California Los Angeles Revitalization Zone Business Booklet

Los Angeles Revitalization Zone Business Booklet
2018 Form 3806 -  Los Angeles Revitalization Zone Business Booklet
2018

Los Angeles Revitalization Zone
Business Booklet

3806

California Forms & Instructions
Members of the Franchise Tax Board
Betty T. Yee, Chair
George Runner, Member
Keely Bosler, Member

This booklet contains:
Form FTB 3806, Los Angeles Revitalization Zone Net Operating Loss (NOL) Carryover Deduction

2018 Instructions for Form FTB 3806
Los Angeles Revitalization Zone Businesses

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2015, and to the C
­ alifornia Revenue and Taxation Code (R&TC).

Contents
General Information .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  2
How to Claim NOL Carryover Deduction  .  .  .  .  .  .  . 2
Part I – Portion of Business Attributable to the
  Former Los Angeles Revitalization Zone  .  .  .  .  2
Worksheet I, Income or Loss Apportionment  .  .  4
Part II – Net Operating Loss (NOL) Carryover
  and Deduction .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  6
Worksheet II, Net Operating Loss (NOL)
  Carryover and Carryover Limitations .  .  .  .  .  .  .  7
Form FTB 3806, Los Angeles
  Revitalization Zone Net Operating Loss (NOL)
  Carryover Deduction  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  9
How to Get ­California Tax Information .  .  .  .  .  .  .  . 11

What’s New
Federal Tax Reform – The Tax Cuts and Jobs Act
(TCJA) signed into law on December 22, 2017,
made changes to the Internal Revenue Code
(IRC). In general, California Revenue and
Taxation Code does not conform to the changes.
California taxpayers continue to follow the IRC
as of the specified date of January 1, 2015, with
modifications.
Net Operating Losses – The TCJA made changes
to the rules for Net Operating Losses (NOLs).
California law does not conform to those
changes. Los Angeles Revitalization Zone (LARZ)
NOLs may be carried over 15 years from the
year the LARZ NOL first was generated and only
applied as a deduction against business income
attributable to the former LARZ.

General Information
Federal/State Conformity
In general, for taxable years beginning on or after
January 1, 2015, California law conforms to the
Internal Revenue Code (IRC) as of January 1,
2015. However, there are continuing ­differences
between California and federal law. When ­California
conforms to federal tax law changes, we do not
always adopt all of the changes made at the federal
level. For more i­nformation, go to ftb.ca.gov and
search for conformity. Additional information
can be found in FTB Pub. 1001, S
­ upplemental
Guidelines to California Adjustments, the
instructions for California Schedule CA (540 or
540NR), California Adjustments, and the Business
Entity tax booklets.
The instructions provided with California tax
forms are a summary of California tax law and are
only intended to aid taxpayers in preparing their
state income tax returns. We include information
that is most useful to the greatest number of
taxpayers in the limited space available. It is
not possible to include all requirements of the
California Revenue and Taxation Code (R&TC) in
the instructions. Taxpayers should not consider
the instructions as authoritative law.
Single-Sales Factor Formula
R&TC Section 25128.7 requires all business
income of an apportioning trade or business,
other than an apportioning trade or business
under R&TC Section 25128(b), to apportion its

Page 2  FTB 3806 Booklet  2018

business income to California using the singlesales factor formula. For more information,
get Schedule R, Apportionment and Allocation
of Income, or go to ftb.ca.gov and search for
single sales factor. However, business income
apportioned to the former LARZ continues
to be apportioned based on the property and
payroll factors.
Pass-Through Entities
For purposes of this booklet, the term
“pass‑through entity” refers to an S corporation,
estate, trust, partnership, and a limited liability
company (LLC) classified as a ­partnership.
References to partnerships include LLCs
­classified as partnerships.

Reporting Requirement
California statutes require the Franchise Tax Board
(FTB) to provide information to the ­California
Legislature regarding the number of businesses
using the Economic Development Area (EDA)
tax incentives, types of EDA tax incentives being
used, and the EDAs in which the businesses are
claiming the tax incentives.
Complete items A through G on Side 1 of form
FTB 3806, Los Angeles Revitalization Zone Net
Operating Loss (NOL) Carryover Deduction, as
applicable. The FTB will use this information to
meet its statutory reporting requirement.

Introduction

The Former Los Angeles
Revitalization Zone
The LARZ expired on December 1, 1998. It was
established to aid economic development in areas
that suffered damage during the civil unrest that
occurred in the County of Los Angeles during
April and May 1992. The LARZ became operative
on May 1, 1992, and applied to businesses
with taxable years beginning on or after
January 1, 1992.
The following tax incentives were provided for
businesses operating within the LARZ:
General hiring credit
•	 Construction hiring credit
•	 Sales or use tax credit
•	 Business expense deduction
•	 Net interest deduction
•	 NOL carryover deduction
References in this booklet to the “LARZ” are
interpreted as “the boundaries of the former LARZ
as it existed on ­November 30, 1998.”

Purpose
Claiming NOL Carryover Deduction
Use this booklet to determine the NOL carryover
deduction that the business may claim for
operating or investing in a trade or business
within the former LARZ.
Complete Worksheet I, Income or Loss
Apportionment - Los Angeles Revitalization Zone,
and Worksheet II, Net Operating Loss (NOL)
Carryover and Carryover Limitations - Los
Angeles Revitalization Zone, in this booklet

for the NOL carryover deduction for which the
business is eligible. Then enter the NOL carryover
deduction on form FTB 3806.
If your business is located both within and
outside the former LARZ, see Part I, Portion of
Business Attributable to the Former Los Angeles
Revitalization Zone, for information on how to
apportion business income.

How to Claim NOL Carryover
Deduction
To claim any LARZ NOL carryover deduction,
attach a completed form FTB 3806 to your
­California tax return.
Attach a separate form FTB 3806 for each
business you operate or invest in that is located
within the former LARZ. Also, complete the
following worksheets:
•	 Corporations: Complete all the worksheets,
except for Worksheet I, Section B, Income or
Loss.
•	 Sole proprietors: Complete all the worksheets.
•	 Trusts, estates, and partnerships:
Complete Worksheet I, Section A, Income
Apportionment.
•	 All other investors: Complete Worksheet I,
Section A and Worksheet II.

Form FTB 3806 – Instructions
for Items A through G
Corporations, estates, trusts, partnerships,
exempt organizations, and sole proprietors,
complete items A through G.
Investors of pass-through entities, complete
items A through D.
Principal Business Activity (PBA) Codes
The PBA codes are based on the North American
Industry Classification System published by the
United States Office of Management and Budget.
If you are a business entity, get the PBA code
from the 2018 tax booklet (100, 100S, 100W,
565, or 568) that you used to file your tax return.
If you are an individual, get the PBA code reported
on your federal Form 1040, Schedule C, Profit or
Loss from Business (Sole Proprietorship), line B.

Part I – Portion of Business
Attributable to the Former Los
Angeles Revitalization Zone
LARZ NOL carryover deductions are limited to
business income attributable to operations within
the former LARZ. If the business is located within
and outside of the former LARZ, determine the
portion of total business operations that are
attributable to the former LARZ. Each taxpayer
must complete one form FTB 3806 for each zone,
and therefore, must also compute the income
limitation for each zone.

Business Income vs.
Nonbusiness Income
Only business income is apportioned to the
former LARZ to determine the incentive limitation.
Business income is defined as income arising
from transactions and activities in the regular
course of the trade or business. Business income
includes income from tangible and intangible
property if the acquisition, management, and
disposition of the property constitute integral
parts of the regular trade or business operations.
Nonbusiness income is all income other than
business income. See Cal. Code Regs., tit 18,
section 25120 for further references and
examples of nonbusiness income.
For corporations and entities doing business
in and outside of the former LARZ, use
Worksheet I, Section A, to determine the former
LARZ apportionment factor to determine the
amount of business income attributable to the
former LARZ.
Pass-through entities report to their shareholders,
beneficiaries, partners, and members the
following items:
1.	 The distributive (or pro-rata for
S corporations) share of the business income
apportioned to the former LARZ.
2.	 The distributive (or pro-rata for
S corporations) share of the business capital
gains apportioned to the former LARZ
included in item 1.
3.	 The distributive (or pro-rata for S corporation)
share of the LARZ property and payroll to
corporate partners, members, shareholders,
beneficiaries.
Report these items as other information on
Schedule K-1 (100S, 541, 565 or 568), Share of
Income, Deductions, Credits, etc.
For an individual, use Worksheet I, Section B
to determine business income attributable to
the former LARZ. Business income includes but
is not limited to ­California business income or
loss from federal Form 1040 (Schedule C, Profit
or Loss from Business (Sole Proprietorship);
Schedule C-EZ, Net Profit from Business;
Schedule D, Capital Gains and Losses;
Schedule E, Supplemental Income and Loss;
Schedule F, Profit or Loss from Farming) and
California Schedule D-1, Sales of Business
Property, or federal Form 4797, Sales of Business
Property, if California Schedule D-1 is not
needed, as well as wages. Be sure to include
casualty losses, disaster losses, and any business
deductions reported on federal Form 1040,
Schedule A, Itemized Deductions.
Generally, all income which arises from the
conduct of trade or business operations of a
taxpayer is business income.
If you elected to claim part or all of your current
year disaster loss under IRC Section 165(i)(1) on
prior year’s tax return, do not include the amount
of the loss that was claimed on prior year’s tax
return in your current year business income from
the former LARZ.

Apportionment
Business income is apportioned to the former
LARZ by multiplying the total California business
income of the taxpayer by a fraction. The

numerator is the property factor plus the payroll
factor, and the denominator is two.
Property Factor
Property is defined as the average value of all real
and tangible personal property owned or rented
by the business and used during the taxable year
to produce business income.
Property is included in the factor if it was available
for use during the taxable year.
Property owned by the business is valued at its
original cost. Original cost is the basis of the
property for federal income tax purposes (prior to
any federal adjustment) at the time of acquisition
by the business, adjusted for subsequent
capital additions or improvements and partial
dispositions because of sale or exchange.
Allowance for depreciation is not considered.
Rented property is valued at eight times the net
annual rental rate. The net annual rental rate for
any item of rented property is the total rent paid
for the property, less aggregate annual subrental
rates paid by subtenants.
The numerator of the property factor is the
average value of the taxpayer’s real and tangible
personal property owned or rented by the
business and used within the former LARZ­­during
the taxable year to produce LARZ ­business
income. See ­Worksheet I, Section A, column (b).
The denominator of the property factor is the
total average value of all the taxpayer’s real and
tangible personal property owned or rented and
used during the taxable year within ­California. See
Worksheet I, Section A, column (a).
Payroll Factor
Payroll is defined as the total amount paid to
the business’s employees as compensation for
the production of business income during the
taxable year.
Compensation means wages, salaries,
commissions, and any other form of payment
paid directly to employees for personal services.
Payments made to independent contractors or
any other person not properly classified as an
employee are excluded.
Compensation Within the Former LARZ
Compensation is considered to be within the
former LARZ if any one of the following tests
are met:
1.	 The employee’s services are performed
within the geographical boundaries of the
former LARZ.
2.	 The employee’s services are performed within
and outside the former LARZ, but the services
performed outside the former LARZ are
incidental to the employee’s service within the
former LARZ.
	 Incidental means any temporary or transitory
service performed in connection with an
isolated transaction.
3.	 If the employee’s services are performed
both within and outside the former LARZ, the
employee’s compensation is attributed to the
former LARZ if any one of the following items
is met:
A.	 The employee’s base of operations is
within the former LARZ.
B.	 There is no base of operations in any other
part of the state in which some part of the
service is performed, and the place from

which the service is directed or controlled
is within the former LARZ.
C.	 The base of operations or the place
from which the service is directed or
controlled is not in any other part of the
state in which some part of the service is
performed and the employee’s ­residence is
within the former LARZ.
	 Base of operations is the permanent
place from which employees start work
and ­customarily return in order to
receive instruction from the taxpayer or
communications from their ­customers
or persons; to replenish stock or other
material; to repair equipment; or to
perform any other functions necessary in
the exercise of their trade or profession at
some other point or points.
The numerator of the payroll factor is the
taxpayer’s total compensation paid to employees
for working within the former LARZ during
the taxable year. See Worksheet I, Section A,
column (b).
The denominator of the payroll factor is the
taxpayer’s total compensation paid to ­employees
working in C
­ alifornia. See Worksheet I, Section A,
column (a).
Corporations Filing a Combined Report
When determining the income attributable
to the former LARZ, the business income of
each corporation doing business in the former
LARZ is the business income apportioned to
California as determined under combined report
mechanics. Get FTB Pub. 1061, Guidelines for
Corporations Filing a Combined Report, for
more information on combined reports and
entity income apportionment. Each corporation
computes the income attributable to the former
LARZ by multiplying California business income
by the LARZ apportionment factor computed in
Worksheet I, Section A. The former LARZ property
and payroll factors used in the determination of the
former LARZ business income includes only the
taxpayer’s California amounts in the ­denominator.
Each corporation doing business in the former
LARZ computes the business income attributable
to the LARZ according to their own apportioned
California business income and intrastate
apportionment factors.

Instructions for Worksheet I –
Income or Loss Apportionment

Section A – Income
Apportionment
If the business operates only within the former
LARZ, enter 100% (1.00) on line 4, of Section A.
Do not complete the rest of Worksheet I.
Use Worksheet I, Section A to determine the
amount of business income apportioned to the
former LARZ. The business income apportioned
to the former LARZ determines the amount
of LARZ NOL carryover that can be used. A
taxpayer’s LARZ business income is its California
business income multiplied by the specific
LARZ apportionment percentage computed in
Worksheet I, Section A.
Property Factor
When determining the income apportioned to
the former LARZ, the numerator of the property

FTB 3806 Booklet  2018  Page 3

factor is the average value of the real and tangible
personal property owned or rented by the business
and used within the former LARZ during the
taxable year to produce the former LARZ business
income. See Worksheet I, Section A, column (b).
The denominator of the property factor is the
total average value of all the taxpayer’s real and
tangible personal property owned or rented and
used during the taxable year within California. See
Worksheet I, Section A, column (a).
Payroll Factor
When determining income apportioned to the
former LARZ, the numerator of the payroll factor
is the taxpayer’s total compensation paid to
the employees for working within the former
LARZ during the taxable year. See Worksheet I,
Section A, column (b). The denominator of the
payroll factor is the taxpayer’s total compensation
paid to employees working within California. See
Worksheet I, Section A, column (a).

Only ­California source business income is
apportioned to the former LARZ.
The first step is to determine which portion of
the taxpayer’s net income is “business income”
and which portion is “nonbusiness income,”
since only business income is apportioned to
the former LARZ. See Part I on page 2 of the
instructions for a discussion of business and
nonbusiness income.

Section B – Income or Loss

Part II – Pass-Through Income or Loss
Individuals with a Schedule K-1
The individual partner, member, or S corporation
shareholder completes Worksheet I, Section B,
Part II, Pass-Through Income or Loss.
Multiple Pass-Through Entities: If you are a
shareholder, partner, or member in multiple
pass‑through entities with businesses located
within and outside the former LARZ from which

Taxpayers filing Form 540, California Resident
Income Tax Return, or Form 540NR, California
Nonresident or Part-Year Resident Income Tax
Return, use Worksheet I, Section B on page 5 to
determine the amount to enter on Worksheet II,
line 1 and line 6.
Do not include disaster losses in any amounts
used in the table in column (b).

Part I – Individual Income and Expense Items
Wages: Taxpayers with wages from a company
located within and outside the former LARZ,
determine the LARZ wage income by entering the
percentage of their time that they worked within
the former LARZ in column (b). The percentage
of time is the same period for which the wages
entered on line 1 were earned. Determine this
percentage based on records of time and events
such as a travel log or entries in a daily planner.

you received LARZ incentives, see the example
below for computing business income in the
former LARZ.
Example:
Trade or
business
income
from
Schedule K-1 Entity’s LARZ
LARZ
Pass-through (100S, 541, apportionment apportioned
entity
565, or 568)
percentage
income
ABC, Inc.
$40,000
80%
$32,000
A, B, & C
30,000
10%
3,000
ABC, LLC
10,000
50%
5,000
Total
$40,000

Part III – Taxpayer’s Trade or Business
Business Income: Use business income or
loss from federal Form 1040, Schedules C,
C‑EZ, E, and F, plus ­California adjustments from
Schedule CA (540 or 540NR) for each trade or
business. Also include business capital gains and
losses from Schedule D and business gains and
losses from Schedule D-1 (or federal Form 4797,
if Schedule D-1 is not needed) as adjusted on
Schedule CA (540 or 540NR).
Located Entirely Within the Former LARZ
Line 6 – Line 9: If your business operation
reported on federal Form 1040, Schedule C,
C­‑EZ, E, F, or another schedule, is entirely within

 Worksheet I  Income or Loss Apportionment – Los Angeles Revitalization Zone
Section A  Income Apportionment
Use Worksheet I, Section A, if your business has net	
(a)	
(b)	
income from sources within and outside the former LARZ.	
Total within	
Total within	
		
California	
the former LARZ	
				
PROPERTY FACTOR
1	 Average yearly value of owned real and tangible personal
property used in the business (at original cost). See
instructions for more information. Exclude property not
connected with the business and the value of
construction in progress.
	Inventory .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	Buildings  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Machinery and equipment  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Furniture and fixtures .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Delivery equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
	Land .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Other tangible assets (attach schedule) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
	 Rented property used in the business. See instructions .  .  .
	 Total property values  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
PAYROLL FACTOR
2	 Employees’ wages, salaries, commissions, and other
compensation related to business income included in
the tax return.
Total payroll  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
3	 Total percentage - sum of lines 1 and 2, column (c) . . . . . .
4	 Average apportionment percentage (1/2 of line 3).
Enter here and on form FTB 3806, line 1 .  .  .  .  .  .  .  .  .  .  .  .  .  .

(c)
Percentage within
the former LARZ
column (b) ÷ column (a)

The average apportionment percentage shown on line 4 represents the portion of the taxpayer’s total business that is attributable to activities conducted within
the former LARZ. Those factors with zero balances in the totals of column (a) will not be included in the computation of the average apportionment percentage.
For example, if the taxpayer has no payroll within and outside the former LARZ, then the average apportionment percentage would be computed by dividing line 3
by one (instead of by two as normally instructed).

Page 4  FTB 3806 Booklet  2018

 Worksheet I  Income or Loss Apportionment – Los Angeles Revitalization Zone (continued)
Section B  Income or Loss
Part I  Individual Income and Expense Items. See instructions.
		
	(a)	
			
Amount	
				

(b)	
Percentage of time providing	
services in the former LARZ	

(c)
Apportioned amount
column (a) x column (b)

 1	Wages .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 2	 Employee business expenses  .  .  .  .  .  .  .  .  .
  3	 Total. Combine line 1, column (c) and line 2, column (c).  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Part II  Pass-Through Income or loss. See instructions.
		
(a)	(b)
	
Name of entity	
Distributive or pro-rata share of business income or loss apportioned
		
to the former LARZ from Schedule K-1 (100S, 541, 565, or 568)
		
including capital gains and losses
 4

 5	 Total. Add line 4, column (b) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
Part III  Taxpayer’s Trade or Business. See instructions.
	(a)	
		
			
Business	
			
income or loss	

(b)	
Apportionment percentage	
for the former LARZ	

(c)
Apportioned income or loss
column (a) x column (b)

 6	 Schedule C or C-EZ .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 7	 Schedule E (Rentals) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 8	 Schedule F .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
 9	Other .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
10	 Total. Add line 6 through line 9, column (c) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
		
	(a)	
(b)	
			
			

Business	
gain or loss	

Apportionment percentage	
for the former LARZ	

(c)
Apportioned gain or loss
column (a) x column (b)

11	 Schedule D  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
12	 Schedule D-1 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
13	 Total. Add line 11, column (c) and line 12, column (c)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
14	 Total. Add line 3, line 10, and line 13, column (c) and line 5, column (b)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .
the former LARZ, enter the income or loss from
this activity in column (a), and enter 1.00 in
column (b).
Line 11 and Line 12: If the gain or loss reported
on Schedule D or Schedule D-1 as adjusted on
Schedule CA (540 or 540NR) was attributed to an
asset used in an activity conducted entirely within
the former LARZ, enter the gain or loss reported
in column (a), and enter 1.00 in column (b).
Located Entirely Within California
Line 6 – Line 9: If your business operation
reported on federal Form 1040, Schedule C,
C‑EZ, E, F, or another schedule, is entirely
within California, enter the income or loss
from this activity in column (a). To determine
the apportionment percentage in column (b),
complete Worksheet I, Section A. Enter the
percentage from Worksheet I, Section A,
line 4, column (c) on Worksheet I, Section B,
column (b).
Line 11 and Line 12: If the gain or loss reported
on Schedule D or Schedule D-1 as adjusted on
Schedule CA (540 or 540NR) was attributed to

an asset used in an activity conducted entirely
within California, enter the gain or loss reported
in column (a). To determine the apportionment
percentage in column (b), complete Worksheet I,
Section A. Enter the percentage from Worksheet I,
Section A, line 4, column (c) on Worksheet I,
Section B, column (b).
Located Within and Outside of Former LARZ and
California
Line 6 – Line 9: If your business operation
reported on federal Form 1040, Schedule C, C‑EZ,
E, F, or another schedule, is within and outside
the former LARZ and California, get California
Schedule R, and complete line 1 through
line 18b and line 28 through line 31. Enter the
amount from Schedule R, line 18b and line 31 on
column (a) of this worksheet. (For corporations
that file a combined report, see instructions
for Part I). To determine the apportionment
percentage in column (b), complete Worksheet I,
Section A. Enter the percentage from Worksheet I,
Section A, line 4, column (c) on Worksheet I,
Section B, column (b).

When computing Schedule R, ­disregard any
reference to Forms 100, California Corporation
Franchise or Income Tax Return; 100W,
California Corporation Franchise or Income Tax
Return, Water’s-Edge Filers; 100S, California
S Corporation Franchise or Income Tax Return;
100X, Amended Corporation Franchise or Income
Tax Return; 565, Partnership Return of Income; or
568, Limited Liability Company Return of Income.
Also disregard any reference to Schedules
R-3, Net Income (Loss) from the Rental of
Nonbusiness Property; R-4, Gain (Loss) from the
Sale of Nonbusiness Assets; or R-5, Computation
of Interest Offset.
Nonresidents that have an apportioning business
that operates within the former LARZ should have
already computed Schedule R and can use those
amounts when that schedule is referenced
Residents complete a Schedule R in order to
determine their California source business income.
Line 11 and Line 12: If the gain or loss ­reported
on Schedule D or Schedule D-1 as adjusted on
Schedule CA (540 or 540NR) was attributed to

FTB 3806 Booklet  2018  Page 5

an asset used in an activity conducted within
and outside the former LARZ and California,
get Schedule R and complete Schedule R-1,
Apportionment Formula. Multiply the gain or
loss reported by the percentage on Schedule R-1,
Part A, line 2 or Part B, line 5 and enter the result
in column (a). To determine the apportionment
percentage in column (b), complete Worksheet I,
Section A. Enter the percentage from Worksheet I,
Section A, line 4, column (c) on Worksheet I,
Section B, column (b).
Line 14 – If the result on the Worksheet I,
Section B, Income or Loss, line 14, column (c)
is a negative amount, you do not have income
attributable to the former LARZ and you cannot
claim any LARZ NOL carryovers this year.
If the result on the Worksheet I, Section B,
Income or Loss, line 14, column (c) is a positive
amount and you have LARZ NOL carryovers,
enter the amount on Worksheet II, line 1 and
line 6 (skip line 2 through line 5).

Part II – Net Operating Loss
(NOL) Carryover and Deduction
No new LARZ NOLs may be ­generated in taxable
years beginning on or after ­January 1, 1998.
LARZ NOL carryovers may still be claimed for 15
years from the year the LARZ NOL was generated.
For taxable years beginning in 2010 and
2011, California suspended the NOL carryover
deduction. Taxpayers continued to compute and
carryover NOLs during the suspension period.
However, corporations with net income after
state adjustments (pre-apportioned income) or
individuals with modified adjusted income of less
than $300,000, or with disaster loss carryovers
were not affected by the NOL suspension rules.
If corporations are required to be included in
a combined report, the 2010 and 2011 NOL
limitation amount of $300,000 or more shall
apply to the aggregate amount of pre‑apportioned
income for all members included in the combined
report.
Corporations use Form 100 or Form 100W,
line 17, or Form 100S, line 14 less line 16, to
determine net income after state adjustments
(pre-apportioned income).
Individuals use the amount shown on your
federal tax return for the same taxable year
without regard to the federal NOL deduction
(Form 540/540NR, line 13, plus the federal NOL
deductions listed on Schedule CA (540) Part
I, or Schedule CA (540NR), Part II, line 21c,
column C).
For taxable years beginning in 2008 and
2009, California suspended the NOL carryover
deduction. Taxpayers continued to compute and
carryover NOL during the suspension period.
However, corporations with taxable income or
individuals with net business income of less than
$500,000 or with disaster loss carryovers were
not affected by the NOL suspension rules.
If the taxpayer is denied use of an NOL carryover
because of the 2008 – 2011 suspension, the
carryover period is extended by four years
for losses incurred in taxable years beginning
before January 1, 2008. For more information,
get form FTB 3805Q, Net Operating Loss
(NOL) Computation and NOL and Disaster Loss

Page 6  FTB 3806 Booklet  2018

Limitations (Corporations), or form FTB 3805V,
Net Operating Loss (NOL) Computation and NOL
and Disaster Loss Limitations (Individuals).
For taxable years beginning in 2002 and
2003, California suspended the NOL carryover
deduction. Taxpayers continued to carryover an
NOL during the suspension period. The carryover
period for suspended losses was extended by two
years for losses incurred before January 1, 2002,
and by one year for losses incurred on or after
January 1, 2002, and before January 1, 2003. The
deduction for disaster losses was not affected by
the NOL suspension rules.
Limitation
A LARZ NOL carryover deduction can only offset
business income attributable to operations within
the former LARZ.
Alternative Minimum Tax
Taxpayers claiming a LARZ NOL carryover
deduction, will determine their NOL for alternative
minimum tax (AMT) purposes. Use Schedule P
(100, 100W, 540, 540NR, or 541), Alternative
Minimum Tax and Credit Limitations, to compute
the LARZ NOL for AMT purposes.
S Corporations
LARZ NOLs incurred prior to becoming
an S corporation may not be used against
S corporation income. See IRC ­Section 1371(b).
S corporations are allowed to deduct a LARZ NOL
carryover incurred after the S election is made.
An S corporation may use the NOL ­carryover as
a deduction against income subject to the 1.5%
entity-level tax (3.5% for financial institutions).
Also, the LARZ NOL carryover(s) of an
S corporation may be different than the LARZ
NOL carryover(s) of its shareholder(s).
Combined Report
Corporations that are members of a unitary group
filing combined report, separately compute the
loss carryover for each corporation in the group
(R&TC Section 25108) using their individual
apportionment factors.
Unlike the NOL treatment on a federal
consolidated tax return, a loss carryover for one
member included in a combined report may not
be applied to the intrastate apportioned income of
another member included in a combined report.
Water’s-Edge Taxpayer
R&TC Section 24416(c) imposes a limitation
on the NOL carryover deduction if the NOL is
generated during a non-water’s edge tax year.
The NOL carryover is limited to the lesser of the
NOL or the re-computed NOL. The re-computed
NOL carryover is determined by computing the
income and factors of the original worldwide
combined reporting group, as if the water’s-edge
election had been in force for the year of the loss.
R&TC Section 24416(c) serves as a limitation.
If this section applies, the NOL carryover for
each corporation may only be decreased, not
increased.

Instructions for Worksheet II –
Net Operating Loss (NOL)
Carryover and Carryover
Limitations
The LARZ NOL carryover deduction is used to
reduce current year business income from the
former LARZ. Use this worksheet to compute the

LARZ NOL carryover deduction for corporations,
individuals, and exempt trusts.
Line 1 – See Part I on page 2 for a discussion of
business and nonbusiness income.
Form 540 and Form 540NR filers:
Be sure to include casualty losses, disaster
losses, and any business deductions reported
on federal Form 1040, Schedule A as itemized
deductions.
Exception: If you elected to claim part or all
of your current year disaster loss under IRC
Section 165(i)(1) on prior year’s tax return, do not
include the amount of the loss that was claimed
on prior year’s tax return in your current year
business income for the former LARZ.
Line 2 – In modifying your income, deduct your
capital losses only up to your capital gains. Enter
any net capital losses included in line 1 as a
positive number.
Line 3 – Corporations reduce income by the
disaster loss deduction and the deduction for
excess net passive income.
Line 6 – This is your modified taxable income
(MTI). Reduce this amount by your LARZ NOL
carryover deduction. The LARZ NOL carryover
deduction may not be larger than your MTI. If
your MTI is a loss in the current year or if it limits
the amount of NOL you may use this year, carry
over the NOL to future years.
Line 7 – Enter the amount from line 6. If
this amount is zero or negative, transfer the
amount(s) from line 8 and line 9, column (b) to
column (e). Go to line 10.
Line 8 and Line 9 – Enter the amounts as positive
numbers.
In column (c), enter the smaller of the amount in
column (b) or the amount in column (d) from the
previous line.
In column (d), enter the result of subtracting
column (c) from the balance on the previous line
in column (d).
In column (e), enter the result of subtracting
the amount in column (c) from the amount in
column (b), as applicable.
Example:
(b)
Carryover
from
prior year

(c)
Amount
deducted
this year

$  500
6,000

$  500
4,500

	Line

(d)
Balance
available to
offset losses
$5,000
4,500
0

(e)
LARZ
NOL
carryover
to future years
$    0
1,500

10 – Enter the totals from column (b) and
column (e) on form FTB 3806, Side 1, Part II,
line 2a and line 2c, respectively.
Your LARZ NOL carryover deduction for 2018
is the amount on line 10, column (c). Enter this
amount on your California tax return or schedule
as follows:
•	 Form 100, line 20
•	 Form 100S, line 18
•	 Form 100W, line 20
•	 Form 109, line 6
•	 Schedule CA (540), Part I, line 21e, column B
•	 Schedule CA (540NR), Part II, line 21e,
column B
Your LARZ NOL carryover(s) to 2019 is the
amount on line 10, column (e).

 Worksheet II    Net Operating Loss (NOL) Carryover and Carryover Limitations — Los Angeles Revitalization Zone
1	 Enter the amount from Form 100, line 17; Form 100W, line 17; Form 100S, combined
amounts of line 14 and line 16; or Form 109, line 1 or line 4. Form 540 and
Long Form 540NR filers, enter on line 1 and line 6 the total from Worksheet I,
Section B, line 14, column (c) (skip line 2a through line 5).
See instructions. Corporations which file a combined report, enter the taxpayer’s
business income assigned to California (see instructions Part I) . . . . . . . . . . . . . . . 	1
2	a	Form 100, Form 100S, Form 100W, and Form 109 filers: Enter any nonbusiness
	 income included in line 1 as a negative number. Form 540 and Long Form 540NR
	 filers leave blank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	2a
	b	Form 100, Form 100S, Form 100W, and Form 109 filers: Enter any nonbusiness
	 losses included in line 1 as a positive number. Form 540 and Long Form 540NR
	 filers leave blank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	2b
	c	Combine line 2a and line 2b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	2c
3	 Form 100 filers: Enter the amount from Form 100, line 21.
Form 100W filers: Enter the amount from Form 100W, line 21. Form 100S filers:
Enter the total of the amounts from Form 100S, line 16 and line 19. Enter this amount
as a negative number. Form 540, Long Form 540NR, and Form 109 filers: Enter -0-. . 	3
4	 Combine line 1, line 2c, and line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	4
5	 Enter the average apportionment percentage from Worksheet I, Section A, line 4 . . . . 	5
6	 Modified taxable income. Multiply line 4 by line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	6
(a)
Description

(b)
Carryover from
prior year

(c)
Amount deducted
this year

(d)
Balance available to
offset losses

(e)
LARZ NOL
carryover to future years

  7	 Modified taxable income from line 6 .  .  .  .  .  .  .  .
  8	 LARZ NOL carryover beginning in 1997  .  .  .  .  .
  9	 LARZ NOL carryover beginning in 1998  .  .  .  .  .
10	 Total the amounts in column (b), (c), and
	
column (e). See instructions .  .  .  .  .  .  .  .  .  .  .  .  .  .

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Page 8  FTB 3806 Booklet  2018

TAXABLE YEAR

2018

Los Angeles Revitalization Zone Net
Operating Loss (NOL) Carryover Deduction

Attach to your California tax return.

CALIFORNIA FORM

3806
 SSN or ITIN  CA Corporation no.  FEIN

Name(s) as shown on your California tax return

California Secretary of State file number

A.	 Check the appropriate box for your entity type:
 Individual   Estate   Trust   C corporation    S corporation    Partnership
   Exempt organization    Limited liability company    Limited liability partnership
B.	 Enter the name of the Los Angeles Revitalization Zone (LARZ) business:_____________________________________________________________
C.	 Enter the address (actual location) where the LARZ business is conducted:
______________________________________________________________________________________________________________________
D.	 Enter the name of the community within the former LARZ in which the business and/or investment activity is located.
______________________________________________________________________________________________________________________
E.	 Enter the six-digit Principal Business Activity Code of the LARZ business .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	_________________
F.	 Gross annual receipts of the business  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	_________________
G.	 Total asset value of the business  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	_________________
Part I  Portion of Business Attributable to the Former LARZ
1	 Enter the average apportionment percentage of your business that is in the former LARZ from Worksheet I, Section A,
line 4. If your operation is wholly within the former LARZ, the average apportionment percentage is 100% (1.00) .  .  .  .  .  .  .  . 	1 _________________
Part II  Net Operating Loss (NOL) Carryover and Deduction
2	a	Enter the total LARZ NOL carryover from prior years from Worksheet II, line 10, column (b)  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	2a  _________________
	b	Enter the total LARZ NOL carryover deduction used in the current year from Worksheet II, line 10, column (c).
Enter this amount on Schedule CA (540), Part I, or Schedule CA (540NR), Part II, line 21e, column B; Form 100, line 20; Form 100W, line 20;
Form 100S, line 18; or Form 109, line 6 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	2b  _________________
	c	Enter the LARZ NOL to carry over to future years from Worksheet II, line 10, column (e) .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 	2c  _________________

For Privacy Notice, get FTB 1131 ENG/SP.

7551183

FTB 3806  2018  Side 1

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Page 10  FTB 3806 Booklet  2018

How to Get ­California Tax Information	
Your Rights as a Taxpayer

Letters

Our goal at the FTB is to make certain that your
rights are protected so that you will have the
highest confidence in the integrity, efficiency,
and fairness of our state tax system. FTB 4058,
­California ­Taxpayers’ Bill of Rights, includes
information on your rights as a C
­ alifornia
taxpayer, the Taxpayers’ Rights Advocate
Program, and how you can request written advice
from the FTB on whether a particular transaction
is taxable. See “Where to Get Tax Forms and
Publications” below.

If you write to us, be sure your letter includes
your federal employer identification number
(FEIN), California Secretary of State (SOS) file
number, ­California corporation number, social
security number (SSN) or individual taxpayer
identification number (ITIN), your daytime and
evening telephone numbers, and a copy of the
notice (if applicable). Send your letter to:
	 CORRESPONDENCE, ANALYSIS, SUPPORT
AND EDUCATION SECTION   MS F-283
FRANCHISE TAX BOARD
PO BOX 1468
SACRAMENTO CA  95812-1468
We will respond to your letter within ten weeks.
In some cases, we may need to call you for
additional information.
Do not attach correspondence to your tax return
unless the correspondence relates to an item on
your tax return.

Where to Get Tax Forms and
Publications
By Internet – You can download, view, and
print ­California tax forms and publications at
ftb.ca.gov/forms.
Access other state agencies’ websites at ca.gov.
By phone – To order current year California tax
forms and publications, call our automated phone
service. Refer to the list in your tax booklet and
find the code for the form you want to order.
Call 800.338.0505 and follow the recorded
instructions.
Allow two weeks to receive your order. If you live
outside California, allow three weeks to receive
your order.
In person – Many post ­offices and libraries
provide free ­California personal income tax
booklets during the filing season.
Employees at libraries, post offices, and quick
print businesses cannot provide tax information
or assistance.
By mail – Write to:
	 TAX FORMS REQUEST UNIT
FRANCHISE TAX BOARD
PO BOX 307
RANCHO CORDOVA  CA  95741-0307

(Keep This Page For Future Use)
Economic Development Area
Information
Further information about the former LARZ is
available from:
	 FRANCHISE TAX BOARD
Website: ftb.ca.gov
Telephone: 916.845.3464

Internet and Telephone
Assistance
Telephone assistance is available year-round from
7 a.m. until 5 p.m. Monday through Friday, except
holidays. Hours subject to change.
Website:	
ftb.ca.gov
Telephone:	800.852.5711
from within the United States
	916.845.6500
from outside the United States
TTY/TDD:	800.822.6268
for persons with hearing or speech
disability
	
711 or 800.735.2929 California
relay service
Asistencia Por Internet y Teléfono
Asistencia telefónica está disponible durante todo
el año desde las 7 a.m. hasta las 5 p.m. de lunes
a viernes, excepto días feriados. Las horas están
sujetas a cambios.
Sitio web:	
ftb.ca.gov
Teléfono:	800.852.5711
dentro de los Estados Unidos
	916.845.6500
fuera de los Estados Unidos
TTY/TDD:	800.822.6268
	
para personas con discapacidades
auditivas o del habla
	711 ó 800.735.2929 servicio de
relevo de California

FTB 3806 Booklet  2018  Page 11