How to Complete and File California Form 100-WE: Water’s-Edge Election

To make a water’s-edge election in California, complete Form 100-WE and attach it to an original, timely filed Form 100W for the tax year the election starts. The California Form 100-WE water’s-edge election limits your unitary group’s combined report to domestic affiliates and certain foreign corporations with meaningful U.S. activity, keeping most foreign-earned income out of California apportionment.¹ Once made, the election binds the group for 84 months, so the details on this one-page form need to be right the first time.

Who Should File Form 100-WE

Any corporation that is part of a unitary business and required to file a California return can elect water’s-edge under Revenue and Taxation Code Section 25110.² The election only matters when your group has entities outside the United States whose income would otherwise get pulled into California’s worldwide combined report. A single-state California business with no foreign affiliates has no reason to file this form.

Once elected, the combined report includes:

Corporations incorporated in the United States, other than possessions corporations that have elected under IRC Sections 931 through 936.²
Foreign-incorporated corporations whose average U.S. property, payroll, and sales factors equal at least 20 percent (the “80/20” companies).²
Controlled foreign corporations (as defined by IRC Section 957) with Subpart F income, partially included under R&TC Section 25110(a)(2)(A)(ii) based on the ratio of Subpart F income to current earnings and profits.³
Corporations incorporated in listed tax haven jurisdictions, regardless of U.S. activity level.

Filling Out the Form

Form 100-WE is short, but every field must match the Form 100W (or Form 100S) it accompanies. Mismatches invite the FTB to question whether the election was validly made.

Identification

Enter the electing corporation’s legal name, seven-digit California corporation number from the Secretary of State, and nine-digit federal employer identification number. If your corporation uses both identification numbers, include both, and use the same address that appears on the return.⁴

Election Start Date and Group Members

Designate the effective date, which must be the first day of the taxable year you’re filing for. Then list every corporation included in the water’s-edge group with its name and identification numbers. The lead corporation signs the form for the group, and that signature represents that all members consent.

Take the member list seriously. If the election is audited later, the first thing the FTB compares is the entities listed here against what the statutory criteria required you to include.

Form FTB 2416 for CFCs

If any controlled foreign corporation in the group has Subpart F income, complete Form FTB 2416, Schedule of Included Controlled Foreign Corporations. The schedule multiplies each CFC’s total income and each apportionment factor component by the ratio of Subpart F income to current earnings and profits (as defined in IRC Section 964), and the resulting net income flows to Form 100W, Side 1, line 7a. A CFC with no Subpart F income, or with no current E&P, drops off the schedule entirely.³

Filing the Form

Form 100-WE is not filed on its own. Attach it to an original, timely filed Form 100W for the tax year the election takes effect.⁵ Timely includes returns filed within California’s automatic seven-month extension for C corporations.⁶ Miss even the extended deadline and you lose the ability to elect for that year.

Two conditions must both be met for the election to count: the tax must be computed consistently with a water’s-edge election, and the written notification (Form 100-WE) must accompany the return.⁵ A worldwide-basis return with a 100-WE stapled to it, or a water’s-edge return without the form, will not hold up.

E-Filing and Paper Addresses

California law requires any business entity that prepares its return using tax preparation software to e-file, and most corporations will transmit Form 100W and the attached 100-WE electronically through FTB-approved software.⁷ The FTB can waive the requirement for technology constraints, undue financial burden, or other reasonable cause, but you have to request the waiver rather than simply mailing paper.

If you’re filing on paper, the mailing addresses are:¹

Return without payment (or paid electronically): Franchise Tax Board, PO Box 942857, Sacramento, CA 94257-0500
Return with payment enclosed: Franchise Tax Board, PO Box 942857, Sacramento, CA 94257-0501
Private delivery service: Franchise Tax Board, Sacramento, CA 95827

What the Election Commits You To

The election runs for a minimum of 84 months, or seven full years. You cannot switch back to worldwide combined reporting in the middle of the period because a given year would look better that way. For elections made in taxable years beginning on or after January 1, 2003, the older contract-based automatic renewal mechanism under R&TC Section 25111 is inoperative, so the anniversary-date and notice-of-non-renewal steps from the earlier framework no longer apply.⁸

Getting Out Early or Re-Electing

R&TC Section 25111 permits early termination in only two situations: the taxpayer is acquired, directly or indirectly, by a nonelecting entity larger than the taxpayer measured by equity capital (alone or combined with its affiliates in its own combined report), or the Franchise Tax Board grants consent to terminate.⁹ Outside those, you’re in for the full seven years.

If the election has terminated and you want to re-elect before the original 84-month period would have expired, you need FTB consent. File Form FTB 1115, Request for Consent for a Water’s-Edge Re-Election, no later than 90 days before the due date (including extensions) of the return for which the re-election would apply. File it separately from the tax return; sending it with the return will get it treated as untimely.¹⁰

The FTB generally responds within 60 days. If no response and no request for additional information arrives in that window, the request is considered denied.¹⁰ You must show “good cause” using the standard from Treasury Regulation Section 1.1502-75(c), and you should not change your filing method until you have written approval.

Records to Keep

Keep documentation that supports the composition of your water’s-edge group: ownership percentages, factor calculations for 80/20 corporations, Subpart F income computations for included CFCs, and the reasoning behind including or excluding each entity. Retain copies of every filed Form 100-WE, Form 100W, and Form FTB 2416 for the full 84-month period and beyond, because an audit can reach back to the election’s start date.¹¹ If the FTB questions your group composition and you cannot support it with records, the election itself is at risk.

1
Franchise Tax Board. 2024 Instructions for Form 100W Corporation Tax Booklet Water’s-Edge Filers
2
California Legislative Information. California Revenue and Taxation Code 25110
3
Franchise Tax Board. Instructions for Form FTB 2416 Schedule of Included Controlled Foreign Corporations
4
Franchise Tax Board. California Form 100-WE Water’s-Edge Election
5
California Legislative Information. California Revenue and Taxation Code 25113
6
Franchise Tax Board. Corporations
7
Franchise Tax Board. e-file for Business
8
Franchise Tax Board. Water’s-Edge Election Manual Chapter 3
9
California Legislative Information. California Revenue and Taxation Code RTC 25111
10
Franchise Tax Board. Instructions for Form FTB 1115 Request for Consent for a Water’s-Edge Re-Election
11
Franchise Tax Board. Water’s Edge Manual