California FTB Issues Decision on Deferred Intercompany Stock Distributions

The California Franchise Tax Board (FTB) issued a legal ruling on the effect of the distribution of a Deferred Intercompany Stock Account (DISA) in a nonrecognition transaction under IRC section 355. FTB held that after a distribution of stock from a subsidiary corporation within the same combined reporting group, where there is a DISA attributable to the distributed stock, the DISA balance will be reduced by the receiving corporation’s allocated basis in the distributed stock under Internal Revenue Code section 358. If the DISA balance is fully reduced by the allocated basis, there is no income recognized on a subsequent ...