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S E P T E M B E R

A Tough Assignment: A Inside ...


Making Tax Forms Tall 2 ... New Taxpayer Service Center
opens: Andal to headline
More Likeable ceremonies
3 ... EROs: Send IRS only one
Tale e-filing declaration
3 ... Installment payments may
replace some garnishments
Nobody doesn’t like Sara Lee. 3 ... FTB follows IRS “LIFO”
procedure
The Franchise Tax Board knows that no one 4 ... Using 1998 scannable/
would ever substitute “California tax forms” substitute forms? Check the
for “Sara Lee” in the famous advertising November Tax News
slogan. Even so, a top FTB priority is to 4 ... Withholding required when
make filing tax returns a better experience. nonresidents sell California
property
One of FTB’s strategies is to make tax forms, 5 ... FTB notice addresses
instructions and publications easier to settlement authority
understand and fill out. And as the error rate 5 ... FTB calendar
on tax returns continues its slow decline, 6 ... “Striking Gold,” a video
improved tax forms may be in line for some bonanza for small businesses
credit, along with new electronic ways to file 6 ... Limited partnerships: When
does tax liability end?
a form. 6 ... Incorporation triggers first tax
FTB produces more than 150 tax forms. Most return filing
of them are revised in some way every year. 7 ... How to succeed in (small)
business
One of the main reasons for changing tax 7 ... Tax Talk seminar ends
forms, of course, is that tax law changes. 8 ... New tax laws enacted
Changes in both federal and California tax 8 ... Tax Policy Conference
law affect California tax forms. And the law upcoming
not only changes but becomes more complex. 8 ... “Taxing Perceptions” has new
FTB’s challenge is to incorporate these Sacramento location
changes and complexities on tax forms in 9 ... No ID numbers on individual,
ways that are as easy as possible to business entity mailings
understand. FTB also tries to mirror 9 ... Need continuing education
credits? Listen to some Tax
comparable federal forms. Individuals and, in Talk
some instances, business entities must 9 ... Schedules K-1: Five reasons
complete a federal tax form before filling out not to file on paper
a California form. Consistency in format and 10 ...Limited liability companies
language helps underscore, for example, that a billed
specific California instruction is the same 10 ... FTB to employ new child
support collection tool
instruction the taxpayer followed in filling out
the federal form. 10 ... Filing returns without filling
them out
Changes and improvements to tax forms may 11 ... News from the State Board of
come from: Equalization: New ways to
verify seller permit numbers
• Taxpayers. Some respond to the FTB 11 ... Tax Practitioners’ Institute
Executive Officer’s invitation, printed in coming up
tax booklets, to submit suggestions and This computer-enhanced photograph shows 11 ... E-file seminars are free
express concerns. Others simply write to just a portion of the paper some 12 ... First e-filing, now e-paying
“Sir or Madam” at FTB. Some call in partnerships could save if they filed their 12 ... Head of household symposium
their suggestions to FTB’s Taxpayer taking shape
Schedules K-1 on a CD-ROM. A CD-ROM
CONTINUED ON PAGE 2
will hold almost six million compressed
Page 2

New Taxpayer Service Center Opens:


Andal to Headline Ceremonies
Volume 98-5 September 1998
Sacramento is the newest California city concept and services. The speakers
TAX NEWS is a bimonthly with a Taxpayer Service Center, a one- include officials from the center’s
publication of the Taxpayer Advocate
Bureau, California Franchise Tax stop shopping location for tax information participating agencies.
Board. Its primary objective is to and assistance. The new center is located at 3321 Power
provide information to income tax
preparers about state income tax Although the center is currently open for Inn Road, Second Floor, Sacramento
laws, regulations, policies and business, an official opening ceremony is 95826. It includes the Franchise Tax
procedures. scheduled for September 22. Dean Board’s Sacramento field office,
Members of the Board: Andal, who is both chairman of the State formerly on Folsom Boulevard, as well as
Board of Equalization and one of the offices of the State Board of Equalization,
Kathleen Connell, Chair
State Controller three members of the Franchise Tax the Employment Development
Board, will serve as master of ceremonies Department’s Tax Division and the
Dean Andal at the event. Department of Alcoholic Beverage
Chair, State Board of Equalization
At the opening ceremony, speakers will Control.†
Craig L. Brown review the Taxpayer Service Center
Director, Department of Finance
————————
Executive Officer:
Gerald H. Goldberg
Making Tax Forms More Likeable
CONTINUED FROM PAGE 1
Editor:
Pat Huberty Services Center. in simplifying tax forms. Even though
To update or correct your address or • Tax practitioners and producers of the exemption section of the tax form
to subscribe to TAX NEWS (send $12 substitute and scannable forms. continues to produce the most errors
for a one-year subscription), write: because of legislated intricacies,
TAX NEWS • FTB employees. Everyone who taxpayers responded with compliments
P.O. Box 520 works for FTB not only is a taxpayer
Rancho Cordova, CA 95741-0520 when the exemption worksheets were
or call: (916) 845-7070. but also uses the information on tax improved for the 1995 tax year.
forms in some way to perform their Including space for unemployment
To view TAX NEWS on the Internet jobs. As a result, they look for ways
or to request an electronic mail insurance compensation on Form 540EZ
subscription, contact FTB on the to simplify forms for the people who drew compliments as well.
Internet: fill them out and for those who must
http://www.ftb.ca.gov use the information they contain. Specific taxpayer suggestions range from
complaints that the Schedule P,
For information about a client’s • The FTB Advisory Board. This “Alternative Minimum Tax and Credit
account, contact:
Tax Practitioner Support Unit advisory body to the FTB Executive Limitations,” subsequently simplified,
(916) 845-7057 (phone) Officer recently responded to an was too complicated to questions of
(916) 845-6377 (fax) invitation to make suggestions for tax grammar. One taxpayer recently
For recorded answers to questions form improvements. The board requested that FTB use the correct
on California taxes, to order forms includes representatives of such abbreviation for “continued.” The
or check on a refund, call: organizations as the American
F.A.S.T. (800) 338-0505 taxpayer correctly pointed out that the
From outside U.S. (916) 845-6600 Association of Retired Persons, the word should be abbreviated as “cont’d.”
California Society of Certified Public or “cont.,” not as “con’t.” And last year,
To send a facsimile about a client’s Accountants, the California Society
account, transmit to: a taxpayer who submitted suggestions for
Electronic Correspondence of Enrolled Agents, the California the Form 540X, “Amended Individual
(916) 845-6377 Tax Reform Association, the Income Tax Return,” asked to be
—————————- California Taxpayers’ Association
Information Center: reimbursed $500 as a consulting fee.
(800) 852-5711 and other organizations and firms.
From outside U.S. (916) 845-6500 FTB has nine employees working full
One of the most frequent suggestions in time to make tax forms, instructions and
Hearing Impaired: recent years is to include mailing publications easier for taxpayers and tax
TDD (800) 822-6268 envelopes for taxpayers in the tax
__________________ practitioners to understand and use. Their
booklets. FTB does not provide procedures include:
FTB on the Internet envelopes because of their cost. Some
http://www.ftb.ca.gov taxpayers complain that instructions for • Considering all suggestions from all
filling out forms are too difficult; others sources.
Printed on recycled paper.
write to say that FTB is doing a good job • Reviewing all tax law changes.

CONTINUED ON PAGE 8

September 1998
Page 3

EROs: Send IRS


Only One E-Filing Declaration
The Internal Revenue Service reports that,
during the past filing season, some
federal Form 8453, “U.S. Individual
Income Tax Declaration for Electronic
FTB Follows IRS
California electronic return originators Filing.” “LIFO”
(EROs) submitted state as well as federal The duplication increased the IRS Procedure
forms and declarations. workload because the agency needed to
EROs are tax practitioners who were compare the documents in order to The Franchise Tax Board will
approved by FTB to produce e-filed, or determine whether they were duplicates follow the Internal Revenue
electronically transmitted, returns. or whether social security numbers were Service’s Revenue Procedure
According to the IRS, the agency received incorrectly entered. 97-44, which deals with
a significant number of Forms W-2, Copy For California purposes, EROs are certain automobile dealers.
C, which is the state copy. And, in most required to keep the state form FTB 8453 The Revenue Procedure
cases, the Copy C was accompanied by a in their offices for four years. The grants relief to certain
state form FTB 8453, “California Franchise Tax Board also recommends automobile dealers that
Individual Income Tax Declaration for that they retain the Form W-2, Copy C for elected the last-in, first-out
Electronic Filing.” In all cases, EROs the same length of time. Neither form (LIFO) inventory method of
also correctly sent the IRS the federal should be sent to either FTB or the IRS.† accounting but violated the
Copy B of the Form W-2 along with the LIFO conformity requirement
of Internal Revenue Code
Section 472(c) or (e)(2).
Installment Payments May Replace The California policy is
outlined in FTB Notice
Some Garnishments 98-10. It states that FTB
“will permit those taxpayers
For some individuals who owe back Under the installment agreement plan, who qualify for the relief
taxes, installment payment plans may eligible taxpayers whose wages are now provided by Revenue
replace wage garnishments. garnished would make a fixed payment Procedure 97-44 to continue
The Franchise Tax Board will contact each month. In some cases, the amount to use the LIFO method if
selected taxpayers who now have an may be smaller than the amount currently they attach a copy of the
Earnings Withholding Order for Taxes, deducted from wages under a memorandum furnished to the
commonly known as a wage garnishment, garnishment. IRS under Section 5 of
and offer to convert the order to a In addition to giving individuals an Revenue Procedure 97-44 to
voluntary installment agreement plan. All opportunity to convert their wage their franchise or income tax
payments would be made by electronic garnishments, the installment plan also return for the accounting
funds transfer. eliminates the employer’s role. It relieves period which includes
employers of tracking withheld amounts May 31, 1998.” The notice
FTB will send the eligible taxpayers a also says that FTB will not
letter and a copy of the 3567 Booklet, and paying related bookkeeping expenses.
And because installment payments are require taxpayers to pay a
which contains form FTB 3567BK, settlement amount.
“Installment Agreement Request.” transmitted electronically, the plan allows
FTB to post payments quickly to the FTB Notice 98-10 was
Wage garnishment is one of the collection taxpayer’s account with less handling. issued on June 5, 1998.
tools that FTB uses to resolve delinquent You can locate it at FTB’s
liabilities. FTB mails garnishment orders The conversion of wage garnishments to
installment agreements is one of the http://www.ftb.ca.gov Internet
to employers in order to attach a site; click on “Other FTB
percentage of an employee’s wages every newest ways that FTB has developed to
help taxpayers meet their tax obligations. Information” and then on
pay period until the employee’s tax “FTB Legal Documents.”
liability is paid or the garnishment is Others include a streamlining of the
installment agreement program (see the The notice also has been
released because of financial hardship or published by most tax
some other reason. Employers who November 1997 issue of Tax News) and
adapting new technology to increase †
services.
receive the orders are required to collect,
record and transmit the garnished wages †
efficiency in processing tax returns.
to FTB each month. Employers can be
held liable for any payments that are not
withheld and sent to FTB.
Page 4

Withholding Required
When Nonresidents Sell California Property
Do your nonresident clients who sell
Using 1998 California property know that money • The seller is an irrevocable trust with
Scannable/ must be withheld from the sale price to at least one trustee who is a
pay California taxes? Do your clients
Substitute Forms? who buy from nonresidents understand
California resident.
Even if none of these conditions apply, a
Check the their responsibilities?
seller may be able to have withholding
Withholding generally is required in
November nonresident real estate sales when the
reduced or waived. Requests for waivers
and reductions are handled on a case-by-
Tax News seller is an individual with a street address case basis but generally are granted when:
outside California or a corporation with
no permanent place of business in the • The gain or loss on the sale is small.
If you are planning to use
scannable or substitute 1998 state. • The transaction is an exchange under
California tax forms, make Escrow companies must notify buyers in Internal Revenue Code Section 1031,
sure they meet Franchise Tax writing that they must withhold tax dollars “Exchange of property held for
Board requirements. from the price they pay for property. The productive use or investment.”
To determine whether your buyer is responsible for withholding the • The sale will be reported using the
software company has filed right amount. Usually, however, escrow installment method.
companies assist buyers as part of their
an intent to comply with the • The sale involves multiple sellers,
requirements, check the regular services; they make sure that an
and some are California residents.
November Tax News for a amount is withheld and sent to the
preliminary list. Additional Franchise Tax Board. An escrow • The sale involves property recently
companies will be listed in company can charge no more than $45 for acquired by inheritance.
the January issue. this service. At any rate, FTB works closely with
FTB approval is necessary to The required withholding amount, sellers or their representatives so that the
ensure that the software you according to the law, is 3 1/3 percent of amount withheld equals as closely as
use produces forms that can the sales price. A seller who believes that possible the amount of the tax liability
be processed quickly. If they amount is more than the tax liability may from the sale. This prevents sellers from
do not, FTB may not be able request FTB to reduce or waive the making an unnecessarily large
to process the forms and may withholding. However, sellers always withholding payment or from
need to contact your clients must file a California tax return, even if underpaying, which can lead to a penalty.
directly. they are exempt from withholding or they For two reasons, sellers should request
qualify for a waiver. waivers as early as possible during the
All companies that publish,
produce or sell substitute and/ Sellers qualify for an automatic waiver of process of selling the property and
or scannable California tax the 3 1/3 percent withholding amount if include all documents that would support
forms must file an agreement they sign a form 590RE, available from their case for reduced withholding or a
to comply with FTB the escrow company, and meet one of waiver. First, requests without
requirements for the forms. these conditions: documentation take longer to process
because FTB then has to research the
And FTB must approve the • The total sales price is $100,000 or
forms before they are sold or necessary information. Second, if escrow
†
less.
provided to tax preparers. is ready to close before FTB determines
• The seller certifies that the property the appropriate amount of withholding,
was his or her principal residence, the escrow company must withhold the
which now is defined as a home statutory 3 1/3 percent of the sales price.
owned and used for two of the last This amount is withheld until the
five years prior to the sale date. company receives FTB’s determination or
• The seller is a partnership or limited for 45 days, whichever comes first.
liability company and the title is To request a waiver or withholding
recorded in the entity’s name. reduction, sellers should complete and
• The seller is a tax-exempt entity. send FTB a Form 597-A, “Nonresident
Withholding Waiver Request for Real
• The seller is a California estate Estate Sales.” The form is available at
because the decedent was a FTB’s http://www.ftb.ca.gov Internet site
California resident at the time of and by mail from Tax Forms Request,
death.
CONTINUED ON PAGE 5

September 1998
Page 5

FTB Notice Addresses FTB Calendar


Settlement Authority September
A new Franchise Tax Board notice the authority to settle civil tax matters in • 30,000 Notices of
outlines how disputes about civil tax two ways: Proposed Assessment are
matters may be settled. mailed to individuals
• Settlements approved by the who did not respond to
FTB Notice 98-11 updates and Franchise Tax Board. The process demand to file notices for
supersedes all previous notices about starts when FTB’s Executive Officer the 1996 tax year.
FTB’s settlement authority. The most or his Chief Counsel designee • 40,000 questionnaires/
significant change the notice makes is to presents a settlement demands to file are
add the requirement that the taxpayer recommendation to the Attorney mailed to corporations
make a good faith offer with the General who, within 30 days, must that failed to file 1996
settlement request. advise in writing whether the returns.
The notice states that FTB’s Settlement recommendation is reasonable from • Notices of Proposed
an overall perspective. If the Assessment for
Bureau is generally responsible for corporations’ failure to
negotiating settlements in disputed civil Attorney General agrees with the
recommendation, the FTB Executive file 1995 tax returns
tax matters, taking into consideration the begin finalizing. Those
costs and risks of litigating the matters. Officer or Chief Counsel presents it corporations will receive
The Settlement Bureau handles cases with to the three-member Franchise Tax Notices of Balance Due.
protested deficiency assessments, cases Board. A majority of the members
4 Last day to register for
on appeal to the Board of Equalization must approve or disapprove the FTB/IRS seminar,
and claims for refund. Taxpayers unable recommendation. “Taxing Perceptions.”
to pay an undisputed tax liability should • Small case settlements. The FTB 15 Personal income tax
contact FTB’s offer in compromise Executive Officer and the Chief estimate payments are
program. Counsel together may approve the due.
The notice notes that Revenue and settlement of a disputed civil tax 20 Previous month
Taxation Code Section 19442 gives FTB matter if it involves a reduction in tax nonresident withholding
and penalties as long as the reduction payments are due if total
is not more than $5,000. withholding exceeded
$2,500.
Whenever taxes and/or penalties are
Withholding Required reduced more than $500, a public record 22 Sacramento Taxpayer
Service Center official
CONTINUED FROM PAGE 4 statement must be placed in the office of opening.
the FTB Executive Officer. Statements,
Franchise Tax Board, P.O. Box 307, which are available to the public, may 23 FTB, IRS hold free
Rancho Cordova, CA 95741-0307. Or contain only: “Taxing Perceptions”
you may call (916) 845-4900; to receive seminar in Oakland.
the form by fax, call (800) 998-3676. • The name or names of taxpayers who 24, 25 FTB, IRS repeat
are parties to the settlement. “Taxing Perceptions”
A seller should obtain a copy of Form
597, “Nonresident Withholding Tax • The total amount in dispute. seminar in Oakland.
Statement for Real Estate Sales,” which • The amount of the settlement. October
the escrow company sends to FTB with
• A summary of the reasons why the • 18,000 Notices of
the withheld amount. The seller must Proposed Assessment are
attach the copy to the 540NR, “California settlement is in the state’s best mailed to individuals
Nonresident or Part-Year Resident interests. who did not respond to
Income Tax Return,” to document the • For settlements approved by the demand to file notices for
withholding claimed. Sellers should keep three-member board, the Attorney the 1996 tax year.
in mind that an escrow statement showing General’s conclusion about the 6 FTB, IRS hold free
the amount of withholding at the close of reasonableness of the settlement. “Taxing Perceptions”
escrow does not necessarily mean that seminar in Sacramento.
For more information about FTB’s
they can claim that amount on their tax settlement authority and the ways to 7, 8 FTB, IRS repeat
return. Some of the withholding may “Taxing Perceptions”
initiate a settlement, see FTB Notice seminar in Sacramento.
have been refunded at the time of FTB’s 98-11. It is available at FTB’s
waiver determination. So, the Form 597 http://www.ftb.ca.gov Internet site; click 15 Final extended due date
is the only certain way to show the actual for personal income tax
on “Other FTB Information” and then on returns.
amount sent to FTB. “FTB Legal Documents.” The notice also
has been published by most tax
†
For more information, see FTB
Publication 1016, “Nonresident services.
Withholding - Real Estate Guidelines.” † CONTINUED ON PAGE 7
Page 6

Limited Partnerships:
“Striking Gold,” When Does Tax Liability End?
A Video Bonanza Do your limited partnership clients tax for every taxable year until they file a
understand at what point their liability for certificate of cancellation with the
for Small filing returns and paying an annual tax Secretary of State.
Businesses ends? If they believe it is when they file a What about the years before January 1,
certificate of dissolution with the 1997? FTB’s position is that, for years
Are you an enrolled agent Secretary of State, they’re wrong. prior to 1997, limited partnerships that
with clients interested in According to law, limited partnerships are did not do business in California and that
viewing an award-winning required to file returns and pay the $800 filed a certificate of dissolution, but not a
video on everything a small certificate of cancellation, were not
†
annual tax until they file a certificate of
business person needs to cancellation with the Secretary of State. subject to the annual tax.
know about taxes? However, the Franchise Tax Board has
“Striking Gold in California,” noticed that a number of limited
which includes a video, partnerships are confused about when
booklet and directory of their taxpayer responsibilities end.
services and information A certificate of dissolution notifies
sources, has been offered to creditors and other interested parties that Incorporation Triggers
presidents of California
Society of Enrolled Agents
a limited partnership is in the process of
ending its existence. However, a limited
First Tax Return Filing
(CSEA) chapters throughout partnership can nullify a certificate of The XYZ Corporation incorporated in
the state. Check your local dissolution by filing a certificate of California on February 1, 1996, elected a
chapter to see when or if the continuation. So, the limited partnership fiscal year that ends in March and began
video will be available in continues to exist until it files a certificate doing business in California on April 1,
your area. of cancellation. 1996. The corporation then filed a tax
The video won second place Some of the confusion among limited return for the period from April 1, 1996,
honors for video production partnerships may stem from changes in to March 31, 1997. The corporation did
in a State Information the law during the last decade. In 1988, not file a return for the period from
Officers Council competition Revenue and Taxation Code (R&TC) February 1, 1996, to March 31, 1996.
earlier this year. Section 23081 imposed the annual tax on What’s wrong with this picture?
The “Striking Gold” video limited partnerships doing business in
California. In 1993, Section 23081(b) Like many actual corporations, the
package was produced by the
was amended so that limited partnerships fictitious XYZ Corporation filed a
Small Business Tax
registered with the Secretary of State were California tax return only for the period
Connection, a committee of
responsible for paying the annual tax even during which it was doing business in the
Franchise Tax Board, Internal
if they were not doing business in the state. However, California law says that
Revenue Service,
state. It also stated that the tax applied corporations are subject to tax from the
Employment Development
for each taxable year until a limited date of their incorporation, qualification
Department and State Board
partnership filed a certificate of or commencement to do business in
of Equalization
dissolution or a certificate of cancellation. California.
representatives. CSEA is a
community sponsor along The Secretary of State then advised that Also, the corporation must file its first
with the Service Corps of filing a certificate of dissolution “stopped return for a period that is not more than
Retired Executives (SCORE) the clock” on taxes, penalties and interest 12 months after the date it incorporates or
and the Small Business and that filing a certificate of cancellation qualifies in California. The first period
Development Center. † canceled a limited partnership’s may be disregarded only if it is half of a
registration. However, under Section month or less and the corporation was not
23081(a), a limited partnership could doing business in California and received
remain liable for paying the annual tax if no income from sources within the state.
it continued to do business after filing a If the XYZ Corporation were not
certificate of dissolution. fictitious, the Franchise Tax Board would
Then, in 1996, Section 23081 was ask it to meet its filing requirement for the
repealed, and the tax on limited period from February 1, 1996, to March
partnerships was reenacted in R&TC 31, 1996. A number of actual
Section 17935. This statute, which is corporations could be substituted for the
effective for tax years beginning on or XYZ Corporation in the example, and this
after January 1, 1997, provides that
limited partnerships must pay the annual CONTINUED ON PAGE 7

September 1998
Page 7

How to Succeed in (Small) Business


October has three opportunities for • San Diego Tax Talk
anyone interested in starting or Saturday, October 17
maintaining a successful small business. 9 a.m. – 3 p.m. Seminar Ends
During that month, small business tax George Chamberlin, host of KSDO Due to diminishing
days will be held in Orange County, San radio’s “Money in the Morning” attendance, the Tax Talk
Diego and Van Nuys. All of the events program, will deliver the keynote seminar will no longer be
are free. address at the San Diego annual produced. In the past, the
Anyone running a small business, Small Business Tax Information Day. seminar was telecast to 20-
working for one or planning to start one Chamberlin will discuss the small plus locations each fall.
will find a wealth of tax and other business climate in San Diego. In
addition to the five state and federal A number of Tax Talk video
information at all three locations. Each packages are still available.
event will feature speakers, seminars or agencies participating in all three
events, Tax Information Day To obtain these packages
classes and information booths where while supplies last, see the
attendees will receive literature and
experts’ answers to their questions.
participants include local government
agencies and the Fermanian Business article on page 9. †
Center. The full day of free
At each of the events, participants include counseling and information will take
the Employment Development place at Point Loma Nazarene
Department, the Franchise Tax Board, the College. For more information, call
Internal Revenue Service, the State Board (760) 744-1330, ext. 410. FTB Calendar
of Equalization and the Small Business
Administration. • Van Nuys
Tuesday, October 20 CONTINUED FROM PAGE 5
Mark your calendar now for events in 9 a.m. – 3:30 p.m.
these areas:
Congressman Brad Sherman, who 20 Previous month
• Orange County will deliver the keynote address, will nonresident withholding
Friday, October 16 share the speakers’ podium at this payments are due if total
9 a.m. – 3:30 p.m. Small Business Fair with State Board withholding exceeded
Seminars at this eighth annual Small of Equalization acting member John $2,500.
Business Tax Day will cover small Chiang. Participants, in addition to 26 Last day for postmarked
business and income taxes, federal the government agencies that will be California Tax Policy
deposit rules for employment taxes, represented at all three events, will be Conference registration,
basic sales and use taxes, social the City of Los Angeles, the to avoid late fee.
security benefits, the business Department of Industrial Relations, November
property statement, Small Business the Los Angeles County Assessor and • Package X order forms
Administration financing options, the Los Angeles County District mailed with Tax News.
employee versus independent Attorney’s Bad Check Enforcement
Office. 11-13 California Tax Policy
contractor, Employment Conference.
Development Department reporting The Van Nuys fair will be held at the
requirements, Cal/OSHA 20 Previous month
Air Tel Plaza Hotel at 7277 Valjean nonresident withholding
compliance, audits and appeals. In Avenue. Parking, as well as payments are due if total
addition to the five agencies admission, will be free. For more
†
withholding exceeded
represented at all events, the information, call (818) 901-5690. $2,500.
participants include Cal/OSHA, the
December
Employer Advisory Council, the
Orange County Assessor, the Orange • Personal income tax
County Treasurer-Tax Collector, the booklets mailed.
Santa Ana Enterprise Zone, the Incorporation • 300,000 demands to file
Social Security Administration and are mailed to individuals
CONTINUED FROM PAGE 6 who failed to file 1997
the State Compensation Insurance
month FTB will issue about 40,000 returns.
Fund.
demands to file 1996 tax returns. 20 Previous month
The event will be held at the Titan nonresident withholding
Student Union at California State A corporation that receives a demand to payments are due if total
file will have 30 days to file a return or
†
University, Fullerton. For more withholding exceeded
information, call (949) 461-5754. prove that it has already filed a return for $2,500.
the period. If a corporation does not
respond to the demand to file, an
assessment will be issued. †
Page 8

Tax Policy Conference Upcoming


New Tax Laws You still have time to sign up for the taxation of foreign income, burden of
1998 California Tax Policy Conference proof issues, Board of Equalization
Enacted before a late fee is charged to register. issues, tax incentives and audit issues.
The conference will be held at the Palace The State Bar of California approved the
Among the California tax Hotel in San Francisco on November 11 – program for 13.5 continuing education
laws recently enacted are: 13. It attracts the country’s top tax credits. The program also has been
experts who debate hot issues in the tax submitted to the National Registry of CPE
Housing credit. For the
community. Sponsors for 13.5 hours of credit.
1998 and 1999 calendar
years, this act increases from If you send your conference fee with a Conference sponsors are the California
$35 million to $50 million the registration postmarked October 26 or Franchise Tax Board; the Institute of
maximum aggregate housing earlier, the charge for this year’s event is Governmental Affairs, University of
credit dollar amount that the $595. After October 26, the conference California, Davis; and the California
California Tax Credit fee is $645. The fee covers all Policy Seminar, a University of California
Allocation Committee workshops, general sessions, program.
allocates annually for the low- comprehensive conference material and To register for the conference, contact the
income housing credit. several meals. It does not include hotel FTB http://www.ftb.ca.gov Internet site
(Assembly Bill 168, accommodations. and click on “Education & Outreach.”
Torlakson - Ch. 98-09.) You also may fax (916) 845-5047 or call
Workshop topics include electronic
(916) 845-7998. For more information,
†
Partnership/LLC return. commerce, allocating expenses,
This new law clarifies the due legislation, the Internal Revenue Service, see the July 1998 Tax News.
date for partnership and court developments, litigation, state
limited liability company
returns as on or before the
th
15 day of the fourth month Making Tax Forms More Likeable
following the close of the CONTINUED FROM PAGE 2
entity’s taxable year. The act
amends Revenue and • Marking up the previous year’s forms Gerald Goldberg, Executive Officer,
Taxation Code Sections or drafting new forms to Franchise Tax Board, P.O.
18633 and 18633.5, which accommodate the most viable Box 942840, Sacramento, CA
previously stated the due date suggestions as well as new laws. 94240-0040. Or contact FTB at its
for a return as “within three • Arranging to have the revised forms http://www.ftb.ca.gov Internet address
and select “Send Mail to the Executive
†
months and 15 days after the and instructions reviewed by a group
close of (the entity’s) taxable of FTB staff members who check Officer” on the home page.
year.” The act also clarifies them for readability and accuracy.
that the Franchise Tax Board Specifically, the reviewers make sure
may suspend the powers of
certain limited liability
that the forms work mathematically
and produce the desired result; that
“Taxing Perceptions”
companies that fail to pay tax. tax code provisions are accurately Has New Sacramento
This law takes effect on and understandably explained; that
January 1, 1999. (AB 1694, grammar, spelling and sentence Location
Ackerman - Ch. 98-80.) structure are correct; and that the
“Taxpayer” definition. This forms are written so that FTB “Taxing Perceptions,” a one-day seminar
act is a technical amendment processing, audit, research and other for tax professionals, has changed its
to a number of codes to staff members will obtain the Sacramento site.
remove or alter language information they need. Depending The seminar, scheduled for October 6 and
referring to “taxpayers or on the particular tax form, set of repeated on October 7 and 8 in
partnerships.” It clarifies that instructions or publication, anywhere Sacramento, will be held at Howard
a partnership is included from 50 to 100 people perform the Johnson’s at 3343 Bradshaw Road. The
within the term “taxpayer.” review. federal building site for additional
The law takes effect on • Considering all reviewer comments seminars in Oakland in September is
January 1, 1999. (AB 510,
† and incorporating them on revised unchanged.
Ashburn - Ch. 98-49.) forms, instructions and publications. All “Taxing Perceptions” seminars are
• Sending the revised documents to currently filled, and Sacramento
reviewers for a second and final registrants will be notified of the change
check. of location. The seminars are presented
by the Franchise Tax Board and the
If you or your clients have suggestions for
simplifying or otherwise improving tax
Internal Revenue Service. †
forms, instructions or publications, write
September 1998
Page 9

No ID Numbers on Individual, Schedules K-1:


Business Entity Mailings Five Reasons Not
to File on Paper
The Franchise Tax Board will not publish FTB also is revising tax forms and
taxpayer identification numbers on any instructions to encourage taxpayers to Partnerships with lots of
items mailed to individual or business enter their identifying number on their tax partners now have five good
entity taxpayers. returns so that return processing will not reasons to stop filing paper
be delayed and taxpayer identities will not Schedules K-1.
With the enactment of Senate Bill 458 be confused.
(Ch. 97-685), state agencies are precluded Although the Franchise Tax
from mailing any documents with For the 1998 tax year, the Internal Board accepts paper versions
individuals’ social security numbers Revenue Service also plans to produce of the Schedule K-1 (565),
showing. Although the law applies only mailing labels without social security “Partner’s Share of Income,
to individuals, FTB policy calls for numbers for the booklets for Forms 1040 Deductions, Credits, etc.,” it
removing identifying numbers from and 1040A, both of which are a “U.S. also continues to offer
business entity mailing labels as well. As Income Tax Return,” and 1040EZ, partnerships more and more
“Income Tax Return for Single and Joint
a result, corporation numbers and federal
employer identification numbers (FEINs) Filers With No Dependents.” † alternatives and incentives.
The first four reasons for
will no longer appear on mailing labels. eliminating paper Schedules
K-1 are the:
Need Continuing Education Credits? • CD-ROMS,
• Diskettes,
Listen to Some Tax Talk • Magnetic tape and
• Tape cartridges
If you are interested in obtaining both course includes a video, a textbook that are available as
important information and continuing and an examination for four alternatives to filing on paper.
education credits, send for Tax Talk continuing education credits. The
video packages. opportunity for continuing education The fifth reason is a new, free
credits from this course expires on software program for editing
Tax Talk offers single topic videos and the schedules. The TestWare
four- and eight-hour video courses. October 31, 1998, so move quickly if
you are interested. The course costs program allows partnerships
Depending on your choice, you can to edit K-1 files on diskettes
qualify for three to eight continuing $80.
before sending them to FTB.
education credits. • Tax Talk ’97 Home Study Course. In the past, files that failed
Your Tax Talk options include: This eight-hour course covers FTB’s mainframe edit
partnerships, trusts, penalties and program were returned to
• Continuing Education Video sales and use tax. It includes a video,
Series. The three titles in the series partnerships for correction.
a textbook and a test for eight credits. Now partnerships can test
are “California Employment However, you will not be able to
Factors,” “Office-In-Home- files before sending them.
obtain credits for this course after So, the production files
Deductions” and “California Tax October 31, 1998. The course costs
Rules for Nonresidents.” Each should be error-free when
$150. they arrive at FTB. For more
course includes a one-hour videotape,
textbook, workbook and brief, “open Tax Talk is a program of the Center for information on TestWare, see
book” examination. Each course Tax Education, sponsored by the Internal the July 1998 issue of Tax
yields three credits and costs $60. Revenue Service, the Franchise Tax News.
Board, the State Board of Equalization, To obtain the free software,
• Tax Talk ’98 Home Study Course. the Employment Development
This four-hour video course offers a download it from FTB’s
Department, the California State http://www.ftb.ca.gov Internet
variety of tax information. It University, Sacramento, School of
includes federal and California tax address; click on “Electronic
Business Administration and California Services” and then on
law changes made in 1997 and Community Colleges.
information about partnerships, “Businesses - Filing/
California employment factors and You may obtain an order form for all Tax Payments.” Or call the
the State Board of Equalization’s Talk courses on FTB’s Internet site. electronic filing Help Desk at
(916) 845-0353 between
†
new managed audit program. The Access http://www.ftb.ca.gov, and then
click “Education and Outreach.” Or call 8 a.m. and 5 p.m.
(916) 845-7070. †
Page 10

FTB to Employ
New Child Support Collection Tool
Limited Liability
This month, the Franchise Tax Board will Assembly Bill 702 (Villaraigosa - Ch. 97-
Companies Billed launch a federally mandated program 697) gave FTB responsibility for
matching a list of child support debtors managing the program in California. FTB
In late August, the Franchise
against the names on accounts at financial is experienced in both data matching and
Tax Board began billing
institutions. The data match is intended the automated levy processing of financial
limited liability companies
to locate debtor assets that can be used to institution assets to collect delinquent
(LLCs) for unpaid taxes and
pay past-due child support. child support. As authorized by law, FTB
fees.
The program stems from the 1996 federal has been collecting delinquent child
The LLCs who are receiving support for participating district attorneys
welfare reform law that established
the bills have failed to pay since 1993.
several new enforcement tools for
fees, filed incorrect forms or
collecting delinquent child support. One FTB will mail FIDM Participation
have not correctly computed
of the tools, the Financial Institution Data Booklets to financial institutions this
taxes. The bills cover the
Match (FIDM), is the basis for the new month and initiate the first data match in
1994 tax year, when only 557
FTB program. January 1998.
entities filed LLC returns,
through the 1996 tax year, Under the federal law, each state, If you or a financial institution client
when the number of LLC cooperating with financial institutions would like more information about
returns grew to approximately doing business in the state, is required to the program or the enabling
legislation, call the FIDM Help Desk at
†
16,500. develop and implement a quarterly data
match program. The information (916) 845-6304.
Among the initial bills are
gathered is to be used to collect past-due
Return Information Notices
child support.
for LLCs that failed to
compute and pay the correct
LLC fee and/or
nonconsenting nonresident Filing Returns Without Filling Them Out
taxes and interest. The bills In the future, the Franchise Tax Board Typically, when FTB cannot locate a
also include Notices of will be able to offer some taxpayers the taxpayer’s return, it sends the taxpayer a
Balance Due for LLCs that opportunity to file tax returns without letter that is a formal legal demand to file
failed to pay the LLC annual filling out a single form. For a number of the return. The letter asks taxpayers to
tax or fee and/or individuals who failed to file a 1996 tax file the missing return, provide proof that
nonconsenting nonresident return, the future is now. a return has already been filed or explain
taxes and applicable penalties why there is no requirement to file. In the
and interest. Beginning in August, FTB will conduct a
pilot project by preparing 1996 tax pilot project, taxpayers will have the
For information about the returns for about 400 people who have additional option of reviewing the
correct ways for LLCs to file not filed them. This is an important step information on the Form 540A tax return
and about FTB’s recent toward “return free” filing, an option that that has been prepared for them. If the
billings, contact FTB at its by 2010 would let taxpayers choose to let information is correct, the taxpayer signs
http://www.ftb.ca.gov Internet FTB assemble their tax information and the return and mails it to FTB. A
site. Click on “General Tax calculate their tax liabilities. taxpayer who does not agree with the
Information” and then on information on the return is asked to
“Limited Liability For the pilot project, FTB will gather complete a new return.
Companies.” † wage information about some nonfilers
from the Employment Development The pilot program is intended to increase
Department and federal tax information compliance with tax law by providing
about other nonfilers from the Internal better customer service, and the new
filing option makes filing delinquent
Revenue Service. FTB then will transfer
the information to a 1996 Form 540A, returns easier for taxpayers.†
“California Resident Income Tax Return,”
calculate the tax liability, subtract
withholding credits and send the
completed return to the taxpayer who has
not yet filed.

September 1998
Page 11

News from the


State Board of Equalization
E-File Seminars
New Ways to Verify Seller Permit Numbers Are Free
The State Board of Equalization is contact the Board of Equalization at Register now for free e-file
offering two new services to help http://www.boe.ca.gov and select the seminars.
businesses verify sellers’ permit account “Seller’s Permit Verification” option. Or, Get the answers to all your
numbers easily, quickly and after regular they can call toll free to (888) 225-5263. questions about electronic
business hours. In both cases, they will be prompted to filing at any one of a series of
enter the eight or nine digit seller’s permit seminars throughout
Now businesses may check sellers’ permit
number. Both the Internet and IVR California. The Franchise
numbers either on the Internet or through
systems will indicate whether the permit Tax Board and the Internal
an interactive voice response (IVR)
is valid. For most valid permits, the Revenue Service are co-
telephone system. Both systems operate
systems also provide the permit holder’s sponsors of the seminars,
seven days a week, except for
name and address. which are being held this
maintenance periods. Previously,
business persons could obtain up to three Businesses need to verify that permit month and through
numbers at one time from a customer numbers on resale certificates are valid at December.
service representative. To verify more the time the certificate is shown. They You can register for a seminar
than three numbers, they needed to submit should not accept certificates if they know either by sending a fax to
or have reason to believe that the property
†
a written request. (916) 845-5340 or by
being purchased is not for resale. contacting FTB at its
To verify a seller’s permit account
number on the Internet, businesses should http://www.ftb.ca.gov Internet
site.
Seminar schedules for the Los
Tax Practitioners’ Institute Coming Up Angeles, Southern California
and Northern California IRS
In November and December, the 1998 November 2 - 4, Sacramento Districts were published in
Tax Practitioners’ Institute will offer tax (916) 278-7129 the July Tax News and also
practitioners the opportunity to obtain up are featured on the FTB
November 5 - 7, Fresno
to 24 hours of continuing professional Internet site. The dates and
(209) 278-2352
education credits. locations for the Central IRS
November 12 - 14, Cupertino District are:
You can obtain the Institute’s education (408) 342-0233
credits from a three-day program and use • September 22 – San Luis
them to satisfy the requirements of the November 16 - 18, Chico Obispo
California State Board of Accountancy, (530) 898-6105 • September 23 – Ventura
the California Tax Education Council November 19 - 21, San Luis Obispo
and, for enrolled agents, the Internal • September 29 – Salinas
(408) 342-0233 • September 30 – San Jose
Revenue Service.
November 30, December 1 - 2, Oakland • November 4 – Modesto
The Institute’s federal program covers (510) 885-3605
compliance issues including policy and • November 5 – Fresno
procedural updates for the current season December 3 - 5, Monterey
and tax planning strategies for individual (408) 342-0233 • November 17 –
and corporate returns. The state program Bakersfield
December 10 - 12, Arcata
includes a review of changes in state • December 1 – San
income and franchise tax law and policy.
(707) 826-3731
Institute sponsors are California State
†
Jose.
It also covers state and federal law
differences that affect state returns for University, Chico, Fresno, Hayward and
individuals and corporations. Sacramento; Humboldt State University;
University of California, Santa Cruz; the
The Institute will offer its programs at the Franchise Tax Board; and the Internal
following times and places. For
enrollment, registration fee and other
Revenue Service. †
information, call the telephone number
listed below for the site nearest you:
Page 12

Head of Household Symposium


First E-Filing,
Now E-Paying Taking Shape
For the 1998 tax year, the Both tax practitioners and taxpayers, primary interest. They listed “kids that
Franchise Tax Board is responding to a query printed in Tax don’t work,” an unmarried status, living
offering an electronic News and to letters, showed an interest in with adult children and support for
payment (e-pay) option to a head of household symposium. children to whom they are not related. At
taxpayers who file electronic Tax practitioners expressed interest in least one tax practitioner and one taxpayer
returns with balances due. learning, among other things, how the listed “everything.”
With the new option, an e- head of household filing status relates to A symposium has been tentatively
filer with a balance due may multiple households in the same home, scheduled for December in the
authorize FTB to debit his or individuals living with partners, Sacramento area. Watch the November
issue of Tax News for the symposium’s
†
her bank account on a dependents and divorced or legally
specified date for the amount separated individuals. In expressing date and place.
due. Your clients now can interest in the symposium, taxpayers often
not only e-file but e-pay, mentioned their specific situation as their
eliminating the need to mail a
check and form FTB 3582,
“Payment Voucher for
Electronically Transmitted
Returns,” by April 15.†

Address Service Requested