S corporation pass-through entity elective tax and mandatory e-pay requirement May 2022 Tax News

S corporations and limited liability companies classified as S corporations whose total tax liability, including any pass-through entity (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.

If an S corporation had a mandatory e-pay requirement and received a penalty for paying their PTE elective tax by check, they may qualify for penalty relief.

FTB will offer penalty relief on a case-by-case basis for the electronic funds transfer (EFT) penalties assessed due to the PTE elective tax that was paid by check.

For the penalty to be abated, FTB needs to determine that reasonable cause exists. If the taxpayer experienced difficulties with Web Pay and was instructed by FTB to pay by check, please include that information in the taxpayer’s abatement request. For all other scenarios, please include all relevant facts and circumstances in the taxpayer’s abatement request.

We will allow for business entity (BE) EFT penalty abatement requests to be submitted in writing. Requests can be faxed to 916-855-5556. Please include your corporation ID number, amount of payment, tax year, and reason for request.

There are exceptions to the mandatory e-pay requirement. Entities who are required to pay electronically may request a waiver of the mandatory e-pay requirement if one or more of the following exceptions apply:

  • We grant waivers if amounts paid in excess of the threshold amounts are not representative of the taxpayer’s tax liability.
  • In addition, taxpayers not meeting either threshold amount for the prior year may use FTB 3816 to elect to discontinue making payments EFT.

To request a waiver of the EFT requirements, submit FTB Form 3816, Electronic Funds Transfer Election to Discontinue or Waiver Request.

Mail or fax the completed FTB Form 3816 to:

EFT Unit MS F-284
Franchise Tax Board
PO Box 1468
Sacramento, CA  95812-1468

For additional BE EFT penalty questions, please contact:

Open weekdays, 8 AM to 5 PM