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Use this procedure to ensure the correct preparation of California combined income / franchise tax group returns whether or not the members of the California unitary business group are the same as those included in the federal consolidated group and the federal group contains members with at-risk or passive activities.

1. Clone the parent and subsidiary clients. Open each member one at a time, choose File > Save As, enter a new client ID for the client, and click the Save button. The new client will have the same EIN and name as the original client. Creating new clients is necessary so that the federal at-risk and passive calculations for the original consolidated and member clients are not changed when the group members are changed.
2. Add California to the parent client and all subsidiary clients. Complete all data entry for these member clients. Each member's California return should be complete and correct before proceeding to the next step.

   Notes

   • All unitary subsidiary clients must have California attached, even if the subsidiary has no California filing requirement. For subsidiary clients with no California filing requirement, you must mark the No California filing requirement, but is included in California combined group report field in Screen CAGen. No other California data entry is needed for these clients except for apportionment data entry.
   • California Regulation Section 25106.5-1 requires that income from intercompany transactions be deferred, not eliminated. Include all necessary adjustments in each member's return, enter adjustments in the Group View dialog, or use the Intercompany amount fields on the California tab in View > Apportionment.
   • Apportionment data entry must be completed for each member client, even if the client is 100 percent in-state. Apportionment data entry is accessed through View > Apportionment.
   • All members of a unitary group must prepare and file the same California return, either Form 100 or 100W. To select Form 100W, mark the Water's-Edge (Form 100W/100S) field in the California tab in the Client Properties dialog. This selection must be made in the combined client as well as in the parent and subsidiary clients.
   • Adjustments for intercompany transactions may be entered in the Combined members group box in View > Apportionment > California tab. These amounts print on the Apportionment Detail Worksheet and correspond to intercompany adjustments (subtractions) shown on Schedules 5-A and 5-C of FTB Publication 1061, Guidelines for Corporations Filing a Combined Report.
3. Create a new consolidated client using the Consolidated entity type in File > Client Properties.
4. Select the appropriate members to be included in the California combined group. Choose File > Client Properties and click the Advanced Properties button. In the Group tab, remove or add subsidiary clients as necessary. Do not select an eliminations client. Click OK to close the Advanced Properties dialog. Click OK again to close the New Client or Client Properties dialog.
5. Add California to the new consolidated client.

   Note: When adding California to a consolidated federal client, the state automatically defaults to being a combined return.

   If California is added as a C Corporation to a federal consolidated group, the combined functionality does not take place. The amounts from each member are not combined, and the combined worksheets are not available.

6. Review all California combined client input screens and complete any necessary remaining data entry. For each category not marked in the File > Client Properties > Advanced Properties > Options dialog, enter the necessary data in the applicable input screens.

   Note: If a category is not marked, enter the data on the applicable input screens in the combined client. For a list of categories and related input screens, see Categories and related California input screens.

   Any changes made to the File > Client Properties > Advanced Properties > Options dialog affect both the federal and state return.

7. To make manual adjustments in other areas of the return, click the Group View button or press F7 in the input screen field you want to adjust, and then enter the adjustment amount in the Group View dialog.
8. Click the Combined folder in the California folders block. Complete any additional adjustments in Screen CACAdj or CACBal.
9. To change amounts entered in the California parent or subsidiary clients, go back to the original source of data entry. For instance, if you made a mistake when you entered the apportionment of the first subsidiary, close the consolidated client and reopen the first subsidiary. Choose View > Apportionment for that client and correct the data. Close the subsidiary client and reopen the consolidated client. The correct amount is now a part of the combined group return.
10. Print and review the California combined tax return.

Example of when the federal group contains members with at-risk or passive activities.

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