Corporations to receive letters in August on RARs
Revenue Agent Report notification requirements, and the steps necessary to meet them
As part of a focused education and outreach program, FTB will begin sending letters in August to certain corporations, reminding them of their obligation to report all federal changes to the Franchise Tax Board.
The Internal Revenue Service (IRS) has just completed an examination of your corporate tax return, and issued a revenue agents report (RAR) - what do you do next? How should you properly notify the Franchise Tax Board (FTB) of the results?
Corporate taxpayers are required to report all changes or corrections to gross income or deductions, even if the changes or corrections do not result in an increase in tax payable to California for any year.
Whether established as an S Corporation, general corporation, or apportioning corporation (commonly referred to as a “multi-state corporation”), each corporate entity is required to notify our agency within six months of each final federal determination. A federal determination is final on the date each IRS examination adjustment or resolution is assessed. This notification requirement applies to any corporation that generates income from sources within California and is required to file a California corporate tax return, whether they are headquartered inside California or located outside California.
What constitutes notification?
Each corporate entity is required by law to properly notify the FTB of each final federal determination per California Revenue and Taxation Code Section 18622. This can be met by completing either one of the following steps:
- Filing Form 100X, Amended Corporation Franchise or Income Tax Return.
- Sending a letter with complete copies of the federal changes to:
CORPORATION RAR MS F310
FRANCHISE TAX BOARD
PO BOX 942857
SACRAMENTO CA 94257-0501
With either method, the corporation must include a copy of the final federal determination and all underlying data and schedules that explain or support the federal adjustments. Please note that most penalties assessed by the IRS also apply under California law.
When you have a current examination by the FTB in progress
If you are currently being audited, provide a copy of the federal RAR(s) to the auditor, who will work with you to process the RAR.
When federal changes result in an increased California tax liability
- If the federal changes increase your taxable income, resulting in a California tax liability, and we are notified within six months of the final federal determination, the statute of limitations is two years following the timely notification of the final federal determination, or the normal statute of limitations to issue an assessment.
- If we are notified after six months, the statute of limitations is four years from the date the taxpayer notifies us.
- If we are not notified, the statute remains "open" indefinitely.
When federal changes result in a California refund
If the federal changes decrease income, resulting in a California tax refund, you must file a claim for refund, normally within two years of the final federal determination date.
Provide a complete explanation
If there are differences between the federal and California adjustments, providing a complete explanation of the different tax treatments will minimize the number of contacts from us to request additional information.
Call us at 916.845.6135 for answers to questions about this article, or processing your corporate federal RARs. You may also find additional information in FTB Publication 1008, Federal Tax Adjustments and Your Notification Responsibilities to California.