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Interest Rates: Abusive Tax Shelters & Transactions

Interest Rates (R&TC Section 19778)

Description
Amended returns self-assessing tax that are filed after April 15, 2004 are subject to an increased interest rate if all of the following applies:

  • The taxpayer files an amended return before being contacted by the IRS or FTB regarding a potentially abusive tax shelter.
  • The taxpayer files an amended return to report an understatement of tax related to a reportable transaction.
  • The amended return is for a tax year beginning after December 31, 1998.

Increased Rate Amount
The increased interest rate is equal to 150% of the adjusted annual rate.


Suspension of Interest (R&TC Section 19116)

  • Notices issued beginning January 1, 2004: Interest is not suspended for individual taxpayers with revised taxable income greater than $200,000 if FTB contacts the taxpayer regarding the use of a potentially abusive tax shelter.
  • Notices issued beginning January 1, 2012: Interest is not suspended for individual taxpayers with revised taxable income greater than $200,000 if FTB contacts the taxpayer regarding the use of an abusive tax avoidance transaction.
  • Amended returns filed on or after January 1, 2011: For amended returns filed and correspondence received on or after January 1, 2011, the interest suspension period for notices not based on federal actions begins 36 months from the date the amended return was filed or correspondence received.