Cal. Rev. & Tax. Code § 24348

(a) There shall be allowed as a deduction either of the following:
1. (1) Debts which become worthless within the taxable year in an amount not in excess of the part charged off within that taxable year.
2. (2) In the case of a bank (as defined in Section 581 of the Internal Revenue Code), in lieu of any deduction under paragraph (1), in the discretion of the Franchise Tax Board, a reasonable addition to a reserve for bad debts determined in accordance with Section 585 of the Internal Revenue Code, relating to reserves for losses on loans of banks, except as otherwise provided.
(b) When satisfied that a debt is recoverable in part only, the Franchise Tax Board may allow that debt, in an amount not in excess of the part charged off within the taxable year, as a deduction; provided, however, that if a portion of a debt is claimed and allowed as a deduction in any year, no deduction shall be allowed in any subsequent year for any portion of the debt which in any prior year was charged off, regardless of whether claimed as a deduction in that prior year.
(c)
1. (1) The amendments to this section made by the act adding this subdivision shall apply only to taxable years beginning on or after January 1, 2002.
2. (2) In the case of any bank, savings and loan association, or financial corporation (whether a taxpayer or a member of a combined reporting group) that maintained a reserve for bad debts for the last taxable year beginning before January 1, 2002, and that is required by the amendments to this section made by the act adding this subdivision to change its method of computing reserves for bad debts, all of the following shall apply:
  1. (A) That change shall be treated as a change in a method of accounting.
  2. (B) That change shall be treated as initiated by the bank, savings and loan association, or financial corporation (whether a taxpayer or a member of a combined reporting group).
  3. (C) That change shall be treated as made with the consent of the Franchise Tax Board.
  4. (D) The net amount of adjustments required by Article 6 (commencing with Section 24721) of Chapter 13 to be taken into account by the bank, savings and loan association, or financial corporation (whether a taxpayer or a member of a combined reporting group):
    1. (i) Shall be determined by taking into account only 50 percent of the “applicable excess reserves” (as defined in subdivision (d)), and
    2. (ii) As so determined, shall be taken into account on the last day of the first taxable year beginning on or after January 1, 2002.
    3. (iii) The amount of “applicable excess reserves” in excess of the amount taken into account under clause (i) of this subparagraph shall be reduced to zero and shall not be taken into account for purposes of this part.
(d)
1. (1) In the case of a large bank (as defined in Section 585(c)(2) of the Internal Revenue Code), or a financial corporation that is not allowed to use the reserve for bad debts under Section 585 of the Internal Revenue Code, the term “applicable excess reserves” means the balance of the reserves described in former subparagraph (B) of paragraph (1) of subdivision (a) (prior to the amendments made by the act adding this subdivision) as of the close of the last taxable year beginning before January 1, 2002.
2. (2) In all other cases, the term “applicable excess reserves” shall be zero and shall not be taken into account for purposes of this part.
(e) The amount of “applicable excess reserves” not taken into account pursuant to clause (iii) of subparagraph (D) of paragraph (2) of subdivision (c) or paragraph (2) of subdivision (d) shall not affect the amount of the allowable deduction under paragraph (1) of subdivision (a).