Deadline Looming for California Tax Shelter Resolution Initiative
Taxpayers Stand to Save Millions
The Franchise Tax Board (FTB) is reminding taxpayers and tax professionals that April 3, 2006, is the last day to apply for the California Tax Shelter Resolution Initiative. The initiative was announced in FTB Notice 2006-1 and follows the IRS tax shelter settlement initiative as outlined in IRS Announcement 2005-80.
"Abusive tax shelters divert funding that should be going to our schools, parks, and roads. These shelters are nothing more than scams that victimize the honest taxpayers of California," said State Controller and FTB Chair Steve Westly. "This program is projected to raise $400 million for the budget without raising a nickel in taxes. Too many in Sacramento think the only ways to find money for the budget are to raise taxes or cut vital services - there's a better way. The state is owed $6.5 billion that it doesn't collect every year. We should be collecting it."
The California Initiative includes the 21 transactions eligible for the IRS program described in the FTB Notice. The IRS has indicated that for a transaction to qualify it need only be substantially similar to one of the 21. California will follow federal closing agreements with regard to all transactions accepted by the IRS under Announcement 2005-80.
"Time is running short. Eligible taxpayers should participate in this program and save themselves additional penalties," said Board of Equalization Chair and FTB Member John Chiang. "Taxpayers who wait and are later facing a California audit may wish they had taken advantage of this opportunity when they had the chance."
Only those taxpayers who elected to participate in the IRS Initiative and who fully complete the program's requirements are eligible for the California program. Participants can avoid many California tax shelter penalties, including the interest-based penalty, which amounts to an assessment of an added 100 percent of the interest payable. Taxpayers not signed up for the California program will pay full penalties. For example, a taxpayer who invested $2 million in a transaction stands to save nearly $120,000 in state taxes by participating in this initiative. FTB estimates show that eligible taxpayers would save nearly $23 million in penalties by participating in the California Initiative.
Taxpayers wanting to participate must file FTB Form 638, California Tax Shelter Resolution Initiative Election to Participate in Notice 2006-1. The California program ends on March 31, 2006; however, since that date is a state holiday, taxpayers have until Monday, April 3, 2006, to submit their applications. Participants will be required to sign a closing agreement with the FTB relinquishing all appeal and refund rights and pay 100 percent of the taxes owed, interest, and the applicable accuracy-related penalty, which ranges from 5-20 percent.