California Explains Apportionment Among Noneconomic Residual Interest Holders

California explains how to apportion excess inclusion among noneconomic residual interest holders in a combined reporting group. “Noneconomic residual interest holders” are residual interest holders in a real estate mortgage investment conduit (REMIC) that do not receive distributions from the REMIC. “Excess inclusion” is the minimal amount of income that noneconomic residual interest holders must annually report for income or franchise tax purposes.

How to Apportion Excess Inclusion

Combined reporting groups must first add together the excess inclusion from all noneconomic residual interest holders in the group. Then, they should assign the excess inclusion to each noneconomic residual interest holder that is a member of the group according to the member’s California apportionment factor percentage. The same approach applies even when the combined reporting group also contains members that are not noneconomic residual interest holders.

Technical Advice Memorandum 2018-02, California Franchise Tax Board, June 28, 2018, ¶406-812

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