Transcription
Part 4Presented by Lynn Freer
Chapter 10California Legislation andConformity
Page 10-1Ballot Initiatives Prop 55 – Tax rate extension Yes Prop 64 – Marijuana legalization Yes 10.3%, 11.3%, 12.3%Discussion on page14-18Prop 67 – Plastic bag ban Yes Effective immediately
Page 10-2Vetoed LegislationSales tax amnesty for medicalcannabis-related businesses Sales tax exemptions: Diapers Feminine hygiene products Repurchase of pawned items Animal blood
Page 10-2Other Vetoed Legislation Assignment of taxliability in a divorce Retroactive extensionof COD on principalresidence exclusion
Pages 10- 3 & 10-4Enacted LegislationConform to business return due dates Expands property tax postponementfor some Increase in state minimum wage Increase DMV registration Overturns Davis case
Pages 10-4 & 10-5Cash Payments for MedicalMarijuana Dispensaries As of 1/1/17 exempt from EFT forBOE (AB 821) BOE will take cashFTB – Request exemption EDD – Will take cash or requestmoney order
Pages 10-5 & 10-6Minimum Wage Increase 10.00/hour – 25 employees or under 10.50/hour – 26 or more Cities & counties may have higherrates Goes up in 2018 thereafter
Page 10-7California’s Version of MyRACA Secure Choice RetirementSavings Program Employees contribute 3% or can optout State run program No required employer match Won’t start for at least a year or two
Page 10-7 & 10-8ConformityPorter Ranch gas leak Repair regulations IHSS IRA Rollover of airline payments IRA to charity (70 & older)
Pages 10-8 & 10-9Unrelated Business Income(Hidden IRA tax)Conforms to federal Applies if more than 1,000 unrelated businessincome Use trust rates Be sure to check IRA K-1s
Page 10-10Nonconformity COD residence exclusion Use insolvencyOlympic medal exclusion Extenders – none except IRA tocharity
Spidell’s Conformity GuideSee pages 10-11 through 10-19for your conformity helper Spidell Publishing Inc.
Chapter 11California Filing Spidell Publishing Inc.
Pages 11-1 & 11-2Form Changes EITC – only one form Due diligence penalty remains at 500New change of address form Film credits Enrolled tribal member certification
Page 11-2New for 2017: Stand-AloneElectronic Payments May make e-payments even if areturn hasn’t been filedIndividuals & fiduciaries (ES &Extension Business entities (Extension only) Make sure your software supports it!
Pages 11-2 & 11-3New EDD E-file RequirementsEmployers with 10 or moreemployees – January 1, 2017 All employers – January 1, 2018 Penalties 50/return 20 per wageitem 15% of payroll deposits Waiver valid for one year
Page 11-4Due Dates for2017 CA Estimated Tax C& S corps LLC tax LLC fee (ES) LLC fee (due) Trust Sameas federal April 18, 2017 June 30, 2017 March 15, 2018 Same as federal
Pages 11-4 & 11-5Nonconformity Extended due date conformity except:C corps 9/15 federal 10/15 CA Trusts 9/30 for federal & 10/15 forCalifornia No conformity to 6/30 year end change Underpayment of estimated tax One month shorter for CA
Page 11-5 & 11-6 1 Million Penalty ReliefNo underpayment if inthe prior year thetaxpayer paid no morethan 500 over andabove withholding See example on Page11-6
Page 11-6MyFTB Roles Personal income tax filerIndividualNote: Estates and trusts cannot access MyFTB atthis timeBusiness Someone authorized by the business (e.g., CFO,President)Representative A tax professional with a valid:Tax Preparer Preparer Tax Identification Number (PTIN)California Tax Education Council (CTEC)Electronic Filing Identification Number (EFIN)California Certified Public Accountant (CPA Number)California State Bar Number (Recent change)
Tax Prepareraccessvs.Power ofAttorneyaccess42
Pages 11-8 & 11-910-Business Day HoldSecurity Measure Access available after 10 businessdays Tax preparer & POA clientAccess granted if t/p doesn’t requestno access
Page 11-9Helping The Client During the10-Day Waiting PeriodCall the number on the notice or callthe Tax Practitioner Hotline Have a copy of the client’s prior return Have a copy of the notice
Page 11-9What you Can & Can’t Do You may Stop/postpone wage garnishment Get info on an assessment or notice Have demand to file removed Deal with the noticeYou may not: Finalize an installment agreement; Change taxpayer’s contact info
Page 11-10Reset Your PasswordReset password every 12 months You may reset any time before 12months FTB will alert you 30 daysbefore password expires At expiration you’ll beprompted to reset
Page 11-10Renewing MyFTB ClientsPOA clients don’t need to be renewed Tax preparer clients renewed every13 months They will get another 10-day letter Failure to renew within the 13 monthsmeans you must reenter them
Page 11-10 & 11-11Beginning January 3, 2017See screen shot on page 11-11 Use the new button in the “Actions”column – Click Renew FTB will send 10-business day letter Start the process more than 10business days before the 13 monthperiod expires
Page 11-11Want to Renew Now?You must re-add the client The old relationship expires (the clientgoes away) The 10-business day hold is placedon the account while letter is sent Comment: If readding the client prior to12/31/16, use 2104 year numbers to reenter
Page 11-11Fraudsters Pose as TaxPreparers
Page 11-12 & 11-13ID Theft Victims Can’t UseMyFTBPractitioner can’t view client info Practitioner can upload a POA Practitioner will have access to clientnotices FTB trying to find a way to grantaccess to ID theft victim
Page 11-134 Ways to Submit a POA DeclarationAnd ssdays orfewerUploadsignedPOA viaMyFTB30businessdays orfeweracceptedformsPaperForm 3520(withexception)45businessdays orfewerPaper Form3520(noexception)90businessdays ormore
Not in materialPOA ConfirmationFTB mails Form FTB 1124, Power ofAttorney acceptance notice three daysafter the FTB has processed a POA,indicating that you have recorded aPOA. 10 business days after the POA isaccepted, if the client doesn’t requestthe FTB cancel the POA, the POA willbecome active.
Not in materialSpidell Suggests Don’t mail POA Mailing POA may result in letter to youand the client saying go onlineUse the FTB POA If using IRS POA to upload, be sureyour email address is includedNo MyFTB account? No notices to you!
Page 11-13Search for Clients If more than 200 clients none will showSelect the Advanced Search link
Page 11-14Advanced Search Enter ClientInformationSelect theAccess TypePOAIf clientdoesn’t appearcontact thehotline
Page 11-14Questions about MyFTB? GetSpidell’s free on demandwebinarMyFTB Update: Issues andChanges Go to www.caltax.com and go towebinars/on demand
Pages 11-15 & 11-16California Differences No paper notices are sent to POA rep All notices electronicCan elect the Super PowerAll access to all years Super power expires after 4 years File California online Spidell Publishing Inc.
Pages 11-15 & 11-16Other DifferencesCalifornia sends validation to thetaxpayer (10 day notice) California does not have a Form 8821,Tax Information Authorization See Comparison of IRS and FTB POARequirements on Pages 11-16 & 1117 Spidell Publishing Inc.
Page 11-17Balance Due and other FTBNotices Many taxpayers had refund delaysW-2 information didn’t matchFTB/EDD info Additional identity theft andrefund fraud detectionmeasures slowed the process
Page 11-17 & 11-18Form 4734D Request to ConfirmTax Return FilingSent if there are indications ofpotential fraud Requests copies of socialsecurity cards, W-2s, Paycheck stubs Contact FTB by phone, fax, or mail We suggest you phone or fax
Pages 11-17 & 11-184734D Con’tReturn is not processed while waitingfor response FTB handled over 100,000 calls as aresult of identity theft/fraud Majority of notices were ignored Good indication of fraud FTB will continue to contact taxpayers
Page 11-18Other Verification Notices Form FTB 3904, Request to ConfirmTax Return Filing FTB highly suspectsfraudForm FTB 4502, AdditionalDocumentation Required – RefundPending EIC creditForm 4579, Demand to FurnishInformation – sent to employer
Page 11-18 & 11-191.288 Million Pieces of Mail inMay, 2016866,000 pieces sent in 2015 Additional staff redirected to answerphones Result: Correspondence not workedtimely
Page 11-19Notice of Tax Return ChangeNotice of Tax Return Change (NTRC) FTB did an exact match and reducedor disallowed refunds if withholdingdidn’t match Many problems – mostly due to latefiled payroll tax returns
Page 11-20Payment PostingMay Be Delayed if:Check doesn’t have verifying info Sending paper return with checkwhen return was e-filed Payment lost or misplaced in FTB’ssystem
Page 11-20Spidell Suggests:EDD send quarterly (and year-end)returns to FTB more frequently FTB resume prior processes inwithholding mismatch situations EDD help when W-2 doesn’t match Use prior processing procedureswhen withholding mismatch
Page 11-21Next Year the FTB Will:Institute an enterprise call centerescalation for additional help Will modify method to be similar toprior procedures May still disallow refundsWork with EDD to improve exchangeof information
Page 11-21Bill Comes After PaymentMailed? If your client gets a bill and hasmailed a paymentCheck MyFTB to see if the paymenthas been posted. Lag time between payment postingand billing cycle
Chapter 12California Individuals
Pages 12-1 & 12-2Taxpayers Attack California’sMuni Bond LawCA taxes municipal bond interest ifless than 50% of a fund is invested intax exempts Ronald & Pamela Mass going to court File amended returns toprotect your refund
Pages 12-2 & 12-3Becoming a NonresidentFTB & Board attack when taxpayermoves and sells assets at a gain Carefully plan exit Sale of closely held stock orpartnership/LLC interest not taxableto nonresident But be ready for a fight
Page 12-3The Bills Win!Sale of partnership interest Bills say they are nonresidents FTB argues: Bills are still residents Sale was of partnership assets, notinterest Board sided with the taxpayers!
Page 12-4Bills’ ActivityNov & Dec 2004 - Purchase home inWA and set up electricity Retires December 2004 January 10-16 Bills move to WAhome & registered cars (that were stillin CA), registered to vote, openedbank account and went to the dentist
Page 12-4Back to California January 16Stayed in CA home until Feb. 3 Travelled until April 25 March 3 – First BIG payment fromsale of partnership interest 7,553,083 Returned to WA but came back to CA June 2005 - Moved into WA home
Page 12-4 & 12-5Board RulesResidency establishedJanuary 10 Sale of partnershipinterest was sale ofintangible and nottaxable
Pages 12-5 & 12-6Lau Wins and Zhao LosesFTB withdrew notice so Lau wonresidency change before receiving 8million dividend distribution Zhao returns six days too soon Moved to China in 2006 Returned to CA 5/11/08 Sold stock 5/16/08
Pages 12-6 & 12-7Nonresident: S.E. vs Employee Self-employed service providerSingle sales factor, market-based source Where CA client receives benefit EmployeeOnly when services performed in CA Reasonable allocation of wages PTIN can tell all!
Pages 12-8 – 12-9Schedule S IssuesRevised Texas Franchise Tax – FTBsays no credit – waiting for ruling Reverse state credit allowed for groupreturns FTB often disallows Do separate Schedule S for eachcredit claimed
Pages 12-10 & 12-11Not All Double-TaxedIncome Qualifies for Credit If CA wouldn’t tax, no credit allowed Statute of limitations can stay open Interest is a good exampleBut not for CalvinOther exceptionsOR wages Dual residents
Page 12-12 & 12-13MiscellaneousCollege access tax credit – 50% for2016 & 2017 Spouses don’t need to move toseparate Community ends at separation Reverses Davis case The legend of Hyatt continues
Chapter 13California Business Spidell Publishing Inc.
Pages 13-1 & 13-2FTB Wants to Protect ClientKeep up to 800 of refund ifentity isn’t dissolved – justin case When entity iscancelled/dissolved withSOS, FTB refunds the 800
Page 13-1When Must YouFinalize with SOS? No 800 if:Entity files timely final tax return and Cancels/dissolves with SOSwithin 12 months of filing Or, dissolves/cancels prior to filingtimely return May cause a short period return
Pages 13-2 – 13-4PenaltiesApply these per yearPer Shareholder/partner/memberpenalty – up to 216 per K-1 Late filing/late payment up to 25% Failure to file on demand 2,000 Example on page 13-4 20,640 inlate filing penalties
Pages 13-4 – 13-8CreditsLow income housing credit California competes credit New motion picture credit Credit can be soldAgricultural products donation credit
Pages 13-8 – 13-10LLC Fee Real estate dealersProperty is inventory so gross sales isincluded for fee Investors only include net gain on eachproperty SMLLCs must pay the tax & fee on Form568 Be sure to carry numbers from schedules
Page 13-11 & 13-12Midyear Conversions Mid year conversion means multiplereturns Partnership to LLC means two returns And double the 800Form 565 & Form 568Two returns for SMLLC tomultimember LLC or reverse
Pages 13-12 & 13-13LLC Taxed as a CorporationNo change with SOS FTB assigns and mails a corporationnumber When entity makes first payment orfiles first corporate returnSee Checklist on page 13-13
Pages 13-13 – 13-16FAQs from Caltax.comMessage BoardNonresident member filingrequirement Due date of annual tax for new LLC E-filing without number Apportionment Nonresident member consent
Pages 13-16 – 13-18Operating in Multiple StatesApportionment Considered doing business in CaliforniaEngage in transaction for gain or profit - or Meets an economic nexus threshold test Thresholds are on page 13-16Marketing and nonmarketing services Different sourcing rules apply Spidell Publishing Inc.
Pages 13-16 & 13-17Misc. ApportionmentEconomic threshold numbers on page13-16 Apportionment Gilette case COD and tax attributes Marketing vs nonmarketing services
CA MiscellaneousChapter 14 Spidell Publishing Inc.
Pages 14-1 & 14-2California Disaster Losses California allows disaster losses if:Declared by President; or Declared by Governor Claim throwback under IRC §165(i)by:Extended due date of the return – CA Six months after due date – federal
Pages 14-2 & 14-3California DisastersSee chart on page 14-2 Property tax relief New BOE extension
Page 14-3FTB Top 5 Audit ProgramsCapital gains & losses 1031 like-kind exchanges Head of Household filing status Employee business expenses Basis in a passthrough entity
Page 14-4Residency Audits Auditor has already investigated yourclient before the letter goes outActivities & investments in other states Where returns were filed Contacts the taxpayer & will request: Credit card statements, calendar &more
Page 14-6Occupational LicensesUsed to identify nonfilers Generally not sent if federal returnhas out of state address If your client gets one, contact FTB athotline or number on the notice
Pages 14-6 & 14-7Rob Lowe Beats the FTBIssue: basis in residence Limited records buttestimony fromcontractors, businessmgrs, appraisers, etc. Board used the Cohanrule and Lowe prevailed
Page 14-7Nonresident Withholding:Service Income DiscrepancyFor apportionment: Where client islocated – per regs For NR withholding: Where the workis performed – per forms & regs FTB looking at the discrepancy Will update later
Pages 14-8 – 14-10What if There’s No TIN?File Form 592 with no TIN Payee must contact the FTB andprovide a valid TIN No refund allowed unless a return isfiled Backup withholding applies 7% of total distribution – no threshold
Page 14-10Other FTBTaxpayer couldn’t challenge his Top500 listing Walk-through revivor appointmentsavailable to get that entity back upand running
Page 14-11SDI Rate: Enter theseNumbers on Page 14-11SDI RateMaximum WageBaseMaximumPayment20170.9% 110,902 998.1220160.9% 106,742 960.68 Spidell Publishing Inc.
Pages 14-11 – 14-14Crowdfunding & Sales TaxRewards given may be taxable If operating in CA must register &collect for CA deliveries If click-through nexus applies, youmay need to collect other state’s tax Some states tax intangible sales Very little guidance
Pages 14-14 – 14-16Misc. Sales & Use Tax IssuesSingle claim for refund Lucent refunds being processed 2016 Use Tax Table – page 14-15
Pages 14-16 & 14-17Airbnb/VBROSan Francisco collects property taxon silverware and linens Many cities requiring license
Page 14-17Other Property Tax Issues Other than Honorable and BadConduct discharged vets qualify forproperty tax relief Helps vets who had PTSDCounties with base-year valuetransfers
Page 14-18Prop. 64 - MarijuanaLegalizes use – 21 or older No more sales tax for medical marijuana New taxes effective 1-1-18 Can only be sold by state-licensed bus. State has until 1-1-18 to begin issuingLegal for CA – Illegal for Federal Presents interesting challenges
Pages 14-18 – 14-20Taxation of Legal Marijuana- Semi Conformity CA conforms to IRC §280E for individuals Only deduction is for cost of goodsFor corporations, all allowable expenses No deductions if t/p engaged in criminalprofiteering (ie: drug trafficking) Sale is subject to sales & use tax Spidell Publishing Inc.
Pages 14-20 & 14-21Practitioner ConcernsWaiting for guidance from IRS Board of Accountancy has nospecific guidance Beware: Only attorneys have theattorney/client privilege Consider a Kovel agreementConsult with malpractice carrier Spidell Publishing Inc.
Practitioner Aids Engagement Letters Organizer Letter Lender Letter Solar Client LetterSample Capitalization PolicyContact Authorization Disengagement Ltrs.Consent to Share Tax Return InformationSelling Your Practice Spidell Publishing Inc. Chapter 15Roth ConversionChecklistAllowable RolloversSpidell’s Refund GrabberChecklistTrouble-free Tax ReturnItems to Bring to The TaxInterviewNonresident IssuesRaliteNew this year
PageThank You and Have aWonderful Holiday Seasonand a Successful TaxSeason!
Form FTB 3904, Request to Confirm Tax Return Filing FTB highly suspects fraud Form FTB 4502, Additional Documentation Required - Refund Pending EIC credit Form 4579, Demand to Furnish Information - sent to employer Page 11-18
