Improve Compliance and Uniform Administration Taxpayers’ Bill of Rights Annual Report to the Legislature
Legislative Proposals and Regulations
Changes in Statute — Legislative Proposal Summary
In accordance with reporting requirements outlined in California Revenue and Taxation Code (R&TC) Section 21006(c)(1), the following are recent legislative proposals that have been approved by the three-member Board.
Legislative Proposals that were introduced in bills:
Electronic Delivery of Wage Garnishments
This legislative proposal would allow electronic delivery of earnings withholding orders for taxes, earnings withholding orders, and continuous orders to withhold (wage garnishments), and related notices or documents. This legislative proposal allows FTB, in addition to existing methods of service, the ability to serve wage garnishments, and any other notice or document required in connection with wage garnishments, by electronic transmission or other electronic technology by modifying R&TC Sections 18671 and 19264. Employers could voluntarily select the option for electronic delivery.
This legislative proposal was introduced by the Committee on Revenue and Taxation as part of Assembly Bill (AB) 3372. On September 29, 2020, this bill was approved by the Governor and chaptered into law.
Water’s-Edge Election/Prevent Unintended Termination Due to Recent Amendment of California’s “Doing Business” Statute
This proposal would prevent the termination of a water’s-edge election when a unitary foreign affiliate of a water’s-edge combined reporting group subsequently becomes a taxpayer because it is “doing business” in California as a result of the statutory changes to R&TC Section 23101.
This proposal was also introduced as part of AB 3372. As previously noted, on September 29, 2020, this bill was approved by the Governor and chaptered into law.
Modify Dependent Exemption Credit to Allow Alternate Identifying Information when Dependent Ineligible for Federal Individual Taxpayer Identification Number (federal ITIN)
This legislative proposal would modify the California Dependent Exemption Credit to allow the taxpayer to use alternate identifying information for a dependent who is ineligible for a federal ITIN. Due to federal changes, taxpayers who are unable to obtain federal ITINs for their nonresident alien dependents (dependents who are ineligible for a social security number) will fail to meet the identification requirement for claiming the California Dependent Exemption Credit. This will result in the denial of the dependent exemption credit for these otherwise qualifying dependents. This proposal allows alternative identification information, as determined by FTB, to provide relief to the affected taxpayers.
Assembly Member Burke carried this proposal in AB 2247. On September 18, 2020, this bill was approved by the Governor and chaptered into law.
Exempt Organizations — Removal of Application Fee and Information Return Filing Fee
This legislative proposal would eliminate the application fee of $25 for submission of a tax-exempt application and remove the annual information return filing fee of $10 applicable to all exempt organizations. The proposed change would result in a more streamlined exempt application process as applications can be processed faster by avoiding manual tasks and outreach to the organization to collect the $25 application fee. Additionally, removing the $10 annual information return filing fee puts exempt organizations on parity with similarly situated information filing requirements where there is no associated fee.
Senator Bates carried this proposal in Senate Bill (SB) 934. On September 9, 2020, this bill was approved by the Governor and chaptered into law.
One-time Abatement of Timeliness Penalties
This legislative proposal would establish penalty abatement authority similar to the federal first-time abatement procedure, except that it would apply to individuals subject to the Personal Income Tax Law only and would be a one-time abatement. The abatement would be available for requests for abatement made by eligible taxpayers to FTB for taxable years beginning on or after January 1, 2020.
Senator Bradford carried this proposal in SB 1374, but this bill did not pass out of the Senate.
Legislative proposals that were not introduced into bills:
Modify The Six-Year Statute of Limitations for Understatement of Gross Income in Excess of 25 percent of Gross Income
This legislative proposal would modify the six-year statute of limitations for understatement of gross income in excess of 25 percent of gross income. This proposal would align state law with federal law by including substantial omissions of gross income as a result of the overstatement of unrecovered cost or basis as a trigger for the six-year statute of limitations.
Disregarded Limited Partnerships (LPs)
This legislative proposal would provide statutory authority establishing filing and payment requirements for disregarded LPs. Unlike the specified treatment of disregarded limited liability companies, current state law lacks a provision expressly requiring disregarded LPs to annually file a tax return and pay the annual tax, which results in the disparate treatment of similarly-situated disregarded entities. This proposal would amend the R&TC to expressly require disregarded LPs to pay the annual tax and file a tax return under the applicable statutes.
FTB thanks and appreciates the members of the Legislature who have carried FTB-sponsored proposals and continues to identify ideas for consideration that could ease tax administration.
Changes in Regulations
The laws administered by FTB broadly authorize the adoption of rules and regulations necessary for their enforcement. Occasionally, specific statutory provisions require us to adopt regulations. (For a list of regulations in progress, please refer to Appendix 3 — Regulations.)
Training of FTB Staff
FTB develops knowledgeable and engaged employees to improve the customer experience and accomplish FTB’s mission. Our goal is to provide the services and information taxpayers need to file accurate and timely tax returns and to only pay the proper amount of tax owed. Training begins with employees’ first day on the job and continues throughout their FTB careers.
All public-facing staff in our contact centers, public service counters, and collection programs receive extensive initial training (in a classroom or, since COVID-19, virtually), on-the-job training, and ongoing training, with programs tailored to the specific needs of each business area. Audit Division staff also receive extensive training (classroom or virtual), and on-the-job training. Audit Division staff must have the knowledge needed to analyze tax returns, research complex issues, and effectively communicate their findings to taxpayers and authorized representatives. Having well-trained auditors reduces the burden audits place on taxpayers by shortening the completion time and improving the accuracy of the outcome.
In 2020, the Audit Division launched the Pathways to Excellence portal, which is a knowledge transfer and training resource for staff. In simplistic terms, this portal maps out different “pathways” for staff development that combines technical education with other value-added learning experiences and collaboration opportunities. The portal is designed with one-stop shopping in mind and will function as a useful reference tool for the entire FTB organization.
An Audit “Pathway” is an integrated, cross-functional sequence of courses, experiences, and partnerships designed for staff to achieve proficiency in a particular area of tax law. Staff have the flexibility to pursue any number of pathways throughout their career. Currently, we have designed 37 pathways as a start.
Finally, all FTB personnel who are classified in FTB’s conflict-of-interest code are required to take Ethics training provided by the Department of Justice within six months of appointment to a classified position and once every two years thereafter. Additionally, all FTB staff are required to take an annual Privacy, Security, and Disclosure training.
Evaluating FTB Employees
FTB is committed to evaluating and providing feedback to our employees. This helps them perform at the highest level in their current positions and to advance professionally when promotional or development opportunities arise. Our goal is not only to provide all eligible employees with a written performance evaluation annually, but to also ensure the evaluation and feedback they receive is valuable. The most important part of the evaluation process is sincere, respectful, and open conversations with employees regarding expectations and performance.
Customer service has always been one of FTB’s highest priorities. In recognition of this priority, FTB continues its practice of evaluating employees in annual reviews based on how well they communicate with taxpayers and the overall quality of the customer service they provide. That includes assessing whether employees have provided taxpayers with accurate, timely, and complete assistance. Our goal is for every employee to exceed each customer’s expectations. Importantly, we do not evaluate employees based on revenue that is produced through additional tax assessments or collections, and FTB does not impose or suggest revenue production quotas or goals. (Please refer to Appendix 4 — Certification Letter.)
We provide our supervisors with tools to assist in writing, routing, and storing employee performance evaluations. These tools help us reach our goal of every eligible employee receiving a timely evaluation. Last year, we rolled out a tool to assist supervisors in having effective one-on-one conversations with their employees, and we continue to reinforce the expectation that every supervisor will have regular one-on-one meetings with each of their employees.
A key component of employee and supervisor meetings is to have continuing discussions on performance expectations and to identify training and development needs. Discussing employee development opportunities is critical in today’s environment due to the rising number of employees who are eligible for retirement. It is an important part of our efforts related to workforce and succession planning.
Taxpayer Communication and Education
We strive to provide taxpayers and tax professionals with the information they need to file state tax returns completely, accurately, and timely. The department continues to focus on education and outreach efforts, creating useful tools and resources, and improving services.
Education and Outreach plays an important role in communicating information to taxpayers, tax professionals, and external stakeholders. FTB uses mainstream, trade, and social media to communicate important information to taxpayers and tax professionals. We post information on social media platforms, create video clips and webinars, and provide public service announcements to educate taxpayers. We always look for ways to improve our website, such as adding self-service options for taxpayers and ensuring the information they need is available.
Our monthly online publication Tax News continues to expand and has recently surpassed 35,000 subscribers. We periodically send Tax News Flashes to inform taxpayers and tax professionals of changes to tax law, new programs, current issues of interest and, this year, COVID-19-related information.
Amid the widening COVID-19 pandemic this spring, FTB launched an enterprise-wide effort to quickly communicate our assistance to taxpayers, including filing and payment extensions. We spread the word about the various forms of taxpayer relief and the extended deadlines through new informational pages on our website, press releases, social media, and news interviews.
New ftb.ca.gov Webpages and Updates
This year, we created new informational webpages and provided many ftb.ca.gov updates – sometimes multiple times a day – for our customers regarding tax topics related to COVID-19 and other major initiatives. As a result, traffic on our website has surged this year.
New COVID-19 Webpage
The COVID-19 communication strategy included the following:
- A new “COVID-19: Coronavirus special tax relief and assistance updates” section in our online newsroom with links to COVID-19 frequently asked questions, or FAQs, on pandemic-related tax information, including extensions to file and pay deadlines.
- A prominently featured, COVID-related news item on our FTB homepage.
- An FTB website-wide alert banner with links to COVID-19 information.
Health Care Mandate Section
In 2020, we developed and added a “Health care mandate” section on our website to inform individuals, tax professionals, and businesses about California’s new individual health care mandate. Beginning January 1, 2020, individuals must either have health coverage, obtain an exemption from that requirement, or pay a penalty when they file their 2020 state tax return next year. Health insurance providers and employers have insurance information reporting requirements administered by FTB.
Health Care Coverage Penalty Estimator
FTB created an “Individual Shared Responsibility Penalty Estimator” to help taxpayers who do not have health care coverage, or do not meet exemption criteria, to estimate what their penalty might be.
We developed a California Earned Income Tax Credit, or CalEITC, calculator on the FTB website. The EITC calculator provides an estimate of how much money lower-income taxpayers who work might qualify for if they file a tax return and apply for the recently expanded CalEITC, the state’s new and related Young Child Tax Credit, and the federal Earned Income Tax Credit. The EITC calculator went live in June 2020.
FTB also launched a new “VITA locator” in June 2020 that helps our customers find free in-person help with their tax returns through the Volunteer Income Tax Assistance (VITA) program. Note: Because of COVID-19, the majority of VITA sites are currently unavailable. Efforts to offer taxpayer assistance virtually have so far been limited but, increasingly, organizations offering VITA are looking into virtual options.
We continue to ensure all content and documents on the FTB website are accessible based on state and federal laws.
We continue to ensure that FTB website content is based on our customers’ needs by holding content workshops.
Website Visits Spike
New online resources launched in 2020 helped draw more ftb.ca.gov visits during the first eight months of 2020 – 19,194,921 – than during all of 2019, when there were 19,036,692 visits.
FTB Cannabis Team
This year, our department-wide cannabis team sent an informational welcome letter to 541 new, licensed California cannabis businesses. The letter directs cannabis businesses to our online resources and provides a dedicated FTB cannabis email address where they can send questions about meeting their tax obligations. Included with the letter was an informational insert that provides additional cannabis-related information.
FTB created a variety of new resources providing information relating to licensing and tax compliance for cannabis-related activities, including the following:
- A dedicated “Cannabis tax law and legislation” page on ftb.ca.gov.
- A guide explaining how to find cannabis-related tax information (FTB 4020).
- No Cash Policy exemption request video.
- Instructional video for businesses making cash payments.
- Tax News articles on FTB’s website (refer to 03/2019, 05/2019, and 11/2019 editions).
FTB also participated in 30 presentations and workshops this year, including the National Cannabis Industry Association’s Cannabis Business Caucus and Summit, state and local permitting workshops, and various government panels.
Taxpayers’ Rights Advocate's Office Education and Outreach
During FY 2019/2020, our Taxpayers’ Rights Advocate’s Office participated in eighty presentations to tax practitioners and taxpayers, providing information on California tax updates, forms of business ownership, and small businesses tax matters. As a result of COVID-19, we transitioned to participate in nine virtual presentations in place of live events, including bilingual education and outreach to taxpayers and tax professionals. In addition, we responded to inquiries and requests for assistance from taxpayers and tax professionals. In FY 2019/2020, staff responded to more than 3,500 requests for assistance and calls regarding general tax and business-related requirements on the Small Business Liaison phone line. Tax News, our award-winning technical publication, continues to be a valuable resource for the tax professional community. The content remains relevant, timely, and informative, thanks to the support of FTB’s business areas, which have taken a proactive approach to writing timely articles on relevant topics. We continue to partner with other tax agencies and external stakeholders to share information about educational opportunities.
Public Affairs Education and Outreach
FTB’s Public Affairs Office educates taxpayers about filing requirements and other important tax issues through interviews with TV, radio, and print media outlets, as well as through FTB’s website, videos, printed brochures, and webinars. This year, FTB’s Public Affairs efforts aligned with the entire department to help communicate – sometimes on a daily basis – critical COVID-19-related information to taxpayers, tax representatives, and other stakeholders. These efforts included contributing questions and answers to FTB’s special COVID-19 FAQ webpage, and responding directly to taxpayer and tax preparer inquiries.
In FY 2019/2020, Public Affairs collaborated with Covered California to create awareness about California’s Health Care Mandate by participating in press conferences, issuing press releases, pushing information on social media, and supporting FTB’s healthcare mandate webpage.
Public Affairs also helped update the cannabis page on the FTB website, delivered taxpayer information on that topic through social media, and answered cannabis-related taxpayer inquiries.
We also sent computer-equipped e-buses around the state to provide free tax return preparation for those most in need. The annual e-bus tour is organized by FTB in partnership with local community organizations, such as the United Way. These computer-equipped buses, which are staffed by IRS-certified VITA volunteers, visit communities around the state to offer free tax return preparation in English and Spanish. VITA volunteers also help connect taxpayers with information about the refundable CalEITC. This year, the e-bus tour included 26 stops – half of last year’s stops because the program was canceled in early March amid COVID-19 concerns. When promoting the CalEITC and the new Young Child Tax Credit, we posted extensively on social media, conducted print, radio and TV interviews, and created hundreds of thousands of brochures and other educational materials in seven languages: English, Spanish, Mandarin, Vietnamese, Korean, Hmong, and Russian.
Translation for Limited-English-Proficient Taxpayers
Translations of CalEITC and other materials into multiple languages is handled by FTB’s Multilingual Communications Program. Our program provides vital services to our Limited English Proficient (LEP) taxpayers as well as to our bilingual customer service representatives and the tax preparers who serve LEP taxpayers.
Our goal is to ensure LEP taxpayers have equal access to the tools and resources available in order to file tax returns timely, accurately, and pay the correct amount without experiencing delays due to a language barrier. FTB’s website offers 45 webpages in Spanish, and this year, two web applications were translated into Spanish or other languages:
- The Check Your Refund Status application was translated into Spanish.
- The new California EITC calculator was translated into Spanish, Chinese, Vietnamese, and Russian.
Other recent translations include the following:
- FTB 855 HM, California Earned Income Tax Credit (CalEITC) brochure, in Hmong.
- FTB 7702 EN-SP, Escorted Visitor Badge Register, Spanish was added on back of form.
We provide access to our programs, services, and facilities in accordance with Title II of the Americans with Disabilities Act (ADA) of 1990. At the taxpayer’s request, we provide reasonable accommodations in alternative formats.
We regularly translate major news releases into Spanish. We offer bilingual Facebook Live videos about tax issues in English-Spanish and English-Russian, and we often translate key social media posts into Spanish.
Withholding-Real Estate Community Outreach and Education
Our Filing Division’s Withholding Services and Compliance Section (WSCS) continues to work with California’s real estate escrow professionals through education and outreach. FTB created a new California Form 593, Real Estate Withholding Statement, in light of regulatory updates that took effect January 1, 2020. These updates – to California Code of Regulations, Title 18, Sections 18662-0 through 18662-6, and Section 18662-8 – made various technical changes to increase the clarity of withholding regulations. The new consolidated Form 593 is one form with one due date. It has the essential elements of (and for transactions occurring after January 1, 2020, it replaces) the following three California forms: Form 593-I, Real Estate Withholding Installment Sale Acknowledgement; Form 593-C, Real Estate Withholding Certificate; and California Form 593-E, Real Estate Withholding Computation of Estimated Gain or Loss.
To promote this new form, WSCS increased its communication and outreach efforts with the real estate community. For FY 2019/2020, WSCS staff attended three conferences – the Northern California Escrow Conference, the California Escrow Association Conference, and the Federation of Exchange Accommodators Conference. We also delivered content at sixteen Real Estate Escrow Association visits, and we created two new brochures and updated several others. Coordination continued with FTB’s Taxpayers’ Rights Advocate's Office, including an article published in Tax News, as well as having our information made available at various events attended by the Taxpayers’ Rights Advocate's Office around the state. This fiscal year, WSCS also extended its outreach to include withholding information for property managers and attended the California chapter of the National Association of Residential Real Property Managers annual conference to discuss property managers’ withholding obligations. Additionally, we worked with the California Department of Real Estate (DRE) on a property management article, which was published in DRE’s quarterly spring bulletin.
Exempt Organizations Education and Outreach
FTB’s Exempt Organizations Unit participated in education and outreach events sponsored by the California Department of Tax and Fee Administration (CDTFA) and various nonprofit and other groups. FTB’s representative engaged with the public – in person or, after the onset of COVID-19, remotely – to discuss various aspects of exempt organizations including the following:
- The exemption process, including FTB’s timeframes for processing exemption applications.
- Maintaining compliance with exempt organization filing requirements.
- Political and lobbying limitations for exempt organizations.
- FTB efforts to assist nonprofits seeking to dissolve.
- California conformity with recent federal tax law changes.
- Various current issues identified by FTB auditors.
- Other items by audience request.
Innocent Spouse Relief Program Update
This year, we updated our education and outreach for FTB’s Innocent Spouse Program. When California taxpayers file a joint tax return, both taxpayers are equally responsible for paying any taxes, penalties, and interest. In some cases, a spouse or registered domestic partner may get relief from paying all or part of what is owed. The Innocent Spouse Program reviews and evaluates applications for innocent spouse relief from taxpayers who believe they should be relieved from their joint tax liability.
The Accounts Receivable Management Division updated the Innocent Spouse Program webpage, developed an informational video to provide awareness to the public of the available relief options offered by the program, and featured the program and video through a Tax News article in October 2019.
Increased Enforcement Capabilities
Although FTB encourages voluntary compliance by providing taxpayer education as well as pre-filing assistance and information, FTB continues to identify ways to improve its enforcement and collection capabilities.
The Audit Division staff works with taxpayers and their representatives to administer and enforce the law effectively to ensure all taxpayers meet their obligations to file correctly and pay the proper amount of tax owed. We use innovative methods to promote these objectives through customer service, education, self-compliance letters, initiatives, and partnerships with federal and state agencies. In performing these activities, we consider the effects of audit activities on taxpayers as well as the increases in timeliness and effectiveness of enforcement actions. All of our work focuses on adherence to FTB Regulation Section 19032, Audit Procedures, to complete audits in a timely manner.
We collaborate with subject matter experts to operate our programs in an efficient manner and also seek better use of technology and data. We continue to seek new opportunities to form partnerships with taxpayers, their representatives, and other agencies to continue to promote best audit practices.
Addressing California’s Tax Gap
The tax gap is the difference between the amount of taxes legally owed and what is voluntarily paid.
Addressing issues that cause taxpayers to underreport, underpay, or not file their tax returns correctly remains a top priority for FTB. We complement these priorities with efforts to educate taxpayers regarding prevalent areas of noncompliance. We continue to apply new tools and data sources that aid in the detection of taxpayers who contribute to the tax gap by using or promoting schemes to evade taxes. We continue to identify and pursue abusive tax avoidance transactions; and, we focus our audit resources on the most egregious tax filing strategies, share information across programs, train staff, and follow up on leads.
FTB special agents in the Criminal Investigations Bureau (CIB) are sworn peace officers charged with the investigation of individuals suspected of committing income tax related crimes or crimes against FTB. In the course of investigating suspected violations, FTB special agents gather evidence, interview witnesses, interrogate suspects, and plan and effect search and arrest warrants. CIB works collaboratively with FTB’s Audit, Collections, and Fraud programs, as well as local, state, and federal law enforcement agencies. Once criminal charges are filed, FTB special agents serve as expert witnesses and assist prosecuting attorneys in the preparation and prosecution of their cases.
Filing Enforcement Improvements
The Filing Enforcement Program studied and implemented two potential improvements to provide better enforcement capabilities: one regarding returned mail and another regarding occupational licenses. For the returned mail study, we identified an opportunity to incorporate more accurate address data into our system to reduce taxpayer burden. As a result of this change, we expect the volume of time-sensitive filing enforcement notices that are delivered to the taxpayer on the first attempt to increase. For the occupational license study, we implemented changes in December 2019 that will reduce unnecessary taxpayer contacts. We expect to gain efficiencies from this change that will allow us to provide a greater level of service to the public.
Accounts Receivable Management (Collections)
The Accounts Receivable Management (ARM) Division is responsible for managing delinquent debts entrusted to FTB, such as personal income tax and franchise and corporate income tax. We also collect various nontax debts, including debts owed to California’s courts and local jurisdictions, delinquent vehicle registration, and victim’s restitution orders and fines.
We collect on tax accounts receivable that are established by self-assessment or audit, settlement, and filing enforcement actions. An automated billing system, combined with central and field office collection staff, administers collection activities.
Our collection approach is founded on the principle that we use the least intrusive action first to gain compliance. Our collection strategy is to encourage taxpayers to resolve their debts as quickly as possible through the method best suited for their situation to help them achieve long-term compliance.
The collection staff performs manual collection efforts to ensure that noncompliant taxpayers contribute their fair share to the General Fund. The following are the revenues collected in FY 2019/2020 through FTB’s collection programs.
|Personal income tax
|Business entity tax
|Nontax Debt Program
|Interagency Intercept Collections
FTB implemented the Administrative Dissolution Program on January 1, 2019, after being given authority, under AB 2503, to administer the program for business entities seeking relief, and with the objective to improve compliance. Domestic corporations and domestic limited liability companies (LLCs) who ceased doing business and have no assets can now request a Voluntary Administrative Dissolution or Cancellation (taxpayer initiated). To date, we have received 11,732 requests for dissolution or cancellation. Of those resolved thus far, 3,545 business entities were approved for administrative dissolution.
On January 1, 2020, FTB implemented a second phase of the program and began evaluating business entities for Administrative Dissolution or Cancellation (FTB initiated), provided they ceased doing business, show suspended for 60 or more consecutive months, and meet other established criteria. However, as a result of the COVID-19 pandemic, the second phase of the program was placed on hold earlier this year. FTB plans to resume these efforts in January of 2021.
FTB’s Legal Division supports enforcement efforts by providing consultation and litigation support for positions developed in cooperation with FTB’s enforcement programs. Support activities include providing representation in protest hearings, appeal proceedings before the Office of Tax Appeals (OTA), settlement of cases, Attorney General staff support in tax litigation in California and federal judicial proceedings, and representation in out-of-state bankruptcy and collection proceedings.
FTB Cannabis Team
Since the passage of Proposition 64, which legalized adult recreational use of cannabis in California and licensing at the state level, FTB has been working collaboratively with cannabis businesses, state agency partners, and stakeholders to ensure seamless implementation of the statute and compliance with the law.
FTB’s compliance strategy begins with a focus on education and observing trends, followed by traditional compliance in the long-term. FTB has been educating taxpayers by providing the information and resources they need to comply with their income tax obligations.
We are working with various state agencies to gather licensing information to help identify businesses that might need assistance and look for any gaps in the filing process. While we have received some data, the data gathering process is still in its infancy. Many of our cannabis-related taxpayers have just begun to file their tax returns, so our focus has primarily been on educating taxpayers by providing the information and resources they need to comply with their income tax obligations.
In order to prepare for compliance strategies that may be specific to this industry, we are evaluating trends and participating in discussions with other agencies. FTB participates in the quarterly Statewide Cannabis Enforcement Working Group hosted by the Bureau of Cannabis Control. In addition, FTB has conversations with other agencies through inter-agency meetings, outreach events, and our federal-state partnership meetings, which consist of EDD, CDTFA, and the IRS. These inter-agency meetings can include discussions on Cannabis business compliance.