Tax News September 2023

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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.

Business Entity Pre-Suspension and Suspension Processes

We suspended the business entity pre-suspension and suspension processes from February 1, 2022, through August 31, 2023, to assist the business entity community during tough economic times. During this time frame the Secretary of State (SOS) and Franchise Tax Board (FTB) upgraded the Connect Project systems to improve processes. 

We plan to resume normal business processes September 1, 2023. If you or your client receive a Pre-Suspension or Suspension letter and plan to revive an entity, you can submit your request online using the Online Revivor Assistance Request Form to connect with one of our team members for account specific assistance. You can also contact Business Entities Collections Assistance at 916-845-7033 or follow any instructions that may be included in the letter.

For more information about My Business is Suspended.

Forms 593 and 593-V Filing Errors

If you are a remitter who submits real estate withholding forms and payments to the Franchise Tax Board (FTB), you must submit a complete Form 593, Real Estate Withholding Statement unless an automatic exemption applies. In cases where withholding is due, you must also include your payment and Form 593-V, Payment Voucher for Real Estate Withholding. 

FTB is seeing reoccurring errors with submissions of Forms 593 and 593-V that cause delays in both processing of the form and allowing the withholding credit when claimed on the seller’s tax return.   

To avoid errors that could result in the assessment of interest and penalties, a remitter is required to: 

  1. Complete all applicable parts of Form 593, including Part I and Part VII, specifically Line 37, when withholding is required. 
  2. Ensure the amount on Line 37 matches the amount withheld. The amount withheld should not be rounded up or down. 
  3. Confirm applicable part(s) of Form 593 are complete and submit sides 1-3 to FTB regardless of the real estate transaction type. 
  4. Submit only one copy of Form 593 unless an amended form is filed. Check the amended box on the top left corner when amending a form. 
  5. Ensure Forms 593 and 593-V are not altered in any way and submit the correct year form.  
  6. Complete Form 593-V with the same information from Part I of Form 593. 

For more information on Forms 593 and 593-V, please review the form instructions and our brochure, FTB 4064, Quick Reference Guide California Real Estate Withholding. Our forms and publications are available by request at www.ftb.ca.gov.

Form 4197 Information on Tax Expenditures

The postponed due date for taxable year 2022 is upon us and we want to remind you of the reporting requirements per Revenue and Taxation Code (R&TC) section 41 for Legislatively Mandated Reports on tax expenditures. In general, FTB is required to report on specified deductions, credits, exclusions, and exemptions to the California Legislature, thereby allowing them to evaluate the performance of each new tax expenditure. 

The legislature specifies the metrics used to evaluate the programs and occasionally requires metrics currently not reported on the state tax return. 2022 California Form 4197 Information on Tax Expenditure Items captures additional metrics to meet the reporting requirements. Taxpayers must submit Form 4197 in addition to any other credit forms or expense schedules that are required to be filed with their tax return. If your tax software does not support Form 4197, mail the form. This correspondence address link will direct you to the correct address for both businesses and individuals. 

For more information and instructions request Form 4197 and Form 4197 Instructions. 

For the 2022 taxable year, the new tax expenditures added to Form 4197 are: 

  • Thomas and Woolsey Wildfires Exclusion (TWWE) 
    • Taxpayers should report the amount of settlement payments being excluded from gross income. 
  • Turf Replacement Water Conservation Program Exclusion (TRWCP) 
    • Taxpayer should report the amount of rebates, vouchers, or other financial incentives issued by public water system and excluded from gross income. 
  • Deployed Military Exemption (DME) 
    • Taxpayers should report the number of employees (including themselves) working for a qualified LLC or corporation that is a small business solely owned by a deployed member of the U.S. Armed Forces. 

In addition to tax year 2022 new tax expenditures, Form 4197 continues to be used to report on specified deductions, credits, exclusions, and exemptions to evaluate the performance of the following tax expenditures: 

  • Paycheck Protection Program (PPP) 
  • Other Loan Forgiveness (OLF) 
  • Economic Injury Disaster Loan (EIDL) 
  • Restaurant Revitalization Grant (RRG) 
  • Shuttered Venue Operator Grant (SVOG) 
  • Commercial Cannabis Activity (CBIS) 

View previously released reports  Data, reports, and plans

Pass-Through Entity (PTE) Elective Tax Payments Due October 16 

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. The amount due is $1,000 or 50% of the elective tax paid for the prior taxable year, whichever is greater. The remaining amount is due on or before the due date of the original return without regard to extensions. 

Due to the 2022-2023 winter storms, individuals and businesses located in California (except for those located in Lassen County) generally qualify for an extension until October 16, 2023 (August 15, 2023, for Shasta and Modoc counties), to file and pay taxes. This extension applies to applicable payments of the PTE elective tax.

For additional information about emergency tax relief

2022 Tax Years 

For tax year 2022, the second payment of the remaining amount of PTE elective tax was originally due on or before the due date of the original return without regard to extensions. Because of the disaster relief, this payment is now due by October 16, 2023.  

Applicable penalties and interest will apply to underpaid amounts. 

2023 Tax Years 

For tax year 2023, the first payment of PTE elective tax was due June 15. Due to the disaster relief, the first payment is now due by October 16, 2023.  

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

Making the Payment 

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

New Draft Tax Forms Webpage

On Tuesday, September 5, we plan to publish a new “Draft Tax Forms” webpage on ftb.ca.gov. You will be able to view a list of current and new draft tax forms available for the upcoming year. You can sort by year, name, publish date, or search by form number using the search tool.  

To access the draft forms, you will need to provide your email address and the document(s) will be emailed to you. Due to the draft status, all draft tax forms are watermarked and will not be searchable in any location on ftb.ca.gov other than on the Draft Tax Forms webpage. We have also included a suggestions button on the webpage for you to provide feedback.

Gig Economy Resources for You and Your Clients

FTB and our Education and Outreach Team seek ways to help provide information to those using gig economy platforms. Multiple studies show a large percentage of those working for these platforms are not informed about potential tax filing requirements. FTB created a Gig economy webpage to better assist users. The webpage includes vital information about filing requirements and includes a link to our Tax News Live Video.

Adjusted Interest Rates

For the period January 1, 2024, through June 30, 2024, the interest rate will remain at 7%. 

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 will remain at 5%. 

Get more information on interest and estimate penalty rates.

Online Payment Types

It is important to choose the correct payment type when making an online payment. An incorrect payment type maycause a delay in timely processing of the tax payment. The most common error observed is the confusion between bill payments and amended tax return payments. 

Many times, users select the “Amended” payment type because they received a Notice of Tax Return Change (NTRC). Although the tax return was changed, there would be no need to file a separate amended return, so selecting the “Amended” payment type would incorrectly notify the system to wait for an amended return to complete processing. Instead, select “Bill Payment.” 

Select “Bill Payment” when a taxpayer makes payment on a(n): 

  • Bill or notice including the Notice of Tax Return Change (NTRC). 
  • Existing balance due. 
  • Dishonored Payment Penalty. 
  • Mandatory e-PayPenalty. 

The “Amended Tax Return Payment” type should only be selected when a taxpayer filed a current or prior amended tax return with an attached Schedule X, California Explanation of Amended Return Changes with a balance due. 

For more information, go to Payment.

Internal Revenue Service (IRS) Updates and More

We partnered with 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 has ended most unannounced visits to taxpayers by revenue officers

Ending unannounced visits to taxpayers will increase confidence in IRS's tax administration work and improve overall safety for taxpayers and IRS employees. Fraudsters bombarding taxpayers by mail, by phone, and in person increased confusion about home visits by revenue officers. 

IRS launches paperless processing initiative

FS-2023-18, Aug. 2023 — Paper-based processes have long hampered IRS and frustrated taxpayers. The challenges created by paper are two-fold: taxpayers are unable to digitally submit many forms and correspondence beyond their annual 1040 tax return, and the IRS is unable to digitally process paper tax returns it receives. 

Taxpayers not under examination now have easier way to electronically request relief for late-filed international documents and forms

IR-2023-146, Aug. 11, 2023 — IRS announced the availability of a new option that provides an easier, more efficient way for taxpayers or their tax professionals to submit electronic requests for relief for certain late-filed international documents to improve taxpayer service. 

IRS and Treasury issue guidance for owners of solar and wind powered energy facilities in low-income communities for increased energy credit under the Inflation Reduction Act

IR-2023-145, Aug. 10, 2023 — The Department of the Treasury and IRS issued final regulations and a revenue procedure to provide guidance for owners of certain solar or wind facilities built in connection with low-income communities.  

IRS: Builders of qualified new energy efficient homes might qualify for an expanded tax credit under Section 45L

IR-2023-142, Aug. 7, 2023 — IRS reminds eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home.  

Home energy audits may qualify for an Energy Efficient Home Improvement Credit

IR-2023-140, Aug. 4, 2023 — IRS issued Notice 2023-59 regarding the requirements for home energy audits for taxpayers that want to claim the Energy Efficient Home Improvement Credit. 

Security Summit reminder: Identity theft red flags tax pros should know

IR-2023-143, Aug. 8, 2023 — In the fourth of a special series, IRS and the Security Summit partners urged tax professionals to learn the signs of data theft so they can respond quickly to protect clients.

Ask the Advocate: Executive Officer's Advisory Board Meeting

Angela Jones, Taxpayers' Rights Advocate

Each year my team has the responsibility and honor of planning our Executive Officer's, Selvi Stanislaus, meeting with her Advisory Board. The Advisory Board is made up of 23 representatives from industry, state and federal government, who meet with FTB leadership to help us gain insight into the issues, challenges, and concerns faced by industry and our government partners.

This year, during our time together, subject matter experts from FTB program areas shared: 

  • Legislative Update 
  • Litigation Update 
  • One-Time Penalty Abatement (AB194) Update 
  • EDR2 Update 
  • Security Awareness and Fraud Update 

We appreciate the valuable insights, new ideas, and lively discussions at this year's virtual meeting and will use all the information gained as we continue to improve our processes and services in support of California taxpayers. We look forward to resuming in-person meetings next year. In person meetings foster a more engaging meeting and allow for breakout sessions.

We look forward to our meeting with California Society of Enrolled Agents (CSEA) on Thursday, September 21, 2023, annual State Tax Agency Liaison Meeting.

For members of the California Society of CPAs (CalCPA), keep an eye out for more information from CalCPA about our annual liaison meeting on Wednesday, October 25, 2023.