All about business October 2020 Tax News

C corporations and California’s automatic extension, FTB Notice 2019-07

With all the things happening this year and with October 15 just a few days away, we thought it would be a good idea to remind you that California now gives calendar year C corporations an additional month, until November 16[1] to file a return.

FTB Notice 2019-07

On December 2, 2019, we issued FTB Notice 2019-07 granting all Part 11 taxpayers in good standing filing the Forms 100 and 100W an automatic 7-month extension, for taxable years beginning on or after January 1, 2019. The extended due date for C Corporations is the 15th day of the 11th month after the close of the taxable year.  For Calendar year taxpayers, this date is November 16, 2020.

As stated in the Notice, the automatic 7-month extension does not apply to S Corporations, the extended filing due date for S Corporations will remain the 15th day of the 9th month after the close of the taxable year.

The extension of time to file in Notice 2019-07 is not an extension of time to pay the tax.  A C Corporation's total tax owed is due with its original tax return on the 15th day of the 4th month after the close of the taxable year.

Penalty for Late Filing

If a return is filed late the extension is denied and the taxpayer is subject to a late-filing penalty. The late-filing penalty is computed at a rate of 5% of the tax due for every month from the taxpayers due date (without) extension that the return is late, up to a maximum of 25%.[2]

Visit our Penalty Reference Chart (FTB 1024) for more information on penalties.

Interest

Even if your client can show reasonable cause for either the late filing or late payment of tax, interest is charged. Interest is not a penalty. Since 1982, California law requires interest to be compounded daily.[3] This means that legally, the balance on a taxpayer's account for each day must be computed, and interest on that amount is added to the balance for that day. Interest begins to be charged from the original due date for underpayments because the liability for tax arises on the original due date[4] and ends on the effective date of payment. Interest is mandatory, and the FTB is not allowed to abate interest except where authorized by law.

Visit our Interest and estimate penalty rates webpage for more information.

If your client is planning to file their return under the automatic extension period, but has not paid the full amount of tax owed they can and should pay any unpaid tax as soon as possible after the original due date to avoid the accrual of penalties and interest.

Note: If your clients cannot pay in full and need to make monthly payments, they can request an Installment Agreement.