What California Form 100W Is For
California Form 100W (2018) is the corporation franchise or income tax return used by C corporations that elect water’s-edge reporting. The form allows qualifying corporations to compute California tax liability without including most foreign affiliates in the combined report. This method is often used by multistate or multinational corporations seeking to simplify reporting by focusing on entities with U.S.-taxable income.
Corporations incorporated or doing business in California file this form once a valid water’s-edge election is made. LLCs taxed as corporations may also file Form 100W. The 2018 version applies to taxable years beginning in 2018 and reflects California’s nonconformity with many federal tax reform provisions.
When You’d Use California Form 100W
You must file Form 100W if your corporation has an active water’s-edge election and is organized, qualified, or doing business in California. Most corporations owe the minimum franchise tax of $800 unless they are newly formed in their first year.
Form 100W is due on the 15th day of the 4th month after the close of the taxable year. An automatic six-month extension applies to filing, but not to paying tax liability. If you need to amend a previously filed return, you must use Form 100X rather than Form 100W.
Key Rules or Details for 2018
Water’s-Edge Election Requirements
A water’s-edge election is made by filing Form 100-WE with a timely original return. The election cannot be made on an amended return. Once made, it binds the group for 84 months. After that period, it continues until formally terminated.
Groupwide Election Standards
All members of the water’s-edge group must elect. A parent corporation’s election may bind a subsidiary under California’s “common parent election” rule. Electing corporations must consent to depositions and subpoenas related to water’s-edge issues and treat certain foreign dividends as business income.
Record-Keeping Obligations
Corporations must maintain detailed records supporting income attribution, apportionment factors, and transfer pricing. Failure to maintain records can trigger a $10,000 annual penalty, which increases every 30 days after notice of noncompliance.
Required Attachments
Many federal filings must accompany Form 100W, including Forms 5471, 5472, and 8975. Penalties for missing forms range from $1,000 to $10,000 per form.
California Nonconformity
For 2018, California does not conform to federal provisions such as Section 965 repatriation income, Section 951A GILTI, or federal bonus depreciation. Adjustments are required when computing state taxable income.
Step-by-Step (High Level)
Step 1: Confirm Eligibility and Election
Determine whether your corporation is under an existing water’s-edge election or making one for the first time. If electing, prepare Form 100-WE and attach it to the original return.
Step 2: Gather Federal and Group Information
Collect your federal Form 1120, related schedules, CFC information, and any federal forms requiring attachment. Convert all foreign amounts to U.S. dollars.
Step 3: Complete Identification Details
Enter the corporation’s legal name, California corporation number, FEIN, Secretary of State file number, and business address. Confirm numbers match state and federal records.
Step 4: Compute Net Income and California Adjustments
Start with federal net income and apply California additions and subtractions. Add back nonconforming items such as federal bonus depreciation or Section 965 inclusions. Deduct California-allowed items like certain foreign dividend deductions.
Step 5: Determine California-Source Income
If operating only in California, your adjusted net income is your tax base. Multistate corporations must complete Schedule R using California’s single-sales-factor formula.
Step 6: Apply NOLs, Compute Tax, and Claim Credits
Apply NOL deductions, calculate tax at 8.84% (10.84% for banks), compare to the minimum franchise tax, and claim allowable credits.
Step 7: Reconcile Payments and File
Enter estimated tax payments, withholding, and extension payments. Sign the return and submit it electronically or by mail. California requires e-filing when using tax preparation software.
For the form and instructions, visit the IRS Form 100W page: https://www.ftb.ca.gov/forms/
Common Mistakes and How to Avoid Them
- Incorrect identification numbers — Verify your California corporation number and FEIN before filing.
- Not converting foreign currency — Convert all foreign amounts to U.S. dollars and document exchange rates used.
- Using the wrong form — Water’s-edge filers must use Form 100W, not Form 100 or 100S.
- Missing required attachments — Check for Forms 5471, 5472, 8975, and others before submitting.
- Improper California adjustments — Review nonconformity rules for items like GILTI, Section 965, and bonus depreciation.
- Attempting to elect water’s-edge on an amended return — Elections must be made on timely original filings.
- Leaving Schedule Q incomplete — Answer all questions fully to avoid delays.
What Happens After You File
After filing Form 100W, the Franchise Tax Board (FTB) processes the return, matches payments, and checks for basic errors. Refunds from e-filed returns typically issue within a month, while paper returns take longer.
The FTB also records water’s-edge election details in its system to ensure continuity in future years. If required attachments are missing or adjustments appear incorrect, the FTB may send notices requesting clarification. Interest and penalties accrue automatically when tax liability is underpaid as of the original due date.
Returns may be selected for audit based on reporting variances, foreign transactions, or combined reporting complexity. Water’s-edge taxpayers are subject to review of CFC inclusions, apportionment, and transfer pricing. If additional entities should have been included in the combined report, the FTB may assess additional tax for multiple years.
Corporations must continue filing Form 100W annually while the election is active. Changes from mergers or acquisitions may affect election status, so analyze filing obligations whenever group structure changes.
FAQs
What is the purpose of the water’s-edge method?
Water’s-edge reporting limits the combined group primarily to entities with U.S.-taxable income, excluding most foreign affiliates. Corporations may choose it to simplify reporting or reduce compliance costs compared to worldwide combined reporting.
Can I revoke a water’s-edge election?
Not during the first 84 months without FTB consent showing good cause. After the 84-month period, you may terminate the election by filing Form 100 on a worldwide basis with a statement of termination.
How do mergers affect election status?
If two groups combine, the unitary group with the larger amount of business assets controls the filing method. The smaller group must adopt the filing method of the larger group, which may result in an automatic election or termination.
Do controlled foreign corporations need to be included?
Some CFC income must be partially included using ratios based on Subpart F income and earnings and profits. Report these amounts using Form 2416 attached to the return.
What are the penalties for missing federal forms?
California assesses $1,000 penalties for missing Forms 5471 or 8975 and $10,000 for missing Form 5472. Penalties apply even if the forms were filed federally.
How do I correct a mistake on Form 100W?
File Form 100X with explanations of changes. If additional tax is owed, pay promptly to reduce interest. If the error leads to a refund, file within the statute of limitations.
