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California Taxpayers Urged to Report Offshore Bank Income

Released: June 19, 2009

Sacramento – The Franchise Tax Board (FTB) reminds taxpayers who are filing an amended federal tax return to correctly report income related to offshore bank accounts or other offshore activity to file an amended return with California at the same time.

According to the latest statement on offshore income from IRS Commissioner Doug Shulman, taxpayers may choose to participate in the IRS’s voluntary disclosure process in order to avoid federal criminal prosecution. They will need to pay the federal taxes owed, interest, and either an accuracy or delinquency penalty. In addition, they will also need to pay a penalty of 20 percent of the highest asset value of their foreign accounts for the tax years at issue. The IRS provides answers to frequently asked questions regarding its offshore voluntary disclosure process on its website, www.irs.gov.

The IRS and FTB have agreements to share information between the two agencies, so information received from federal amended returns and from foreign governments will ultimately be shared with California authorities.

California residents are taxable on all their worldwide income. In most cases, income related to offshore bank accounts or offshore activities is taxable by the state even if it was not taxable for federal purposes. California residents should review their state tax returns to determine if they need to file amended returns to report this income. California does not have a penalty similar to the federal 20 percent asset value penalty.

If taxpayers do not timely inform the state when they file federal amended returns or when the IRS makes a change to their federal tax, FTB has four years to issue an assessment after the information is provided to FTB. In addition, penalties may be imposed and interest will accrue.

Taxpayers should use Form 540X, Amended Individual Income Tax Return to make any changes to previously filed tax returns. Taxpayers can send their amended returns to:

When taxes are owed:
FRANCHISE TAX BOARD
PO BOX 942867
SACRAMENTO CA 94267-0001

When a refund is due:
FRANCHISE TAX BOARD
PO BOX 942840
SACRAMENTO CA 94240-0002

[The following note and address was added on November 5, 2010. —Ed.]

Taxpayers may send their tax payments prior to filing their Amended Individual Income Tax Return. Specify “Foreign Account Voluntary Disclosure” on your payment. Send to:

Foreign Account Voluntary Disclosure
PO BOX 1779
Rancho Cordova CA 95741-1779

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When the IRS makes a change to federal tax, taxpayers can either use a Form 540X to report the change, or provide copies of the final federal tax change notice along with all supporting documents to:

ATTN: RAR/VOL AUDIT SECTION F-310
Franchise Tax Board
PO BOX 1998
Sacramento CA 95741-1998