FTB Notice 1997 97 - 7 - sl
STATE OF CALIFORNIA
FRANCHISE TAX BOARD Legal Branch
ERNEST J. DRONENBURG, JR.
In response to your request for an estimate of the revenue impact of allowing perfection of improperly filed water's-edge elections, we estimate that the revenue loss, including interest, would be approximately $120 million ($80 million tax plus $40 million interest). This estimate was derived from a combination of preliminary audit results and an analysis of tax returns that Audit has identified to contain invalid elections but for which examinations have not yet been initiated. For returns where examinations have not yet been initiated, this estimate is based on a comparison of water's-edge tax return information and worldwide financial report information.
In addition to the returns identified, it is generally agreed that there are additional invalid elections that will be identified in the next audit cycle. This estimate assumes that the majority of the revenue is represented in the identified returns, thus, the result was only increased by 20 percent to reflect the revenue involved in the invalid elections not yet detected. Note that the amount accounted for in the not yet detected returns could be substantially different.
If you have questions, please let me know.
Director, Economic and Statistical Research Bureau
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