Tuesday, November 21, 2017

Louisiana Estates

What is Estate Planning?

"Estate Planning" is a broad concept that encompasses concepts of financial and family planning for you and your family. It is lifetime planning that includes caring for the needs of your minor children to the issues faced later in life by the elderly and everything in between. Some of the areas of law include planning for disability (yours, your children, parents), estate and income tax planning, protecting the assets you acquired through years of hard work, making gifts to family and much more. Below is a list of only some of the planning techniques that may be implemented to accomplish your goals:

1. Last Will & Testament;
2. Financial Power of Attorney;
3. Medical Power of Attorney;
4. Revocable Living Trusts;
5. Estate Tax Planning for larger estates;
6. Irrevocable Trusts;
7. Planning with Life Insurance; and
8. Retirement Planning;

In addition to some of the more typical estate planning and financial planning techniques enumerated above, there are numerous other considerations, planning techniques and individual circumstances to consider in crafting an estate and financial plan. Every person's circumstances are different and should be examined with experienced legal counsel to determine the best course of action.

What are Louisiana Probate and Succession Proceedings?

In layman's terms, Estate Probate is the court procedure whereby a testament (Last Will) is authenticated, filed and ordered executed. Probate procedure involves a Last Will. Louisiana Succession procedure is the broader proceeding involving the transmission of property of the estate to the heirs or legatees. A Louisiana succession takes place whether there is or is not a Last Will. Many people in Louisiana use the terms as synonymous, although they are not. If a person dies without a Last Will, then the succession is "intestate", whereas it is considered a "testate succession" where a Will is being submitted for probate.

Louisiana has many concepts that are either in the minority or do not exist in other states, for example, community property, forced heirship and usufruct.

LOUISIANA COMMUNITY PROPERTY LAWS AFFECTING ESTATE PLANNING

The laws of the individual states vary with regard to property ownership, inheritance rights and techniques available to leave property to your heirs at death. Louisiana has a number of concepts that are unique and that are not found in other states. As an example, the term "usufruct" is used herein. Very generally this is a right of use and enjoyment over property and the right to receive all income therefrom. Another person would "own" the property, subject to this right of usufruct. This type of fragmented ownership does not exist in other states. Forced heirship is also a concept unique to Louisiana. These are but two examples of how Louisiana's laws differ from other states. Louisiana also has a system of ownership between married persons known as "community property." Not all property owned by a married couple is classified as community property as we will see below.

PROPERTY OWNERSHIP CLASSIFICATIONS

The form of ownership of property impacts estate and retirement planning. In Louisiana the basic forms of ownership are separate property and community property. If you are not married, then all property which you own is separate property. The community ownership classification should not be confused with status as a co-owner or owner in in-division. For example, you may own an undivided one-half (1/2) interest in a piece of real estate with another person, such as another family member. This typically happens where you inherited property from family. Although you do not have full ownership in the entire piece of real estate, you do have separate ownership over your undivided one-half (1/2) interest. Forms of ownership in other states such as "tenancy in common with right of survivorship" and "tenancy by the entirety" are not recognized in Louisiana.

If you are domiciled in this state and married, Louisiana's Community Property Regime would apply, unless excluded or modified by agreement. But of course, a married person may also own separate property. If you and your spouse have community property, each of you own a present undivided one-half (1/2) interest in the specific asset.

The ability of each spouse to sell, lease or mortgage community property depends upon the type of property. In some cases, one spouse can manage or dispose of community property, whereas in other cases the concurrence of both may be necessary. For example, both spouses must concur to alienate, mortgage or lease community real estate such as their home. On the other hand, a spouse has the sole right to alienate, mortgage or lease a movable registered in his or her name, e.g. a car registered in your name. Below is an overview of what is included in community and separate property classifications.

Separate Property

Separate property includes, but is not limited to, the following:

  • Property acquired prior to marriage.
  • Property classified as separate property under a valid marriage contract.
  • Inheritances or donations made to a spouse individually.

Everything not classified as separate property is classified as community. There are a few less common separate property classifications which have not been listed herein. If you find yourself in a situation where classification is important, seek competent legal advice to make this determination.

Community Property

The community classification is very broad, and as indicated above, it generally includes all property not classified as separate. It specifically includes the following:

  • All property acquired during the marriage is generally presumed to be community. Proof that such is not the case could be given. This is a very important presumption and it places the burden upon the person alleging to the contrary.
  • Property donated to the spouses jointly would usually be classified as community property.
  • Income from separate property is usually classified as community income unless a declaration reserving this income as separate is properly executed and filed. This item sometimes comes a surprise to people who own a substantial amount of separate property.
  • All property not classified as separate property.

The community property classification is broad and encompasses even ownership of qualified plan benefits accrued during marriage. However, federal law significantly affects recognition of these rights to the non-employee spouse. The interrelationship between federal and state law for this type of asset is at best confusing and requires close scrutiny on a case by case basis. Even life insurance acquired during marriage may be so classified, but the rules on classification of life insurance are somewhat different and this asset is more difficult to classify. There are some exceptions, but the general rule is community ownership. Beneficiary designations will also be of utmost importance and must be examined in crafting an estate plan.

Conclusion

Property ownership classification is important in several contexts, including divorce, estate planning and succession proceedings.

 

INHERITANCE RIGHTS WITHOUT A WILL

Once a determination is made as to what is included in your estate you need to examine how the State of Louisiana will distribute your property if you do not write a testament or otherwise validly dispose of your property in some other manner. When you have not written a Last Will, the succession is considered "intestate". If you have written a Will, your succession is "testate".

The following discussion concerns how your separate property would be distributed in an intestate succession, i.e., without a Last Will. Below that is a discussion about community property inheritance rights in intestate succession.

Separate Property Inheritance Rights

The order of inheritance of separate property provides for each classification of heirs to inherit to the exclusion of all others. The rules for separate property are as follows. If you die with descendants, then they will inherit all separate property to the exclusion of all others. If you do not have any descendants, then your separate property (even if you are married) will be inherited by your siblings (or their children i.e. your nieces and nephews if the sibling predeceased you), subject to a usufruct in favor of the decedent's surviving parent or parents. If you have no surviving parents, then your siblings or their child or children by representation would inherit in full ownership. This order of inheritance is to the exclusion of any rights in the surviving spouse.

Undivided Ownership of Property

It must be born in mind that each of your heirs will receive an undivided ownership in the same piece of property. This can often lead to family problems and you should consider whether your testament should provide for a different distribution. For example, perhaps stock in a closely held family business should be left in a will to the child that helped to make the business a success and different assets left to your other child or children. Alternatively, a corporate stock purchase agreement (Buy-Sell Agreement) could also accomplish this goal.

Surviving Spouse Inheritance Rights (lack thereof) in Louisiana Separate Property

The most striking realization is that where separate property is involved your spouse has absolutely no rights in the property or any of it's income, unless you have no children, grandchildren, brothers, sisters, nieces, nephews or parents surviving. This can sometimes cause an unfortunate and unanticipated result. Of course, this method of distribution by the state is used where you have not written a Last Will to provide a different distribution method. Depending upon the application of forced heirship, often a substantial amount of flexibility is available in crafting an estate plan.

Louisiana Community Property Inheritance Rights

We will now examine how the State of Louisiana would distribute your undivided one-half(1/2) share of community property in the absence of a testament, which would be as follows:

If you die with descendants your surviving spouse would inherit a usufruct (right to use, enjoyment and income) over your share community property, which would terminate upon the earlier of death or remarriage. There are several important points to consider here. First, is it your desire that the usufruct terminate upon remarriage or would you like your spouse to have these rights for life? Second, in a second or third marriage situation where the survivor is not the mother or father of your children, he or she would still have this usufruct. This can often create tension between your children and your spouse. Third, in this situation the children would have the right to demand that your spouse put up security for the usufruct. This can create additional tension in their relationship, but if the children do not take advantage of the right to demand security, then their right to ultimately receive the property may suffer. Fourth, the Louisiana usufruct (unless confirmed for life) does not qualify for the federal marital deduction, discussed in later chapters on the federal estate tax. This failure to qualify for the marital deduction could result in unnecessary federal estate tax liability. All of the above can be changed in your Last Will or Testament to provide as you desire. For example, the usufruct to the surviving spouse could be confirmed for life. This lifetime usufruct may qualify for the federal martial deduction and will protect the surviving spouse.

Numerous other possibilities exist for planning in a Will. Personal preference and tax ramifications must be examined prior to a decision being made. For example, if forced heirship has no application, you may leave all property to the surviving spouse. Doing so could have adverse tax consequences under some circumstances, but this is usually the case only in large estates. As with all planning, each individual situation must be examined prior to making a decision. Only then can an informed decision be made.

Minors and the Infirm

A very important aspect of Louisiana's inheritance laws is the receipt of property by minors and physically or mentally handicapped persons. Because of their legal incapacity, these persons may not be able to represent themselves and a tutor or curator will have to be appointed for this purpose. Often, this is a costly and cumbersome proceeding which requires court intervention. Court intervention and its associated costs can be avoided or diminished by the establishment of a trust on behalf of the child or incompetent person. Such a trust could be a testamentary trust established in a Will or a trust created during lifetime. In any event, a trustee would manage the trust property without the problems of court delays, court approvals of the trustees actions and the associated costs could be avoided or reduced.

Establishment of such trusts are highly recommended under the appropriate circumstances. It is common in Wills to have certain pieces of property left to certain specified individuals such as family members or friends. This can sometimes avoid disputes between family members or accomplish other goals such as passing on a family business to those that have worked to help build it. Special circumstances may also make it desirable or even necessary to leave a greater amount of property to one person or another, for example an incapacitated child. All of this can usually be accomplished by a property drafted Last Will & Testament.

Assets usually not controlled in your Last Will

Certain assets are not controlled by Louisiana's method of distribution. The most typical are life insurance, qualified retirement plan proceeds and IRAs. The beneficiary designations which you execute will usually control their disposition. As with most legal matters, each individual situation must be examined to make these types of determinations.

 

What is Forced Heirship:

Louisiana is the only state in the United States that has the institution of forced heirship. In the past, Louisiana law provided that all children (and descendants of a predeceased child) were classified as forced heirs. The new laws provide much more testamentary freedom (to leave your property to others) by restricting the persons that will be classified as forced heirs. A portion of the estate referred to as the "disposable portion" is not subject to the claims of forced heirs. If there are no forced heirs, then testamentary freedom is available over the entire estate. If there is one forced heir, the disposable portion is 3/4ths of the estate. With two or more forced heirs, the disposable portion is one-half of the estate.

There are now only two major categories of forced heirs, being 1) children under 24 years old and 2) certain disabled children regardless of age. There is a sub-category of forced heir where your child has predeceased you making classifying children of the predeceased child (decedent's grandchildren) forced heirs.

If at the time of your death a predeceased child would have been under 24 years of age, your grandchildren (children of the predeceased child), if any, would be classified as forced heirs of your succession at your death. A disabled child of a predeceased child may also be so classified. As these rules are complex, always check with a licensed Louisiana Estate Planning Lawyer when in doubt.

What share is a forced heir entitled to? The share received by a forced heir is one-fourth (1/4) if there is one forced heir and one-half (1/2) if there are two or more forced heirs. See the discussion above on the disposable portion. If the forced heir is entitled to a forced share which is larger than his intestate (without a Will) share, then the smaller intestate share is the forced portion. This rule would apply where there are more than 4 forced heirs. The forced share may be burdened by a usufruct (in layman's terms, a right of use and right to income) in favor of the surviving spouse. This provides a planning opportunity for married couples with young children or others classifed as forced heirs.

If you do have forced heirs and the forced heir is not given the portion or quantum of the estate to which he or she is entitled, the forced heir can reduce the amount of other donations to obtain the forced portion. Example: Father (F) has five children from a prior marriage being Cl, C2, C3, C4 and C5. Cl is 32 years old and is a successful physician. C2 is 30 years old and suffers severe mental retardation. C3 is 29 years old and although he has full legal capacity he is unskilled for any gainful employment. C4 is predeceased, having died in an automobile accident at age 27. C4 was married, but her spouse was also killed in the accident and they left a daughter (GD) (F's granddaughter), who is a minor. C5 is 22 years old and is a senior in chemical engineering. Under current law, Cl, C3 and C4 will not be classified as forced heirs. Nor will C5's daughter (F's granddaughter), even though she would have been so classified under old law and although she may suffer severe financial hardship. C2 and C5 will be classified as forced heirs, although C5 may be self-sufficient with a bright future, whereas C2 likely requires financial assistance. Clearly, hardship and inequity can result in many situations as indicated by this example. Note:

In calculating the amount of the forced portion, some very important assets are not considered. An important item not considered is premiums paid for insurance on the life of the donor and proceeds from such life insurance payable to a beneficiary other than the estate. Also excluded will be employer and employee contributions and benefits payable by reason of death, disability, retirement and termination of employment under Individual Retirement Accounts or Annuities (IRA's) or Qualified Retirement Plans, such as Pension and Profit Sharing Plans. A similar rule exists for deferred compensation plans for a public or government employer. However, the proceeds from life insurance, qualified plans and IRA's can be used to satisfy the forced portion.

Every family and factual situation is unique and competent legal advice should be sought when these types of issues arise.

California Conformity Act of 2015

On September 30, 2015, AB 154, the Conformity Act of 2015 was enacted in California. The Act concerns California’s conformity to the Internal Revenue Code, and changes the conformity date from January 1, 2009, to January 1, 2015. California’s conformity, and exceptions to conformity, affects numerous substantive tax laws with respect to the areas of personal and corporation taxes.

REVENUE AND TAXATION CODE section 23038

General Conformity about Disregarded Entities between the Federal Law and California

In general, an entity's separate existence will be disregarded in California if it is qualified to be classified as a disregarded entity under Federal Law. There are a few specified exceptions excluded expressly by Section 23038(b)(2)(B)(iii). Other than those specific exceptions, "disregarded for federal tax purposes" always means that "the separate existence of that business entity shall be disregarded for purposes of this part, ..." [ie., for all other purposes of the Corporation Tax Law, the Personal Income Tax Law (including the Limited Liability Company Tax Law) and the Administration of the Franchise Tax Law, respectively, comprising Part 11, Part 10, and Part 10.2 in Division 2 of the California Revenue and Taxation Code].

23038(b)(2)(B)(iii)

California Revenue and Taxation Code Section 23038(b)(2)(B)(iii) reads:

If the separate existence of an eligible business entity is disregarded for federal tax purposes, the separate existence of that business entity shall be disregarded for purposes of this part [ie., this is referring to Part 11, the "Corporation Tax Law" from Section 23001 to Section 25120, inclusive], Part 10 (commencing with Section 17001), and Part 10.2 (commencing with Section 18401), other than Section 17941 (relating to the tax of a limited liability company), Section 17942 (relating to the fee of a limited liability company), Section 18633.5 (relating to the return of a limited liability company), and Sections 17039 and 23036 (relating to tax credits).

Section 23038(b) Requires Section 23101 to Disregard the Entity

Section 23101 is within the "Corporation Tax Law" and as such, Section 23038(b) states that "the separate existence of that business entity shall be disregarded for purposes of this part ... [eg., Section 23101]."

Inapplicability of the Express Exceptions

In Section 23038(b)(2)(B)(iii), there are express, specific exceptions. A disregarded entity under federal law should be disregarded in California except to the extent treated differently under one of those exceptions.

REVENUE AND TAXATION CODE section 17941(a)

California Revenue and Taxation Code Section 17941(a) reads:

For each taxable year beginning on or after January 1, 1997, a limited liability company doing business in this state (as defined in Section 23101) shall pay annually to this state a tax for the privilege of doing business in this state in an amount equal to the applicable amount specified in subdivision (d) of Section 23153 for the taxable year.

Disregarded Entity Not Doing Any Actual Business

Section 17941 and Section 17942 levy taxes only if a disregarded entity directly or through an agent or contractor "does business" (ie., on account of a business transaction of its own, as distinguished from receiving a pass-through.

REVENUE AND TAXATION CODE section 23101

As defined in Section 23101 of the California Revenue and Taxation Code, "doing business" in the State of California means the following:

23101. (a) "Doing business" means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.

(b) For taxable years beginning on or after January 1, 2011, a taxpayer is doing business in this state for a taxable year if any of the following conditions has been satisfied:

  • (1) The taxpayer is organized or commercially domiciled in this state.

  • (2) Sales, as defined in subdivision (e) or (f) of Section 25120 as applicable for the taxable year, of the taxpayer in this state exceed the lesser of five hundred thousand dollars ($500,000) or 25 percent of the taxpayer's total sales. For purposes of this paragraph, sales of the taxpayer include sales by an agent or independent contractor of the taxpayer. For purposes of this paragraph, sales in this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by regulations under Section 25137.

  • (3) The real property and tangible personal property of the taxpayer in this state exceed the lesser of fifty thousand dollars ($50,000) or 25 percent of the taxpayer's total real property and tangible personal property. The value of real and tangible personal property and the determination of whether property is in this state shall be determined using the rules contained in Sections 25129 to 25131, inclusive, and the regulations thereunder, as modified by regulation under Section 25137.

  • (4) The amount paid in this state by the taxpayer for compensation, as defined in subdivision (c) of Section 25120, exceeds the lesser of fifty thousand dollars ($50,000) or 25 percent of the total compensation paid by the taxpayer. Compensation in this state shall be determined using the rules for assigning payroll contained in Section 25133 and the regulations thereunder, as modified by regulations under Section 25137.

  • (c) (1) The Franchise Tax Board shall annually revise the amounts in paragraphs (2), (3), and (4) of subdivision (b) in accordance with subdivision (h) of Section 17041.

    (2) For purposes of the adjustment required by paragraph (1), subdivision (h) of Section 17041 shall be applied by substituting "2012" in lieu of "1988."

  • (d) The sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. For purposes of this subdivision, "pass-through entities" means a partnership or an "S" corporation.
  • Disregarded entity for Purposes of Section 23101

    Section 23101 is not listed in Section 23038(b)(2)(B)(iii) as one of the express exceptions to treating disregarded entities as disregarded. Section 23101 is therefore required by Section 23038(b) to treat all disregarded entities for federal tax purposes as disregarded for Section 23101 purposes.

    REVENUE AND TAXATION CODE section 23037

    23037. "Taxpayer" means any person subject to the tax imposed under Chapter 2 (commencing with Section 23101), Chapter 2.5 (commencing with Section 23400), or Chapter 3 (commencing with Section 23501).

    Inapplicability of the Term "Taxpayer"

    The term "taxpayer" is defined in Section 23037 to mean any person responsible for paying taxes. A disregarded entity is not responsible for paying taxes, and therefore the "taxpayer" under Section 23101(d) cannot also be a disregarded entity.

    REVENUE AND TAXATION CODE section 17941(d)

    California Revenue and Taxation Code Section 17941(d) reads:

    For purposes of this section, “limited liability company” means an organization ... that is formed by one or more persons under the law of this state, any other country, or any other state, as a “limited liability company” and that is not taxable as a corporation for California tax purposes.

    Section 17941 Not Applicable to S Corporations

    The S corporation never passes through any tax liability under Section 17941 to any shareholder because Section 17941(d) expressly excludes every limited liability company taxed as a corporation.

    REVENUE AND TAXATION CODE section 17942

    California Revenue and Taxation Code Section 17942 reads as follows:

    17942.

    (a) In addition to the tax imposed under Section 17941, every limited liability company subject to tax under Section 17941 shall pay annually to this state a fee equal to:

    (1) Nine hundred dollars ($900), if the total income from all sources derived from or attributable to this state for the taxable year is two hundred fifty thousand dollars ($250,000) or more, but less than five hundred thousand dollars ($500,000).

    (2) Two thousand five hundred dollars ($2,500), if the total income from all sources derived from or attributable to this state for the taxable year is five hundred thousand dollars ($500,000) or more, but less than one million dollars ($1,000,000).

    (3) Six thousand dollars ($6,000), if the total income from all sources derived from or attributable to this state for the taxable year is one million dollars ($1,000,000) or more, but less than five million dollars ($5,000,000).

    (4) Eleven thousand seven hundred ninety dollars ($11,790), if the total income from all sources derived from or attributable to this state for the taxable year is five million dollars ($5,000,000) or more.

    (b)

    (1)

    (A) For purposes of this section, “total income from all sources derived from or attributable to this state” means gross income, as defined in Section 24271, plus the cost of goods sold that are paid or incurred in connection with the trade or business of the taxpayer.  However, “total income from all sources derived from or attributable to this state” shall not include allocation or attribution of income or gain or distributions made to a limited liability company in its capacity as a member of, or holder of an economic interest in, another limited liability company if the allocation or attribution of income or gain or distributions are directly or indirectly attributable to income that is subject to the payment of the fee described in this section.

    (B) For purposes of this section, “total income from all sources derived from or attributable to this state” shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by regulations under Section 25137, other than those provisions that exclude receipts from the sales factor.

    (2) In the event a taxpayer is a commonly controlled limited liability company, the total income from all sources derived from or attributable to this state, taking into account any election under Section 25110, may be determined by the Franchise Tax Board to be the total income of all the commonly controlled limited liability company members if it determines that multiple limited liability companies were formed for the primary purpose of reducing fees payable under this section.  A determination by the Franchise Tax Board under this subdivision may only be made with respect to one limited liability company in a commonly controlled group.  However, each commonly controlled limited liability company shall be jointly and severally liable for the fee.  For purposes of this section, commonly controlled limited liability companies shall include the taxpayer and any other partnership or limited liability company doing business (as defined in Section 23101) in this state and required to file a return under Section 18633 or 18633.5, in which the same persons own, directly or indirectly, more than 50 percent of the capital interests or profits interests.

    REVENUE AND TAXATION CODE section 18633.5(i)(1)

    Every limited liability company doing business in this state, organized in this state, or registered with the Secretary of State, that is disregarded pursuant to Section 23038 shall file a return that includes information necessary to verify its liability under Sections 17941 and 17942, provides its sole owner's name and taxpayer identification number, includes the consent of the owner to California tax jurisdiction, and includes other information necessary for the administration of this part, Part 10 (commencing with Section 17001), or Part 11 (commencing with Section 23001).

    REVENUE AND TAXATION CODE section 17039

    17039.

    (a) Notwithstanding any provision in this part to the contrary, for the purposes of computing tax credits, the term "net tax" means the tax imposed under either Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to lump-sum distributions) less the credits allowed by Section 17054 (relating to personal exemption credits) and any amount imposed under paragraph (1) of subdivision (d) and paragraph (1) of subdivision (e) of Section 17560. Notwithstanding the preceding sentence, the "net tax" shall not be less than the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions), if any. Credits shall be allowed against "net tax" in the following order:

    (1) Credits that do not contain carryover or refundable provisions, except those described in paragraphs (4) and (5).

    (2) Credits that contain carryover provisions but do not contain refundable provisions, except for those that are allowed to reduce "net tax" below the tentative minimum tax, as defined by Section 17062.

    (3) Credits that contain both carryover and refundable provisions.

    (4) The minimum tax credit allowed by Section 17063 (relating to the alternative minimum tax).

    (5) Credits that are allowed to reduce "net tax" below the tentative minimum tax, as defined by Section 17062.

    (6) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).

    (7) Credits that contain refundable provisions but do not contain carryover provisions.

    The order within each paragraph shall be determined by the Franchise Tax Board.

    (b) Notwithstanding the provisions of Sections 17061 (relating to refunds pursuant to the Unemployment Insurance Code) and 19002 (relating to tax withholding), the credits provided in those sections shall be allowed in the order provided in paragraph (6) of subdivision (a).

    (c)

    (1) Notwithstanding any other provision of this part, no tax credit shall reduce the tax imposed under Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions) below the tentative minimum tax, as defined by Section 17062, except the following credits:

    (A) The credit allowed by Section 17052.2 (relating to teacher retention tax credit).

    (B) The credit allowed by former Section 17052.4 (relating to solar energy).

    (C) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on January 1, 1987).

    (D) The credit allowed by former Section 17052.5 (relating to solar energy, repealed on December 1, 1994).

    (E) The credit allowed by Section 17052.12 (relating to research expenses).

    (F) The credit allowed by former Section 17052.13 (relating to sales and use tax credit).

    (G) The credit allowed by former Section 17052.15 (relating to Los Angeles Revitalization Zone sales tax credit).

    (H) The credit allowed by Section 17052.25 (relating to the adoption costs credit).

    (I) The credit allowed by Section 17053.5 (relating to the renter' s credit).

    (J) The credit allowed by former Section 17053.8 (relating to enterprise zone hiring credit).

    (K) The credit allowed by former Section 17053.10 (relating to Los Angeles Revitalization Zone hiring credit).

    (L) The credit allowed by former Section 17053.11 (relating to program area hiring credit).

    (M) For each taxable year beginning on or after January 1, 1994, the credit allowed by former Section 17053.17 (relating to Los Angeles Revitalization Zone hiring credit).

    (N) The credit allowed by Section 17053.33 (relating to targeted tax area sales or use tax credit).

    (O) The credit allowed by Section 17053.34 (relating to targeted tax area hiring credit).

    (P) The credit allowed by Section 17053.49 (relating to qualified property).

    (Q) The credit allowed by Section 17053.70 (relating to enterprise zone sales or use tax credit).

    (R) The credit allowed by Section 17053.74 (relating to enterprise zone hiring credit).

    (S) The credit allowed by Section 17054 (relating to credits for personal exemption).

    (T) The credit allowed by Section 17054.5 (relating to the credits for a qualified joint custody head of household and a qualified taxpayer with a dependent parent).

    (U) The credit allowed by Section 17054.7 (relating to the credit for a senior head of household).

    (V) The credit allowed by former Section 17057 (relating to clinical testing expenses).

    (W) The credit allowed by Section 17058 (relating to low-income housing).

    (X) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 17059.2 (relating to GO-Biz California Competes Credit).

    (Y) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).

    (Z) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).

    (AA) The credit allowed by Section 19002 (relating to tax withholding).

    (AB) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 17053.86 (relating to the College Access Tax Credit Fund).

    (AC) For taxable years beginning on or after January 1, 2017, the credit allowed by Section 17053.87 (relating to the College Access Tax Credit Fund).

    (2) Any credit that is partially or totally denied under paragraph (1) shall be allowed to be carried over and applied to the net tax in succeeding taxable years, if the provisions relating to that credit include a provision to allow a carryover when that credit exceeds the net tax.

    (d) Unless otherwise provided, any remaining carryover of a credit allowed by a section that has been repealed or made inoperative shall continue to be allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.

    (e)

    (1) Unless otherwise provided, if two or more taxpayers (other than husband and wife) share in costs that would be eligible for a tax credit allowed under this part, each taxpayer shall be eligible to receive the tax credit in proportion to his or her respective share of the costs paid or incurred.

    (2) In the case of a partnership, the credit shall be allocated among the partners pursuant to a written partnership agreement in accordance with Section 704 of the Internal Revenue Code, relating to partner's distributive share.

    (3) In the case of a husband and wife who file separate returns, the credit may be taken by either or equally divided between them.

    (f) Unless otherwise provided, in the case of a partnership, any credit allowed by this part shall be computed at the partnership level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit shall be applied to the partnership and to each partner.

    (g)

    (1) With respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any taxable year attributable to the disregarded business entity shall be limited in accordance with paragraphs (2) and (3).

    (2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer's "net tax," as defined in subdivision (a), for the taxable year shall be limited to an amount equal to the excess of the taxpayer's regular tax (as defined in Section 17062), determined by including income attributable to the disregarded business entity that generated the credit or credit carryover, over the taxpayer's regular tax (as defined in Section 17062), determined by excluding the income attributable to that disregarded business entity. No credit shall be allowed if the taxpayer's regular tax (as defined in Section 17062), determined by including the income attributable to the disregarded business entity, is less than the taxpayer's regular tax (as defined in Section 17062), determined by excluding the income attributable to the disregarded business entity.

    (3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any taxable year, the excess amount may be carried over to subsequent taxable years pursuant to subdivisions (c) and (d).

    (h)

    (1) Unless otherwise specifically provided, in the case of a taxpayer that is a partner or shareholder of an eligible pass-thru entity described in paragraph (2), any credit passed through to the taxpayer in the taxpayer's first taxable year beginning on or after the date the credit is no longer operative may be claimed by the taxpayer in that taxable year, notwithstanding the repeal of the statute authorizing the credit prior to the close of that taxable year.

    (2) For purposes of this subdivision, "eligible pass-thru entity" means any partnership or "S" corporation that files its return on a fiscal year basis pursuant to Section 18566, and that is entitled to a credit pursuant to this part for the taxable year that begins during the last year the credit is operative.

    (3) This subdivision shall apply to credits that become inoperative on or after the operative date of the act adding this subdivision.

    REVENUE AND TAXATION CODE section 23036

    23036.

    (a)

    (1) The term "tax" includes any of the following:

    (A) The tax imposed under Chapter 2 (commencing with Section 23101).

    (B) The tax imposed under Chapter 3 (commencing with Section 23501).

    (C) The tax on unrelated business taxable income, imposed under Section 23731.

    (D) The tax on "S" corporations imposed under Section 23802.

    (2) The term "tax" does not include any amount imposed under paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of subdivision (f) of Section 24667.

    (b) For purposes of Article 5 (commencing with Section 18661) of Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4, Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7 (commencing with Section 19501) of Part 10.2, and for purposes of Sections 18601, 19001, and 19005, the term "tax" also includes all of the following:

    (1) The tax on limited partnerships, imposed under Section 17935, the tax on limited liability companies, imposed under Section 17941, and the tax on registered limited liability partnerships and foreign limited liability partnerships imposed under Section 17948.

    (2) The alternative minimum tax imposed under Chapter 2.5 (commencing with Section 23400).

    (3) The tax on built-in gains of "S" corporations, imposed under Section 23809.

    (4) The tax on excess passive investment income of "S" corporations, imposed under Section 23811.

    (c) Notwithstanding any other provision of this part, credits are allowed against the "tax" in the following order:

    (1) Credits that do not contain carryover provisions.

    (2) Credits that, when the credit exceeds the "tax," allow the excess to be carried over to offset the "tax" in succeeding taxable years, except for those credits that are allowed to reduce the "tax" below the tentative minimum tax, as defined by Section 23455. The order of credits within this paragraph shall be determined by the Franchise Tax Board.

    (3) The minimum tax credit allowed by Section 23453.

    (4) Credits that are allowed to reduce the "tax" below the tentative minimum tax, as defined by Section 23455.

    (5) Credits for taxes withheld under Section 18662.

    (d) Notwithstanding any other provision of this part, each of the following applies:

    (1) A credit may not reduce the "tax" below the tentative minimum tax (as defined by paragraph (1) of subdivision (a) of Section 23455), except the following credits:

    (A) The credit allowed by former Section 23601 (relating to solar energy).

    (B) The credit allowed by former Section 23601.4 (relating to solar energy).

    (C) The credit allowed by former Section 23601.5 (relating to solar energy).

    (D) The credit allowed by Section 23609 (relating to research expenditures).

    (E) The credit allowed by former Section 23609.5 (relating to clinical testing expenses).

    (F) The credit allowed by Section 23610.5 (relating to low-income housing).

    (G) The credit allowed by former Section 23612 (relating to sales and use tax credit).

    (H) The credit allowed by Section 23612.2 (relating to enterprise zone sales or use tax credit).

    (I) The credit allowed by former Section 23612.6 (relating to Los Angeles Revitalization Zone sales tax credit).

    (J) The credit allowed by former Section 23622 (relating to enterprise zone hiring credit).

    (K) The credit allowed by Section 23622.7 (relating to enterprise zone hiring credit).

    (L) The credit allowed by former Section 23623 (relating to program area hiring credit).

    (M) The credit allowed by former Section 23623.5 (relating to Los Angeles Revitalization Zone hiring credit).

    (N) The credit allowed by former Section 23625 (relating to Los Angeles Revitalization Zone hiring credit).

    (O) The credit allowed by Section 23633 (relating to targeted tax area sales or use tax credit).

    (P) The credit allowed by Section 23634 (relating to targeted tax area hiring credit).

    (Q) The credit allowed by former Section 23649 (relating to qualified property).

    (R) For taxable years beginning on or after January 1, 2011, the credit allowed by Section 23685 (relating to qualified motion pictures).

    (S) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23689 (relating to GO-Biz California Competes Credit).

    (T) For taxable years beginning on or after January 1, 2016, the credit allowed by Section 23695 (relating to qualified motion pictures).

    (U) For taxable years beginning on or after January 1, 2014, the credit allowed by Section 23686 (relating to the College Access Tax Credit Fund).

    (V) For taxable years beginning on or after January 1, 2017, the credit allowed by Section 23687 (relating to the College Access Tax Credit Fund).

    (2) A credit against the tax may not reduce the minimum franchise tax imposed under Chapter 2 (commencing with Section 23101).

    (e) Any credit which is partially or totally denied under subdivision (d) is allowed to be carried over to reduce the "tax" in the following year, and succeeding years if necessary, if the provisions relating to that credit include a provision to allow a carryover of the unused portion of that credit.

    (f) Unless otherwise provided, any remaining carryover from a credit that has been repealed or made inoperative is allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.

    (g) Unless otherwise provided, if two or more taxpayers share in costs that would be eligible for a tax credit allowed under this part, each taxpayer is eligible to receive the tax credit in proportion to his or her respective share of the costs paid or incurred.

    (h) Unless otherwise provided, in the case of an "S" corporation, any credit allowed by this part is computed at the "S" corporation level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit applies to the "S" corporation and to each shareholder.

    (i)

    (1) With respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any taxable year attributable to the disregarded business entity is limited in accordance with paragraphs (2) and (3).

    (2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer's "tax," as defined in subdivision (a), for the taxable year is limited to an amount equal to the excess of the taxpayer's regular tax (as defined in Section 23455), determined by including income attributable to the disregarded business entity that generated the credit or credit carryover, over the taxpayer's regular tax (as defined in Section 23455), determined by excluding the income attributable to that disregarded business entity. A credit is not allowed if the taxpayer's regular tax (as defined in Section 23455), determined by including the income attributable to the disregarded business entity is less than the taxpayer's regular tax (as defined in Section 23455), determined by excluding the income attributable to the disregarded business entity.

    (3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any taxable year, the excess amount may be carried over to subsequent taxable years pursuant to subdivisions (d), (e), and (f).

    (j)

    (1) Unless otherwise specifically provided, in the case of a taxpayer that is a partner or shareholder of an eligible pass-thru entity described in paragraph (2), any credit passed through to the taxpayer in the taxpayer's first taxable year beginning on or after the date the credit is no longer operative may be claimed by the taxpayer in that taxable year, notwithstanding the repeal of the statute authorizing the credit prior to the close of that taxable year.

    (2) For purposes of this subdivision, "eligible pass-thru entity" means any partnership or "S" corporation that files its return on a fiscal year basis pursuant to Section 18566, and that is entitled to a credit pursuant to this part for the taxable year that begins during the last year a credit is operative.

    (3) This subdivision applies to credits that become inoperative on or after the operative date of the act adding this subdivision.