BILL NUMBER: AB 759	AMENDED
	BILL TEXT

	AMENDED IN SENATE  SEPTEMBER 2, 2009
	AMENDED IN SENATE  JULY 15, 2009
	AMENDED IN SENATE  JUNE 29, 2009
	AMENDED IN ASSEMBLY  APRIL 14, 2009

INTRODUCED BY   Assembly Member Ma

                        FEBRUARY 26, 2009

   An act to amend Section 10286.1 of the Public Contract Code, and
to amend Sections 24411 and 25110 of, and to add Section 25117 to,
the Revenue and Taxation Code, relating to corporations.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 759, as amended, Ma. Public contracts with expatriate
corporations: corporation tax law water's-edge election.
   (1) Existing law regarding contracting between state agencies and
private contractors sets forth requirements for the procurement of
materials, supplies, equipment, and services by state agencies.
Existing law sets out the various responsibilities of the Department
of General Services, and other state agencies, in overseeing and
implementing state contracting procedures and policies.
   Existing law prohibits a state agency from entering into any
contract with an expatriate corporation, as defined, or its
subsidiary, unless certain conditions are met. Existing law defines
an expatriate corporation as a foreign incorporated entity that is
publicly traded in the United States and that meets specified
criteria.
   This bill would revise the definition of an expatriate corporation
to also require that the entity be domiciled in a jurisdiction that
does not have an income tax treaty in force with the United States.
   (2) Existing law provides that, in the case of a business with
income derived from, or attributable to, sources both within and
without this state, the income is apportioned between this state and
other states and foreign countries for tax purposes in accordance
with a specified formula based on the property, payroll, and sales
within and without this state, except as otherwise provided. Existing
law permits certain taxpayers, as provided, to elect to determine
their income under a  water's edge   water'
s-edge  election and specifies certain requirements under that
election.
   This bill would conform specified provisions relating to, among
other things, the water's-edge election to specified federal income
tax laws relating to the taxation of certain shareholders of
controlled foreign corporations, as provided.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  It is the intent of the Legislature in enacting this
statute to clarify that an expatriate corporation located in a
foreign jurisdiction that does not have an income tax treaty with the
United States shall not enter into any contracts with a state
agency.
  SEC. 2.  Section 10286.1 of the Public Contract Code is amended to
read:
   10286.1.  (a) For purposes of this part, except as otherwise
provided in subdivisions (b) and (c), a state agency shall not enter
into any contract with an expatriate corporation or its subsidiaries.

   (b) (1) For purposes of this article, an "expatriate corporation"
means a foreign incorporated entity that is publicly traded in the
United States to which all of the following apply:
   (A) The United States is the principal market for the public
trading of the foreign incorporated entity.
   (B) The foreign incorporated entity has no substantial business
activities in the place of incorporation.
   (C) The foreign incorporated entity is domiciled in a jurisdiction
that does not have an income tax treaty in force with the United
States.
   (D) Either clause (i) or clause (ii) applies:
   (i) The foreign entity was established in connection with a
transaction or series of related transactions pursuant to which (I)
the foreign entity directly or indirectly acquired substantially all
of the properties held by a domestic corporation or all of the
properties constituting a trade or business of a domestic partnership
or related foreign partnership, and (II) immediately after the
acquisition, more than 50 percent of the publicly traded stock, by
vote or value, of the foreign entity is held by former shareholders
of the domestic corporation or by former partners of the domestic
partnership or related foreign partnership. For purposes of subclause
(II), any stock sold in a public offering related to the transaction
or a series of transactions is disregarded.
   (ii) The foreign entity was established in connection with a
transaction or series of related transactions pursuant to which (I)
the foreign entity directly or indirectly acquired substantially all
of the properties held by a domestic corporation or all of the
properties constituting a trade or business of a domestic partnership
or related foreign partnership, and (II) the acquiring foreign
entity is more than 50 percent owned, by vote or value, by domestic
shareholders or partners.
   (iii) For purposes of this subparagraph, indirect acquisition of
property includes the acquisition of a stock share, or any portion
thereof, of the owner of that property.
   (2) Notwithstanding subdivision (a), a state agency may contract
with an expatriate corporation, or its subsidiary, if it was an
expatriate corporation before January 1, 2004, to which both of the
following apply:
   (A) The foreign entity provides, by operation of law, by
provisions of its governing documents, by resolution of its board of
directors, or in any other manner, at least the following
shareholders' rights:
   (i) Shareholders of the entity have the right to inspect, at a
principal place of business in the United States, copies of the
entity's books and records, including, but not limited to,
shareholder names, addresses, and shareholdings in accordance with
the corporation law, as amended from time to time and as that law is
interpreted by the courts, of the United States jurisdiction in which
the entity was previously incorporated, or, if the entity was not
previously incorporated, in accordance with the terms set forth in
the Model Business Corporation Act, as that act may be amended from
time to time, provided that, if the corporate law of the United
States jurisdiction in which the entity was previously incorporated
or the Model Business Corporation Act does not provide access to the
shareholder names, addresses, and shareholdings, these books and
records are available for inspection by shareholders for purposes
properly related to their status as shareholders of the entity.
   (ii) The entity permits its shareholders to bring derivative
proceedings on behalf of the entity, provided that these derivative
proceedings are brought on a basis and under the terms applicable
under the law, as amended from time to time and as interpreted by, or
required by, the courts of the United States jurisdiction in which
the entity was previously incorporated, or, if the entity was not
previously incorporated, on a basis and under the terms set forth in
the Model Business Corporations Act as that act may be amended from
time to time and as it is interpreted by, or required by, the courts.

   (iii) Entity transactions in which any director is interested are
approved in accordance with the applicable law, as amended from time
to time and as interpreted by the courts, of the United States
jurisdiction in which the entity was previously incorporated, or, if
the entity was not previously incorporated, in accordance with the
terms set forth in the Model Business Corporations Act, as may be
amended from time to time and as interpreted by the courts.
   (iv) The entity has consented to the jurisdiction, for any
otherwise available cause of action by or on behalf of the entity's
shareholders, including any pendent state causes of action, of all of
the following courts:
   (I) The state courts of one or more states.
   (II) The United States federal courts in any state in which the
entity consents to the jurisdiction of that state's courts pursuant
to subclause (I).
   (v) The entity has appointed an agent for service of process in
the state or states in which the entity has consented to
jurisdiction, as described in clause (iv), and the entity meets at
least one of the following conditions:
   (I) The entity has unencumbered assets in the United States, which
assets may include equity or debt investments in United States
companies, with a book value in excess of fifty million dollars
($50,000,000), and the entity delivers to the Secretary of State an
opinion of an attorney licensed in the United States that judgments
rendered against the entity may be satisfied by using these assets.
   (II) The entity posts a bond or similar security in an amount of
at least fifty million dollars ($50,000,000).
   (III) The entity has directors' and officers' insurance in an
amount of at least fifty million dollars ($50,000,000).
   (vi) The entity agrees that, in connection with any lawsuit
brought against it by its shareholders in any court in which the
entity has consented to jurisdiction as described in clause (iv), the
entity will provide to the court notice of the manner in which the
entity complied with clause (v) and, if the entity complied with that
clause in the manner specified in subclause (I) of clause (v), a
copy of the opinion described in that subclause.
   (vii) Shareholder approval is required for any sale of all or
substantially all of the entity's assets in accordance with the law,
as amended from time to time and as it is interpreted by the courts,
of the United States jurisdiction in which it was previously
incorporated, or, if it was not previously incorporated, in
accordance with the terms set forth in the Model Business
Corporations Act, as it may be amended from time to time.
   (viii) The directors and officers of the entity occupy a fiduciary
relationship with the entity and its shareholders and these
directors and officers, in performing their duties, act in good faith
in a manner that a director or officer believes to be in the best
interests of the entity and its shareholders, as that standard of
care is interpreted by the courts.
   (ix) The entity agrees to hold no more than one of every four
annual shareholder meetings in a location outside the United States
and, in the event that the entity holds an annual meeting outside the
United States, the entity agrees to provide access to that meeting
through a Web cast or other technology that allows the entity's
shareholders to do both of the following:
   (I) Listen to the meeting, watch the meeting, or both.
   (II) Send questions that will be addressed at the meeting.
   (x) The entity provides a description of the shareholder rights
described in clauses (i) to (ix), inclusive, and any subsequent
changes to these rights, on the  entity's  
Internet  Web site or in its 10K filings with the United States
Securities and Exchange Commission.
   (B) The entity uses worldwide combined reporting to calculate the
income on which it pays taxes to the state.
   (c) The chief executive officer of a state agency or his or her
designee may waive the prohibition specified in subdivision (a) if
the executive officer or his or her designee has made a written
finding that the contract is necessary to meet a compelling public
interest. For purposes of this section, a "compelling public interest"
includes, but is not limited to, ensuring the provision of essential
services, ensuring the public health and safety, or an emergency as
defined in Section 1102. If a waiver is granted to a vendor pursuant
to this subdivision, the requirement to submit a declaration of
compliance, as set forth in paragraph (1) of subdivision (d), does
not apply to that vendor.
   (d) (1) For purposes of this chapter, "state agency" means every
state office, department, division, bureau, board, commission, and
the California State University, but does not include the University
of California, the Legislature, the courts, or any agency in the
judicial branch of government.
   (2) On or after January 1, 2004, all state agencies shall, as a
condition of the contract, require any vendor that is offered a
contract to do business with the state to submit a declaration
stating that the vendor is eligible to contract with the state
pursuant to this section.
   (3) A vendor that declares as true any material matter in a
declaration described in this subdivision that he or she knows to be
false is guilty of a misdemeanor.
   (e) (1) Except as provided in paragraph (2) and subdivision (f),
this section applies to contracts that are entered into on or after
January 1, 2004.
   (2) With respect to an entity that was an expatriate corporation,
as defined in paragraph (1) of subdivision (b), before January 1,
2004, this section applies to contracts that are entered into on or
after April 1, 2004.
   (f) (1) The declaration requirement set forth in subdivision (d)
does not apply to a credit card purchase of goods of two thousand
five hundred dollars ($2,500) or less.
   (2) The total amount of exemption authorized herein shall not
exceed seven thousand five hundred dollars ($7,500) per year for each
company from which a state agency is purchasing goods by credit
card. It shall be the responsibility of each state agency to monitor
the use of this exemption and adhere to these restrictions on these
purchases.
   SEC. 2.   SEC. 3.   Section 24411 of the
Revenue and Taxation Code is amended to read:
   24411.  (a) For purposes of those taxpayers electing to compute
income under Section 25110, to the extent not otherwise allowed as a
deduction or eliminated from income:
   (1) One hundred percent of the qualifying dividends described in
subdivision (d).
   (2) Twenty-seven percent of qualifying dividends described in
Section 25117.
   (3) Seventy-five percent of qualifying dividends, other than those
referred to in paragraph (1) or (2).
   (b) "Qualifying dividends" means those received by the water'
s-edge group from corporations if both of the following conditions
are satisfied:
   (1) The average of the property, payroll, and sales factors within
the United States for the corporation is less than 20 percent.
   (2) More than 50 percent of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by
the water's-edge group.
   (c) The water's-edge group consists of corporations whose income
and apportionment factors are taken into account pursuant to Section
25110.
   (d) Dividends derived from a construction project, the location of
which is not subject to the taxpayer's control.
   For purposes of this subdivision:
   (1) "Construction project" means any activity which meets the
following requirements:
   (A) Is undertaken for any entity, including a governmental entity,
which is not affiliated with the taxpayer.
   (B) The majority of its cost of performance is attributable to an
addition to real property or an alteration of land or any improvement
thereto as those terms are utilized for purposes of this code.
   "Construction project" does not include the operation, rental,
leasing, or depletion of real property, land, or any improvement
thereto.
   (2) "Location of which is not subject to the taxpayer's control"
means that the place at which the majority of the construction takes
place results from the nature or character of the construction
project and not as a result of the terms of the contract or agreement
governing the construction project.
   SEC. 3.   SEC. 4.   Section 25110 of the
Revenue and Taxation Code, as amended by Section 1 of Chapter 22 of
the Statutes of 2006, is amended to read:
   25110.  (a) Notwithstanding Section 25101, a qualified taxpayer,
as defined in paragraph (2) of subdivision (b), that is subject to
the tax imposed under this part, may elect to determine its income
derived from or attributable to sources within this state pursuant to
a water's-edge election in accordance with the provisions of this
part, as modified by this article. A taxpayer, that made a water'
s-edge election prior to January 1, 2006, shall take into account the
income and apportionment factors of the following affiliated
entities only:
   (1) Domestic international sales corporations, as described in
Sections 991 to 994, inclusive, of the Internal Revenue Code and
foreign sales corporations as described in Sections 921 to 927,
inclusive, of the Internal Revenue Code.
   (2) Any corporation (other than a bank), regardless of the place
where it is incorporated if the average of its property, payroll, and
sales factors within the United States is 20 percent or more.
   (3) Corporations that are incorporated in the United States,
excluding corporations making an election pursuant to Sections 931 to
936, inclusive, of the Internal Revenue Code, of which more than 50
percent of their voting stock is owned or controlled directly or
indirectly by the same interests.
   (4) A corporation that is not described in paragraphs (1) to (3),
inclusive, or paragraph (5), but only to the extent of its income
derived from or attributable to sources within the United States and
its factors assignable to a location within the United States in
accordance with paragraph (3) of subdivision (b). Income of that
corporation derived from or attributable to sources within the United
States as determined by federal income tax laws shall be limited to
and determined from the books of account maintained by the
corporation with respect to its activities conducted within the
United States.
   (5) Export trade corporations, as described in Sections 970 to
972, inclusive, of the Internal Revenue Code.
   (6) (A) The income and factors of the above-enumerated
corporations shall be taken into account only if the income and
factors would have been taken into account under Section 25101 if
this section had not been enacted.
   (B) The income and factors of a corporation that is not described
in paragraphs (1) to (3), inclusive, and paragraph (5) and that is an
electing taxpayer under this subdivision shall be taken into account
in determining its income only to the extent set forth in paragraph
(4).
   (b) For purposes of this article and Section 24411 all of the
following definitions apply:
   (1) An "affiliated corporation" means a corporation that is a
member of a commonly controlled group as defined in Section 25105.
   (2) A "qualified taxpayer" means a corporation which does both of
the following:
   (A) Files with the state tax return on which the water's-edge
election is made a consent to the taking of depositions at the time
and place most reasonably convenient to all parties from key domestic
corporate individuals and to the acceptance of subpoenas duces tecum
requiring reasonable production of documents to the Franchise Tax
Board as provided in Section 19504 or by the State Board of
Equalization as provided in Title 18, California Code of Regulations,
Section 5005, or by the courts of this state as provided in Chapter
2 (commencing with Section 1985) of Title 3 of Part 4 of, and Chapter
9 (commencing with Section 2025.010) of Title 4 of Part 4 of, the
Code of Civil Procedure. The consent relates to issues of
jurisdiction and service and does not waive any defenses a taxpayer
may otherwise have. The consent shall remain in effect so long as the
water's-edge election is in effect and shall be limited to providing
that information necessary to review or to adjust income or
deductions in a manner authorized under Sections 482, 861, Subpart F
of Part III of Subchapter N, or similar provisions of the Internal
Revenue Code, together with the regulations adopted pursuant to those
provisions, and for the conduct of an investigation with respect to
any unitary business in which the taxpayer may be involved.
   (B) Agrees that for purposes of this article, dividends received
by any corporation whose income and apportionment factors are taken
into account pursuant to subdivision (a) from either of the following
are functionally related dividends and shall be presumed to be
business income:
   (i) A corporation of which more than 50 percent of the voting
stock is owned, directly or indirectly, by members of the unitary
group and which is engaged in the same general line of business.
   (ii) Any corporation that is either a significant source of supply
for the unitary business or a significant purchaser of the output of
the unitary business, or that sells a significant part of its output
or obtains a significant part of its raw materials or input from the
unitary business. "Significant," as used in this subparagraph, means
an amount of 15 percent or more of either input or output.
   All other dividends shall be classified as business or nonbusiness
income without regard to this subparagraph.
   (3) The definitions and locations of property, payroll, and sales
shall be determined under the laws and regulations that set forth the
apportionment formulas used by the individual states to assign net
income subject to taxes on or measured by net income in that state.
If a state does not impose a tax on or measured by net income or does
not have laws or regulations with respect to the assignment of
property, payroll, and sales, the laws and regulations provided in
Article 2 (commencing with Section 25120) shall apply.
   Sales shall be considered to be made to a state only if the
corporation making the sale may otherwise be subject to a tax on or
measured by net income under the Constitution or laws of the United
States, and shall not include sales made to a corporation whose
income and apportionment factors are taken into account pursuant to
subdivision (a) in determining the amount of income of the taxpayer
derived from or attributable to sources within this state.
   (4) "The United States" means the 50 states of the United States
and the District of Columbia.
   (c) All references in this part to income determined pursuant to
Section 25101 shall also mean income determined pursuant to this
section.
   (d) (1) This section shall apply only to a taxable year of a
taxpayer that determines its income derived from or attributable to
sources within this state pursuant to a water's-edge election made
prior to January 1, 2006, where that election may not be terminated
for that taxable year without the consent of the Franchise Tax Board
pursuant to paragraph (9) of subdivision (c) of Section 25113.
   (2) This section shall be repealed on January 1, 2014.
   SEC. 4.   SEC. 5.   Section 25110 of the
Revenue and Taxation Code, as added by Section 2 of Chapter 22 of
the Statutes of 2006, is amended to read:
   25110.  (a) Notwithstanding Section 25101, a qualified taxpayer,
as defined in paragraph (2) of subdivision (b), that is subject to
the tax imposed under this part, may elect to determine its income
derived from or attributable to sources within this state pursuant to
a water's-edge election in accordance with the provisions of this
part, as modified by this article. A taxpayer, that makes a water'
s-edge election on or after January 1, 2006, shall take into account
that portion of its own income and apportionment factors and the
income and apportionment factors of its affiliated entities to the
extent provided below:
   (1) The entire income and apportionment factors of any of the
following corporations:
   (A) Domestic international sales corporations, as described in
Sections 991 to 994, inclusive, of the Internal Revenue Code and
foreign sales corporations as described in Sections 921 to 927,
inclusive, of the Internal Revenue Code.
   (B) Any corporation (other than a bank), regardless of the place
where it is incorporated if the average of its property, payroll, and
sales factors within the United States is 20 percent or more.
   (C) Corporations that are incorporated in the United States,
excluding corporations making an election pursuant to Sections 931 to
936, inclusive, of the Internal Revenue Code.
   (D) Export trade corporations, as described in Sections 970 to
972, inclusive, of the Internal Revenue Code.
   (2) With respect to a corporation that is not described in
subparagraphs (A), (B), (C), and (D) of paragraph (1) the income and
apportionment factors of that corporation to the extent of its income
derived from or attributable to sources within the United States and
its factors assignable to a location within the United States in
accordance with paragraph (3) of subdivision (b). Income of that
corporation derived from or attributable to sources within the United
States as determined by federal income tax laws shall be limited to,
and determined from, the books of account maintained by the
corporation with respect to its activities conducted within the
United States.
   (3) The income and apportionment factors of the corporations
described in this subdivision shall be taken into account only to the
extent that they would have been taken into account had no election
under this section been made.
   (b) For purposes of this article and Section 24411, all of the
following definitions apply:
   (1) An "affiliated corporation" means a corporation that is a
member of a commonly controlled group as defined in Section 25105.
   (2) A "qualified taxpayer" means a corporation that does both of
the following:
   (A) Files with the state tax return, on which the water's-edge
election is made, a consent to the taking of depositions, at the time
and place most reasonably convenient to all parties, from key
domestic corporate individuals and to the acceptance of subpoenas
duces tecum requiring reasonable production of documents to the
Franchise Tax Board, as provided in Section 19504, by the State Board
of Equalization, as provided in Section 5005 of Title 18 of the
California Code of Regulations, or by the courts of this state, as
provided in Chapter 2 (commencing with Section 1985) of Title 3 of
Part 4 of, and Chapter 9 (commencing with Section 2025.010) of Title
4 of Part 4 of, the Code of Civil Procedure. The consent relates to
issues of jurisdiction and service and does not waive any defenses
that a taxpayer may otherwise have. The consent shall remain in
effect as long as the water's-edge election is in effect, and shall
be limited to providing that information necessary to review or
adjust income or deductions in a manner authorized by Section 482,
861, Subpart F of Part III of Subchapter N, or similar provisions, of
the Internal Revenue Code, together with the regulations adopted
pursuant to those provisions, and for the conduct of an investigation
with respect to any unitary business in which the taxpayer may be
involved.
   (B) Agrees that, for purposes of this article, dividends received
by any corporation whose income and apportionment factors are taken
into account pursuant to subdivision (a) from either of the following
are functionally related dividends and shall be presumed to be
business income:
   (i) A corporation of which more than 50 percent of the voting
stock is owned, directly or indirectly, by members of the unitary
group and which is engaged in the same general line of business.
   (ii) Any corporation that is either a significant source of supply
for the unitary business or a significant purchaser of the output of
the unitary business, or that sells a significant part of its output
or obtains a significant part of its raw materials or input from the
unitary business. "Significant," as used in this subparagraph, means
an amount of 15 percent or more of either input or output.
   All other dividends shall be classified as business or nonbusiness
income without regard to this subparagraph.
   (3) The definitions and locations of property, payroll, and sales
shall be determined under the laws and regulations that set forth the
apportionment formulas used by the individual states to assign net
income subject to taxes on, or measured by, net income in that state.
If a state does not impose a tax on, or measured by, net income or
does not have laws or regulations with respect to the assignment of
property, payroll, and sales, the laws and regulations provided in
Article 2 (commencing with Section 25120) shall apply.
   Sales shall be considered to be made to a state only if the
corporation making the sale may otherwise be subject to a tax on, or
measured by, net income under the Constitution or laws of the United
States, and shall not include sales made to a corporation whose
income and apportionment factors are taken into account pursuant to
subdivision (a) in determining the amount of income of the taxpayer
derived from or attributable to sources within this state.
   (4) "The United States" means the 50 states of the United States
and the District of Columbia.
   (c) All references in this part to income determined pursuant to
Section 25101 shall also mean income determined pursuant to this
section.
   SEC. 5.   SEC. 6.   Section 25117 is
added to the Revenue and Taxation Code, to read:
   25117.  (a) Except as otherwise provided, income taken into
account by all affiliated entities whose income and apportionment
factors are determined pursuant to Section 25110 shall include income
described in Subpart F of the Internal Revenue Code (commencing with
Section 951). The income that is taken into account shall for all
purposes be treated as a dividend actually paid, and be subject to
any provision or limitation
related to the treatment of dividends, including, but not limited to,
Sections 24344, 24410, 24411, and 25106. The amount taken into
account shall be treated as business or nonbusiness income as defined
in Section 25120, as the case may be.
   (b) In the application of Subpart F of the Internal Revenue Code:
   (1) Exclusions from gross income under Section 959 of the Internal
Revenue Code, relating to previously taxed income, shall apply,
including amounts related to income previously taxed under federal
law in years prior to the water's-edge election.
   (2) Federal adjustments to stock basis made pursuant to Section
961 of the Internal Revenue Code, relating to adjustments to basis of
stock in controlled foreign corporations and of other property,
including adjustments made prior to the water's-edge election, shall
apply.
   (3) The provisions of and any reference to Section 1248 of the
Internal Revenue Code, relating to gain from certain sales or
exchanges of stock in certain foreign corporations, shall not apply.
   (4) Section 960 of the Internal Revenue Code, relating to special
rules for foreign tax credit, shall not apply.
   (5) Section 965 of the Internal Revenue Code, relating to
temporary dividends received deduction, shall not apply.
   (6) For purposes of this section, a federal election to exclude
from Subpart F income the income described in Section 954(b)(4) of
the Internal Revenue Code shall apply, including amounts related to
income previously taxed under federal law in years prior to the water'
s-edge election. No election under this subparagraph shall be allowed
for state purposes unless a valid election was made for federal
purposes.
   (c) In the event that a water's-edge election is terminated, for
taxable years thereafter, the following rules apply:
   (1) Subpart F of the Internal Revenue Code shall not apply, except
as provided in this subdivision.
   (2) Section 959 of the Internal Revenue Code, relating to
exclusion from gross income of previously taxed earnings and profits,
shall apply, but only to the extent attributable to income that has
been taken into account pursuant to subdivision (a) during the period
of the water's-edge election.
   (3) Stock basis shall be determined as if this section did not
apply, except that stock basis shall be:
   (A) Increased by income taken into account pursuant to subdivision
(a) during the period of the water's-edge election.
   (B) Reduced by both the following:
   (i) That portion of amounts excluded from income under paragraph
(2) of subdivision (b) that are attributable to income taken into
account pursuant to subdivision (a) during the period of the water'
s-edge election.
   (ii) Amounts described by paragraph (2) of subdivision (c)
excluded from income after termination of the water's-edge election.
   (d) (1) Except as provided in paragraph (2), this section shall
apply to taxable years beginning on or after January 1, 2010.
   (2) In the event that two or more taxpayers subject to the same
election under Section 25110 have different taxable years, this
section shall apply as of the first day of the first taxable year of
those respective taxpayers that begins on or after January 1, 2010.

   (e) If a distribution with respect to earnings and profits from a
given year is eligible for treatment as previously taxed income and
would, without regard to the application of this section, be eligible
for deduction, exclusion, or elimination under another section under
this part, if paid as a dividend, in no event shall the combined
effect of those sections and the rules relating to previously taxed
income result in a deduction, exclusion, or elimination greater than
the amount of the earnings and profits that apply to the
distribution.  
   (f) Subdivision (f) of Section 24425 shall not apply to amounts
excluded from gross income pursuant to this section or to amounts
deducted pursuant to paragraph (2) of subdivision (a) of Section
24411.  
   (e) 
    (g)  The Franchise Tax Board may prescribe regulations
as may be necessary and appropriate to carry out the purposes of this
section.