CA amortization adj. Subtract line 3 from line 1. Enter here, on Form 100S, Side 1, line 5 and on the applicable line of Sch. K . .

(a) Description of property (b) Dateacquired

(c) Cost orother basis

(d) Depreciationallowed or allowablein earlier years

(e) Methodof figur-ing dep.

(f) Lifeor rate

(g) Depreciationfor this year

(a) Description of property (b) Dateacquired

(c) Cost orother basis

(d) Amortizationallowed or allowablein earlier years

(e) R&TCsection

(f) Period orpercentage

(g) Amortizationfor this year

(b) Carryover fromprior year

(c) Credit used thisyear (not morethan (a) + (b))

(d) Tax balance (e) Credit carryoverto 1999See instructions for Form 100S, General Information Z, AA and BB.

Be sure to complete and attach all supporting credit forms.

1 Regular tax from Form 100S, Side 1, line 22 . . . . . . . . . . . . .2 Minimum franchise tax and/or QSSS annual tax, if applicable . . . .3 Subtract line 2 from line 1. If zero or less, enter -0- . . . . . . . . .4 Code: Credit Name:5 Code: Credit Name:6 Code: Credit Name:7 Code: Credit Name:8 Code: Credit Name:9 Enter the credit amounts on Form 100S, Side 1, line 23,

line 24 and line 25. If more than 3 credits, enter the totalremaining credits on Form 100S, Side 1, line 26 . . . . . . . . . . .

(a) Credit amountlimited to 1/3of total

CALIFORNIA SCHEDULE

B100S98109

INCOME YEAR

1998 D (100S)S CorporationCapital Gains and Losses and Built-In Gains

Side 2 Schedules B/C/D/H (100S) 1998

Corporation name as shown on Form 100S California corporation number

SECTION A – 8.84% Tax on Certain Capital Gains and Built-In GainsPart I Short-Term Capital Gains and Losses — Assets Held One Year or Less. Use additional sheet(s) if necessary.

Part II Long-Term Capital Gains and Losses — Assets Held More Than One Year. Use additional sheet(s) if necessary.

Part III Tax on Certain Capital Gains. See instructions before completing this part.

Part IV Tax on Built-In Gains. See instructions before completing this part.

SECTION B – 1.5% Tax on Capital GainsPart I Short Term Capital Gains and Losses — Assets Held One Year or Less. Use additional sheet(s) if necessary.

Part II Long-Term Capital Gains and Losses — Assets Held More Than One Year. Use additional sheet(s) if necessary.

2

3b

5

6b

78

9101112131415

161718

21

2a

3

56

789

10

(a) Description of property(Example: 100 shares 7% preferred of ‘‘Z’’ Co.)

(b) Date acquired(mo., day, yr.)

(c) Date sold(mo., day, yr.)

(d) Gross sales price (e) Cost or other basis,plus expense of sale

(f) Gain (loss)((d) less (e))

1

1

2 Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . .3a Net short-term capital gain (loss). Combine line 1 and line 2 and enter here and on Form 100S, Side 1, line 4 . . . . . . . . .3b Tax on short-term capital gain(s) included on line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3c Subtract line 3b from line 3a. Enter this amount on Form 100S, Schedule K, column (d), line 4d or line 6. . . . . . . . . . . .

5 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824. See instructions . . . . . . . . . . . .6a Net long-term capital gain (loss). Combine line 4 and line 5 and enter here and on Form 100S, Side 1, line 4 . . . . . . . . .6b Tax on long-term capital gain(s) included on line 15 and line 21 below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6c Subtract line 6b from line 6a. Enter this amount on Form 100S, Schedule K, column (d), line 4e or line 6. . . . . . . . . . . .

7 Enter IRC Section 1231 gain from Schedule D-1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Net long-term capital gain (loss). Combine line 6a and 7 and enter here. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note: If the corporation is liable for the excess net passive income tax (Form 100S, Side 1, line 29) or the built-ingains tax (Part IV below), see instructions for line 9.

9 Net capital gain. Enter excess net long-term capital gain (line 8) over net short-term capital loss (line 3c) . . . . . . . . . . . .10 Statutory minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Multiply line 11 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . .13 Taxable income. See instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . . . .14 Multiply line 13 by 8.84% (calendar year financial S corporations must use 10.84%) . . . . . . . . . . . . . . . . . . . . . . . .15 Tax on certain capital gains. Enter smaller of line 12 or line 14 here and on Form 100S, Side 1, line 29 . . . . . . . . . . . .

4

16 Excess of recognized built-in gains over recognized built-in losses attributable to California. Attach computation schedule . . .17 Taxable income. See the instructions for federal Schedule D (Form 1120S). Use California amounts . . . . . . . . . . . . . . .18 Enter the smaller of line 16 or line 17 or amount from worksheet. See instructions . . . . . . . . . . . . . . . . . . . . . . . . .

21 Tax on built-in gains. Multiply line 20 by 8.84% (financial S corps. must use 10.84%). Enter here and on Form 100S, Side 1, line 29

2 a Short-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824 . . . . . . . . . . . . . . . . . . . .b Unused capital loss carryover from 1997 attributable to the S Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 Net short-term capital gain (loss). Combine line 1 through line 2b. Enter here and on Form 100S, Schedule K,column (d), line 4d or line 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 Enter gain from Schedule D-1, line 7 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Long-term capital gain from form FTB 3805E, line 26 or line 37 and federal Form 8824 . . . . . . . . . . . . . . . . . . . . . .7 Net long-term capital gain (loss). Combine line 4 through line 6. Enter here and on Form 100S, Schedule K,

column (d), line 4e or line 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Enter excess of net short-term capital gain (line 3) over net long-term capital loss (line 7) . . . . . . . . . . . . . . . . . . . . .9 Net capital gain. Enter excess of net long-term capital gain (line 7) over net short-term capital loss (line 3) . . . . . . . . . . .

10 Total line 8 and line 9. Enter here and on Form 100S, Side 1, line 4. Note: If losses exceed gains, carry forwardlosses to 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

$25,000

2b

19 Net operating loss (NOL) carryover deduction from years the corporation was a C corporation (IRC Section 1374(b)(2)) (limitedto the amount allowable for state purposes). Attach the NOL form from the appropriate year. See instructions . . . . . . . . . . . . . 19

2020 Subtract line 19 from line 18. If zero or less, enter -0- here and on line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3a

3c

6a

6c

CALIFORNIA SCHEDULE

D100S98209

Schedules B/C/D/H (100S) 1998 Side 3

INCOME YEAR

1998 HS Corporation Dividend Income DeductionSee instructions for Schedule H. Use and attach additional sheets if necessary.

(a) Dividend payer

Part I Elimination of Intercompany Dividends (R&TC 25106)(b) Dividend

payee(c) Total amount

of dividendsreceived

(d) Amount thatqualifiesfor 100%elimination

(e) Amount fromcolumn (d) paidout of currentyear E&P

(f) Amount fromcolumn (d) paidout of prioryear E&P

(g) Balancecolumn (c)minuscolumn (d)

1)2)3)4)5)6)

7 Total amounts in each column. Enter amount from Part I, column (d)on Form 100S, Side 1, line 9 . . . . . . . . . . . . . . . . . . . . . .

(a) Dividend payer

Part II Deduction For Dividends Paid By A Corporation Taxed By California (R&TC 24402)(b) Dividends

paid byCA taxpayer(See instructions)

(c) FEIN orCaliforniacorporation no.of dividend payer

(d) Percentage ofownership ofdividend payer

(e) Limitationpercentage(See instructions)

(f) Percentageof dividendsdeductible

(g) Deductibledividends(b)X(e)X(f)

1)2)3)4)5)6)

7 Total amount in column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a) Dividend payer

Part III Deduction For Dividends Paid To A California Corporation By An Insurance Company (R&TC 24410)(b) Dividend

payee(c) California

corporation no.of dividendpayee

(d) Percentage ofownership ofdividend payer

(e) Amount ofqualifiedinsurancedividends(Seeinstructions)

(f) Apportionmentfactors ofinsurancecompany

(g) Deductibledividends –multiplycol. (e) by col. (f)

1)2)3)4)5)6)

7 Total amount in column (g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Add amounts from Part II, column (g) and Part III, column (g). Enter the result on Form 100S,

Side 1, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a) Dividend payer

Part IV Deduction For Foreign Dividends Paid To A Fully Included Member Of a Water’s-Edge Combined Report (R&TC 24411)(Foreign dividends paid by partially included members of a water’s-edge combined report cannot be computed on this schedule.)

(c) Member ofwater’s-edgecombinedreporting groupdividend waspaid to (payee)

(d) Amount ofqualifieddividendsreceived bypayee(See instructions)

(e) Amount fromcol. (d) paid outof current yearE&P

(f) Amount fromcol. (d) paid outof prior yearE&P

(g) Deductibledividends –multiplycol. (d) by .75

1)2)3)4)5)6)

7 Total amount in column (g). Enter total from Part IV, column (g) on Form 100S,Side 1, line 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CALIFORNIA SCHEDULE

H100S98309

(b) Percentage ofownership ofdividend payer

FTB 3830 C1 1998

INCOME YEAR

1998 3830S Corporation’s List of Shareholders and ConsentsFor use by S corporations with one or more nonresident shareholders or trusts with nonresident fiduciaries. Attach to Form 100Sand give a copy to each nonresident shareholder or fiduciary. Use additional sheet(s) if necessary.Corporation name California corporation number

Note: Completion of this form does not satisfy the requirements for filing an individual income tax return for California.List below the names and identification numbers of shareholders of record at the end of the corporation’s income year.

List below the names and identification numbers of shareholders who sold or transferred their ownership interests before the end of the corporation’s income year.

Number Shareholder’s nameOnly nonresident shareholders and nonresident fiduciaries must sign: Iconsent to the jurisdiction of the State of California to tax my pro ratashare of the S corporation income attributable to California sources.

Shareholder’sSocial security no./Federalemployer identification no.

123456789

1011121314151617

Number Shareholder’s nameOnly nonresident shareholders and nonresident fiduciaries must sign: Iconsent to the jurisdiction of the State of California to tax my pro ratashare of the S corporation income attributable to California sources.

Shareholder’sSocial security no./Federalemployer identification no.

12345

General InformationA Purpose

B Nonresidents Who MustFile a California Return

If you are a nonresident shareholder, in additionto signing form FTB 3830, you may also need tofile Form 540NR, California Nonresident orPart-Year Resident Income Tax Return.Form 540NR must be filed if you had incomefrom California sources and:• You were single or unmarried in 1998 and

your gross income from all sources wasmore than $10,623; or adjusted grossincome from all sources was more than$8,498; or

C Group NonresidentShareholder Return

Nonresident shareholders of an S corporationdoing business in California may elect to file agroup nonresident return using Form 540NR. Formore information, get FTB Pub. 1067, Guidelinesfor Filing a Group Form 540NR.

When an S corporation has one or moreshareholders who are nonresidents of California,or trusts with nonresident fiduciaries, use formFTB 3830 to:

Signature Date

Signature Date

• List the names and social securitynumbers or federal employer identificationnumbers of all shareholders; and

• Obtain the signature of each nonresidentshareholder or fiduciary evidencingconsent to the jurisdiction of Californiato tax their pro rata share of incomeattributable to California sources. Forease in gathering proper signatures,multiple copies of the form FTB 3830 maybe used. All shareholders required tosign need not sign on one form.

Caution: Failure to obtain required signatures,complete and attach this form, is grounds for theFranchise Tax Board to retroactively revoke theS corporation election. (R&TC Section 23801(b)).

• You were married in 1998, and you and yourspouse had a combined gross income, fromall sources, of more than $21,246; oradjusted gross income from all sources ofmore than $16,996; or

• You can be claimed as a dependent as setin Internal Revenue Code (IRC)Section 63(c)(5) when the individual’s grossincome from all sources exceeds thestandard deduction allowed under the IRC; or

• If you owe the state of California $1 or moreof tax. (R&TC Section 18507).

For Privacy Act Notice, see form FTB 1131.

CALIFORNIA FORM

383098109

INCOME YEAR

1998 K-1 (100S)Shareholder’s Share of Income,Deductions, Credits, etc.

Schedule K-1 (100S) 1998 Side 1

For use by an S corporation and its shareholders only.

Shareholder’s identifying number California corporation numberShareholder’s name, address and ZIP Code Corporation’s name, address and ZIP Code

A Shareholder’s percentage of stock ownership at income year end . . . . . . . . . . . . . . . . . . . . . . . . • . %B Tax shelter registration number Type:C Check here if this is: • (1) ■ A final Schedule K-1 (2) ■ An amended Schedule K-1D What type of entity is this shareholder? . . . . . . . . . . . . . . • (1) ■ Individual (2) ■ Estate/Trust (3) ■ Qualified Exempt OrganizationE Is this shareholder a nonresident of California? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P ■ Yes • ■ No

Caution: Refer to the separate shareholder’s instructions for Schedule K-1 (100S) before entering information from this schedule on your tax return.

(a) Pro rata share items(b) Amount from

federal Schedule K-1(1120S)

(c) Californiaadjustment

(d) Total amountsusing California law.Combine (b) and (c)

where applicable

Income(Loss)

Deduc-tions

Invest-ment

Interest

TaxCredits

1 Ordinary income (loss) from trade or business

activities. . . . . . . . . . . . . . . . . . . . .

2 Net income (loss) from rental real estate activities.

3 Net income (loss) from other rental activities. . .

4 Portfolio income (loss):

a Interest . . . . . . . . . . . . . . . . . . . .

b Dividends . . . . . . . . . . . . . . . . . . .

c Royalties . . . . . . . . . . . . . . . . . . .

d Net short-term capital gain (loss) . . . . . . .

e Net long-term capital gain (loss) . . . . . . . .

f Other portfolio income (loss). Attach schedule .

5 Net gain (loss) under IRC Section 1231 (other

than due to casualty or theft) . . . . . . . . . .

6 Other income (loss). Attach schedule . . . . . .

7 Charitable contributions . . . . . . . . . . . . .

8 Expense deduction for recovery property (R&TC

Sections 17266, 17267.2, 17268 and 17267.6

and IRC Section 179). Attach schedule . . . . .

9 Deductions related to portfolio income (loss).

Attach schedule . . . . . . . . . . . . . . . . .

10 Other deductions. Attach schedule . . . . . . . .

(e) Californiasource amounts

and credits

••

••••••••

••••

P

P

P

P

P

P

P

P

P

P

P

P

P

P

• P11 a Interest expense on investment debts . . . .

b (1) Investment income included on

line 4a, line 4b, line 4c and

line 4f above. . . . . . . . . . . . . . .

(2) Investment expenses included on

line 9 above . . . . . . . . . . . . . . .

12 a Low-income housing credit. See instructions.

Attach schedule . . . . . . . . . . . . . . .

b Credits related to rental real estate activities

other than on line 12(a). Attach schedule . .

c Credits related to other rental activities. See

instructions. Attach schedule . . . . . . . . .

13 Other credits. Attach schedule . . . . . . . . . .

For Privacy Act Notice, get form FTB 1131.

CALIFORNIA SCHEDULE

K100S98109

For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______

Side 2 Schedule K-1 (100S) 1998

(a) Pro rata share items(b) Amount from

federal Schedule K-1(1120S)

(c) Californiaadjustment

(d) Total amountsusing California law.Combine (b) and (c)

where applicable

OtherStateTaxes

OtherItems

Supple-mental

Information

(e) Californiasource amounts

and credits

23 Supplemental information that is required to be reported separately to each shareholder. Attach additional sheet(s) if necessary.

•

•

Adjustmentsand Tax

PreferenceItems

14 a Depreciation adjustment on property

placed in service after 12/31/86 . . . . . .

b Adjusted gain or loss . . . . . . . . . . .

c Depletion (other than oil and gas) . . . . .

d (1) Gross income from oil, gas and

geothermal properties . . . . . . . . .

(2) Deductions allocable to oil, gas and

geothermal properties . . . . . . . . .

e Other adjustments and tax preference

items. Attach schedule . . . . . . . . . .

15 a Type of income

b Name of state

c Total gross income from sources outside

California. Attach schedule . . . . . . . .

d Total applicable deductions and losses.

Attach schedule . . . . . . . . . . . . . .

e Total other state taxes. Check one:

■ Paid ■ Accrued . . . . . . . . . .

16 a Total expenditures to which an IRC

Section 59(e) election may apply . . . . .

b Type of expenditures

17 Tax-exempt interest income . . . . . . . . .

18 Other tax-exempt income . . . . . . . . . .

19 Nondeductible expenses . . . . . . . . . . .

20 Total taxable dividend distribution paid

from accumulated earnings and profits . . . .

21 Property distributions (including cash) other

than dividend distributions reported to you

on federal Form 1099-DIV . . . . . . . . . .

22 Amount of loan repayments for ‘‘Loans from

Shareholders’’ . . . . . . . . . . . . . . . . P

• P

Table 1 — Each shareholder’s share of nonbusiness income from intangiblesInterest $ Royalties $ Dividends $1231 Gains/Losses $ Capital Gains/Losses $ Other $

FOR USE BY APPORTIONING UNITARY SHAREHOLDERS ONLYTable 2 — Unitary shareholder’s pro rata share of business income and factors

A. Shareholder’s share of the S corporation’s business income. See instructions. $B. Shareholder’s share of nonbusiness income from real and tangible property sourced or allocable to California:

Capital Gains/Losses $ Rents/Royalties $1231 Gains/Losses $ Other $

C. Shareholder’s share of the S corporation’s property, payroll and sales:

Factors Total within and outside California Total within CaliforniaProperty: Beginning

EndingPayrollSales

$$$$

$$$$

K100S98209

P

P

•

Schedule K-1 (100S) 1998 Page 41

Shareholder’s Instructions for Schedule K-1 (100S)For S Corporation Shareholder’s Use OnlyReferences in these instructions are to the Internal Revenue Code (IRC) as of January 1, 1998, and to the California Revenue and Taxation Code (R&TC).

What’s NewFor income years beginning on or afterJanuary 1, 1998, tax-exempt organizations asdescribed in IRC Sections 401(a) and501(c)(3) (qualified tax-exempt shareholder)may be shareholders in an S corporation. Forpurposes of determining the number of share-holders of an S corporation, a qualified tax-exempt shareholder will count as oneshareholder.

PurposeThe S corporation uses Schedule K-1 (100S)to report your share of the S corporation’sincome, deductions, credits, etc. Please keepa copy of it for your records.Although the S corporation is subject to vari-ous taxes, you are liable for the income taxon your share of the S corporation’s income,whether or not distributed, and you mustinclude your share on your tax return.The amount of losses and deductions that youmay claim on your individual tax return maybe less than the amount reported on Sched-ule K-1 (100S). Generally, the amount oflosses and deductions you may claim is lim-ited to your basis in the S corporation, debtowed to you by the S corporation and theamount for which you are considered at-risk. Ifthe S corporation has losses, deductions orcredits from a passive activity, you must alsoapply the passive activity rules. It is yourresponsibility to consider and apply any appli-cable limitations. See Limitations on Losses,Deductions and Credits. Use these instruc-tions to help you report the items shown onSchedule K-1 (100S) on your California taxreturn.For the line items where ‘‘attach schedule’’appears, the S corporation should have pro-vided additional information applicable to thatline or the S corporation should have madean entry on Side 2, line 23.Nonresident shareholders of an S corporationthat is doing business in California may qualifyto file a group nonresident return onForm 540NR, California Nonresident or Part-Year Resident Income Tax Return. For moreinformation on the election to file a group non-resident return, get FTB Pub. 1067, Guide-lines for Filing a Group Form 540NR.Line 1 through Line 22If you are an individual shareholder, take theamounts in column (c) that are from nonpas-sive activities and enter these amounts on theappropriate form or schedule as explained inthese instructions.Report the amounts in column (d) or column(e) that are from passive activities on theCalifornia form or schedule where they arenormally reported. Bring the total amounts fig-ured on the appropriate California form orschedule to form FTB 3801, Passive ActivityLoss Limitations, to figure the amount of yourpassive activity loss limitation. Then transfer

the passive activity loss back to the form orschedule it is normally reported on to figureyour California adjustment amount. Enter thisadjustment amount on the corresponding lineof Schedule CA (540 or 540NR), CaliforniaAdjustments, or Form 541, California FiduciaryIncome Tax Return.If there is no California schedule or form tofigure your passive activity loss adjustmentamount on (i.e., rental loss from passive activ-ities), you may figure the adjustment amounton the California Adjustment Worksheet in theinstructions for form FTB 3801. Enter the totalof your adjustments from all passive activitiesfrom line 1 and line 2 of this worksheet onSchedule CA (540 or 540NR), as applicable.If you have losses, deductions, credits, etc.,from a prior year that were not deductible orusable because of certain limitations, such asthe at-risk rules, these carryforward losses,deductions and credits may be taken intoaccount in determining your net income, loss,etc., for this year. However, do not combinethe prior year amounts with any amountsshown on this Schedule K-1 (100S) to get anet figure to report on any supporting sched-ules, statements or forms attached to yourreturn. Instead, report the amounts on anattached schedule, statement or form on ayear-by-year basis.Line 1 through Line 3The amounts shown on line 1 through line 3reflect your share of income or loss from theS corporation’s business or rental operationswithout reference to your limitations on lossesor adjustments that may be required becauseof:• The adjusted basis of your S corporation

ownership interest;• The amount for which you are at-risk as

determined under IRC Section 465; and• The passive activity limitations of IRC

Section 469.See the federal Schedule K-1 (Form 1120S)instructions for line 1 through line 3 for moreinformation.

Limitations on Losses, Deductionsand CreditsBasis rulesGenerally, you may not claim your share ofthe S corporation loss (including capital loss)that is larger than the adjusted basis of yourshareholder interest at the end of the S corpo-ration’s income year.Basis is increased by:1. All income (including tax-exempt income)

reported on Schedule K-1 (100S).2. Money and adjusted basis in property con-

tributed to the corporation.3. The excess of the deduction for depletion

over the adjusted basis of the propertysubject to depletion.

Basis is decreased by:1. Fair market value of property distributions

(including cash) made by the corporation(excluding dividend distributions reportedon Form 1099-DIV and distributions inexcess of basis) reported onSchedule K-1 (100S), line 21.

2. All losses and deductions (including non-deductible expenses) reported onSchedule K-1 (100S).

These items are not a complete list of factorsthat determine basis.At-risk rulesGenerally, if you have: (1) a loss or otherdeduction from an activity carried on as atrade or business or for the production ofincome by the corporation; and (2) amounts inthe activity for which you are not at-risk, youwill have to complete federal Form 6198,At-Risk Limitations, to figure the allowableloss to report on your return. For Californiapurposes, you must complete federalForm 6198 using California amounts.The at-risk rules generally limit the amount ofloss (including loss on disposition of assets)and other deductions (such as IRCSection 179 or R&TC Sections 17266,17267.2, 17267.6 and 17268 deductions) thatyou may claim to the amount you could actu-ally lose in the activity. See the federalSchedule K-1 (Form 1120S) instructions forAt-Risk Limitations for more information.Passive activity limitationsCaution : During 1993, the U.S. Congressmade changes to the passive activity loss pro-visions of the IRC relating to real estate pro-fessionals. California has not conformed tothose changes.California tax law conforms to federal IRCSection 469 rules that limit the deduction ofcertain losses and credits.These rules apply to shareholders who:• Are individuals, estates or trusts; and• Have a loss or credit from a passive

activity.A passive activity is generally a rental activityor a trade or business activity in which theshareholder does not materially participate.If you have a loss or deductions from a pas-sive activity, you will need to complete formFTB 3801 to figure the allowable amounts toreport on your individual return. You will alsoneed to complete form FTB 3801 if you havepassive activity income from this S corporationand passive activity loss or deduction fromanother source.The amounts reported on line 2 and line 3 ofSchedule K-1 (100S) are from rental activitiesof the S corporation and are generally passiveactivity income (loss) to all shareholders.There is an exception to this rule for lossesincurred by qualified investors in qualified low-income housing projects. The S corporation

Schedule K-1 (100S) 1998

will identify any of these qualified amounts onan attachment for line 2.Passive activity credits are also limited to pas-sive income. See the instructions for line 13.

California Adjustment — Column (c)Use this column to account for your propor-tionate share of the differences in thecomputation of federal and California income.The major items are:• California minimum franchise tax;• Depreciation expense due to different

basis of the assets or depreciation methodused;

• Gain or loss on sale of assets due to theeffects of different depreciation methods orbasis; and

• Government bond interest income:a) U.S. bond interest is taxable for

federal purposes but not for Californiapurposes; and

b) State bond interest (other than fromCalifornia bonds) is taxable forCalifornia franchise tax purposes butnot for federal purposes.

Total amounts using California law— Column (d) and California sourceamounts and credits — Column (e)Shareholders who are California residents willuse amounts shown in column (d) becauseCalifornia resident individuals are subject topersonal income tax on all income from what-ever source derived (R&TC Section 17041).Nonresident shareholders who do not conducta trade or business that is unitary with theS corporation should use the amounts incolumn (c), column (d) (for total income pur-poses), column (e) (for California sourceincome purposes) and Table 1. If the nonresi-dent shareholder conducts a unitary businesswith the S corporation, data in column (e)should not be used. Instead, the shareholdermust combine its share of the S corporation’sincome with the income from its trade or busi-ness and apportion that income using anapportionment percentage consisting of acombination of the factors from its trade orbusiness and the shareholder’s share of thefactors from the S corporation from Table 2.Amounts in Table 1 should be sourced to theresidency or commercial domicile of theshareholder.

IncomeInconsistent treatment of itemsGenerally, shareholders must report subchap-ter S items shown on their Schedule K-1(100S), and any attached schedules, thesame way the corporation treated the itemson its return. If the treatment on a share-holder’s original or amended return is incon-sistent with the corporation’s treatment, or ifthe corporation has not filed a return, youmust attach a statement with your original oramended return to identify and explain anyinconsistency or to note that a corporatereturn has not been filed. If a shareholder isrequired to attach this statement but fails to

do so, the shareholder may be subject to anaccuracy related penalty.Lin e 1 – Ordinar y income (loss) from tradeor business activitiesThe amount reported on line 1, column (d) orcolumn (e) is your share of the ordinaryincome (loss) from the trade or business activ-ities of the S corporation. Generally, whereyou report this amount on Form 540,Form 540NR or Form 541 depends onwhether or not the amount is from an activitythat is a passive activity to you.If, in addition to this passive activity income,you have a passive activity loss from thisS corporation or from any other source, reportthe line 1, column (d) or column (e) income onform FTB 3801.If a loss is reported on line 1, column (d) orcolumn (e), report the loss on the applicableline of form FTB 3801 to determine how muchof the loss is allowable.Lin e 2 – Net income (loss) from rental realestate activitiesGenerally, the income (loss) reported online 2, column (d) or column (e), is a passiveactivity amount to all shareholders. There isan exception, however, for losses from a qual-ified low-income housing project. The losslimitations do not apply to qualified investorsin qualified low-income housing projects. TheS corporation will have attached a schedulefor line 2 to identify such amounts, if applica-ble. You will have to report the Californiaadjustment amount from column (c) onSchedule CA (540 or 540NR).Use the following instructions to determinewhere to enter a line 2 amount.• If you have a loss on line 2, column (d) or

column (e) (other than a qualified low-income housing project loss), enter thispassive activity loss on the applicable lineof form FTB 3801 to determine how muchof the loss is allowable.Note: If you are a qualified investor report-ing a qualified low-income housing projectloss, report the California adjustmentamount from column (c) directly on Sched-ule CA (540 or 540NR).

• If you have income on line 2, column (d)or column (e) and no passive losses, enterthe California adjustment from column (c)on Schedule CA (540 or 540NR).

Lin e 3 – Net income (loss) from otherrental activitiesThe amount on line 3, column (d) orcolumn (e) is a passive activity amount for allshareholders.• If line 3, column (d) or column (e) is a loss,

report the loss on the applicable line ofform FTB 3801.

• If income is reported on line 3, column (d)or column (e) and you have no passivelosses, report the California adjustmentfrom column (c) on Schedule CA (540 or540NR).

Line 4 – Portfoli o incom e (loss)Income (loss) referred to as ‘‘portfolio’’ income(loss) in these instructions is not part of apassive activity subject to the rules of IRC

Section 469. Portfolio income includes incomenot derived in the ordinary course of a tradeor business from interest, dividends, annuitiesor royalties and gain (loss) on the sale ofproperty that produces these types of incomeor is held for investment. If you have amountson Schedule K-1 (100S), line 4a throughline 4f, report these amounts as follows:• Line 4a, column (c) and/or column (e) –

Report on Schedule CA (540 or 540NR),line 8 whichever column is applicable;

• Line 4b, column (c) and/or column (e) –Report on Schedule CA (540 or 540NR),line 9 whichever column is applicable;

• Line 4c, column (c) and/or column (e) –Report on Schedule CA (540 or 540NR),line 17 whichever column is applicable;

• Line 4d and line 4e, column (d) or col-umn (e) – Report on Schedule D; and

• Line 4f, column (d) or column (e) – Reporton the applicable schedule.

Caution : Generally, amounts reported online 4d and line 4e are gains or losses attrib-utable to the disposition of property held forinvestment and are therefore classified asportfolio income (loss). If, however, an amountreported on line 4d or line 4e, column (d) orcolumn (e), is a passive activity amount, theS corporation should identify the amount.The S corporation uses line 4f, column (d) orcolumn (e), to report portfolio income otherthan interest, dividend, royalty and capitalgain (loss) income. A statement will beattached to tell you what kind of portfolioincome is reported on line 4f, column (d) orcolumn (e).Line 5 – Net gain (loss)If the amount on line 5 relates to a rentalactivity, the IRC Section 1231 gain (loss) is apassive activity amount.• If the amount is not a passive activity

amount to you, report it on Schedule D-1,Sales of Business Property, line 2,column (g) or column (h), whichever isapplicable. You do not have to completethe information called for in column (b)through column (f). Write ‘‘FromSchedule K-1 (100S)’’ across thesecolumns.

• If a gain is reported on line 5, column (d)or column (e), and it is a passive activityamount to you, report the gain on Sched-ule D-1, line 2, column (h), and refer to‘‘Passive Loss Limitations’’ in the instruc-tions for Schedule D-1.

• If a loss is reported on line 5, column (d)or column (e) and it is a passive activityamount to you, report the gain on Sched-ule D-1, line 2, column (h), and refer to‘‘Passive Loss Limitations’’ in the instruc-tions for Schedule D-1. You will need touse form FTB 3801 to determine howmuch of the loss is allowed on ScheduleD-1.

Line 6 – Other incom e (loss)Amounts on this line are other items ofincome, gain or loss not included on line 1through line 5. The S corporation should giveyou a description of your share for each ofthese items.

Schedule K-1 (100S) 1998 Page 43

Report income or gain items that are passiveactivity amounts to you as instructed below. If,in addition to this passive activity income orgain, you have passive activity losses fromany other source, also report the passiveactivity income or gain on form FTB 3801.Line 6 items may include the following:• S corporation gains from the disposition of

farm recapture property (refer toSchedule D-1) and other items to whichIRC Section 1252 applies;

• Recovery of bad debts, prior taxes anddelinquency amounts (IRC Section 111).Report the amount from line 6, column (c),on Schedule CA (540 or 540NR), line 21whichever column is applicable;

• Gains and losses from gambling (IRCSection 165(d));

• Any income, gain or loss to the S corpora-tion under IRC Section 751(b) from a part-nership. Report this amount onSchedule D-1, line 10;

• Specially allocated ordinary gain (loss).Report this amount on Schedule D-1,line 10;

• Net gain (loss) from involuntary conver-sions due to casualty or theft. The S cor-poration will give you a schedule thatshows the California amounts to beentered on federal Form 4684, Casualtiesand Thefts, line 34, column (b)(i),column (b)(ii) and column (c);

• Net short-term capital gain or loss, netlong-term capital gain or loss, gain or lossfrom Schedule D (100S) that is not portfo-lio income (e.g., gain or loss from the dis-position of nondepreciable personalproperty used in a trade or business activ-ity of the S corporation);

• Any new gain or loss fromIRC Section 1256 contracts; and

• Eligible gain from the sale or exchange ofqualified small business stock (as definedin R&TC Section 18152.5). The S corpora-tion should also give you the name of thecorporation that issued the stock and yourpro rata share of the basis of that stock.

Note: Corporate shareholders are not eligiblefor the R&TC Section 18152.5 exclusion.

DeductionsLine 7 – Charitabl e contributionsThe S corporation will give you a schedulethat shows which contributions were subject tothe 50%, 30% and 20% limitations. For moreinformation, refer to the federal Form 1040instructions.If there is an amount on Schedule K-1 (100S),line 7, column (c), enter this amount onSchedule CA (540 or 540NR), line 37.Lin e 8 – Expens e deduction for recoverypropertyThe maximum amount of expense deductionfor recovery property (IRC Section 179 deduc-tion) that you may claim from all sources is$16,000. The S corporation will give you infor-mation on your share of the cost of the S cor-poration’s IRC Section 179 property so thatyou can compute this limitation. Your IRCSection 179 deduction is also limited to yourtaxable income from all your trades or busi-

nesses. See form FTB 3885A, Depreciationand Amortization Adjustments – Individuals,and federal Publication 534, DepreciatingProperty Placed in Service Before 1987, formore information.If the S corporation reported an EZ, LARZ,LAMBRA or TTA business expense deductionon this line from R&TC Sections 17266,17267.2, 17267.6 or 17268, complete formFTB 3805Z, form FTB 3806, form FTB 3807or form FTB 3809, to report your pro ratashare.Lin e 9 – Deduction s related to portfolioincome (loss)Amounts entered on this line are theexpenses (other than investment interestexpense and expenses from a REMIC) paidor incurred to produce portfolio income. If youhave an amount on Schedule K-1 (100S),line 9, column (c), enter this amount onSchedule CA (540 or 540NR), line 37. How-ever, if any of the line 9 amount should not bereported on Schedule CA (540 or 540NR), theS corporation will identify that amount for you.Line 1 0 – Other deductionsAmounts on this line are other deductions notincluded on line 7 through line 9. If there is anamount on Schedule K-1 (100S), line 10,column (c), enter this amount on the applica-ble line of Schedule CA (540 or 540NR).

Investment InterestLine 11a and Line 11bIf the S corporation paid or accrued intereston debts it incurred to buy or hold investmentproperty, the amount of interest you candeduct may be limited.For more information and the special provi-sions that apply to investment interestexpense, get form FTB 3526, InvestmentInterest Expense Deduction, and the federalPublication 550, Investment Income andExpenses.Lin e 11a – Interes t expense on investmentdebtsEnter the amount from column (d) orcolumn (e) on form FTB 3526 along with yourinvestment interest expense from othersources. Form FTB 3526 will help you deter-mine how much of your total investment inter-est is deductible.Line 11b(1) and Line 11b(2 ) – Investmentincome and investment expensesUse the column (d) or column (e) amounts onthese lines to determine the amount to enteron form FTB 3526, line 4.Caution : The amounts shown on line 11b(1)and line 11b(2) include only investmentincome and expenses included on lines 4a,4b, 4c, 4f and line 9 of this Schedule K-1(100S). The S corporation should attach aschedule that shows you the amount of anyinvestment income and expenses included inany other lines of your Schedule K-1 (100S).Use these amounts, if any, to adjust line11b(1) and line 11b(2) to determine your totalinvestment income and total investmentexpenses from this S corporation. Combinethese totals with investment income and

expenses from all other sources to determinethe amount to enter on form FTB 3526, line 4.

Tax CreditsThe S corporation must provide you the infor-mation needed to compute a credit allowableon your return.Line 12 a – Low-incom e housin g creditYour share of the S corporation’s low-incomehousing credit is shown on line 12a,column (d) or column (e). Any available creditis entered on form FTB 3521, Low-IncomeHousing Credit. To claim this credit, attach acopy of form FTB 3521 to your return.Caution : You may not claim the low-incomehousing credit on any qualified low-incomehousing project for which any person wasallowed any benefit under Section 502 of thefederal Tax Reform Act of 1986. Also, thepassive activity credit limitations of IRC Sec-tion 469 may limit the amount of credit youmay take. Get form FTB 3801-CR, PassiveActivity Credit Limitations, to figure theamount of credit that may be limited under thepassive activity rules.For more information, see the instructions forline 13.Lin e 12b – Credit s related to rental realestate activitiesIf applicable, the S corporation may use thisline, through an attached schedule, to giveyou the information you need to computecredits related to rental real estate activitiesother than the low-income housing credit.For more information, see the instructions forline 13.Lin e 12c – Credit s related to other rentalactivitiesIf applicable, the S corporation will use thisline, through an attached schedule, to giveyou the information you need to computecredits related to rental activities other thanrental real estate activities.For more information, see the instructions forline 13.Line 1 3 – Other creditsIf applicable, the S corporation will use thisline, through an attached schedule, to giveyou the information you need to computecredits related to a trade or business activity.Credits that may be reported on line 12c orline 13 (depending on the type of activity theyrelate to) include but are not limited to:• Enterprise zone hiring & sales or use tax

credit (FTB 3805Z);• Los Angeles Revitalization Zone (LARZ)

hiring & sales or use tax credit(FTB 3806);

• Local Agency Military Base Recovery Area(LAMBRA) hiring & sales or use tax credit(FTB 3807);

• Research credit (FTB 3523);• Manufacturers’ investment credit

(FTB 3535);• Targeted Tax Area (TTA) hiring & sales or

use tax credit (FTB 3809); or• Manufacturing Enhancement Area (MEA)

hiring credit (FTB 3808).

Schedule K-1 (100S) 1998

Note: The at-risk limitations of IRCSection 465, the passive activity limitations ofIRC Section 469 and the pass-through rulesof IRC Section 1366 may limit the amount ofcredits that you may take. Credits on line 12and line 13 may be passive activity credits toshareholders who do not materiallyparticipate.Passive activity credits are limited to tax attrib-utable to passive activities. If you do notmaterially participate in the activities of theS corporation, get form FTB 3801-CR, Pas-sive Activity Credit Limitations, to determinethe amount of the credit you may take.

Adjustments and Tax PreferenceItemsLine 14a through Line 14eUse the information reported on line 14athrough line 14e (as well as adjustments andtax preference items from other sources) toprepare Schedule P (540, 540NR or 541),Alternative Minimum Tax and CreditLimitations.For more information, get federalSchedule K-1 (Form 1120S) instructions forAdjustments and Tax Preference Items.

Other State TaxesLine 15a through Line 15eYou may claim a credit against your individualtax for your share of net income taxes paid bythe S corporation to certain other states whicheither tax the corporation as an S corporationor do not recognize S corporation status. Forpurposes of this credit, net income taxesinclude your share of taxes on, according to,or measured by income.Residents are taxed on their pro rata share ofall income and generally receive a credit fortaxes paid to other states. Nonresidents andpart-year residents use column (e) for yourpro rata share of California source pass-through income.For more information, get CaliforniaSchedule S, Other State Tax Credit.

Other ItemsNote: Amounts on line 16a through line 22may not necessarily be California sourceamounts. However, enter the same amount incolumn (e) as entered in column (d).Line 16a through Line 19Refer to the instructions for federalSchedule K-1 (1120S).Line 20The S corporation must issue a federalForm 1099-DIV to you for this distribution.Report this amount as a taxable dividend onyour individual return.

Line 21Reduce your basis in stock of the S corpora-tion by the distributions on line 21. If thesedistributions exceed your basis in stock, theexcess is treated as gain from the sale orexchange of property and is reported onSchedule D.Line 22If the line 22 payments are made on indebted-ness with a reduced basis, the repaymentsresult in income to you to the extent therepayments are more than the adjusted basisof the loan. See IRC Section 1367(b)(2) forinformation on reduction in basis of a loanand restoration of basis of a loan with areduced basis. See federal RevenueRuling 68-537, 1968-2 C.B. 372, for moreinformation.

Supplemental InformationLine 23The S corporation will provide supplementalinformation required to be reported to you onthis line. If the S corporation is claiming taxbenefits from an EZ, LARZ, LAMBRA, TTA orMEA, it will give you your pro rata share of (1)business income apportioned to the EZ,LARZ, LAMBRA, MEA or TTA, and (2) busi-ness capital gains and losses included in (1)on this line. Get form FTB 3805Z, FTB 3806,FTB 3807, FTB 3808 or FTB 3809 to claimany applicable credit or business expensededuction.The S corporation may have provided anamount showing your proportionate interest inthe S corporation’s aggregate gross receipts,less returns and allowances on Schedule K-1(100S), line 23. Legislation enacted in 1996allows a qualified taxpayer to exclude fromalternative minimum taxable income adjust-ments and items of tax preference attributableto any trade or business. A ‘‘qualified tax-payer’’ is defined as an individual, estate ortrust that:• Is the owner of, or has an ownership inter-

est in a trade or business; and• Has aggregate gross receipts, less returns

and allowances, of less than $1,000,000from all trades or businesses that the tax-payer is an owner of or has an ownershipinterest in, in the amount of that taxpayer’sproportionate interest in each trade orbusiness.

‘‘Aggregate gross receipts, less returns andallowances’’ means the sum of the grossreceipts of the trades or businesses whichyou own and the proportionate interest of thegross receipts of the trades or businesseswhich you own and of pass-through entities inwhich you hold an interest.‘‘Proportionate interest’’ is defined as:

• In the case of a pass-through entity whichreports a profit for the taxable or incomeyear, your profit interest in the entity at theend of your taxable year.

• In the case of a pass-through entity whichreports a loss for the taxable or incomeyear, your loss interest in the entity at theend of your taxable year.

• In the case of a pass-through entity whichis sold or liquidates during the taxable orincome year, your capital account interestin the entity at the time of the sale orliquidation.

‘‘Proportionate interest’’ includes an interest ina pass-through entity including a partnership,S corporation, RIC, REIT or REMIC.For purposes of R&TC Section 17062(b)(4),‘‘gross receipts’’ means the sum of grossreceipts from the production of businessincome (within the meaning of subdivisions (a)and (c) of R&TC Section 25120) and thegross receipts from the production of nonbusi-ness income (within the meaning of subdivi-sion (d) of R&TC Section 25120).‘‘Proportionate interest’’ includes an interest ina pass-through entity. See R&TC Sec-tion 17062 for more information.If the S corporation listed any credit recaptureon this line, see your tax booklet for informa-tion on how to report the credit recapture.Table 1The income data contained in Table 1 is notreflected in column (e) because the source ofsuch income must be determined at theshareholder level. The shareholder must makea determination whether the nonbusinessintangible income item is from a Californiasource.Net nonbusiness income is computed by sub-tracting related nonbusiness expenses fromthe nonbusiness income.Table 2If the shareholder and S corporation areengaged in a single unitary business, theshareholder’s share of the S corporation’sbusiness income is entered on Table 2,Part A. The shareholder will then add thatincome to its own business income andapportion the combined business income.The shareholder’s share of the S corporation’spayroll, property and sales data is in Table 2,Part C. The business income in Table 2,Part A is combined with the taxpayer’s otherbusiness income from the unitary business.The apportionment numerator and denomina-tor data are added to the appropriate numera-tor and denominator of the shareholder’spayroll, property, and sales factors.

FTB 3539 1998 Side 1

DETACH HERE(Calendar year corporations — Due March 15, 1999)(Employees’ trust and IRA — Due April 15, 1999)(Calendar year exempt organizations — Due May 17, 1999)

YEAR Payment Voucher for Automatic Extensionfor Corporations and Exempt Organizations

IF NO PAYMENT IS DUE, DO NOT FILE THIS FORM Payment Voucher 5

1998 3539

Corporation/Exempt organization name

Address

City State ZIP Code

Instructions for Form FTB 3539Automatic Extension for Corporations and Exempt Organizations

General InformationIf a corporation, including real estate investment trusts(REITs), real estate mortgage investment conduits (REMICs),regulated investment companies (RICs) and limited liabilitycompanies (LLCs) treated as corporations, or an exemptorganization in good standing cannot file its California taxreturn by the original due date, a seven month extension tofile will be allowed automatically without filing a writtenrequest. To qualify for the automatic extension, thecorporation’s or exempt organization’s tax return must befiled by the extended due date. The corporation’s powers,rights and privileges must not be suspended or forfeited bythe Franchise Tax Board (FTB) or the California Secretary ofState (SOS) as of the original due date. The extended duedate for corporations is the 15th day of the 10th monthfollowing the close of the income year (fiscal year filers) orOctober 15, 1999 (calendar year filers). The extended duedate for exempt organizations filing Form 199 or Form 109 isthe 15th day of the 12th month following the close of thetaxable year (fiscal year filers) or December 15, 1999(calendar year filers).The extended due date for an employees’ trust defined inIRC Section 401(a) and an IRA filing Form 109 is the 15thday of the 11th month after the end of the income year(fiscal year filers) or November 15, 1999 (calendar yearfilers).An extension of time to file the tax return is not an extensionof time to pay the tax. To avoid late payment penalties andinterest, 100% of the tax liability must be paid by the 15thday of the 3rd month (fiscal year corporations), or the 15thday of the 5th month (fiscal year exempt organizations)following the close of the income year or March 15, 1999(calendar year corporations), or May 17, 1999 (calendar yearexempt organizations). Employees’ trusts and IRAs must pay100% of the tax liability by the 15th day of the 4th monthafter the end of the income year.Complete the Tax Payment Worksheet on Side 2 to see ifadditional tax is due. Send in the voucher only if apayment is due.Save the completed worksheet as a permanent part of thecorporation’s or exempt organization’s tax records along witha copy of the return.

Electronic Funds Transfer (EFT)Corporations or exempt organizations that meet certainrequirements must remit all of their payments through EFTrather than by paper checks. Corporations or exemptorganizations that remit an estimated tax payment orextension payment in excess of $20,000 or that have a totaltax liability in excess of $80,000 in any income yearbeginning on or after January 1, 1995, must pay throughEFT. The FTB will notify corporations or exemptorganizations that are subject to this requirement. If you arean EFT taxpayer, DO NOT USE THIS FORM. Those thatwish to participate on a voluntary basis may do so. For moreinformation, call 1-800-852-2753 or get FTB Pub. 3817,Electronic Funds Transfer Program Information Guide.

Where to FileIf tax is due and the corporation or exempt organization isnot required to use EFT, attach a check or money order forthe tax due to form FTB 3539. Write the Californiacorporation number or FEIN and 1998 FTB 3539 on thecheck or money order. Mail only the voucher portion withthe payment to:


Penalties and InterestIf the corporation or exempt organization fails to pay its totaltax by the original due date, a late payment penalty plusinterest will be added to the tax due. If the corporation orexempt organization does not file its return by the extendeddue date, or the corporation’s powers, rights and privilegeshave been suspended or forfeited by the FTB or theCalifornia SOS, as of the original due date, the automaticextension will not apply and a late filing penalty plus interestwill be assessed from the original due date of the return.

CORP

Taxdue

Type of form filed.

■ Form 100 ■ Form 109

■ Form 100S ■ Form 199

Federal employer identification numberCalifornia corporation number

•,, •,,,, ,, •,, •,,,, ,,

For calendar year 1998 or fiscal year beginning month _______ day ______ year 1998, and ending month _______ day ______ year _______ .

CALIFORNIA FORM

353998109EFT TAXPAYERS, DO NOT USE THIS FORM

Side 2 FTB 3539 1998

TAX PAYMENT WORKSHEET FOR YOUR RECORDS1 Total tentative tax. Include alternative minimum tax if applicable. See instructions . . . . . . . . . . . . . . . . . . . . 12 Estimated tax payments including prior year overpayment applied as a credit . . . . . . . . . . . . . . . . . . . . . . 23 Tax Due. If line 2 is more than line 1, see instructions. If line 1 is more than line 2, subtract line 2 from line 1.

Enter the result here and on form FTB 3539 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Combined ReportsIf members of a combined unitary group have made orintend to make an election to file a Combined Unitary GroupSingle Return, only the key corporation designated to file thereturn should submit form FTB 3539. The key corporationmust include payment of at least the minimum franchise taxfor each corporation of the combined unitary group that issubject to the franchise tax in California.If members of a combined unitary group intend to fileseparate returns with the FTB, each member must submit itsown form FTB 3539 if there is an amount entered on line 3of the worksheet.

Exempt Organizations• Form 100 filers:

The due dates for corporations also apply to the filing ofForm 100, California Corporation Franchise or IncomeTax Return, by political action committees andexempt homeowners’ associations.Political action committees and exempt homeowners’ associations that file Form 100 should not enter theminimum franchise tax on line 1 of the Tax PaymentWorksheet.

• Form 199 Filers:Generally, Form 199, California Exempt OrganizationAnnual Information Return, requires a $10 filing fee to bepaid with the return on the original or extended due date.Use form FTB 3539 only if paying the fee early. Enter theamount of the fee on line 3 of the Tax PaymentWorksheet.

• Form 109 Filers:The due dates for filing Form 109, California ExemptOrganization Business Income Tax Return, dependon the type of organization filing the return. Employees’pension trusts and IRAs (including education IRAs) mustfile on or before the 15th day of the 4th month afterthe close of their income year. All other exemptorganizations (except homeowners’ associations andpolitical organizations) must file on or before the15th day of the 5th month after the close of their incomeyear.

How to Complete the Tax Payment WorksheetLine 1 - Enter the total tentative tax, including the alternative

minimum tax for the income year.• If filing Form 100 or Form 100S, the tentative tax may

not be less than the minimum franchise tax andQualified Subchapter S Subsidiary (QSSS) annual tax(S corporations only).

• If filing Form 109, enter the amount of tax. Form 109 filers are not subject to the minimum franchise tax.

• Qualified New CorporationIf the corporation was a qualified new corporation(QNC) and paid:• $600 prepayment minimum tax to the SOS for

income years commencing on or after January 1,1997 and before January 1, 1999; or

• $300 prepayment minimum tax to the SOS forincome years commencing on or afterJanuary 1, 1999; and/or

• $500 minimum franchise tax for its 2nd taxableyear, for income years beginning on or afterJanuary 1, 1999, for corporations that incorporateon or after January 1, 1999; and

during the income year the corporation did not meet the QNC criteria (see below), then include theappropriate amount(s) on line 1:• $200, if the corporation paid the $600 prepayment

tax to SOS; or• $500, if the corporation paid the $300 prepayment

tax to SOS; and/or• $300, if the corporation paid the $500 minimum

franchise tax for its 2nd taxable year.A qualified new corporation is a corporation that:• Reasonably estimates it will have gross receipts,

less returns and allowances, reportable toCalifornia of $1 million or less during the incomeyear; and

• Reasonably estimates it will have tax liability thatdoes not exceed $800; and

• Did not begin business operations as a soleproprietorship, a partnership, or any other form ofbusiness entity; and

• Began business operations at or after the time ofits incorporation.

Line 2 - Enter the estimated tax payments, including prior yearoverpayment applied as a credit. Also include any QSSSannual tax payments (S corporations only).

Line 3 - Tax due. If the amount on line 2 is more than the amount online 1, the payments and credits are more than the tax. Thecorporation or exempt organization has no tax due. DO NOTSEND THE PAYMENT VOUCHER. The corporation orexempt organization will automatically qualify for anextension if the tax return is filed by the extended due date.If the amount on line 1 is more than the amount on line 2,then the corporation’s or exempt organization’s tax is morethan its payments and credits. The corporation or exemptorganization has tax due.Subtract line 2 from line 1. Enter this amount on line 3 belowand on form FTB 3539.

Letters We can serve you by phone if you call us for information tocomplete your California income tax return, or to find outabout your tax refund. However, you may want to write tous if you are replying to a notice we sent you, or to get awritten reply. If you write to us, be sure to include yourCalifornia corporation number or federal employeridentification number, your daytime and evening telephonenumbers and a copy of the notice with your letter. Sendyour letter to:


We will respond to your letter within 6 to 8 weeks. In somecases, we may need to call you for additional information.

YourRightsAs ATaxpayer

Our goal at the FTB is to make certain that your rights areprotected so that you will have the highest confidence in theintegrity, efficiency and fairness of our state tax system.FTB Pub. 4058, California Taxpayers’ Bill of Rights,includes information on your rights as a California taxpayer,the Taxpayers’ Rights Advocate Program and how you canrequest written advice from the FTB on whether a particulartransaction is taxable.See ‘‘Where to Get Income Tax Forms’’ on this page forhow to get FTB Pub. 4058.

WhereTo GetIncomeTaxForms

GeneralToll-FreePhoneService

Between January 4 – April 15, 1999, our general toll-freephone service is available:• Monday – Friday, 6 a.m. until midnight; and• Saturday, 8 a.m. until 5 p.m.After April 15, 1999, our general toll-free phone service isavailable:• Monday – Friday, 7 a.m. until 8 p.m.The best times to call are before 10 a.m. and after 6 p.m.All times listed are Pacific Standard Time (PST).From within the United States . . . . . . . (800) 852-5711From outside the United States . . . . . . (916) 845-6500

(not toll-free)For hearing impaired with TDD . . . . . . (800) 822-6268For federal tax questions,call the IRS at . . . . . . . . . . . . . . . (800) 829-1040

How To Get California Tax InformationBy Internet – If you have Internet access, you maydownload, view and print 1994 through 1998 Californiaincome tax forms and publications. Our Internet addressis: http://www.ftb.ca.govBy phone – Use F.A.S.T. to order the 1998 California taxforms listed to the right. To order a form on the list:• Call (800) 338-0505 from within the United

States; or• (916) 845-6600 from outside the United States

(not toll-free);• Select bank and corporation income tax form

requests; and• Enter the three-digit code shown to the left of the

form title when you are instructed to do so.We will send you two copies of each tax form and one copyof each set of instructions. Please allow two weeks toreceive your order. If you live outside California, pleaseallow three weeks to receive your order.For prior year California tax forms, call our toll-free numberlisted under ‘‘General Toll-Free Phone Service.’’In person – Most libraries, post offices and banks providefree California personal income tax booklets during the filingseason. Many libraries and some quick print businesseshave forms and schedules for you to photocopy (you mayhave to pay a nominal fee). Note that employees atlibraries, post offices, banks and quick print businessescannot provide tax information or assistance.By mail – Write to: TAX FORMS REQUEST UNIT,FRANCHISE TAX BOARD, PO BOX 307, RANCHOCORDOVA CA 95741-0307.

817 California Corporation Tax Forms and Instructions.This booklet contains:Form 100, California Corporation Franchise or Income

Tax Return; and the following forms which are alsoavailable separately:

821 Schedule P (100), Alternative Minimum Tax andCredit Limitations — Corporations

822 FTB 3885, Depreciation/Amortization807 FTB 3805Q, Net Operating Loss (NOL) Computation

and NOL and Disaster Loss Limitations —Corporations

808 FTB 3539, Payment Voucher for Automatic Extensionfor Corporations and Exempt Organizations

816 California S Corporation Tax Forms and Instructions.This booklet contains:Form 100S, California S Corporation Franchise or

Income Tax Return; and the following forms which arealso available separately:

823 Schedule B(100S), S Corporation Depreciation andAmortization

Schedule C (100S), S Corporation Tax CreditsSchedule H (100S), Dividend IncomeSchedule D (100S), Capital Gains and Losses and

Built-In Gains825 Schedule K-1 (100S), Shareholder’s Share of Income,

Deductions, Credits826 FTB 3830, S Corporation’s List of Shareholders

and Consents808 FTB 3539, Payment Voucher for Automatic Extension

for Corporations and Exempt Organizations814 Form 109, Exempt Organization Business Income

Tax Return818 Form 100-ES, Corporation Estimated Tax813 Form 100X, Amended Corporation Return815 Form 199, Exempt Organization Return819 Schedule R, Apportionment and Allocation of Income812 FTB Pub. 1038, Guide for Corporations Dissolving,

Withdrawing or Merging809 FTB Pub. 1060, Guide for Corporations Starting Business

in California810 FTB Pub. 1061, Guidelines for Corporations Filing a

Combined Report827 Form 100-WE, Water’s-Edge Booklet829 FTB 3564, Authorization of Agent Under Revenue and

Taxation Code Section 19141.6820 FTB Pub. 1068, Exempt Organizations Requirements for

Filing Returns and Paying Filing Fees802 FTB 3500, Exemption Application803 FTB 3555, Request for Tax Clearance804 FTB 3557, Application for Revivor811 FTB 3560, S Corporation Election or

Termination/Revocation806 FTB 5806, Underpayment of Estimated Tax by Corporations800 FTB Pub. 1028, Guidelines for Homeowners’ Associations801 FTB Pub. 1075, Exempt Organizations – Guide for Political

Organizations832 FTB 3555A, Request for Tax Clearance for Exempt

Organizations

California Tax Forms and Publications


Asistencia Bilingu ¨e en Espan ol Para obtener servicios en Espanol y asistencia paracompletar su declaracion de impuestos/formularios, llame alnumero de telefono (anotado arriba) que le corresponde.


Call Fast Answers about State Taxes, the F.A.S.T. toll-free phoneservice you can use to:• Get recorded answers to many of your questions about California

taxes; and• Order current year California bank and corporation tax forms.F.A.S.T. is available in English and Spanish to callers with touch-tonetelephones.

When Is F.A.S.T. Available?To answer your questions, F.A.S.T. is available 24 hours a day, sevendays a week. To order bank and corporation forms F.A.S.T. is avail-able from 6 a.m. to 6 p.m. Monday through Friday, except state holi-days. All times listed are Pacific Standard Time (PST).

How To Use F.A.S.T.Have paper and pencil handy to take notes.Call from within the United States . . . . . . . . . . . (800) 338-0505Call from outside the United States (not toll-free) . . (916) 845-6600Follow the recorded instructions and enter the three-digit code whenyou are instructed to do so.

To Order FormsSee ‘‘Where to Get Income Tax Forms’’ on previous page.

To Get InformationIf you need an answer to any of the following questions, call(800) 338-0505, select general tax information, follow the recordedinstructions and enter the three-digit code when instructed to do so.

Code- Filing Assistance:715 – If my actual tax is less than the minimum franchise tax,

what figure do I put on line 23 of Form 100?717 – What are the current tax rates for corporations?718 – How do I get an extension of time to file?722 – When do I have to file a short-period return?734 – Is my corporation subject to franchise tax or income tax?

S Corporations704 – Is an S corporation subject to the minimum franchise tax?705 – Are S corporations required to file estimate payments?706 – What forms do S corporations file?707 – The tax for my S corporation is less than the minimum

franchise tax. What figure do I put on line 22 of Form 100S?708 – Where do S corporations make adjustment for state and

federal law differences on Schedule K-1(100S) and where dononresident shareholders find their California source income ontheir Schedule K-1(100S)?

Exempt Organizations709 – How do I get tax exempt status?710 – Does an exempt organization have to file Form 199?735 – How can an exempt organization incorporate without

paying corporation fees and costs?736 – I have exempt status. Do I need to file Form 100 or Form 109

in addition to Form 199?

Minimum Tax and Estimate Tax711 – Can I claim my prepayment tax as credit or estimate

payment on my return?712 – What is the minimum franchise tax?714 – My corporation is not doing business; does it have to pay the

minimum franchise tax?716 – When are my estimate payments due?

Billings and Miscellaneous Notices723 – I received a bill for $250. What is this for?728 – Why was my corporation suspended?729 – Why is my subsidiary getting a request for a return when we

file a combined report?

& F.A.S.T. Toll-Free Phone ServiceTax Clearance724 – How do I dissolve my corporation?725 – What do I have to do to get a tax clearance?726 – How long will it take to get a tax clearance certificate?727 – My corporation was suspended/forfeited. Can I still get a

tax clearance?

Miscellaneous700 – Who do I need to contact to start a business?701 – I need a state ID number for my business. Who do I contact?702 – Can you send me an employer’s tax guide?703 – How do I incorporate?719 – How do I properly identify my corporation when dealing with

the Franchise Tax Board?720 – How do I obtain information about changing my corporation’s

name?721 – How do I change my accounting period?737 – Where do I send my payment?738 – What is electronic funds transfer?739 – How do I get a copy of my state corporate tax return?740 – What requirements do I have to report municipal bond interest

paid by a state other than California?750 – How do I organize or register an LLC?751 – How do I cancel my registration as an LLC?752 – What tax forms do I use to file as an LLC?758 – If a corporation converted to an LLC during the current year, is

the corporation liable for tax as a corporation and an LLCtax/fee in the same year?

District OfficesYou can get information, California tax forms and resolve problems onyour account if you visit one of our district offices.

District Office AddressBakersfield 1800 30th Street, Suite 370Burbank 333 N. Glenoaks Boulevard, Room 200Fresno 2550 Mariposa Street, Room 3002Long Beach 4300 Long Beach Boulevard, Suite 700BLos Angeles 300 S. Spring Street, Suite 5704Oakland 1515 Clay Street, Suite 3N-305Sacramento 3321 Power Inn RoadSan Bernardino 464 W. 4th Street, Suite 454San Diego 5353 Mission Center Road, Suite 314San Francisco 50 Fremont Street, Suite 900San Jose 96 N. Third Street, 4th FloorSanta Ana 600 W. Santa Ana Boulevard, Suite 300Santa Rosa 50 D Street, Room 130Stockton 31 East Channel Street, Room 219Ventura 4820 McGrath Street, 2nd FloorWest Covina 100 N. Barranca Street, Room 600

Out of State OfficesChicago 1 N. Franklin, Suite 400

Chicago, IL 60606-3401Long Island 1325 Franklin Avenue, Suite 560

Garden City, NY 11530Houston 1415 Louisiana, Suite 1515

Houston, TX 77002-7351Manhattan 1212 Avenue of the Americas, 4th Floor

New York, NY 10036-1601

RecycledRecyclable

Forms & Instructions - ftb.ca.gov · Page 2 Form 100S Booklet 1998 Instructions for Form 100S...

Documents

Transcript of Forms & Instructions - ftb.ca.gov · Page 2 Form 100S Booklet 1998 Instructions for Form 100S...