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State of California Franchise Tax Board

IRS Son of Boss Initiative

Is the Franchise Tax Board following the IRS Son of Boss Initiative?

For taxpayers who participated in the IRS Son of Boss Initiative and 2004 California Voluntary Compliance Initiative (VCI), California is applying the following on the reported Son Of Boss transactions:

  • For VCI Option 2, taxpayers may file a claim for refund based on the IRS initiative allowing their out-of-pocket expenses AND applying the applicable accuracy related penalty assessed.
  • For VCI Option 1, taxpayers may NOT file a claim for refund for out-of-pocket expenses and will NOT be assessed the accuracy related penalty.

Taxpayers who participated in the IRS Son Of Boss initiative but did NOT participate in the California VCI program will be subject to new California tax shelter penalties, including the noneconomic substance transaction understatement penalty and 100% interest based penalty. Franchise Tax Board continues to pursue and impose penalties on abusive tax avoidance transactions for those taxpayers who failed to participate in the Son Of Boss initiative and VCI program.

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