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Conversion of NPA into an NPO Examples Under Audit Branch Procedure Statement: 99-4

Back to ABPS 99-4

GIVEN: Audit issues an NPA and an NPO with all SOL open on the date the notices are issued.

A timely protest is filed. All SOL expire before the protest is filed.

Notices Issued

Positive Income Adjustments

Negative Income Adjustments

NPA 1993

$100 net add'l tax

a) UBI: Interest Income $50 tax

x) UBI: Dividend Income ($10 tax)

b) UBI: Capital Gain $50 tax

y) Tax Credit ($40 tax)

 

c) Sales Factor $50 tax

 

NPO 1994

    

$10 net overpayment

d) UBI: Interest Income $10 tax

z) UBI: Dividend Income ($20 tax)

The examples reflect various protest results.

Example I: 1993: Adj. a, b, and/or c are withdrawn or reduced resulting in an overpayment due to the negative income adjustments. ABPS 99-4 applies. The NPA is converted to an NPO.

Example II: 1993: Adj. x and/or y are revised resulting in larger negative income adjustments which result in an overpayment. ABPS 99-4 applies. The NPA is converted to an NPO.

Example III: 1993: The NPA is sustained, but the TP raises a new issue resulting in a negative income adjustment resulting in withdrawal of the NPA and an overpayment for 1993. This situation includes an issue raised by the TP at audit, but not allowed at audit, and no claim for refund was timely filed**. ABPS 99-4 does not apply. NOTE: The taxpayer may be allowed a full or partial refund, based on the one year of overpayment claim for refund statute opening once the sustained NPA is paid. Procedurally, FTB will generally recognize the new issue raised at protest and the one year of overpayment statute opening, by allowing the overpayment due to offset the deficiency payable without the taxpayer making payment.

Example IV: 1993: At protest multiple adjustments are made including revisions to the audit adjustments and for new issues raised by FTB and/or the TP resulting in an overpayment. Determine the refundable overpayment, if any, pursuant to ABPS 99-4 by first revising the original audit schedules for the revisions that affect only the original adjustments. The refundable overpayment is the lesser of the NPO pursuant to ABPS 99-4, or the net overpayment due to all revisions.

Example V: 1994: Adj. d is withdrawn or reduced or Adj. z is increased resulting in a greater overpayment. ABPS 99-4 does not apply because the express terms of the ABPS are not met. The original notice is not an NPA. However, procedure is to allow the increase in the NPO. Reminder: When the SOL is closed, a new issue may not increase the NPO amount just as a new issue may not amend a claim for refund.

**Always review the file for correspondence that may constitute a claim for refund if there are overpayment issues. Occasionally, such correspondence is overlooked. A claim for refund protects a TP's right to an overpayment regarding the claim issues, including appeal rights.