Deadline Approaching to Resolve State Tax Shelters

Released September 11, 2008

The Franchise Tax Board (FTB) reminds taxpayers that Friday is the deadline to apply for penalty relief for participants in “bogus optional basis” (BOB) or certain “employee stock ownership plan” (ESOP) transactions.

Bogus optional basis and certain ESOP transactions generally lack a business purpose, causing FTB to closely examine them.

To participate, taxpayers must submit a signed and completed closing agreement as described in FTB Notice 2008 - 4 by September 12, 2008, and pay all tax, penalties, and interest relating to the eligible BOB and ESOP transactions.

For participating taxpayers who have received a tax assessment that includes a 40 percent non-economic substance transaction (NEST) penalty, FTB's Chief Counsel will reduce it to 20 percent. Also, FTB will cancel the 100 percent interest-based penalty if the assessment is not final. For participants who have not yet received an assessment, FTB will only assess the 20 percent accuracy-related penalty on the underpayment relating to the eligible BOB or ESOP transactions.

Editor’s Note: For definitions of ”BOB” and “ESOP” visit

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