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The Franchise Tax Board has announced that taxpayers affected by the retroactive personal income tax increase (Proposition 30), may pay the amount due with their 2012 tax return. Taxpayers subject to underpayment of estimated tax penalties may request relief by completing Form 5808 Underpayment of Estimated Taxes by Individual and Fiduciaries and completing Part 1, question 1 with the explanation that the underpayment is due to Proposition 30.
Even if you have been a bad taxpayer, California is willing to give you a break.
Voluntary Compliance Initiative 2 (VCI 2) is an opportunity for taxpayers who underreported their California income tax liabilities, through the use of abusive tax avoidance transactions (ATAT) or offshore financial arrangements (OFA), to amend their returns for 2010 and prior tax years and obtain a waiver of most penalties.
Filing period: August 1, 2011 to October 31, 2011
Applicable tax years: 2010 and prior
You are eligible to participate in VCI 2 if you (or one of your related entities):
- Filed a tax return that underreported your income or tax liability through the use of an ATAT or OFA.
You are eligible even if you:
- Are currently under FTB examination for an ATAT or OFA.
- Are currently under administrative protest or appeal for an ATAT or OFA.
- Participated in the IRS’s Offshore Voluntary Disclosure Initiative.
You must take the following steps to participate:
- File a completed Participation Agreement form with us between August 1, 2011 and October 31, 2011.
- Attach the form to your amended return to report all income from all sources, without regard to the ATAT and including all income from the OFA.
- Pay all tax and interest by October 31, 2011. See payment options for more information.
Participation in VCI 2 will allow you to avoid:
- The cost of litigation.
- Certain penalties and the associated interest.
- Criminal prosecution.
You can avoid the following penalties under VCI 2:
- Noneconomic Substance Transaction Understatement Penalty
- Accuracy Related Penalty
- Interest Based Penalty
- Fraud Penalty
If you are eligible but do not participate, you will be subject to the full range of penalties and interest, and may be subject to criminal prosecution.
The Large Corporate Understatement Penalty (LCUP) and the Amnesty Penalty cannot be waived under this initiative.
Updated Taxpayers´ Bill of Rights
[The FTB] recently revised [their] publication 4058C, California Taxpayers’ Bill of Rights. / more+
Does your client know where to send the “state copy” of an information return?
You may be asked by your client where they need to send the “state copy” of an information return. If they filed paper returns with IRS, they do not need to send a paper copy to FTB. / more+
Available now: Free California source income withholding webinars
[The FTB] will host free California source income withholding webinars in March 2010. / more+
The best way to file a protest
Has your client recently received a Notice of Proposed Assessment for added tax resulting from [an FTB] audit examination? Does your client plan to file a protest? / more+
New home credit can be e-filed
Did you know you can e-file California returns that contain the New Home Credit? / more+
Do all your tax stuff online!
With instant access to taxpayer information, 24 hours a day, doing your tax stuff online will save you, and your clients, time and hassle. / more+
Need W-2 information?
Some clients may have difficulty getting their W-2 information. / more+
Small Business Virtual Webinar
[The FTB] partnered with Board of Equalization (BOE) to present cost effective and convenient educational products, including a complete online seminar package that enables taxpayers to get answers to the most commonly asked questions. / more+
Ask the Advocate
FTB responds to tax community´s proposals
The annual Taxpayers´ Bill of Rights Hearing was held December 3, 2009. [The FTB] received several proposals and recommendations from the tax community. / more+
Take a look at the changes happening at FTB. / more+
[The] monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time. / more+
Interested Parties Meeting on Specialized Tax Service Fees
[The FTB] scheduled an interested parties meeting for March 16, 2010, at 1 p.m. to discuss amendment of California Code of Regulations, title 18, section 19591 (Specialized Tax Service Fees), to establish the amount of the fee for the issuance of a limited partnership revival confirmation letter, as required by Revenue and Taxation Code section 19591, subdivision (b)(3), for periods on or after January 1, 2011. / more+
The facts listed below are good to know. However, it’s just as important to realize that the Mortgage Debt Forgiveness Act is a federal provision. If you are thinking that your mortgage debt forgiveness wont cause you a tax problem, better check out the state rules before you come to that conclusion.
In California for example:
“For tax year 2009, California does not conform to the federal Mortgage Forgiveness Debt Relief Act which applies to discharges occurring in 2007 through 2012. 1 Amounts excluded for federal income tax purposes must be added to income for California tax purposes.”
1 Federal law initially applied to discharges occurring from 2007 through 2009 (the Mortgage Forgiveness Debt Relief Act of 2007, Public Law 110-142, December 20, 2007). Federal mortgage forgiveness debt relief was subsequently extended to apply to discharges occurring from 2009 through 2012 (the Emergency Economic Stabilization Act of 2008, Public Law 111-5, October 3, 2008).
Ten Facts about Mortgage Debt Forgiveness
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
- Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
- The limit is $1 million for a married person filing a separate return.
- You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
- To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
- Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
- Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
- If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
- Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
- If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
- Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Top 12 tax scams
It’s a new year and a good time to remind [you] about the top tax scams. / more+
Pass-through entities must timely file original tax returns claiming new jobs tax credit in order for owners to claim the credit
A new jobs tax credit of $3,000 is available to small businesses with 20 or less employees for each additional net full-time employee hired and employed in California for tax years beginning on or after January 1, 2009. The total amount of the credit that we can allocate may not exceed $400 million, and claims must be made before a statutorily provided “cut-off” filing date. / more+
Using the Annualization Method in 2009 and 2010
Estimated tax payments have undergone many changes since we started filing season one year ago. / more+
Timing is everything
[Are you]considering making an S corporation election? Selling or exchanging 50 percent or more of the total interests in an LLC or limited partnership? / more+
Ask the Advocate
Withholding and estimate tax payment changes
This summer the California legislature again revised the estimated tax payment percentages, and also passed some clean-up legislation to clear up confusion on how wage earners with only wage withholding would meet the new estimated tax payment requirements. / more+
Take a look at the changes happening here at FTB. / more+
[The FTB’s] monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time. / more+
California code of civil procedure and foreclosures
Will you clarify how California civil procedures interact with the Internal Revenue Code (IRC)? Specifically how does California Civil Procedure Code (CCP) Sections interact with IRC Section 108, Income from Discharge Indebtedness? / more+
California recognizes out-of-state same-sex marriages
On October 11, 2009, the Governor signed Senate Bill 54, which provides that a marriage between two persons who have entered into a same-sex marriage outside the State of California prior to November 5, 2008, that was valid by the laws of the jurisdiction in which the marriage was contracted, is valid in California. / more+
Military Spouses Residency Relief Act
The Military Spouses Residency Relief Act (MSRRA) was signed into law by the President on November 11, 2009. For taxable years beginning on or after January 1, 2009, a service member’s spouse is considered a nonresident for tax purposes if the servicemember and spouse have the same legal residence or domicile outside of California and the spouse is in California solely to be with the service member who is serving in compliance with military orders. / more+
Mandatory e-pay penalty update: Not assessed in 2010
When you are required to make electronic payments but pay by other means, [the FTB] can assess a penalty equal to one percent of the amount paid, unless your failure to pay electronically was for reasonable cause and not willful neglect. / more+
Luxury Auto Pilot Program
Each year, [the FTB] receive and process millions of income information records. The nonfiler program uses federal tax return information, information from other California state agencies, third-party data, and income estimates from self-employed activities to determine if a taxpayer has a filing requirement. / more+
EITC Awareness Day is January 29, 2010
The IRS in partnership with local organizations in your area will kick off of the Earned Income Tax Credit (EITC) Awareness Day event on January 29 to promote the federal tax credit. / more+
Consultants wanted: California seeks experts knowledgeable in abusive tax shelter transactions
Abusive Tax Avoidance Transactions (ATAT) cost California billions of dollars each year. In 2004, [the FTB] collected a record $1.4 billion from taxpayers participating in tax shelters during [their] Voluntary Compliance Initiative. / more+
Get ready for the filing season with e-Services
During these difficult times, it is increasingly important to work both smart and efficiently. / more+
Head of Household guidelines
Our filing season is just around the corner. Some of your clients may inquire about claiming our head of household filing status. This filing status provides a lower tax liability and a higher standard deduction than the single filing status. / more+
California’s Enterprise Zones Wage Credit
In our June 2009 issue of Tax News we asked the question, “Are you familiar with California’s Enterprise Zones?”
[The FTB] now ask, “Are you aware some taxpayers who work in an Enterprise Zone may be entitled to a credit for the wages they earned?” / more+
Misleading letter schemes target corporations and LLCs
Your business clients may receive a misleading letter to file board minutes and/or a statement of information for a fee. Because the letters look and sound official, your clients may be quick to send payment. But wait! Read the fine print, “…products or services being offered are not approved or endorsed by any government agency.” / more+
Ask the advocate
Taxpayers’ Bill of Rights Hearing
The Annual Taxpayers’ Bill of Rights Hearing was held December 3, 2009, at FTB headquarters in the Gerald H. Goldberg Auditorium. We received four proposals in advance and representatives from two organizations made presentations. We are in the process of preparing responses to the proposals we received. / more+
Take a look at the changes happening here at FTB. / more+
Our monthly summary of bringing tax criminals to justice and closing the tax gap one case at a time. / more+