Tax News May 2023
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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.
In this edition May 2023
- Tax Practitioner Hotline Implements Virtual Hold Technology
- Best Practices for Pass-Through Entity (PTE) Elective Tax Payments
- Schedule A and Schedule C review letters
- 2022 California Tax Credits
- Foster Youth Tax Credit
- Expanded Young Child Tax Credit
- July Begins Reservation Period for High-Road Cannabis Tax Credit
- Learn More About the Taxpayers’ Rights Advocate’s Office
- IRS FAQs for California’s Forced or Involuntary Sterilization Compensation Program
- IRS Updates and More
- What’s New with Tax Forms
- Ask the Advocate
- Brenda’s Retirement
- Tax News Flash Links
- FTB Career Opportunities
- Event Calendar
Tax Practitioner Hotline Implements Virtual Hold Technology
One of our goals is to provide exceptional service. We strive to continuously enhance our customers' experience and work diligently to achieve this goal. We listen to your feedback and implement improvements to operations as appropriate.
As a result of your feedback, the Tax Practitioner Hotline successfully implemented Virtual Hold technology. Virtual Hold allows callers to save their place in the phone queue and receive a call back instead of waiting on-hold for a potentially extended period of time.
We are pleased to inform you that in March alone, over 24,000 tax practitioners utilized this service. And even more impressive, during the first month since the implementation, 86% received successful callbacks within the promised time! We continue to modify the settings of the new technology to help us achieve 100% of callbacks within the estimated time. We realize your time is valuable and we are committed to improve the callback percentage as we become more proficient with Virtual Hold technology.
Another option to maximize your time is to register for a MyFTB account. MyFTB provides individuals, business representatives, and tax professionals, online access to tax account information and online services to include many self-service options. These services are available 24/7, therefore you can take care of your client’s needs at your convenience. For example, one of the top reasons practitioners call the Hotline is to verify estimate payment information, which is available through MyFTB. With a MyFTB account and a POA or TIA relationship, practitioners can utilize Live Chat to interact with an FTB representative about your client’s account, send us a message, and view notices sent to your client within the last 12 months.
When your client authorizes your full online account access request, you have the additional ability to view the following information for the tax year(s) authorized by the TIA or POA:
- Confirm estimated and PTE elective tax payments.
- View your client’s account balance and the tax year details that make up that balance.
- Review the history of payments and a list of the returns we received for your client.
- Confirm credits available to be claimed on your client’s return.
- View proposed assessments issued to your client.
- Update your client’s contact information and protest proposed assessments (POA required).
MyFTB also provides tools to manage your client relationships. For example, you can submit and update POA declarations, request and renew TIA relationships, and check the status of these relationships.
Visit MyFTB for additional information.
Best Practices for Pass-Through Entity (PTE) Elective Tax Payments
Our mission is to help taxpayers file tax returns timely, accurately, and pay the correct amount of tax. The most effective way to pay your PTE elective tax payment is to use the free Web Pay application. The application can be accessed through FTB’s website, stand-alone electronic funds withdrawal (EFW) through your tax preparation software (check with your software provider), or the Pass-Through Entity Elective Tax Payment Voucher (FTB 3893).
To help ensure accurate processing, the PTE elective tax payment should not be combined with other tax payments, including payments that may be due with the tax return. Following these guidelines is the best way to ensure PTE elective tax payments are correctly posted to your account. In addition, you may monitor your PTE elective tax payments on MyFTB.
For more information about MyFTB, or how to register for a MyFTB account, visit MyFTB.
For more information about the Pass-Through Entity Elective Tax.
Schedule A and Schedule C review letters
Select taxpayers who reported large Schedule A itemized deductions or large Schedule C expenses will continue to receive “Review Your State Tax Return” letters.
Last year, the Franchise Tax Board (FTB) began an outreach effort by sending letters to taxpayers who reported Schedule A itemized deductions or Schedule C expenses on their 2019 tax returns that were "significantly higher than expected." FTB is continuing this outreach effort in May by sending review letters to taxpayers who reported these deductions or expenses on their 2020 income tax returns.
The purpose of the review letter is to encourage taxpayers to review their 2020 tax return, and current tax year returns, for any discrepancies. The letters inform taxpayers of the type of deductions commonly overstated, where to find more information regarding what is deductible, and to file an amended tax return if necessary. If no changes are needed to the items reported, then no action or response is necessary.
These review letters do not constitute an audit. The tax returns remain subject to audit until the expiration of the statute of limitations. The taxpayer should maintain documentation to substantiate their itemized deductions or to substantiate their expenses are in line with their business activity.
These outreach efforts are part of FTB’s overall strategies to encourage voluntary compliance which includes providing taxpayers with the information they need to meet their filing requirements.
2022 California Tax Credits
Foster Youth Tax Credit
As a reminder, the Foster Youth Tax Credit (FYTC) of up to $1,083, is now available to taxpayers who meet all the following requirements:
- Qualify for the California Earned Income Tax Credit (CalEITC).
- Are age 18 through 25 at the end of the tax year.
- Were in foster care at age 13 or older and placed through the California foster care system.
- Satisfy foster care verification requirement.
Young Child Tax Credit
In addition, the Young Child Tax Credit (YCTC) of up to $1,083, is now available to taxpayers who have earned income of zero dollars or less and otherwise meet the CalEITC requirements and have a child under the age of six at the end of the tax year. (Note that taxpayers without at least $1 of earned income would not qualify for CalEITC but may still qualify for the YCTC under this new expansion.)
Information about CalEITC is also currently available on our website.
California Earned Income Tax Credit
To qualify for the California Earned Income Tax Credit (CalEITC), a taxpayer must meet all the following requirements during the tax year:
- At least 18 years old or have a qualifying child.
- Have earned income of at least $1 and not more than $30,000.
- Have a valid Social Security Number or Individual Taxpayer Identification Number for self, spouse, and any qualifying children.
- Live in California for more than half the filing year.
- Not be eligible to be claimed as a qualifying child of another taxpayer.
- Not be eligible to be claimed as a dependent of another taxpayer unless they have a qualifying child.
Married/registered domestic partner (RDP) filing separately filers must meet all the following requirements:
- Had a qualifying child who lived with them for more than half of the tax year, and:
- Lived apart from their spouse/RDP for the last 6 months of the tax year, or
- Legally separated by state law under a written separation agreement or a decree of separate maintenance and do not live in the same household as their spouse/RDP at the end of the tax year.
Claiming the credit
A state tax return must be filed to claim CalEITC. A completed FTB 3514 must also be included with the tax return to determine the amount of the credit. Use our EITC calculator or review the 2022 CalEITC credit table to calculate how much a taxpayer may get.
It is important to verify if your client qualifies. You may be subject to a $500 penalty if you do not comply with CalEITC requirements.
Complete and keep copies of the:
- FTB 3596, Paid Preparer's California Earned Income Tax Credit Checklist
July Begins Reservations for High-Road Cannabis Tax Credit
The High Road Cannabis Tax Credit is for cannabis businesses with a Type 10 (retailer) or a Type 12 (microbusiness) license issued by the Department of Cannabis Control (DCC). The credit is available beginning with the 2023 taxable year.
The amount of credit is equal to 25% of qualified expenditures, up to a maximum credit of $250,000 per taxpayer, per taxable year. An aggregate total of $20 million is available for this credit.
Qualified taxpayers are required to apply for a Tentative Credit Reservation (TCR) from FTB each taxable year. Taxpayers whose taxable year begins from January through July must apply for a reservation in July of 2023, for the 2023 taxable year. If the taxpayer's taxable year begins from August through December, the taxpayer must apply for a TCR within 30 days of the start of their taxable year.
On July 1, 2023, you can apply for a reservation at High-Road Cannabis Tax Credit. Credit reservations will be given on a first-come first-served basis. When the $20 million limitation is reached, the reservation system will no longer be available.
Learn More About the Taxpayers’ Rights Advocate’s Office
The Taxpayers' Rights Advocate's Office (TRAO) is excited to share an updated marketing video developed by our Education and Outreach team. The video highlights the services we provide to the tax community. Our goal is to continue to educate taxpayers and tax professionals about the criteria for Advocate assistance. We receive contacts from taxpayers that do not meet our eligibility criteria for Advocate assistance; however, we continuously seek ways to help them self-serve.
We hope you enjoy the video and thank you for your support!
IRS FAQs for California’s Forced or Involuntary Sterilization Compensation Program
On April 14, 2023, the IRS issued FAQs regarding the federal taxability of payments received as part of the California's Forced or Involuntary Sterilization Compensation Program.
Payments from the California's Forced or Involuntary Sterilization Compensation Program are not considered taxable income for California income tax purposes pursuant to California Health and Safety Code section 24217(a)(1).
For more information on the Forced or Involuntary Sterilization Compensation Program, please see California Forced or Involuntary Sterilization Compensation Program - CA Victim Compensation Board
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.
IR-2023-77, April 11, 2023 - Taxpayers who filed their federal income taxes early in this year's filing season and reported certain state 2022 tax refunds as taxable income should consider filing an amended return.
IR-2023-80, April 13, 2023 - A reminder to low- to moderate-income taxpayers, especially those who don't normally file a tax return, to consider IRS Free File to prepare their own federal tax return to potentially receive overlooked tax credits or refunds. Time running out to claim $1.5 billion in refunds for tax year 2019, taxpayers face July 17 deadline
IR-2023-79, April 12, 2023 ― Nearly 1.5 million people across the nation have unclaimed refunds for tax year 2019 but face a July 17 deadline to submit their tax return.
IR-2023-78, April 12, 2023 - Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023.
IR-2023-76, April 11, 2023 - With the April 18 deadline quickly approaching, the IRS wants to debunk common myths with facts about filing taxes, finding refund information, and adjusting withholding.
IR-2023-70, April 4, 2023 - As part of ongoing efforts to improve service for the tax-exempt community, the IRS issued the revised Form 8940, Request for Miscellaneous Determination, and its instructions to allow electronic filing.
IR-2023-69, April 4, 2023 - IRS issued Notice 2023-29 that describes certain rules that the IRS intends to include in forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits.
Ask the Advocate
Brenda Voet, EA Taxpayers' Rights Advocate
My career with the Franchise Tax Board (FTB) has been a long one, spanning more than 30 faithful years. But I still remember those early days, and how we didn’t operate using desktop computers, fax machines, technology to file returns electronically, or even a Taxpayer Advocate.
As I reflect on when I accepted the role as the Advocate, it was during a time of great institutional loss and transition. Most of the long-time Taxpayers’ Rights Advocate Office (TRAO) team members moved on to other positions or began new careers. This created an opportunity to hire and onboard new team members with fresh and innovative ideas on ways to better provide improved assistance to California taxpayers and our tax professional community. And I am proud to say, that is exactly what I did.
Today, the services FTB provides are much better than when I first started, and it has been a privilege to be a committed and integral part of the progress. I am confident that by working with you, our tax professional partners, FTB will continue to strive to improve how we help taxpayers file tax returns timely, accurately, and pay the correct amount of tax.
As I step into retirement, I am thankful I was able to serve in the capacity as the Taxpayer Advocate for the taxpayers of California. Working with the TRAO team, our knowledgeable FTB program area leaders, and the tax professional communities to foster relationships and build engagement through network and communication has been the highlight of my journey. This was not a role I had ever thought to fill, but I am certainly grateful that I was provided the opportunity to serve you.
Tax News Flash Links for April
There were no Tax News Flash sent for the month of April.
FTB Career Opportunities
If you are a student, recent graduate, or experienced professional, we encourage you to apply. Find Careers with the State of California at Franchise Tax Board.
As part of our education and outreach to the tax professional community, we participate in many different presentations and fairs. We provide a calendar that shows the events we attend, as well as other events happening with us, such as interested party and Board meetings.