Form 3565 filing requirement.

• Author: Hudson, Boyd D.
• Position: California - Brief Article

As part of its conformity to Federal Law, California adopted Revenue and Taxation Code Section 18152.5, a provision which allowed for the exclusion of 50% of any gain from the sale or exchange of qualified small business stock held for more than five years. This provision is virtually identical to Sec. 1202, enacted by the Revenue Reconciliation Act of 1993.

In order to be eligible for the exclusion of gain, the stock must qualify as of the date of issuance. Such qualification imposes an obligation on the issuing corporation to submit reports to the Franchise Tax Board (FTB) on the stock. The FTB issued Form 3565, Small Business Stock Questionnaire, for taxpayers to use for this reporting. The form is to be filed separately from the corporate franchise return and a copy of the completed form is to be provided to each stockholder who acquired qualified stock in the issuance. The form was to cover corporations that issued stock during the period from Aug. 10,1993 through the end of the 1995 income year. The instructions to Form 3565 stated that "failure to file this form by the corporation's original return due date for the current accounting period may disqualify stockholders from the sale or exchange of small business stock." (Emphasis added.) Many taxpayers (and their tax...