Gary Weiss CPA

In its July 2014 issue of Tax News, the California Franchise Tax Board (FTB) addresses a variety of personal income and corporation franchise and income tax issues, including the following:

• tax bills of interest;
• avoiding the minimum tax or annual tax for entities ceasing business (a business entity that has not conducted business for the year may avoid the minimum franchise tax or annual tax for current and subsequent taxable years if it meets all of the following requirements: (1) file a final franchise or annual tax return timely, including extension, for the preceding taxable year and mark it final; (2) conduct no business after the last day of the preceding taxable year; and (3) file the appropriate termination documents with the California Secretary of State within 12 months of the filing date of the final tax return);
• head of household audit questionnaires;
• California Tax Education Council (CTEC) registration fees;
• a new archive section on the FTB’s website;
• updates to withholding at source regulations;
• the recently implemented credit card payment option for business taxpayers online and in field offices; and
• upcoming interested party meetings.

Tax Bills

The FTB is tracking a handful of tax bills that remain alive in the Legislature, including the following:

• A.B. 1393 – Mortgage Forgiveness Debt Relief
• A.B. 2754 – E-file for Business Entities/Require Dependent Social Security Numbers on Returns
• A.B. 1529 – Nonprofit Corporation Administrative Dissolution or Administrative Surrender
• A.B. 1839 – California Motion Picture Production Credit
• S.B. 798 – College Access Tax Credit.

Minimum or Annual Tax

A business entity that has not conducted business for the year may avoid the minimum franchise tax or annual tax for current and subsequent taxable years if it meets all of the following requirements:

• file a final franchise or annual tax return timely, including extension, for the preceding taxable year and mark it final;
• conduct no business after the last day of the preceding taxable year; and
• file the appropriate termination documents with the California Secretary of State (SOS) within 12 months of the filing date of the final tax return.

If a business entity is suspended or forfeited, the SOS cannot accept termination documents. Before termination documents can be submitted to the SOS, the business entity must pay all outstanding balances due, file any delinquent tax returns, and file FTB 3557 BC, Application for Certificate of Revivor (Banks and Corporations); FTB 3557 LLC, Application for Certificate of Revivor (LLCs); or FTB 3557 E, Application for Certificate of Revivor (Tax-Exempt Corporations).

Head of Household Audit Questionnaires

In mid-August, the FTB will begin mailing HOH audit questionnaires. The FTB expects to mail approximately 90,000 HOH audit letters for the 2013 tax year. If a completed questionnaire is incomplete or provides conflicting information, the FTB will contact the taxpayer to resolve the issue. Once the FTB confirms an HOH filing status, it will mail an acceptance letter to the taxpayer. An acceptance letter applies only to the specific tax year examined and does not qualify the taxpayer for other tax years. Taxpayers who fail to respond to their questionnaire or whose responses indicate they do not qualify for HOH filing status can expect a Notice of Proposed Assessment that disallows their HOH filing status. Taxpayers who receive an HOH audit letter are advised to respond by the letter’s due date to avoid a failure to furnish information penalty. Taxpayers who e-filed and claimed HOH filing status have the option to electronically complete and include the HOH audit questionnaire (FTB 4803E) with their e-filed return. The FTB will not mail an HOH audit letter to taxpayers who have submitted this information electronically. However, taxpayers will still receive a follow-up letter if they provide incomplete or conflicting information.

California Tax Education Council Registration Fees

Effective August 1, 2014, the CTEC will increase its annual registration fee for tax preparers from $25 to $33.

Archive Section

Beginning in July 2014, the FTB’s website will have a new archive section. The FTB will gradually move prior year and less visited content from the main (current) section of its website to the new archive section. The archiving is intended to keep main content current and relevant and to improve search results. Tax News, California Franchise Tax Board, July 2014