Tax News
Ask the Advocate

Steve Sims, Taxpayers' Rights Advocate.

CSEA Annual Meeting

On September 21 2012, we held our annual liaison meeting with the California Society of Enrolled Agents (CSEA). This year, like every year, they had some really great questions for FTB staff. I’ve decided to share a few of questions I thought our Tax News readers would find most interesting in my Ask the Advocate column this month.

Question 1:

Please provide any progress towards FTB’s ability to accept amended and prior year returns through e-file.

Response 1:

Amended returns: Software providers have indicated they will not support e-file for CA amended returns (FTB 540X) until the IRS begins allowing federal amended returns (IRS 1040X) to be e-filed. Therefore 540X returns will be implemented at the same time the IRS implements e-file of 1040X returns. At this time the IRS has not set a definitive date, but currently is planning to implement the 1040X in January 2015, at the earliest.

Prior year returns:  FTB currently supports e-filing of two prior tax years in addition to the current tax year. Tax preparers should check with their software provider to see if they support e-filing of prior years.

Question 2:

Our members reported that taxpayers, who have filed tax returns and failed to claim real estate withholding on Form 593-B, even in situations where FTB has been able to confirm receipt of these funds as credits on the taxpayer account, are not refunding these amounts unless an amended return with Form 593 B is filed with FTB requesting the amount. Is this correct information? Shouldn’t the withholding be included on a Return Information Notice (RIN) and refunded in the normal processing of the original return?

Response 2:

FTB eliminated Form 593-B beginning with tax year 2008. Real estate withholding is reported on FTB Form 593, Real Estate Withholding Tax Statement, when escrow is completed.

To claim the withholding credit, the taxpayer should:

  • Report the sale or transfer as required on their appropriate tax return.
  • Enter the withholding amount from Form 593, on the appropriate line designated for real estate withholding on the tax return. Attach a copy of Form 593 to the lower front of the tax return, Side 1.    

If the real estate sale or transfer is reported on an original return but the taxpayer fails to claim the withholding credit on that return, the subsequent request is a refund claim under Revenue and Taxation Code (R&TC) Section 19322. We request the taxpayer file an amended return to properly report the credit to ensure accurate processing and to preserve the taxpayer's administrative appeal rights if the claim is denied. We understand the concerns with time and costs associated with filing an amended return. Our system generates a RIN when an error on the return results in an adjustment during processing. The taxpayer will not receive a RIN when real estate withholding is omitted because our current systems are not able to associate unclaimed withholding with the tax return during processing. We are working to improve our systems and current practices and expect to have the ability to notify taxpayers of any unclaimed withholding credits at the end of 2013 or early 2014. These are estimated dates, pending available resources.

Question 3:

CSEA was pleased to see FTB 2012 Legislative Proposal C, which seeks to reenact expired R&TC Section 21004, authorizing the FTB Taxpayer Advocate to waive penalties and other additions to taxes for FTB errors. If this provision is reenacted effective January 2013, could you explain the correct procedure for a taxpayer to apply for this relief with the Taxpayer Advocate’s office?

Response 3:

On September 17, 2012, the Governor signed AB 2686. Accordingly, the procedures for requesting equity relief will be similar to the existing process for requesting an abatement of interest. Specifically, taxpayers will make requests for equity relief in writing.

The request for equity relief will include:

  • Taxpayer’s name.
  • Social security or entity identification number.
  • Taxpayer’s address.
  • Tax year and type of relief requested.
  • An explanation of why relief should be granted.
  • Signature, title, if applicable, and date.

We are presently creating a form, similar to FTB 3701, that may be used to make requests or equity relief.

Mail request to:

EXECUTIVE AND ADVOCATE SERVICES
FRANCHISE TAX BOARD MS A381
PO BOX 157
RANCHO CORDOVA CA 95741-0157

Fax request to: 916.845.6614

Question 4:

Members have reported that an FTB procedure allows for corporate revivors of suspended corporations before full payment is received. This includes processing delinquent franchise tax returns, concluding with installment payment arrangements. Please clarify your revivor practice, including timing for revivor with/without all delinquent returns and full payment.

Response 4:

Generally, suspended corporations or LLC’s (entity) are required to file all missing returns and pay all amounts due as a condition of being revived to good standing. (R&TC Sections 23305 and 23305.1)

However, if collection of the full amount cannot be secured because of the suspension, collection staff has the discretion to consider reviving the entity to good standing without full payment to allow the entity to receive funds or other assets used to pay any amounts due in full. (R&TC Section 23305b) A specific future source or method of collection must be identified and secured and the entity must provide any documentation to support the decision to revive the entity that is requested. Under this procedure, an entity may be revived without full payment, however all missing returns must be filed. If there is a financial hardship, an installment agreement may be approved with this procedure.

Estimated revivor turnaround time once a complete request is received:

Revivor request by mail Up to 6 weeks
Revivor request by telephone Up to 2 weeks
Revivor request at the field office Up to 2 weeks
Rush “walk-through” revivor* Same day
Discretionary revivor (R&TC Section 23305b) Same day

*Rush walk-through revivor is available in the Sacramento, Oakland, San Francisco, Santa Ana, Los Angeles, and San Diego field offices. A fee of $56 applies for corporations. There is no fee for LLC’s at this time. All requirements must be received in the field office by 2 p.m., 1 p.m. for Los Angeles. To expedite processing, please call 888. 635.0494 to obtain up-to-date revivor requirements prior to your visit to our field office.

Steve Sims, EA
Taxpayers’ Rights Advocate

Follow me on Twitter at twitter.com/FTBAdvocate.

Back to November 2012 Tax News