Tuesday, October 4, 2022

What Happens If I File My California Taxes Late

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Reliance On Formal Written Advice

Filing Taxes 101: Everything You NEED to Know

This is another case where a mistake by the FTB can mean that you are not liable for interest on your tax liability, and it applies to individual taxpayers and businesses. Here is what this circumstance might look like:

  • You make a formal written request to the FTB for specific clarification about whether any particular transaction or activity is subject to tax.
  • The FTB responds, in writing, to your request, with information stating that the activity or transaction is not subject to tax.
  • You reasonably rely and act on this advice, and do not remit tax, based on the advice.

If this is the circumstance of your overdue taxes, you will likely qualify for an abatement, however the requirements are very specific and legally significant. You must provide all of the following with your abatement request:

  • A copy of your original written request for advice. This request must not include any misstatement or omission of relevant facts or important information, or your claim will be denied.
  • A copy of the written advice you received from the FTB.
  • A statement outlining the facts on which you are basing your claim. This statement is made under penalty of perjury, which means that you must be able to state these facts truthfully under oath in court.
  • Any other relevant information required by the FTB.
  • What If I Owe The Irs But Can’t Pay

    If you find yourself in this situation, you have a few options available, such as:

    • installment agreements
    • “offers in compromise”

    You can also simply file your return and wait for the IRS to bill you, but don’t be surprised if the bill includes interest and penalties. Typically, the failure-to-pay penalty is less than the failure-to-file penalty so you likely should file even if you can’t pay the tax.

    Determining California Sales Tax Nexus For Out Of State Sellers

    Out of state sellers who do not have a physical presence in California may be required to collect and remit sales tax if they meet any of the following criteria:

    • Affiliate Nexus California requires businesses with ties to businesses or affiliates in the state to collect and remit sales tax. This could include developing or designing TPP that is distributed by a remote seller.
    • Those who direct traffic to a website for the purpose and intention of generating a sale establish Nexus for that business. Total referrals on sales of more than $10,000 within a year and total sales of $1,000,000 or more are required to establish click-through nexus.
    • Economic Nexus Californias economic nexus law requires businesses that sell $500,000 or more of TPP into the state directly or via a marketplace to register to collect sales tax. This also impacts in-state businesses based on the municipalities in which they operate.

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    Address To Request Penalty Abatement

    The taxpayer should submit the completed and signed penalty request form to:

    Franchise Tax BoardPO Box 942840Sacramento, CA 94240-0040.

    The FTB will usually make a determination within six weeks. The taxpayer cannot appeal penalty abatement request determinations.

    Interest Abatement

    California law permits interest abatement in specific situations. It is not to be confused with reasonable cause relief, which is available for penalty abatements. Reasonable cause relief is not available for an interest abatement request. For a taxpayer to be granted interest abatement by the FTB one of the following circumstances must exist:

    • Financial hardship
    • Reliance on formal written advice
    • Disaster Loss
    • Military personnel
    • FTB/IRS error or delay

    Taxpayers can request interest abatement for both paid and unpaid interest. However, if the taxpayer has already paid the interest, the taxpayer must submit the request before the applicable statute of limitations period .

    Each of the specific circumstances outlined above requires different forms and supporting documentation going to a variety of offices. Taxpayers can find more information regarding each of these circumstances at https://www.ftb.ca.gov/individuals/faq/interestabatement.shtml.

    For help with a Franchise Tax Board penalty issue, contact a licensed tax professional with experience in resolving Franchise Tax Board problems. Use the form below to start your search.

    California Enacts Salt Limitation Workaround

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    California Governor Gavin Newsom has signed a budget trailer bill that creates an elective pass-through entity tax. For taxable years beginning on or after January 1, 2021, and before January 1, 2026, qualified entity doing business in California can make an annual, irrevocable election to pay a pass-through entity tax similar to the New York PTET. The tax is computed at the rate of 9.3% for the taxable year for which the election is made.

    Entities eligible to make the California PTET election include entities taxed as partnerships and S Corporations. This elective tax is in addition to, and not in place of, any other tax required to be paid under Californias personal income tax or corporation tax laws. As such, owners of pass-through entities making the election claim a credit for their share of the pass-through entitys PTE tax on their respective returns. If this results in an overpayment, excess credit may be carried forward for five years.

    For taxable years beginning on or after January 1, 2021, and before January 1, 2022, the elective tax is due and payable on or before the due date of the original return that the entity is required to file, without regard to any extension of time for filing the return, for the taxable year of the extension. For future tax years, the Department will establish new due dates for making the election and payment of the tax.

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    California And New York Release Revised Regulations On Pl 86

    The California Franchise Tax Board and the New York Department of Taxation have issued a technical memorandum and a draft regulation respectively. The documents put out by the states revise their interpretation of P.L. 86-272.P.L. 86-272 prohibits states and localities from imposing income taxes on remote businesses if their only activity with the state is soliciting sales of tangible personal property. The Multistate Tax Commission recently reinterpreted P.L. 86-272, stating that businesses interacting with customers via a website or an app are engaging in unprotected business activities within the customers state in a variety of scenarios, and thus no longer qualify for P.L. 86-272 protection. Both California and New York are using this reinterpretation of P.L. 86-272 to modify their respective stances on when businesses can claim P.L. 86-272 protection. Furthermore, California has indicated that its revised interpretation of P.L. 86-272 can be applied retroactively. New York is also considering a retroactive application of its revised interpretation of P.L. 86-272. For more information, please see Californias Technical Memorandum, and New Yorks Draft Regulation. If you have questions about whether your business may still be protected under P.L. 86-272, please contact a member of the Withum SALT Team.

    How Can I Waiver Property Tax Late Penalty In California

    In order to request the cancellation of any penalty on any secured or unsecured property tax bill assessed by the taxpayer, a Penalty Cancellation Form must be completed and submitted.In this case, we require a confirmation of cancellation request from the submitted application form and all supporting documentation.

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    Los Angeles Ballot Initiative To Increase Real Estate Transfer Tax On Homes Costing Over $5 Million

    United to House LA submitted documents to show they have collected 98,171 signatures for a ballot proposal to increase the real estate transfer tax on homes selling for more than $5 million. The proposal estimates it would generate $8 billion over 10 years and these funds would be dedicated to expanding and maintaining the availability of affordable housing in the LA area. The current real estate transfer tax rate on residential real estate is currently 0.45%. Pursuant to the ballot initiative, the real estate transfer tax would increase to 4% for real estate selling for more than $5 million and less than $10 million and the rate would increase to 5.5% tax on property selling for more than $10 million.

    But Wait I Dont Owe Any Taxes Why Am I Still Being Billed

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    Besides collecting income taxes, the Franchise Tax Board also collects fees and fines for other agencies. Your taxes may be paid but you may have outstanding fees elsewhere.

    Back Child Support. By far the most common collection by the California FTB involves back child support. If you dont make court-ordered child support payments the Franchise Tax Board will collect whats owed and distribute it back to the person its owed to. Its important to note that the FTB will use the same enforcement actions with child support that it does with tax debt and that means it could include everything from liens, wage garnishment and the seizure of personal and real property.

    Auto Registration Fees. Where you late paying your auto registration or have you not registered your vehicle? If so, a penalty is added on and those fees could be collected by the Franchise Tax Board. Generally speaking the FTB will begin collection actions 90 days after the delinquency and it could include bank levies and wage garnishments.

    Court Costs. If you owe money for unpaid tickets or fines, the Franchise Tax Board will be charged with collecting those fees plus any late fees and delinquencies. Once again, these may include involuntary actions such as wage garnishment or bank levies.

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    California Franchise Tax Board Announces Tax Relief For Californians Affected By Wildfires

    Due to the California wildfires, the California Franchise Tax Board has extended the deadline to file California 2020 income tax returns, which would have been due between July 14, 2021 through November 15, 2021. The deadline extension to November 15, 2021 is granted to Taxpayers in declared disaster areas. The filings included in this extension are: Individual filers who previously claimed an October 15th extension , business entity filings due between the period of July 14, 2021 through November 15, 2021, and quarterly estimated tax payments due during the extension period.

    Ca Franchise Tax Board Issues Relief Provisions For Taxpayers Amid Covid

    This relief includes changes to the various tax filing and payment deadlines that occur on March 15, 2020, through , to July 15, 2020. This includes:

    • Partnerships and LLCs who are taxed as partnerships whose tax returns are due on March 15 now have a 90-day extension to file and pay by June 15.
    • Individual filers whose tax returns are due on April 15 now have a 60-day extension to file and pay by June 15.
    • Quarterly estimated tax payments due on April 15 now have a 60-day extension to pay by June 15.

    Taxpayers claiming COVID-19 relief should write the name of the state of emergency in black ink at the top of their tax return to notify FTB of the extension period provided by the relief. If taxpayers are e-filing, they should follow the software instructions to enter disaster information.

    In addition, the FTB will also waive interest and any late filing or late payment penalties that would normally apply.

    Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.

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    Delinquent Filing Penalty: Individuals And Businesses

    Why you received this penalty

    You did not pay by the due date of the tax return and did not file your tax return by the extended due date.

    5% of the amount due:

    • From the original due date of your tax return
    • After applying any payments and credits made, on or before the original due date of your tax return, for each month or part of a month unpaid

    The maximum penalty is 25%.

    Individuals only

    If your tax return shows a balance due of $540 or less, the penalty is either:

    • $135
    • 100% of the amount due

    Whichever amount is less.

    For instance, if your balance is:

    • $134 or less: the penalty is equal to 100% of the amount due
    • Between $135 and $540: the penalty is $135

    Why you received this penalty

    You did not file your return by the due date.

    Partnership penalty

    • Before January 1, 2011: $10 for each partner/member, per month .
    • On or after January 1, 2011: $18 for each partner/member, per month .

    S Corporation penalty

    Does The Irs Ever Negotiate The Amount Owed

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    Under certain circumstances, the IRS is authorized to resolve a tax liability by accepting less than full payment. An “offer in compromise” is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt. There are three circumstances under which the IRS is authorized to compromise:

  • When there is doubt that the tax is correct.
  • When there is doubt that you could ever pay the tax in full.
  • When the tax is correct and you could pay it, but payment would result in an exceptional circumstance, economic hardship, or be unfair and inequitable.
  • Form 656: Offer in Compromise Package should be completed to file an Offer in Compromise with the IRS. Included with the Form 656 package are Form 433-A, Collection Information Statement for Wage Earners & Self-Employed Individuals and Form 433-B, Collection Information Statement for Businesses.

    • You may need to complete the appropriate Form 433 and should be prepared to provide other documentation and explanations as they are requested.
    • Various options are available for accepted Offers in Compromise requests, such as a reduced total payment and scheduled monthly payments.
    • Defaulting on an accepted offer in compromise can result in the IRS filing suit against you and reinstatement of the original tax debt, plus interest and penalties.

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    Why Do I Still Owe Money

    There are a number of reasons you may receive a bill from the California FTB.

    You filed your tax returns late. This is by far the most common reason you may still owe money. People dont realize that late filing, even by one day, will incur a late filing penalty. Late filing will cost you a 5% penalty plus ½ of 1% for each month the unpaid taxes arent paid. The minimum penalty is $100. The obvious answer is to make sure you file your taxes and pay the amount owed before the due date.

    You made a mistake. Another common issue that we see at our Orange County tax law offices involves mistakes tax filers make when they prepare their returns. They either claim an improper deduction or make a mistake in the math and consequently underpay the taxes they owe. The Franchise Tax Board will review your return and make corrections and then bill you the difference. Once again, you may be subject to a late filing penalty.

    You underpaid your taxes. Sometimes unforeseen circumstances happen and taxpayers simply cant pay the entire amount due. Our Orange County tax attorneys see this scenario every day. If you still owe taxes, youll be subject to late filing penalties which will grow every month. Your best bet in this scenario is to work out a payment plan to pay off the taxes owed, interest and penalties.

    Filing After The Deadline

    If you fail to file a state income tax return by the due date, it’s still better to file late than to not file at all. Generally, the penalties charged on the tax you owe increase over time, but you can minimize them by filing your state return as soon as possible. If your state does charge late-filing penalties even for returns that report a refund due to you, filing sooner rather than later will minimize the amount of penalties deducted from your refund.

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    Ca Ftb Penalty Abatement

    California law permits the FTB to abate penalties if the taxpayer fails to comply with the provisions of the tax code due to reasonable cause. Consequently, taxpayers can find the form for filing a penalty abatement request with the FTB at, . The FTB defines reasonable cause to mean that the taxpayer exercised ordinary business care and prudence in meeting their tax obligations but failed to comply.

    A taxpayer may file for a pre-payment penalty waiver or a post-payment wavier, in the event the taxpayer has already paid the tax penalty in full. When requesting a refund of a tax penalty already paid in full, the taxpayer must submit the request within the applicable statute of limitations.

    Currently, the statute of limitations is the latest of:

    4 years after the original tax return date, 4 years after the date of a timely filed return, or 1 year from the date of overpayment.

    Nevertheless, before the FTB considers a refund abatement, the taxpayer must pay in full the balance due for the tax period in question.

    California Amending Regs To Clarify How Petitions For Alternative Apportionment Are To Be Considered By The Ftb

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    The California Franchise Tax Board voted to proceed with adopting certain proposed amendments to California Code of Regulations, Title 18, section 25137 which permits a taxpayer to petition for the use of an alternative apportionment method, if the standard allocation and apportionment provisions do not fairly reflect the extent of a taxpayers business activity in California. There was limited formal guidance as to how such petitions were to be considered by the FTB, so the proposed amendments are aimed at addressing that issue.

    May 2, 2020

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    Penalty Relief For Some

    Taxpayers who have filed and paid on time and have not been assessed any penalties for the past three years often qualify to have the penalty abated. See the First-Time Penalty Abatement page on IRS.gov. A taxpayer who does not qualify for this relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not willful neglect. Anyone who receives a penalty notice from the IRS should read it carefully and follow its instructions for requesting relief. See Penalty Relief in IRS.gov for the types of penalty relief and how to make the request.

    In addition to penalties, interest will be charged on any tax not paid by the regular April due date. For individual taxpayers, it’s the federal short-term interest rate plus 3 percentage points. This means that until June 30, the rate is 4% per year, compounded daily. Starting July 1, 2022, through September 30, 2022, the rate will be 5% per year, compounded daily. Interest rates are subject to change quarterly.

    Interest stops accruing as soon as the tax is paid in full. By law, interest cannot be abated.

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