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Tax News
New tax deposit forms

And converting a protest to a refund claim

Tax deposits

In 2005, California conformed to the federal tax deposit provisions. Now, any payment made to stop the running of interest after a return has been filed, and after an assessment has been issued, but not finalized is a "tax deposit" that stops the running of underpayment interest, and earns overpayment interest. The tax deposit converts to a payment of tax only when:

  • A final liability arises.
  • A taxpayer specifically requests that the tax deposit amount be:
    • Refunded.
    • Applied to another year.
    • Applied to convert a pending protest or deficiency appeal to action on a refund claim.

FTB has developed two types of forms, which will be available early in October 2006, to ensure that amounts taxpayers wish to deposit are properly identified and applied. The Tax Deposit Voucher (FTB Forms 3576-3579) is used to designate a remittance as a tax deposit for a specific tax year. The Tax Deposit Refund or Transfer Request (FTB Form 3581) is used to:

  • Request a tax deposit refund.
  • Designate the application of a tax deposit to a different tax year.
  • Apply the tax deposit to convert an administrative protest or appeal to an administrative refund action.

Using these forms will ensure a proper reporting of the amounts remitted.

Converting a protest to a refund claim

A taxpayer with a tax deposit amount on account may wish to convert a protest or appeal to a claim for refund. In these cases, the taxpayer must provide a statement in writing asking us to convert the administrative deficiency dispute to an administrative claim dispute (preferably on the Form 3581, when available). When we receive the form, we will finalize the deficiency, and apply the tax deposit amount to the final deficiency amount, including interest and any amnesty penalty (if applicable).

If there is an overpayment after all amounts due for the year have been paid, the balance will be refunded unless the taxpayer has designated on the FTB 3581 that excess amounts should be retained, or applied differently.

At this time, the protest converts to a perfected claim, and FTB will continue to consider the issues presented in the protest, and will take action on the claim.

If the tax deposit amount is not enough to pay the final deficiency amount, including penalties, fees, and interest, the claim becomes an informal claim. The taxpayer will receive a bill for the remaining amount due, and FTB cannot act on the claim until it is perfected by full payment. The six-month "deemed denial" period does not start to run until the claim is perfected by full payment.

These same procedures apply if the taxpayer has appealed the denial of a protested proposed assessment to the Board of Equalization, and wishes to convert the deficiency appeal to an appeal from the denial of a refund claim.