Tax News August 2022

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Overview

Tax News is a monthly online publication to inform tax professionals, taxpayers, and business owners about state income tax laws, FTB regulations, policies and procedures, as well as events that may impact or provide valuable information for the tax professional community.

FTB also periodically releases Tax News Flashes to quickly notify subscribers of urgent time-sensitive information. Tax News Flashes are posted in the Newsroom with a Tax News Flash label.

Extended filing reminders

A few helpful reminders to file timely during the extended due date

As we approach the October extended due date for filing 2021 tax returns, it's a good time for a few helpful reminders to file timely. Although FTB extended the payment deadline for 2021 taxes to Tuesday, April 19, 2022, this does not impact the due date for 2021 tax returns filed under extension.

The extended due date for filing 2021 personal income tax returns is October 17, 2022. For information on extended due dates for specific business entity types, go to Due date for businesses.

e-Signatures

We have also extended temporary e-signature options to submit signed paper returns, statute of limitation waivers, and other qualifying documents from June 30, 2022, to December 31, 2022. Original signatures are still required for a Power of Attorney (POA) and Tax Information Authorization (TIA). Follow the procedures on FTB's Submit a Power of Attorney to file a POA and FTB’s Submit a Tax Information Authorization to file a TIA.

MyFTB password changes

MyFTB account access is a valuable tool to provide individuals, business representatives, and tax professionals with online access to tax account information and online services. Ensure your access is uninterrupted by updating your password. Effective June 22, 2022, your MyFTB password must be updated every 120 days. You will receive an email 30 days prior to the password expiration date to notify you your current password is set to expire. If your password has already expired, you will be prompted to update your password the next time you log in.

Requesting FTB forms

Most of our forms are available to view and download on our website. Any forms that are not available for download can be requested from our website and will be provided via email within a few business days. Your email information is only used to provide the requested form and is not saved or used for any other purpose.

Individual shared responsibility penalty

Californians who do not have qualifying health insurance throughout the year may be subject to a penalty of $800 or more when they file their state tax return, unless they qualify for an exemption. The penalty for a dependent child is half the amount applicable to an adult. If a taxpayer had qualified health coverage in 2021 for themselves, their spouse or domestic partner, and their dependents, check box 92 “Full-year health coverage,” on the state tax return to avoid penalties.

Pass-through entity (PTE) elective tax

And finally, for taxpayers claiming the PTE Elective Tax Credit, make sure to include credit code 242 on Form 540. Code 242 must also be included on Schedule P (Alternative Minimum Tax and Credit Limitations), if applicable, to ensure correct processing.

A qualifying PTE is an entity taxed as a partnership or S corporation. The elective tax is 9.3% of the entity’s qualified net income. For taxable year 2021, the election must be made on a timely-filed original tax return. Once the election is made, it is irrevocable for that year and is binding on all PTE partners, shareholders, and members. For taxable year 2021, the elective tax must be paid on or before the due date of the original tax return. The PTE tax payment can be made electronically using Web Pay. Entities can also mail payments with the FTB 3893, Pass-Through Entity Elective Tax Payment Voucher.

California Competes Tax Credit (CCTC) and Grant Program Updates (CCGP)

Available to businesses that want to locate or stay and grow in California

The purpose of CCTC and CCGP is to create quality full-time jobs in California that might not otherwise be created by the business or any other business. The CCTC and CCGP agreements are negotiated by the Governor's Office of Business and Economic Development (GO-Biz) and approved by a statutorily-created CCTC committee.

The committee consists of:

  • GO-Biz Director (Chair)
  • State Treasurer
  • Department of Finance Director
  • Speaker of the Assembly and Senate Committee on Rules Appointee (one each)

For Fiscal Year 2022/2023, the first application period for the tax credit and grant will be accepted at calcompetes.ca.gov from July 25, 2022, through August 15, 2022.

The available allocations are listed as:

  • $85 million in tax credits
  • $120 million in grants

In addition, GO-Biz is hosting online webinars on how to apply for the credit on the following dates:

  • August 4, 2022, from 3 PM to 4 PM PDT
  • August 9, 2022, from 11 AM to 12 PM PDT

Go to California Competes Tax Credit for more information.

California limitation on business losses

Updates to FTB 3461 will affect clients claiming business loss carryovers in tax year 2021

Under Internal Revenue Code, Section 461(l), business losses may be limited for non-corporate taxpayers. Any remaining excess business loss is treated as a net operating loss carryover into the next tax year. For California purposes, any disallowed loss is instead treated as a carryover excess business loss for the subsequent tax year.

FTB is aware that FTB 3461 does not specify where to report an excess business loss carryover on the Schedule CA (540), and is working to correct the form instructions. Taxpayers with an excess business loss carryover from tax year 2020 that are utilizing this carryover loss in tax year 2021, should wait to file their extended 2021 tax returns.

Taxpayers who already filed a 2021 tax return should file an amended tax return to claim any business losses not properly reported in the original tax return.

Change of address for businesses

Change of address for businesses, exempt organizations, estates and trusts

If a business entity files any of the following income tax returns (100, 100S, 100W, 109, 199, 541, 565, or 568), they must complete Form 3533-B, Change of Address for Businesses, Exempt Organizations, Estates and Trusts, to change the business mailing address or business location. The changes to the mailing address will be used for future correspondence.

For faster service, login or register for MyFTB or call 800-852-5711 to change your address. If you change your address online or by phone you do not need to file Form 3533-B.

Additional information

Use Additional Information field for owner, representative, attention name, or supplemental address information only.

If a post office does not deliver mail to a street address, affected entities should show their PO Box number instead of a street address.

If an entity has a foreign address, follow the country’s practice for entering the city, county, province, state, country, and postal code. Do not abbreviate the country name.

Signature

An owner, officer, or a representative must sign and enter their title. A representative is defined as a person who maintains a valid Power of Attorney to handle tax matters.

Mailing

Mail Form 3533-B to:

Franchise Tax Board
PO Box 942840
Sacramento, CA  94240-0002

Vehicle Registration Collections

Making registered vehicle owners compliant through education and account resolution

Overview

Under California law, if an individual does not pay their vehicle registration fee, FTB is responsible to collect on unpaid amounts. Other unpaid fees can also result in FTB collecting on behalf of the Department of Motor Vehicles. Common unpaid fees include parking tickets, penalties, toll violations, and returned checks.

FTB collections

We will send a Demand for Payment notice if a vehicle registration fee is past due for 90 or more days. If a payment is not made, we may redirect funds from paychecks, bank accounts, tax refunds, lottery winnings, or unclaimed property payments and apply it to the debt. FTB does not accept online payments for vehicle registration.

Paying vehicle registration

Individuals may also mail a check, money order, or cashier’s check to us, however, payments must be made payable to Vehicle Registration Collections and include a full name and VRC account number.

Payment and a copy of the notice should be mailed to:

Vehicle Registration Collections
Franchise Tax Board
PO Box 419001
Rancho Cordova CA  95741-9001

Limited MyFTB account access for certain partnerships

Known issue will be fixed in mid-August

We are experiencing technical issues with requests for full online account access to MyFTB for certain partnerships. You may have requested full access, but your client has not received an authorization code from FTB.

This is a known issue which we anticipate will be resolved in mid-August. You can still obtain the information needed from your clients’ accounts by contacting the Tax Practitioner Hotline at 916-845-7057.

Pass-through entity elective tax and the Paycheck Protection Program Extension Act

Qualified entities may file amended returns

On June 30, 2022, AB 194 was enacted which allowed an income exclusion for covered loan amounts forgiven pursuant to the Paycheck Protection Program Extension Act of 2021 (PPPEA) (Public Law 117-6). The PPPEA was enacted on March 30, 2021, and extended the covered period of the PPP from March 31, 2021, through June 30, 2021.

For PTE elective tax purposes, qualified entities that made their PTE elective tax election on their timely filed 2021 California Form 100S, 565, or 568, and included the covered loan amounts that were forgiven under the PPPEA when computing qualified net income may wish to amend their original return by doing the following:

  • For S Corporations, use a 2021 California Form 100X, Amended Corporation Franchise or Income Tax Return to adjust the PTE elective tax amount on Part 2, line 17, and adjust the PTE elective tax payment amount on Part 3, line 25 (Payment made with FTB 3893 Voucher). For partnerships filing amended 2021 California Form 565, check the amended box and enter the proper amounts on lines 25 and 30 and follow the instructions. For limited liability companies filing amended 2021 California Form 568, check the amended box and enter the proper amounts on lines 4 and 9 and follow the instructions. On all returns there should be a necessary adjustment to income reflecting the new exclusion.
  • Provide and file amended Forms K-1 (100S), K-1 (565), or K-1 (568).
  • Taxpayers will also need to recalculate FTB Form 3804, Pass-Through Entity Elective Tax, and FTB Form 3804-CR, Pass-Through Entity Elective Tax Credit.
  • These amendments may result in a tax refund if there are no other adjustments reported or other income tax liabilities due.

Erroneous pass-through entity elective tax refunds

We identified and are researching an issue affecting approximately 3,000 PTE elective tax payments. Tax year 2022 PTE elective tax payments made with a 2022 FTB 3893 Voucher were incorrectly posted to tax year 2021. As a result, we issued erroneous refunds.

If your client received an erroneous PTE elective tax refund, you will need to have your client resubmit their 2022 PTE elective tax payment. Resubmitting the payment will secure the 2022 PTE elective tax payment with the same effective date as the original payment.

What you need to do

If your client is still holding a refund check

If your client still has a check, please have them return it along with the explanation “PTE Elective Tax Erroneous Refund” include an FTB 3893 Voucher and mail to:

Franchise Tax Board
P.O. Box 2288
Rancho Cordova, CA 95741-2288

If your client cashed the check or received a refund by direct deposit

You will need to have your client resubmit their tax year 2022 PTE elective tax payment.

How to pay

Online

Have your client use Web Pay to pay with a checking or savings account. Go to ftb.ca.gov/Pay for information about Web Pay.

Mail

Have your client send us a check or money order, payable to Franchise Tax Board. Write the entity ID, tax year 2022, and include a FTB 3893 Voucher, with an explanation “PTE Elective Tax Erroneous Refund” on the payment and mail to:

Franchise Tax Board
P.O. Box 2288
Rancho Cordova, CA 95741-2288

If your client is subject to the mandatory electronic payment (epay) requirement, do not have them use the mail in option. The mandatory epay requires taxpayers to submit all payments electronically. Penalties apply if paid by other means. Go to ftb.ca.gov and search for Web Pay.

Ask the advocate

Brenda Voet, EA, Taxpayers' Rights Advocate.

Brenda Voet, EA
Taxpayers’ Rights Advocate

FTB’s Five Core Values

As many of you know, the FTB’s mission is to assist taxpayers and our tax professional community to file tax returns timely, accurately, and pay the correct amount due to fund the many services important to Californians. And to assure we do our part on behalf of the State of California, we promote five core values:

  • Lead with integrity and inspiration
  • Bring our best
  • Deliver excellent products and services
  • Contribute to a caring community
  • Become experts at what we do

I would like to thank the tax professional community for helping us uphold our value to “deliver excellent products and services.” When you bring to our attention products and services that do not appear to be delivered with excellence, you give us an opportunity to improve which we strive to achieve daily.

A “perfect” filing season may not be attainable in an era where we must continually navigate changes in legislation, stimulus payments, new programs, and numerous federal and state tax differences. However, when we communicate effectively to identify concerns and issues, we are better able to collaborate and assist taxpayers.

For example, you brought to our attention we were issuing notices for errors on e-filed tax returns. This gave our Filing Division the opportunity to identify the cause and work with our software partners to implement innovative solutions. This partnership went above and beyond to provide a timely resolution on behalf of thousands of taxpayers without any action on their part. I truly appreciate how quickly this was forged to enable the Filing Division to, once again, deliver excellent service.

Please let us know of any ideas for improvement, or voice your concerns through our Report an issue feature, or email us directly at FTBAdvocate@ftb.ca.gov.

We will continue to “Bring our best” to provide valuable information to you through our monthly Tax News publications and Tax News Flashes.

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Tax News Flash links

Tax News Flashes are real-time FTB news releases which inform taxpayers of the latest breaking tax-related events. These articles are published separately from our monthly Tax News edition.

Filing deadline extended for class action settlement claims

FTB issues legal ruling on sourcing of gain from sale of IRC Section 751 assets

Education and outreach

We provide education and outreach to our tax professional community by providing presentations on tax-related issues and small business.

If interested, see our education and outreach page to request a speaker.

View our calendar for presentations and events that may interest you.