Tax News June 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.

MyFTB Multi-Factor Authentication

FTB will introduce enhanced security measures June 19 - June 22 as we implement a multi-factor authentication process for MyFTB. The purpose is to better safeguard taxpayer information with heightened security measures to increase protection from potential attackers and minimize the risk of fraud and data loss. Multi-factor authentication requires a user name, password, and a verification code (sent via text or voice call).

New and existing MyFTB users must provide and verify a phone number for the multi-factor authentication process. MyFTB users may provide up to two phone numbers and only users who provide a valid phone number can register or log in to MyFTB. Returning users will receive a verification code upon sign in unless the "remember me" option has been selected.

The privacy and security of taxpayer information is extremely important to FTB. As we implement multi-factor authentication, we would like to ensure best practices are used to protect and keep personal MyFTB user names and passwords confidential. Sharing MyFTB user names and passwords is not allowed.

For more information refer to the MyFTB terms and conditions.

Once we implement the multi-factor authentication, we will share details on our What's new with MyFTB webpage.

Timely Resolution of Audit Cases

Our Commitment to Timely Audits

The timely resolution of audits is important to FTB. This benefits the taxpayer and FTB and follows the audit procedures set forth in California Code of Regulation, Section 19032. FTB's Audit Division is committed to resolve cases timely and with consistency in our processes while we administer the law in a reasonable, practical manner, consistent with applicable federal and California laws.

Our goal is to complete an audit within two years of initial contact with a taxpayer. However, each audit completion may be affected by the complexity of the tax return and the type of audit. Low complexity cases can be resolved fairly quickly, while more complex cases may take longer. Complex cases may involve the existence of multiple tax years, multiple taxpayers, tiered relationships, and certain technical areas of law.

Some other common situations that could contribute to a potential delay for the completion of an audit is when a claim for refund for the same taxable year is filed near the end of the audit, or the issue under audit is the same issue pending resolution for the taxpayer in a previous audit year.

We take steps to reduce aged case inventories and continuously monitor our audit cases to address any barriers that may arise to resolve cases timely and efficiently. This includes knowledge transfer, customer experience surveys, and open dialogue with the taxpayer and tax professional community. We also promote the use of an effective audit plan to provide a clear timeline and what to expect for the timely completion of an audit.

Taxpayer Participation

There are several steps a taxpayer can take to help facilitate the efficient and timely completion of an audit:

  • Be flexible and follow the general flow of the case.
  • Communicate early if there will be a delay and respond quickly if a request for more information cannot be met. This allows the auditor to plan and grant reasonable extensions of time to respond as well as discuss alternative documents that will help satisfy the requests without causing delays to the audit.
  • Inform the auditor immediately to prevent delays if it is determined an amended return or claim for refund is necessary.
  • Report any federal audit activities as soon as known. This allows the auditor to incorporate the applicable federal changes and may save resources.

Contact Information

FTB strives to resolve audit cases at the lowest level. If a taxpayer is unable to resolve concerns with timeliness or resolution of the case with the assigned auditor, please contact the supervisor or manager. The contact information is included in the correspondence provided during an audit. The supervisor or manager is in the best situation to address concerns.

In the unlikely event the supervisor or manager is unable to resolve the issue, a taxpayer may contact an Audit Division Senior Management staff member. Contact information is available on our website at management team directory.

Audit Survey

We encourage taxpayers to participate in our Customer Experience Survey at the completion of an audit. Sharing specific examples about the audit experience helps identify opportunities to improve FTB service.

Pass-Through Entity Elective Tax

As a reminder, there are two payment due dates for the PTE elective tax. The first payment is due on or before June 15, during the taxable year of the election. However, since June 15 falls on a weekend, the payment is due on June 17, 2024, this year. The remaining amount is due on or before the due date of the original return without regard to extensions. The amount due is $1,000 or 50% of the elective tax paid for the prior taxable year, whichever is greater.

First payments that are untimely or underpaid will result in an inability to make the PTE election.

Payments

You can make PTE elective tax payments using Web Pay. However, if you are unable to make electronic payments through Web Pay, you can mail your payment. Please include a payment voucher, FTB 3893; make the check payable to Franchise Tax Board; and write the business name, tax year, and Entity ID on your payment.

Mail to:
Franchise Tax Board
PO Box 942857
Sacramento CA 94257-0531

S corporations and limited liability companies classified as S corporations whose total tax liability, including any PTE elective tax, exceeds $80,000 are required to make all future payments electronically (California Revenue and Taxation Code section 19011(a)(2)). The mandatory e-pay requirement also applies to any single estimated tax payment or extension payment of more than $20,000. The triggering payment does not need to be made electronically. Refer to electronic funds transfer for corporations for additional information.

How to Close a Business Entity

As difficulties with the economy for some small business owners persist, it may be a good time to talk to your small business clients about how to close a California business entity the proper way. Business entities doing or transacting business in California or registered with the California Secretary of State (SOS) can dissolve, surrender, or cancel when they cease operations in California and need to terminate their legal existence.

  • Domestic corporations (those originally incorporated in California) may legally dissolve.
  • Foreign corporations (those originally incorporated outside California) may legally surrender.
  • Limited liability companies and partnerships (both domestic and foreign) may legally cancel.

Steps to Dissolve, Surrender, or Cancel a California Business Entity

If your client plans to dissolve, surrender, or cancel their California business entity, realize that it involves a multi-step, multi-state agency process that has requirements with both FTB and SOS.

FTB Requirements

  • File all delinquent tax returns and pay all tax balances, including any penalties, fees, and interest.
  • Timely file the final tax return. Check the applicable Final Return box on the first page of the return and write "final" at the top of the first page. All tax returns remain subject to audit until the statute of limitations expires.
  • Must cease doing or transacting business in California after the final taxable year.

SOS Requirements

  • File the appropriate dissolution, surrender, or cancellation form(s) with the SOS within 12 months of filing your final tax return.

If a business entity is suspended or forfeited, it will need to go through the revivor process and be in good standing before being allowed to dissolve, surrender, or cancel. To revive a suspended or forfeited business entity, the business owner must:

  • File all delinquent tax returns.
  • Pay all delinquent tax balances, including penalties, fees, and interest.
  • File a revivor request form.

For more information, go to revive your suspended or forfeited business entity.

Voluntary Dissolution/Cancellation

If certain qualifications are met, a business entity may be able to voluntarily dissolve. A qualified domestic corporation or qualified domestic limited liability company can request voluntary administrative dissolution/cancellation. With a written request, a business must certify it:

  • Is not actively engaging in any transaction for the purpose of financial or monetary gain or profit.
  • Has stopped doing business or never did business.
  • Does not have any remaining assets.

Once the SOS formally dissolves or cancels the business, FTB may abate:

  • Unpaid qualified taxes
  • Unpaid qualified interest
  • Unpaid qualified fees
  • Unpaid qualified penalties

For more information, go to voluntary administrative dissolution/cancellation.

Additional Steps

There are some additional steps to consider when closing a business entity:

  • Notify all creditors, vendors, suppliers, clients, and employees of your intent to go out of business.
  • Close out business checking accounts and credit cards.
  • Cancel any licenses, permits, and fictitious business names.
  • Publish a statement in a local newspaper of general circulation near the principal place of business that your business entity is no longer in business.

Additional Resources

Review these additional resources for more information:

How do I terminate (dissolve, surrender or cancel) my business entity? (This question is answered in the FAQ section of SOS website.)

Limited Liability Company Fee

Generally, LLCs must pay the annual LLC fee if it is organized, doing business, or registered in California and has total income from all sources derived from or attributable to California of at least $250,000.

California income for LLC fee purposes is gross income plus the cost of goods sold, that are paid or incurred in connection with the trade or business of the taxpayer.

For calendar year LLCs, the estimated LLC fee is due by the 15th day of the 6th month. For 2024, payment may be accepted by June 17, as June 15 falls on a Saturday. For fiscal year LLCs, the estimated fee is due on the 15th day of the sixth month of the current taxable year.

LLC fee by total rounded income 

Total California income rounded to the nearest whole dollar Fee amount 
$250,000 - $499,999 $900
$500,000 - $999,999  $2,500
$1,000,000 - $4,999,999 $6,000
$5,000,000 or more  $11,790 

LLCs should use Form 3536, Estimated Fee for LLCs, to make their estimated fee payments. LLCs can also use our Web Pay feature to make their estimated fee payment.

If the payment is less than the amount owed, we will assess a 10% penalty on the underpaid fee. The underpaid amount is the difference between the total amount of the LLC fee due for the taxable year, less the estimated fee paid on or before the estimated fee due date. An LLC may also be subject to a late payment penalty for the same tax year. For more information review Common Penalties and Fees.

The penalty will not be imposed if the LLC’s estimated fee payment is equal to or greater than their prior year’s LLC fee. For purposes of whether the LLC estimate fee penalty applies, there is no requirement that the prior tax year be a full 12 months.

Adjusted Interest Rates

For the period July 1, 2024, through December 31, 2024, the interest rate is 8%. This is the rate compounded daily that accrues with respect to various state taxes, to include: 

  • Personal income
  • Corporate income
  • Franchise income

The rate for corporation tax overpayments for the same period is 5%. 

Get more information on interest and estimate penalty rates.

Internal Revenue Service (IRS) Updates and More

We partnered 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. 

SECURE 2.0 Act changes affect how businesses complete Forms W-2

FS-2024-18, May 2024 – The IRS reminds businesses that starting in tax year 2023 changes under the SECURE 2.0 Act may affect the amounts they need to report on their Forms W-2.

Interest rates remain the same for the third quarter of 2024

IR-2024-138, May 9, 2024 – The IRS announced that interest rates will remain the same for the calendar quarter beginning July 1, 2024. 

IRS: Home improvements could help taxpayers qualify for home energy credits

IR-2024-137, May 9, 2024 – The IRS reminds taxpayers that making certain energy efficient updates to their homes could qualify them for home energy credits. 

To protect against identity theft, IRS adds additional protections to Centralized Authorization File, Transcript Delivery System; changes designed to protect sensitive tax pro, taxpayer information

IR-2024-136, May 8, 2024 – With identity theft and refund fraud an ongoing concern, the IRS has highlighted additional protections for tax professionals being taken to increase security for the Centralized Authorization File (CAF) program and placed new guidelines on requesting client transcripts by phone. 

IRS encourages tax-exempt organizations to file their taxes ahead of May 15 deadline

IR-2024-135, May 6, 2024 – The IRS encouraged thousands of tax-exempt organizations to file their taxes ahead of their filing deadline. 

Two IRS teams named finalists for Service to America Medals during Public Service Recognition Week; honored for paperless processing, $3.4 billion cryptocurrency seizure

IR-2024-134, May 6, 2024 – To help celebrate this year’s Public Service Recognition Week, the IRS recognized two IRS teams that reached the finals for the 2024 Samuel J. Heyman Service to America Medals.  

IRS final reminder: Time to claim $1 billion in tax refunds from 2020 expires May 17

IR-2024-133, May 6, 2024 – The IRS reminded the 1 million people who didn’t file their tax year 2020 returns they may be eligible for a refund if they file by the May 17 deadline. 

Treasury, IRS issue frequently asked questions regarding disaster relief related to retirement plans and IRAs

IR-2024-132, May 3, 2024 – The IRS issued frequently asked questions (FAQs) in Fact Sheet 2024-19, relating to rules for distributions from retirement plans and IRAs and for retirement plan loans, for certain individuals impacted by federally declared major disasters. 

IRS releases final guidance for certain clean vehicle credits under the Inflation Reduction Act

IR-2024-131, May 3, 2024 – The IRS issued final regulations today for the new and previously owned clean vehicle credits.  

IRS releases Strategic Operating Plan update outlining future priorities; transformation momentum accelerating following long list of successes for taxpayers

The IRS released an update on the Strategic Operating Plan, a blueprint outlining future plans for the agency’s transformation work and highlighting dozens of improvements for taxpayers since passage of the Inflation Reduction Act.

Tax pros: 2024 IRS Nationwide Tax Forums registration now open

Tax Tip 2024-43, May 2, 2024 – Registration for the 2024 IRS Nationwide Tax Forum is open. These annual forums provide tax professionals the opportunity to attend special continuing education sessions.