Tax News November 2023

Unprecedented Filing Season

The California Franchise Tax Board (FTB) confirms California storm victims have until November 16, 2023, to file their 2022 returns and pay any tax due. The extension comes after the Internal Revenue Service's announcement IR-2023-189, allowing individuals and businesses located in 55 of California's 58 counties – all except Lassen, Modoc, and Shasta counties – to qualify for the extension.

The November 16, 2023, extension applies to the following:

• Individuals whose tax returns and payments are normally due on April 18, 2023.
• Quarterly estimated tax payments normally due on January 17, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
• Business entities whose tax returns are normally due on March 15, 2023, and April 18, 2023.
• Pass-through entity elective tax payments normally due on March 15, 2023, and June 15, 2023.

We remind taxpayers to submit separate tax payments when making payments covering two tax years to avoid unintended notices, penalties, and potential erroneous refunds. Personal income tax payments should be made separate from business entity tax payments, and from pass-through entity elective payments.

Disaster-related tax returns may take longer to process than tax returns not claiming disaster relief. Should your client receive a late filing or late payment penalty notice relating to the extension period, you should call the number on the notice. You may also contact the Tax Practitioner Hotline at 916-845-7057 or Customer Service Line at 800-852-5711 for additional assistance.

Visit Help With Disaster Relief | FTB.ca.gov, Disaster declaration tax payments | FTB.ca.gov, Due date for California state tax returns and payments moved to November 16, 2023| FTB.ca.gov for additional information.

Tax Relief for Hurricane, Fire, and Seawater Intrusion Victims

Taxpayers and businesses affected by disasters in Maui/Hawaii, Florida, Georgia, Maine, Massachusetts, South Carolina, and Louisiana were granted an extension to February 15, 2024, to file 2022 income tax returns for California and make certain income tax related payments.

Due to late disaster declarations, FTB may have certain system and processing limitations affecting our ability to provide relief. If an affected taxpayer receives a late filing or late payment penalty notice related to the postponement period, the taxpayer should call the number on the notice to have the penalty abated. Disaster-related returns may take longer to process than tax returns not claiming disaster relief. 

For more information, go to: California grants tax relief for hurricane, fire, and seawater intrusion victims | FTB.ca.gov. 

Limited-Time Resolution Offered for Abusive Micro-Captive Insurance and Syndicated Conservation Easement Transactions

On May 31, 2023, we issued FTB Notice 2023-02 Resolution of Micro-Captive Insurance and Syndicated Conservation Easement Transactions. This notice permits eligible taxpayers that entered into potentially abusive micro-captive insurance transactions and/or syndicated conservation easement transactions to submit closing agreements to reverse the realized tax benefits and receive reduced penalties for any applicable tax year. We sent letters to identified taxpayers inviting them to participate in this resolution. However, participation is not limited to those who received an invitation letter and is open to any eligible taxpayer who wishes to participate.

Eligible taxpayers must submit a completed and signed Notice 2023-02 Closing Agreement from July 10, 2023, through November 17, 2023, and pay all taxes, applicable penalties, and accrued interest by November 17, 2023, or apply for a payment plan to pay the full amount over a period not to exceed 12 months. 

For more information see Resolution of Transactions.

Help Your Clients Understand the 15-Day Rule  

As year-end approaches, it’s a good time to inform your clients about the 15-day rule. Whether your client holds a corporation or LLC, it is very important they understand the 15-day rule and realize the rule only applies to short tax years that are 15 days or less. 

The 15-day rule states that business entities (Limited Partnerships, Limited Liability Partnerships, Limited Liability Companies and Corporations) with a tax year of 15 days or less are not required to file a tax return or pay the $800 annual/minimum tax, if they meet both of the following: 

• They did no business in California during the tax year
• Their tax year is 15 days or less

For example, if a business entity who files on a calendar year basis is formed on or after December 17, and does no business for the remainder of the year, then it may not have to file a tax return and/or pay the $800 annual/minimum tax for that short tax year. 

Additionally, if the business entity meets the 15-day rule and is not required to file a tax return, this time is not considered as the first taxable year. The first taxable year will be the following year.

For example, if a corporation filing on a calendar year basis incorporates on December 20, 2023, and does not conduct business from December 20, 2023, through December 31, 2023, then it meets the 15-day rule and is not required to file a 2023 tax return. The corporation’s first tax year will start on January 1, 2024. 

For more information on the 15-day rule for LLCs and corporations, please see our Limited Liability Company Filing Information Publication and our Guide for Corporations Starting Business in California.

Signature Options for Paper Tax Returns and Other Document  

Effective November 1, 2023, FTB will accept signature alternative methods for taxpayers or their representatives to submit paper tax returns and other documents that require original signatures, except for Power of Attorney (POA) declarations and Tax Authorization Information (TIA) forms.

For paper tax returns, we will accept: 

• A paper tax return with a photocopied, faxed, or scanned copy of the signature page with original signatures.

There is no change to the filing method of paper tax returns; see File by Paper. 

For other documents, except POA declarations and TIA forms filed with us that require original signatures, we will accept: 

• A photocopied, faxed, or scanned copy of the signature page with original signatures.
• You can also upload a document with original signatures into MyFTB, go to ca.gov and search for myftb. Please note we currently only accept PDF and Excel documents.

Follow the form instructions on how to submit to FTB (whether by mail, fax, online, etc.). Go to ftb.ca.gov, search for submit a poa or tia.

For more information, go to our recent Public Service Bulletin.

New Notice-Based Self-Service Option Expanded

In our January 2023 publication of Tax News, FTB introduced the new Notice-Based Self-Service (NBSS) option by providing taxpayers and tax representatives the opportunity to respond more easily and timely. With the new NBSS option, taxpayers may receive an internet web address, also known as a Uniform Resource Locator (URL) on their notice as an additional option to respond, in addition to by mail, phone, or with their MyFTB account.  

This new option does not require the taxpayer or representative to have a MyFTB account; they only need to follow the directions on the notice and respond using the new NBSS online process. If the taxpayer has the option to respond using NBSS, there will be an “Electronic Upload” option under “Send Documents” on the notice. The URL will be available for timely responses only, as indicated for the type of notice the taxpayer receives. After submission, the taxpayer or representative will receive a confirmation number validating a response has been sent. If the taxpayer or representative chooses not to use the online NBSS option, there will continue to be other methods on the notice to provide a timely response (mail, phone, MyFTB).  

In October 2023, we expanded the service to include additional notices and will continue to expand the number of notices available for the NBSS online process over the next few years.

Learn More About the Notice of Tax Return Change

Reason for notice

When errors are identified on a tax return during the return validation process, an FTB 5818, Notice of Tax Return Change (NTRC) is sent to the taxpayer. The adjustments may increase, reduce, or disallow an overpayment, or create an additional balance due on the account. The tax return change information is only for the tax year printed at the top of the notice.

Paragraph code

Each tax return change includes one or more paragraph codes that correspond to an explanation of the adjustment made on the return. The codes are printed with the explanatory paragraph on the notice. You can search for the explanations of paragraph codes and get information on what to do at Notice of Tax Return Change.

Gather documents

Gather and review all relevant tax documents to check for errors. For withholding verification, supporting documents can be from a W-2, W-2G, W-2C, 1099-Misc, 1099-R, 592-B, 593, or K-1. To expedite account review, supporting documents can be uploaded to a MyFTB account.

Penalties and interest

When an NTRC results in an additional balance due, the taxpayer has 15 days from the date on the notice to pay without incurring penalties and interest.

Annual Legislative Proposal Stakeholder Meeting

The time for FTB’s Legislative Proposal (LP) Stakeholder Meeting is fast approaching. This year, the meeting will be held virtually through Microsoft Teams on Wednesday, November 15, 2023. 

LP Stakeholder Meeting 

Each year, we submit ideas to ease tax administration for approval to our three-member Board. Before we do that, we like to gain feedback on our ideas during our annual LP Stakeholder Meeting. Stakeholders will learn about the department’s LP and be given the opportunity to provide input or comments. 

Date: November 15, 2023 

Time: 11 AM to 12 PM 

Get More Information 

In early November, we will provide instructions to log into the meeting at FTB Meetings. 

In the meantime, if you have questions or would like additional information, please send your inquiries to FTBLegislativeServices@ftb.ca.gov.

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. 

IRS announces 2024 Tax Counseling for the Elderly and Volunteer Income Tax Assistance Program Grants 

IR-2023-191, Oct. 16, 2023 — IRS recently awarded $51 million in Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) grants to organizations that provide free federal tax return preparation. 

For California storm victims, IRS postpones tax-filing and tax-payment deadline to Nov. 16 

IR-2023-189, Oct. 16, 2023 — IRS further postponed tax deadlines for most California taxpayers to Nov. 16, 2023. In the wake of last winter’s natural disasters, the normal spring due dates had previously been postponed to Oct. 16. 

IRS: Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief; Oct. 16 filing deadline, other dates postponed to Oct. 7, 2024 

IR-2023-188, Oct. 13, 2023 — IRS announced tax relief for individuals and businesses affected by the terrorist attacks in the State of Israel. These taxpayers now have until Oct. 7, 2024, to file various federal returns, make tax payments, and perform other time-sensitive tax-related actions. 

IRS issues guidance for the transfer of clean vehicle credits and updates frequently asked questions 

IR-2023-186, Oct 6, 2023 — IRS issued proposed regulations, Revenue Procedure 2023-33 and frequently asked questions today for the transfer of new and previously owned clean vehicle credits from the taxpayer to an eligible entity for vehicles placed in service after Dec. 31, 2023.

Ask the Advocate: Annual Liaison Meetings

What an October to remember! It was a very busy and unprecedented month for tax professionals and the state of California! As you were actively preparing and filing tax returns to meet the extended filing due date, my team was busy coordinating our annual liaison meetings with CSEA and CalCPA.

Each year, our annual liaison meetings provide an opportunity for FTB and the tax professional community to meet and review concerns and issues identified through our interactions over the past year. With this information, we work to improve our processes and services, to better serve taxpayers and tax professionals.

Each meeting’s format is similar in which FTB delivers presentations on topics members are interested to learn more about. This year, we presented:

• New Advocate Vision
• EDR2 Project Highlights
• Power of Attorney Walk-Through
• Disaster Extension Best Practices
• One-Time Penalty Abatement
• Filing Season and Service Improvement Updates
• FTB Notice 2023-02 Resolution of Micro-Captive Insurance and Syndicated Conservation Easement Transactions
• Nexus Documentation Tips

After the presentations, a portion of the meeting was dedicated to FTB responding to questions submitted by each organization prior to the meeting. We appreciate your attendance at the meetings and especially those of you who brought forward questions and shared your insight.

These interactions allow tax professionals to voice their concerns, provide constructive feedback, and help us identify areas where improvements in processes and services are possible. While many of you belong to CSEA or CalCPA, membership in one of these organizations isn't necessary for you to have your concerns heard or present your ideas. A public forum that is available to all taxpayers and tax professionals is the annual Taxpayers' Bill of Rights Hearing, held during the last quarterly meeting of the three-member Franchise Tax Board, here in Sacramento.

This year, the Taxpayers' Bill of Rights Hearing will be held on Wednesday, December 6, at 1:30 PM as part of our regularly scheduled quarterly board meeting. If you are interested in attending, go to Meetings for more information. The agenda will be available as we get closer to the meeting. Alternatively, if you have a Bill of Rights issue or concern, but cannot attend the meeting, you can email me at FTBAdvocate@ftb.ca.gov, or send a letter by November 22 to:

Mail

TAXPAYERS’ RIGHTS ADVOCATE MS F280
FRANCHISE TAX BOARD
PO BOX 1468
RANCHO CORDOVA, CA 95812-1468

As the Advocate, one of my goals is to ensure every interaction with FTB goes as smoothly as possible and everyone is treated with fairness and respect. FTB's management team shares this collective goal, and your input is valuable.