Tax News February 2024

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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, Franchise Tax Board (FTB) regulations, policies and procedures, and events that may impact or provide valuable information for the tax professional community.

We also periodically release Tax News Flashes to quickly notify subscribers of urgent time-sensitive information.

Delay in Processing 2022 Business Entity Tax Returns and Payments

FTB is committed to meeting our processing time frames. However, as a result of necessary system programming changes to accommodate the winter storm disaster extensions, we have experienced system delays outside our normal operational time frames. FTB is working diligently to ensure accurate tax return and payment processing and expects normal processing to resume within 30 – 45 days.

What’s New for Filing 2023 Tax Returns

Personal Income Tax Products – The 540 Personal Income Tax Booklet is reformatted to include only Form 540 and Schedule CA (540), related instructions, and tax tables. In addition, a new FTB 3514, California Earned Income Tax Credit Booklet, has been created. The new FTB 3514 booklet contains form FTB 3514, instructions, and the EITC tables.

Federal Veterans Auto and Education Improvement Act (VAEIA) of 2022– Enacted on January 5, 2023, and made amendments to the federal Servicemembers Civil Relief Act (SCRA). California conforms to the following VAEIA provisions: 

  • A spouse of a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the spouse by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember’s military orders.
  • For any taxable year of the marriage, a servicemember and the spouse of such servicemember may elect to use for purposes of taxation, regardless of the date on which the marriage of the servicemember and the spouse occurred, any of the following:
    • The residence or domicile of the servicemember.
    • The residence or domicile of the spouse.
    • The permanent duty station of the servicemember.

For more information, go to FTB Pub. 1032, Tax Information for Military Personnel.

Federal Consolidated Appropriations Act (CAA), 2023 – Enacted on December 29, 2022, and includes the federal Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022. In general, the R&TC conforms to the changes to the retirement provisions under the SECURE 2.0 Act. California law does not conform to the federal changes that disallow a deduction for charitable conservation easement contributions when the amount of the contribution exceeds 2.5 times the sum of each partner’s relevant basis in the partnership.

For more information, on the allowance of the deduction for charitable conservation easement contributions for California income tax purposes, go to FTB Notice 2023-02.

For more general information go to Schedule CA (540) instructions.

No-cost or Low-cost Health Care Coverage Information – For taxable years beginning on or after January 1, 2023, we added a new health care coverage information question on the tax return. If you are interested in no-cost or low-cost health care coverage information, check the “Yes” box on Form 540, Form 540NR, or Form 540 2EZ. By checking the "Yes" box, you, and your spouse/RDP if filing a joint return, authorize the FTB to share limited information from your tax return with Covered California (the state agency that provides Californians with access to affordable health insurance) for their outreach and enrollment efforts.

To get Form 540, Form 540NR, or Form 540 2EZ and other FTB forms and publications, go to ftb.ca.gov/forms.

Interagency Council on Homelessness Payment Exclusion – For taxable years beginning on or after January 1, 2023, California law allows an exclusion from gross income for payments received pursuant to the California Welfare and Institutions Code Section 8257 by members of the Interagency Council on Homelessness, its advisory committee, or its working groups who are or have been homeless.

For more information, go to Schedule CA (540) instructions and review R&TC Section 17131.13.

Discharge of Student Fees – For taxable years beginning on or after January 1, 2022, and before January 1, 2027, California law allows an exclusion from gross income for any amount of unpaid fees due or owed by a student to a community college that was discharged pursuant to California Education Code Section 32527.

For more information, go to Schedule CA (540) instructions and review R&TC Section 17131.21.

Guaranteed Income Pilot Program Payment Exclusion – Beginning on June 30, 2022, and before July 1, 2026, California law allows an exclusion from gross income for any payments received by an individual from a guaranteed income pilot program or project that receives a grant pursuant to California Welfare and Institution Code Section 18997.

For more information, go to Schedule CA (540) instructions and review R&TC Section 17131.12.

Governor Declared Disaster Extension – The sunset date for the deduction for disaster losses sustained in Governor declared disaster areas is extended until taxable years beginning before January 1, 2029.

For more information, go to Forms and Publications and get form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations - Individuals, Estates, and Trusts or form FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations Corporations, and review R&TC Sections 17207.14 and 24347.14. 

California Microbusiness COVID-19 Relief Grant – The gross income exclusion for the California Microbusiness COVID-19 Relief Grant is extended until taxable years beginning before January 1, 2025.

For more information, go to Schedule CA (540) instructions and business entity booklets and review R&TC Sections 17158.1 and 24311. 

Kincade Wildfire Exclusion – For taxable years beginning on or after January 1, 2020, and before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any qualified amount received in a settlement from Pacific Gas and Electric (PG&E) Company or its subsidiary relating to the 2019 Kincade Fire. If a qualified taxpayer included income for a qualified amount received from this settlement in a prior taxable year, the taxpayer can file an amended tax return for that year within the normal statute of limitations. 

For more information, go to Schedule CA (540) instructions and business entity booklets or review R&TC Sections 17139.2 and 24309.6.

Zogg Wildfire Exclusion – For taxable years beginning on or after January 1, 2020, and before January 1, 2028, California law allows a qualified taxpayer an exclusion from gross income for any qualified amount received in a settlement from PG&E Company or its subsidiary relating to the 2020 Zogg Fire. If a qualified taxpayer included income for a qualified amount received from this settlement in a prior taxable year, the taxpayer can file an amended tax return for that year within the normal statute of limitations.

For more information, go to Schedule CA (540) instructions and business entity booklets or review R&TC Sections 17139.3 and 24309.7.

High-Road Cannabis Tax Credit – For taxable years beginning on or after January 1, 2023, and before January 1, 2028, the High-Road Cannabis Tax Credit (HRCTC) will be available to licensed commercial cannabis businesses that meet the qualifications. The credit is allowed to a qualified taxpayer in an amount equal to 25% of qualified expenditures in the taxable year. The credit amount cannot exceed $250,000. Unused credit may be carried forward up to eight years. All types of entities, except for exempt organizations, are eligible to claim this credit.

A qualified taxpayer must request a tentative credit reservation from FTB during the month of July for each taxable year or within 30 days of the start of their taxable year if the qualified taxpayer’s taxable year begins from August 1st through December 31st.

For more information, get form FTB 3820, High-Road Cannabis Tax Credit, and review R&TC Sections 17053.64 and 23664, or go to ftb.ca.gov and search for hrctc. 

Cannabis Equity Tax Credit – For taxable years beginning on or after January 1, 2023, and before January 1, 2028, a Cannabis Equity Tax Credit (CETC) is available to equity licensees that have received approval, including approval contingent upon the availability of funds, for the fee waiver and deferral program administered by the Department of Cannabis Control. The allowable credit is $10,000 per taxable year for each qualified taxpayer. Unused credit may be carried forward up to eight years. All types of entities, except for exempt organizations, are eligible to claim this credit.

For more information, go to form FTB 3821, Cannabis Equity Tax Credit, and review R&TC Sections 17053.82 and 23682, or go to ftb.ca.gov and search for cetc.

Program 3.0 California Motion Picture and Television Production Credit – For taxable years beginning on or after January 1, 2020, California law allows the Program 3.0 California Motion Picture and Television Production Credit to reduce tax below tentative minimum tax (TMT).

For more information, get form FTB 3541, California Motion Picture and Television Production Credit, and review R&TC Sections 17039 and 23036.

Soundstage Filming Tax Credit – For taxable years beginning on or after January 1, 2022, California law allows the Soundstage Filming Tax Credit to reduce tax below the TMT.

For more information, go to form FTB 3541 and review R&TC Sections 17039 and 23036.

Low-Income Housing Credit – For taxable years beginning on or after January 1, 2023, California law allows a taxpayer to claim the Low-Income Housing Credit in the taxable year the building is placed in service and the federal credit period commences, based upon taxpayer certification, even if the California Tax Credit Allocation Committee (CTCAC) has not yet issued a certificate. If the CTCAC issues a certificate with a credit amount that is inconsistent with the taxpayer’s certification, upon which a credit has been claimed, the taxpayer is required to amend any previously filed tax returns to reflect the credit amount certified by the CTCAC.

For more information, go to form FTB 3521, Low- Income Housing Credit and review R&TC Sections 23610.5 and 17058.

New Employment Credit Expansion – For taxable years beginning on or after January 1, 2023, and before January 1, 2026, the New Employment Credit is expanded for qualified taxpayers engaged in semiconductor manufacturing or semiconductor research and development, lithium production, manufacturing of lithium batteries, or electric airplane manufacturing.

For more information, go to FTB 3554, New Employment Credit Booklet, and review R&TC Sections 17053.73 and 23626.

Use Tax – For taxable years beginning on or after January 1, 2023, and before January 1, 2029, you may not report business purchases subject to use tax on your income tax return if you make more than $10,000 in purchases subject to use tax per calendar year and have not paid use tax on those purchases to a retailer engaged in business in California or to a retailer authorized by the California Department of Tax and Fee Administration to collect the tax.

For other use tax requirements, go to FTB Tax booklets.

Reporting Requirements – Taxpayers may need to file form FTB 4197, Information on Tax Expenditure Items, with the tax return to report tax expenditure items as part of the FTB’s annual reporting requirements under R&TC Section 41.  

To determine if you have an R&TC Section 41 reporting requirement, review the R&TC Section 41 Reporting Requirements section, or get form FTB 4197. 

e-file Form 109 – For taxable years beginning on or after January 1, 2023, FTB offers e-file for exempt organizations filing Form 109, California Exempt Organization Business Income Tax Return.

Check with your software provider to determine if they support exempt organization e-file.

Installment Agreement – Beginning January 1, 2024, individuals who submit an application for an installment agreement for a tax liability not to exceed $25,000, and not to exceed a 60-month payment plan, will no longer be required to complete the self-certification of financial hardship process.

For more information, go to Payment Plans.

Form 4197 Information on Tax Expenditures

We want to remind you of the reporting requirements per Revenue and Taxation Code (R&TC) Section 41 for Legislatively Mandated Reports on tax expenditures. In general, FTB is required to report on specified deductions, credits, exclusions, and exemptions to the California Legislature, thereby allowing them to evaluate the performance of each new tax expenditure.

The legislature specifies the metrics used to evaluate the programs and occasionally requires metrics currently not reported on the state tax return. 2023 California Form 4197 Information on Tax Expenditure Items captures additional metrics to meet the reporting requirements. Taxpayers must submit Form 4197 in addition to any other credit forms or expense schedules that are required to be filed with their tax return. If your tax software does not support Form 4197, mail the form. This correspondence address link will direct you to the correct address for both businesses and individuals.

Form 4197 is used to report on specified deductions, credits, exclusions, and exemptions to evaluate the performance of the following tax expenditures:

  • Thomas and Woolsey Wildfires Exclusion (TWWE)
  • Turf Replacement Water Conservation Program Exclusion (TRWCP)
  • Deployed Military Exemption (DME)
  • Paycheck Protection Program (PPP)
  • Other Loan Forgiveness (OLF)
  • Economic Injury Disaster Loan (EIDL)
  • Restaurant Revitalization Grant (RRG)
  • Shuttered Venue Operator Grant (SVOG)
  • Commercial Cannabis Activity (CBIS)
  • Emergency Financial Aid Grants (EFAG)
  • ARPA Student Loans Forgiveness (ARPSLF)
  • Zogg Wildfire Exclusion (ZWE)
  • Kincade Wildfire Exclusion (KWE)

Go to Forms and Publications and review Form 4197 and Form 4197 Instructions for more information. View previously released reports.

Internal Revenue Service (IRS) Updates and More 

We partner with the IRS to provide monthly IRS articles to assist our tax professional and small business communities. We are excited to share this information; however, if you have questions about the content, you will need to contact the IRS directly. 

National Taxpayer Advocate delivers Annual Report to Congress; focuses on taxpayer impact of paper processing delays

IR-2024-07, Jan. 10, 2024 — National Taxpayer Advocate Erin M. Collins released her 2023 Annual Report to Congress.

2024 tax filing season set for January 29; IRS continues to make improvements to help taxpayers

IR-2024-04, Jan. 8, 2024 — The IRS announced Monday, January 29, 2024, as the official start date of the nation’s 2024 tax season when the agency will begin accepting and processing 2023 tax returns.

IRS reminder: Jan. 31 filing deadline for employers to file wage statements, independent contractor forms

IR-2024-06, Jan. 9, 2024 — With tax season rapidly approaching, the IRS reminds employers that Jan. 31 is the deadline for submitting wage statements and forms for independent contractors with the government.

Treasury and IRS announce that businesses do not have to report certain transactions involving digital assets until regulations are issued

IR-2024-12, Jan. 16, 2024 — The Treasury Department and IRS today issued an announcement informing businesses that they do not have to report the receipt of digital assets the same way as they must report the receipt of cash until Treasury and IRS issue regulations.

IRS Free File now available; free service through IRS.gov available for millions of taxpayers

IR-2024-10, Jan. 12, 2024 — The IRS announced that IRS Free File Guided Tax Software service is ready for taxpayers to use in advance of the opening of tax season later this month.

IRS ramps up new initiatives using Inflation Reduction Act funding to ensure complex partnerships, large corporations pay taxes owed, continues to close millionaire tax debt cases

IR-2024-09, Jan. 12, 2024 — The IRS announced continued progress to expand enforcement efforts related to high-income individuals, large corporations, and complex partnerships as part of wider efforts to transform the agency.

Ask the Advocate: One-Time Penalty Abatement

Angela Jones

Angela Jones, Taxpayers' Rights Advocate

The winter holidays are now in our rear-view mirrors and filing season is well underway! In addition to filing returns for your clients, you may also be representing your clients with other tax related matters, such as the One-Time Penalty Abatement.

As we reported in our January 2023 Tax News, FTB began accepting requests for one-time abatement of timeliness penalties on April 17, 2023. For more information go to One-Time Penalty Abatement.

I have received several requests for information on how to request the abatement. A One-Time Penalty Abatement can be requested verbally or in writing. You may mail form FTB 2918, or call 800-689-4776, or use your Tax Professional MyFTB account to request.

To file FTB 2918, or request verbally on behalf of your client, you must be an authorized representative or have a Power of Attorney. Use FTB 3520 Individual or Fiduciary Power of Attorney Declaration, to get authorization to represent an individual.

Mail:

To file FTB 2918, follow the form instructions, and mail to:

Franchise Tax Board
PO Box 2952
Sacramento, CA
95812-2952

Phone:

To request the abatement by phone, call 1-800-689-4776 and follow the Interactive Voice Response (IVR) prompts until you reach a live agent and request “One-Time Penalty Abatement”.

Tax Professional IVR Prompts:

  • At the Main Menu, select 4, or say Tax Professional
  • Enter or say your client’s nine-digit SSN
  • You will either be connected to an agent or offered a callback.
  • Request “One-Time Penalty Abatement.”

MyFTB:

To request the abatement using MyFTB, you must have an established MyFTB Tax Professional account and follow the steps outlined below to request either by chat or a message:

Tax Pro Chat:

  1. Log into MyFTB.
  2. Navigate to your Client List and select the applicable client.
  3. Select Start Chat [also available on the Communication menu].
  4. Select Reason, either Bills & Notices or Account Balance.
  5. In Your Question state that you are requesting a one-time abatement of the [penalty] assessed for tax year [year].
  6. Select Start Chat.

Tax Pro MyFTB Message:

  1. Log into MyFTB.
  2. Navigate to your Client List and select the applicable client.
  3. Select Start Chat [also available on the Communication menu].
  4. Select Subject, My Tax Balance Due
  5. Enter the applicable tax year.
  6. Enter your message, stating that you are requesting a one-time abatement of the [penalty] assessed for tax year [year].
  7. If your message is related to a notice that your client received, follow the prompts to select the notice your client received.
  8. If you have any documents you wish to attach, select Add Attachments. Do not attach an unprocessed tax return, FTB will not process the return or consider it filed when you send it as a message. (Optional – you may attach the Form 2918)
  9. Select Submit.

I hope you find this information useful in assisting your clients with the One-Time Penalty Abatement and that your filing season is off to a great start!