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.