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S E P T E M B E R 1997

Tax Talk Presents: Advice for


Federal Tax Growing Limited Inside ...
Changes Liability Company 2 ... Nonfilers have questions
2 ... Corporations: Take credit
The new federal tax law has become the hot
topic for the Tax Talk seminar to be telecast
Population where credit is due
3 ... Coming up fast: Tax Talk
on October 7. discount deadline
Limited liability company (LLC) registrations 3 ... Tax Talk: Earn credits three
At press time, Tax Talk producers were in California are on the rise, and so are some ways
putting together a new program segment to misunderstandings about when and how to 3 ... Tax Talk: Coming to a location
tell you what you need to know now about the satisfy an LLC’s tax filing and payment near you
most massive tax reform since 1986. obligations. 4 ... Need a speaker?
The Tax Talk presentation on the new federal 4 ... Schedule K-1: Tips on filing,
Currently, about 31,000 LLCs are registered avoiding errors
tax law, signed by the President on August 5, here. LLCs are registering at the rate of 5 ... Trusts: Too good to be true? -
will concentrate on changes that affect 1997 approximately 1,100 per month, a jump from Part 2
tax returns. An Internal Revenue Service a former 400 to 500 registrations per month. 5 ... Trusts: Internal Revenue
Service Notice 97-24
CONTINUED ON PAGE 3 CONTINUED ON PAGE 11 5 ... FTB calendar
6 ... Phone line heats up
6 ... The question column
Viewing for Credits 7 ... 1997 scannable and substitute
forms producers need FTB
approval
7 ... Tax statistics on the Internet
8 ... Interested in legislation?
9 ... FTB collects defaulted student
loans
9 ... Collections information is just a
fax away
9 ... Renew Tax News
10 ... Package X order form coming
in November
10 ... Program set for Tax
Practitioners’ Institute
10 ... Tax Practitioners’ Institute adds
southern sites
11 ... Limited liability companies:
Registration information
12 ... 1996 returns: Electronic filing
calendar
12 ... Planning to move?
12 ... Corporations with California
connections may owe 1995
returns
13 ... Big opportunities for small
businesses
13 ... Will more taxpayers file
electronically?

The new Tax Talk video series lets you earn continuing education credits without CONTINUED ON PAGE 3
leaving your home or office. For more information, see “Tax Talk: Earn Credits
Three Ways” on page 3.
Page 2

Nonfilers Have Questions


More than 650,000 people have not filed receives and processes your return, it will
California personal income tax returns adjust the tax and penalties based on the
Volume 97-5 September 1997
even though they appear to have income correct amount of tax that you owe. If
TAX NEWS is a bimonthly from a California source. you have other questions about a Notice
publication of the of Proposed Assessment, call FTB at
Taxpayer Advocate Bureau,
California Franchise Tax Board. Its
When the Franchise Tax Board sends
notices to these nonfilers, a number of (800) 895-5440. †
primary objective is to provide them respond with questions. To help
information to income tax
practitioners about state income
tax laws, regulations, policies
you reply to similar queries from your
clients, here are three of the most
Corporations:
and procedures. frequently-asked questions, along with the Take Credit Where
Members of the Board: answers:
Kathleen Connell, Chair I don’t live in California. Why do I
Credit Is Due
State Controller need to file a California personal
The Franchise Tax Board has developed
Ernest J. Dronenburg, Jr.
income tax return?
seven guidelines to help corporations and
Chair, State Board of Equalization The law requires you to file if you receive S corporations enter complete and
Craig L. Brown income from a California source, no accurate credit information on California
Director, Department of Finance matter where you live. For example, tax forms.
people who live and work in Kansas must
———————— file a California return if they receive Corporate tax forms now use codes,
Executive Officer: similar to codes used on personal income
Gerald H. Goldberg money from the sale of property in
California or compensation for any work tax forms, to identify credits that are
Editor: performed in California. claimed on tax returns. The codes were
Pat Huberty introduced on the 1995 Form 100,
To update or correct your address or
Why did FTB send me a notice asking “California Corporation Franchise or
to subscribe to TAX NEWS (send $12 me to file a California income tax Income Tax Return,” and Form 100S,
for a one-year subscription), write: return when I already did so? “California S Corporation Franchise or
TAX NEWS
P.O. Box 520 You may have put the wrong Social Income Tax Return.”
Rancho Cordova, CA 95741-0520 Security number on the return by mistake. Businesses now must identify each credit
or call: (916) 845-7070. Or perhaps FTB made an error in by its name, credit code and amount. The
For information about California tax recording the number. So, even though entries are made on lines 23 through 25
law and/or a client’s account, you filed the return, FTB has no record of on Form 100 and on lines 22 through 24
contact: one under your correct Social Security
Tax Practitioner Support Unit on Form 100S. If a business has more
(916) 845-7057 (phone) number. than three credits, it should use the next
(916) 845-6377 (fax) line, which states “To claim more than
You can verify whether FTB has received
For recorded answers to questions your return by calling an interactive voice three credits…,” for the total amount of
on California taxes, to order forms response telephone service at the additional credits.
or check on a refund, call:
F.A.S.T. (800) 338-0505 (800) 545-5009. You should have your To make sure that credit information is
From outside U.S. (916) 845-6600 copy of the return with you so that you entered correctly, businesses should:
—————————- will have all the information at hand.
Information Center:
You can call the service seven days a • Enter a credit code only once. If a
(800) 852-5711 business uses one credit in more than
From outside U.S. (916) 845-6500 week, except state holidays, from 6 a.m.
to 8 p.m. The service also can supply one section of Schedule P,
Hearing Impaired: “Alternative Minimum Tax and
TDD (800) 822-6268 answers to other questions about the
__________________ notice you received from FTB. Credit Limitations - Corporations,” it
should total the amounts for that
FTB on the Internet If your return is not located as a result of credit and enter the credit’s code on
http://www.ftb.ca.gov the telephone call and your Social the return only one time. For more
Printed on recycled paper.
Security number was listed correctly, mail information, see “How to Claim
a copy of the return to the address given Credits” on the Schedule P (100)
on the notice that FTB sends you. instructions.
I received a Notice of Proposed • Enter an amount on the “To claim
Assessment for failing to filing a more than three credits…” line only
return. May I still file my return? if the three preceding credit lines are
Yes. In fact, the law requires you to file filled and more credits are claimed.
the return, even if you pay the proposed
assessment in full. Then, after FTB
CONTINUED ON PAGE 15

September 1997
Page 3

Coming Up Fast:
Tax Talk Discount Deadline
Time is running out. But you can still agencies are assessed.
sign up for the October 7 Tax Talk • “Employment and Excluded
Tax Talk:
seminar at a discounted fee. Services: Are You Paying More Coming to a
If your registration form and payment are Taxes Than Required?” reports on Location Near You
postmarked no later than September 19, the employment services that are
you can attend the seminar for $150. If exempt from employment taxes and Tax Talk, the educational
you register later, the fee is $195. answers related questions. seminar on October 7, will be
Tax Talk is a program of the nonprofit To register for Tax Talk at a discounted telecast to 22 locations in
Center for Tax Education. It is presented fee, mail your registration form and fee California and one each in
by the California Franchise Tax Board, right away. The form was mailed to Tax Nevada and Oregon.
Employment Development Department, News subscribers in June and again in In California, you can attend
Internal Revenue Service, State Board of August. If you no longer have the form, Tax Talk in Anderson,
Equalization and the School of Business you can obtain a substitute one by calling
Administration at California State (916) 845-7070. † Bakersfield, Del Mar, Eureka,
Fresno, Indio, Irvine, Long
University, Sacramento. Beach, Los Angeles,
If you attend the all-day seminar (see Monrovia, Monterey,
article at the far right for locations), you Pleasanton, Riverside,
can earn up to eight continuing education Tax Talk: Earn Sacramento, San Jose, Santa
credits toward the requirements of the Barbara, Santa Rosa, South
California State Board of Accountancy; Credits Three Ways San Francisco, Stockton,
the California Tax Education Council, Now you have three ways to earn Vallejo, Van Nuys and
which replaced the Department of continuing education credits from Tax Ventura. Tax Talk also will
Consumer Affairs’ Tax Preparer Program be telecast to Reno, NV, and
in July; and, for enrolled agents, the
Talk.
A day-long seminar, telecast live each
Ashland, OR. †
Internal Revenue Service.
year to 20-plus locations in California,
Topics at this year’s seminar are: Nevada and Oregon, is the original Tax
• “General Partnerships: What’s In It Talk component. It will be presented this
For Me?” tells how to form a year on Tuesday, October 7 (see article
partnership and why your clients on this page). You can earn up to eight
might want to. hours of continuing education credit by
• “Sales Tax: Compliance or attending the seminar.
Confusion?” looks at common sales Spin-offs of the seminar include:
tax reporting errors and how to avoid Inside ...
• Tax Talk Home Study Course. If
them. you cannot attend the seminar on CONTINUED FROM PAGE 1
• “Experience Rating System: What October 7, you can still earn up to 14 ... Internet has 1995 median
You Don’t Know Could Cost You” eight hours of credit by taking the income data
shows how to lower your clients’ home study course. The course 14 ... Study shows 1995 income
unemployment insurance taxes and includes a video of the seminar, a gain
what affects the unemployment textbook and a test. It will be 14 ... Small business tax day
insurance rate. announced
15 ... Scannable returns: Looking
• “Trusts: Are Your Trusts Worthy?” CONTINUED ON PAGE 4 good
will help your clients understand why 15 ... SBE opinions
they should avoid abusive trust
schemes.
Tax Talk Presents: 16 ... Explore FTB’s Internet
links
• “Alternate Filing Methods: The Federal Tax Changes 16 ... Are adjustment and
examination the same?
Wave of the Future” is a crystal-ball
guide to ways of filing tax returns in CONTINUED FROM PAGE 1
the future.
expert will discuss, among other things,
• “Penalties: Read the Fine Print” the capital gains tax, home sales, the
explains when and why penalties earned income credit and the child credit.
from the four participating tax
For more information on Tax Talk, see
†
the articles on this page.
Page 4

Schedule K-1:
Tips on Filing, Avoiding Errors
Do you prepare partnership returns? And with the minus sign counting as one
Need a Speaker? would you like to save time and money? of the characters (-00000002333) or
Last year, 52 partnerships did just that by all zeros (000000000000).
If your professional or filing more than 900,000 Schedule K-1s • All seven characters plus the decimal
community organization is (565) on diskette or magnetic media point in the percentage fields. All
interested in information instead of printing and mailing paper percentage fields must have either the
about California tax laws and copies to the Franchise Tax Board. percentage amount (.0500000) or all
administrative procedures, the zeros (.0000000) following the
Franchise Tax Board has a
speaker for you.
When you send K-1 information to FTB
by diskette or magnetic media, all you decimal point. †
need to print and mail is the Form 565
To make sure that a speaker
will be available for your
return. Tax Talk:
event, call the FTB Speakers’ To learn everything you need to know
Bureau four weeks in about the process, read FTB Publication Earn Credit Three Ways
advance. The number is 1062, “Guide for K-1 (565) Filing by CONTINUED FROM PAGE 3
(916) 845-5257. Diskette or Magnetic Media.” If you
have Internet access, you may download, available in December but must be
For more information, see the
May 1997 Tax News. † view and print Publication 1062 and other
California tax publications and forms.
ordered by November 14. The cost
is $150. Only one person may use
Contact FTB at its http://www.ftb.ca.gov the test portion of the course
Internet address. You also can get a free package, but you can order additional
copy of the publication by calling tests for associates for $35 each.
FTB’s Taxpayer Services Center at • Tax Talk Continuing Education
(800) 852-5711. However, after Video Series. The first entries in the
January 1, 1998, call F.A.S.T. (Fast series are “Office-in-Home
Answers about State Taxes) at Deductions” and “California Tax
(800) 338-0505 for a copy of the Rules for Nonresidents.” Both are
publication. updated adaptations of previous
If you are filing partnership returns under seminar presentations. Each costs
the automatic extended deadline, you may $60 for a one-hour videotape,
be able to avoid some of the errors that textbook and workbook. Also
others have made if you are sure to fill in: included is a brief, “open book”
• Either the state or foreign country examination, which you can take to
field. If the address is in a foreign earn three continuing education
country, you can either type a credits. The videos may be ordered
period (.) in the state field, as the at any time and will be shipped this
Internal Revenue Service program fall.
specifies, or merely leave the state The registration form for the Tax Talk
field blank. If the address is in this seminar doubles as an order form for the
country, leave the foreign field blank. home study course and video series. The
• The address, city and state fields, if form was mailed to all Tax News
the address is in this country. You subscribers with a Tax Talk brochure in
must enter something in each of these June and again in August. If you have
fields, and the state field must misplaced the registration/order form, you
can obtain another copy by calling (916)
contain a valid two-character postal
abbreviation for a state, such as “CA” 845-7070. †
for “California.”
• All 12 characters in the money
amount fields. You can use a
positive amount without a plus sign
(000000002333), a negative amount

September 1997
Page 5

Part 2
FTB Calendar
Trusts: Too Good to Be True?
September
Taxpayers should be careful about putting abusive trust arrangements to adhere to 1 Processing and suitability
their trust in trusts. the law voluntarily. In order to comply, checks begin for
That's the message behind the Internal taxpayers should file correct tax returns electronic filing
Revenue Service's Notice 97-24. The this year and file amended tax returns for applications.
notice warns that some trusts are set up to other years that they participated in 15 Personal income tax
reduce income tax illegally. They abuse abusive trust arrangements. estimate payments are
the tax codes by unlawfully inflating For more information, attend the IRS due.
expenses, deducting personal expenses or presentation of abusive trusts at the Tax 19 Last day to mail Tax
both. Talk seminar on October 7 (see "Coming Talk registration form
Up Fast: Tax Talk Discount Deadline" on and payment to qualify
The Franchise Tax Board and the IRS are for discounted fee.
working together to identify abusive page 3). For an adaptation of parts of the
notice, see box below. Also see the July 20 Previous month
trusts. And they are encouraging
taxpayers who have participated in 1997 Tax News for Part 1 of this series. † withholding at source
payments are due if total
withholding exceeded
$2,500.
27 Orange County Small
Trusts: Internal Revenue Service Business Tax Day,
California State
Notice 97-24 University, Fullerton.
31 FTB Publication 1345,
“Electronic Filing
The following summary includes not permitted by the terms of the trust. Handbook, File
portions of Internal Revenue Service The trustee may give the owner checks Specifications and
Notice 97-24. For specific application, along with a rubber stamp of the trustee's Record Layouts for State
refer to the entire text of the notice. signature, signed checks or a credit or of California Individual
Additional information was published debit card, so that the owner can obtain Income Tax Returns,” is
in the July Tax News. cash or use the trust's assets for his or mailed to software
her benefit. developers, with
Trusts have many legitimate uses. They subsequent updates
are lawfully used in estate planning, to The results that abusive trust promoters posted on FTB’s Internet
aid in legitimately transferring property promise are not allowed by law. site. (Also see December
to charities and to hold property for Although promoters of abusive trust listing.)
minors or for people declared arrangements may say otherwise, trusts October
incompetent. Under the tax laws, either are governed by four well-established
the trust, the trust beneficiary or the • Requests for 1995 tax
tax principles: returns mailed to
transferor must pay tax on the income • Substance, not form, controls corporations.
that the trust realizes. taxation. The U.S. Supreme Court 4 San Diego County Small
Abusive trusts, however, attempt to has consistently stated that the Business Tax
transform a taxpayer's personal, living or substance of a transaction, not its Information Day, Point
educational expenses into tax form, is controlling for tax Loma Nazarene College.
deductions. They try to avoid tax purposes. As a result, trust 7 Tax Talk seminar held.
liabilities by ignoring either the true arrangements that attempt to 15 Final extended due date
ownership of income and assets or the circumvent tax laws are treated as for personal income tax
substance of transactions. sham transactions. returns.
Also, in an abusive trust arrangement, • Grantors may be treated as trust 18 Van Nuys Small
the original owner of the trust's assets in owners. Grantor trust rules say that Business Fair, Los
effect has the authority to take direct or someone who transfers property to a Angeles Valley College.
indirect advantage of the trust's financial trust and who keeps an economic 20 See September 20.
benefits. For example, the trust interest in the trust or control over it 25 Inland Empire Small
promoter or a friend or relative of the Business Tax Day,
owner may be the trustee and carry out Riverside.
CONTINUED ON PAGE 6
the owner's instructions even if they are

CONTINUED ON PAGE 7
Page 6

The Question Column


Phone Line
How closely does California conform to The phrase “used in a trade or business”
Heats Up federal depreciation rules? generally is interpreted to mean devoted
First, the Franchise Tax California depreciation statutes are to a trade or business. If only part of the
Board’s Tax Practitioner’s divided between two separate bodies of property is used for business purposes or
Hotline was incorporated into law. One deals with individuals and one if the entire property is used only partly
the Tax Practitioner Support with banks and corporations. Under the for business purposes, the deduction must
Unit. Then, the telephone personal income tax law, California be an apportionment according to the
number was changed to one conforms to the federal Modified percentage of the basis that is attributable
that gave you greater access. Accelerated Cost Recovery Depreciation to business use.
But no matter what it’s called System (MACRS). The California bank and corporation law
or how it has changed, the California Revenue and Taxation Code does not conform to federal MACRS
phone line is still “hot.” Section (R&TC) 17201 incorporates depreciation schedules. Instead, it uses
The effort to provide greater Internal Revenue Code (IRC) Section the mid-range of the Class Life Asset
telephone access may have 167 (a) for purposes of the personal Depreciation Range system to determine
been too successful. You income tax law. As a result, California the economic useful life of depreciable
and/or lots of your peers allows individuals to claim a depreciation assets.
responded by picking up the deduction on certain kinds of property Property is considered eligible for
phone. As a result, the used in a trade or business or in depreciation if it is subject to wear and
program currently is seriously producing income.
“taxed.” CONTINUED ON PAGE 8
In June, the Tax Practitioner
Support Unit staff took 7,838
calls. The average number of
monthly calls to the unit used Trusts: Internal Revenue Service
to be about 6,000. Also in
June, the unit received 642 Notice 97-24
faxes, all requesting answers
CONTINUED FROM PAGE 5
to questions. In the past, the
average was about 200 faxes is treated as the owner of the trust cannot use trusts to transform non-
per month. property for income tax purposes. deductible personal expenses into
FTB is looking into ways to In addition, all trust transactions are deductible expenses. Also, the costs
relieve the situation. One treated as the owner's transactions. of creating the trust are not
consideration is to find a new As a result, the owner must report deductible.
way to handle requests for all trust expenses and income, and • A genuine charity must benefit in
taxpayer information from any tax deductions and losses that order to claim a valid charitable
previous tax years. These arise from transactions between the deduction. Tax law carefully
requests often require owner and the trust are ignored. defines charitable trusts that are
considerable research and Also, no taxable "exchange" of exempt from tax. Trust
divert staff from handling property between the grantor and arrangements that do not conform to
other phone calls. the trust is possible, and the tax the law, including the requirement
basis of property transferred to the that the true purpose is to benefit
If the next calls you plan to trust is not stepped-up for
make to the Support Unit are charity, are not exempt charitable
depreciation purposes. trusts. Also, supposed charitable
not urgent, you might
consider putting them off • Personal expenses generally are payments made by a trust are not
until later. And while you not deductible. Personal expenses deductible charitable contributions
exercise patience, watch such as home maintenance, when the payments really benefit the
education and personal travel costs owner or the owner's family
upcoming issues of Tax News
for reports on how FTB will are not deductible unless tax laws members. †
meet the challenge. † expressly say so. The courts have
consistently held that taxpayers

September 1997
Page 7

1997 Scannable and Substitute Forms


Producers Need FTB Approval
CompuCraft Tax Services (800) 435-7829
Tax Statistics
Are you planning to use scannable or
substitute 1997 state tax forms? Consolidated Business Systems
(800) 262-4461
on the Internet
If so, make sure they meet the Franchise CPASoftware (800) 434-2685 The Franchise Tax Board’s
Tax Board’s requirements. Otherwise, CPSystems, Inc. (804) 346-0640 “1995 Annual Report” is now
the software you use may produce forms Creative Solutions Inc. (313) 426-5860
Curtis Publications Inc.
on the Internet.
that cannot be processed quickly.
Processing problems are especially likely Dave Gomberg’s JCF Systems If you want to browse through
(415) 731-7793 statistical information about
to happen when unapproved Schedule DRAKE Software (704) 524-8020
K-1 forms are filed. more than 12 million
EXACTAX Inc. (800) 352-3638 individual and corporate tax
All companies that publish, produce or Federated Tax Service Inc.
returns,
sell electronically-processed substitute Hambrecht & Quist (415) 576-3300
H&R Block/Tax Systems Development contact FTB at its
California tax forms or image-processed (816) 753-6900 http://www.ftb.ca.gov
scannable Forms 540 and 540A must file Independent Preparer Services, Inc. Internet address. The report
an agreement to comply with FTB (818) 701-3090 also has information on
requirements for the forms. Also, FTB Inland Society of Tax Consultants legislation and legal
must approve the forms before they are
sold or provided to tax preparers.
Intuit, Inc. (619) 784-4274
ITS, Inc. (800) 487-8291
matters. †
Companies that sell or provide Jackson Hewitt Tax Service (757) 473-3300
photocopies of official FTB forms do not KPMG Peat Marwick LLP
need approval. MAVERICC Management Systems
(248) 614-4500
To date, the companies listed below have Mercury Printing and Stationery Co.
filed form FTB 1096, “Agreement to (800) 421-2220
Comply with FTB Publication 1098” for Micro Vision Software, Inc. (800) 829-7354
the 1997 tax year. The form states that Nelco, Inc. (920) 337-2848
the companies agree to follow certain ORRTAX Software (800) 377-3337 FTB Calendar
Pencil Pushers Tax Software (617) 273-4556
rules for developing scannable and PETZ Enterprises, Inc. (209) 835-2720
substitute forms. Filing form FTB 1096, Professional Stationers Inc. (800) 874-7383 CONTINUED FROM PAGE 5
however, does not constitute approval Probate Software Co., Inc. (970) 330-3260
from FTB. RealNet Software, Inc. November
Be sure to ask a company to show you Reynolds & Reynolds (formerly Duplex 7 1997 Package X order
Products, Inc.) (408) 934-8540 forms are distributed as
FTB’s letter of approval before you use
Spidell Publishing Inc. (714) 776-7850 part of Tax News.
its forms. Do not accept a general STF Services Corporation (800) 541-7197
statement that the forms have been 14 Last day to mail payment
Tax And Accounting Software Corporation and order for Tax Talk
approved. Instead, give the company a (800) 998-9990
list of the forms you plan to use, and Tax Form Library (800) 466-9110
Home Study Course.
make sure that each one is approved. Tax Forms, Inc. 20 See September 20.
Tax Systems, Inc. (713) 682-1791 December
Companies that have filed form FTB TAXBYTE, Inc. (800) 245-8299
1096 to date are: Taxware Systems, Inc. (800) 877-1065 • FTB Publication 1345,
Accountant Stationers & Printers Taxworks by Laser Systems (801) 552-8800 “Electronic Filing
(800) 423-9717 TFP Data Systems Handbook, File
Accountware (513) 561-1881 TK Publishing Inc. (Tax Shop) Specifications and
AM Software (816) 741-7848 (407) 351-0966 Record Layouts for State
Arthur Andersen LLP (941) 365-9469 TMI Tax Services, Inc. (612) 935-6111 of California Individual
ATX Forms (207) 455-4848 Total Peripherals, Inc. Income Tax Returns,” is
Block Financial Corporation (Tax Cut) Universal Tax Systems (706) 232-7757 available to tax
(913) 599-2885 Visible Computer Service (630) 377-2586
practitioners.
Brass Tax Presentations (619) 487-2553 Wallace Computer Service (630) 377-2586 1 Deadline for electronic
BSoft Corporation (408) 438-7071 Weaver Tax Service (408) 258-0912 filing applications.
CCH Federal and State Tax Unit Westpro LTD
†
CCH Incorporated (Torrance) (310) 543-6200
20 See September 20.
XPRESS Software, Inc. (800) 285-1065
†
CCH Incorporated (Wichita, KS) 26 1997 personal income tax
(316) 685-8100 forms are mailed.
CLR/Fast Tax (800) 327-8829
Page 8

The Question Column

CONTINUED FROM PAGE 6


Interested in tear, decay or decline from natural causes, Business Expenses,” and then deduct the
Legislation? exhaustion or obsolescence. To be full $500 on Schedule A, “Miscellaneous
eligible, the property also must have a Employee Expense,” subject to the
useful life of more than one year. 2 percent floor.
If you are interested in a
particular bill being Improvement costs are capitalized and A photographer is a Schedule C filer.
considered by the California depreciated. Repair costs, on the other What is the recovery period for a
Legislature, you can obtain a hand, are deductible as expenses. A camera costing $800?
copy by mail or from repair keeps the property in good
operating condition and does not A camera does not qualify as eligible
cyberspace.
materially add to the property’s value or personal property under IRC Section 179.
You can request a copy of the substantially prolong the property’s life. However, if the camera has a useful life
bill you would like to read Examples of repair costs are repainting of more than one year, its cost may be
from an office at the state the property inside and out; fixing leaks, deducted proportionally over its estimated
capitol. Write the Legislative floors and gutters; and replacing broken life. Also, if the camera is used for both
Bill Room, Room B-32, State windows. business and nonbusiness activities, the
Capitol, Sacramento, CA
California also generally conforms to IRC photographer must apportion the purchase
95814. Or call the Bill Room
Section 179’s methodology. However, amount accordingly. The photographer
at (916) 445-2323.
the IRC section currently allows may use the MACRS General
If you have Internet access, individual taxpayers to elect to expense, Depreciation System over five years,
you also will find legislative up to $18,000 per year, the cost of certain subject to an alternative minimum tax
measures at eligible personal property used in actively (AMT) adjustment. Or the photographer
http://www.leginfo.ca.gov, conducting a trade or business. California may use the MACRS Alternative
which is the Official R&TC Section 17255 currently allows up Depreciation System over 9.5 years,
California Legislation to $12,500 per year. The deduction is which is not subject to an AMT
Information Web site
† limited to “business income,” which adjustment.
address. includes, among other things, wages,
A taxpayer has a rental house that is
salaries, tips and other compensation that separate from the taxpayer’s residence.
an employee earns. Both the federal and The rental needs a new septic system.
California deduction amounts will What is the recovery period for the
increase in future years. septic system, if the rental house is
A police officer is required to purchase being depreciated under MACRS at
his own handgun, which costs $500. 27.5 years?
Can the full amount be claimed as a A new septic system adds materially to
miscellaneous employee expense, the value of the property, so it is
subject to the 2 percent floor, on considered an improvement. The
Schedule A? Or should the officer depreciation deduction for an
depreciate the $500? improvement is figured in the same way
If a taxpayer can show that either an as the deduction for the property. The
employer or the necessities of the job, not starting point for the depreciation begins
personal preference, requires a handgun, on the date that the improvement is placed
the cost of the gun and the expense of in service because the rental house is
maintaining it qualify as deductible already being depreciated. Since the
business expenses under IRC Section 162 taxpayer elected MACRS, the septic
as it is incorporated into California law. system is depreciated as residential rental
property at 27.5 years.
So, the police officer may elect to deduct
the $500 cost under IRC Section 179 on
Internal Revenue Service form 4562,
“Depreciation and Amortization,” flow CONTINUED ON PAGE 9
through to IRS form 2106, “Employee

September 1997
Page 9

FTB Collects
Defaulted Student Loans Collections
State law now requires the Franchise Tax unlike some debts, defaulted student loans Information Is
Board to use its collection expertise to often become more collectible with age as Just a Fax Away
help collect defaulted student loans. the former students enter and establish
Assembly Bill 255 (Speier - Ch. 96-1001) themselves in the job market. Do you have a question about
created a partnership between the FTB's first collection action is to issue a personal income tax
California Student Aid Commission Demand for Payment bill requesting collections? Now, the
(CSAC) and FTB to collect the defaulted payment. If the debtor does not pay the Franchise Tax Board can
student loans. The partnership got under loan within 10 days, FTB may then take provide a fast answer via a
way in July. the same kinds of actions that the law new fax Help Line for tax
permits it to take in collecting delinquent practitioners only.
The collection process involves CSAC,
private collection agencies and FTB. personal income tax liabilities. For Starting this month, you can
When a former student defaults on a loan, example, it may levy bank accounts and fax FTB both your general
CSAC sends the debtor a notice of the wages. personal income tax
amount due. If the debtor fails to pay the The first FTB Demand for Payment bills collections questions and
full amount by the due date, CSAC sends were sent to approximately 30,000 queries about collections
three additional notices approximately 30 debtors in July. This month and in activity involving a specific
days apart. CSAC also telephones the August, FTB sent additional Demand for client. The new collections
debtor several times during the period that Payment bills and began placing levies on Help Line fax number is
notices are issued. The last notice tells bank accounts and wages of debtors who (916) 845-0494.
the debtor that the loan will be referred to did not comply. FTB expects to collect The fax line is open 24 hours
a private collection agency. Then, if the $20 million during its first year in the a day, seven days a week. †
private collection agency does not collect program, $45 million in the second year
from the debtor within nine months, and $55 million in the third year.
CSAC may refer the defaulted loan to If FTB contacts any of your clients about
FTB. a defaulted student loan and if the clients
As a result, loan cases usually have been have questions, they can call FTB at
in default for at least one year by the time (916) 845-5775. †
they are referred to FTB. However,
Renew
The Question Column Tax News
Keep the tax news coming
with Tax News.
CONTINUED FROM PAGE 8
When your subscription to
A taxpayer rents out the second floor in service because the second floor of the Tax News is about to run out,
of his residence and depreciates it residence is already being depreciated. the Franchise Tax Board will
under MACRS at 27.5 years. The Because the taxpayer elected to send you a renewal notice.
residence needs a new roof. What is depreciate under MACRS, the new roof is Be sure to return the notice
the recovery period for the rental depreciated as residential rental property right away so that you will not
portion of the roof? at 27.5 years. The allocation formula
would be the same as the one being used
miss any upcoming issues. †
Like the new septic system described in
the previous answer, a new roof adds for the second floor of the residence.
materially to the value of the property and If you have a question for The Question
is considered an improvement. The Column, send it to Editor, Tax News,
depreciation deduction for an Franchise Tax Board, P.O. Box 520,
improvement is figured in the same way Rancho Cordova 95741-0520. †
as the deduction for the property. The
starting point for the depreciation begins
on the date that the improvement is placed
Page 10

Program Set for


Tax Practitioners’ Institute
The Tax Practitioners’ Institute’s fall hours of continuing education credit
Package X program is a three-day presentation of toward the requirements of the California
federal and California tax information. State Board of Accountancy; the
Order Form The federal portion of the program this California Tax Education Council, which
Coming in year includes information on sham trusts, replaced the Department of Consumer
Affairs’ Tax Preparer Program in July;
November tax liabilities and innocent spouses, real
estate professionals and passive activity and, for enrolled agents, the Internal
losses/credits, IRAs, new laws and Revenue Service. So far, the Institute is
Watch the November issue of changes to Internal Revenue Code Section scheduled for eight Northern California
Tax News for a 1997 104, which deals with compensation for locations and San Diego with additional
Package X order form. injuries and sickness, after the 1996 Tax Southern California sites planned (see
The order form will appear on Act. article on this page).
the last page of the November The state program covers differences Institute sponsors are the California State
issue. You will be able to between federal and state tax laws that University, Chico, Fresno, Hayward and
order the Package X in either affect both individuals and corporations, Sacramento; Humboldt State University;
a paper form or on CD-ROM. credits against tax and a legislative San Diego State University; the
If your Tax News update. University of California, Santa Cruz; the
subscription is about to end, Franchise Tax Board; and the Internal
the expiration date will be By attending the Tax Practitioners’
Institute, you can qualify for up to 24
Revenue Service. †
noted on the form so that you
may renew your
†
subscription.
Tax Practitioners’ Institute
Adds Southern Sites
For the first time, the Tax Practitioners’ Chico: November 17 - 19
Institute will hold its three-day program at (916) 898-6105
Southern, as well as Northern, California Shell Beach: November 20 - 22
locations. (408) 342-0236
The Institute’s program (see article on Oakland: December 1 - 3
this page) will be available at eight (510) 881-2312
Northern California sites. By press time,
one Southern California location had been Monterey: December 4 - 6
added, and others will follow. (408) 342-0236
For enrollment, registration and other Arcata: December 11 - 13
information, call the telephone number (707) 826-3731
listed below at the Institute site nearest In Southern California, you can attend the
you. Institute in:
In Northern California, Institute programs San Diego: November 5 -7
are scheduled for: (619) 594-6255
Fresno: November 6 - 8 For additional Southern California sites,
(209) 278-5663 call the Center for Management Services,
Sunnyvale: November 10 - 12 School of Business Administration,
California State University, Sacramento at
(408) 342-0236
Sacramento: November 12 - 14
(916) 278-6346. †
(Initially, this Institute was scheduled
earlier in the month)
(916) 278-6346

September 1997
Page 11

Limited Liability Companies


CONTINUED FROM PAGE 1

One of the reasons for the increase may April 15 due date, must pay the $800
be a change in the kinds of taxpayers that tax with Form 3522 either upon
may qualify as LLCs. The 1994 law that registration or on the date it started Limited Liability
authorized the formation of LLCs in business, whichever is earlier.
California excluded professional services Whether a calendar-year LLC Companies:
for which either the Business and registers before or after April 15,
Professions Code or the Chiropractic Act 1997, its 1997 return is due on Registration
require a license, certification or April 15, 1998, with payments for the Information
registration. However, subsequent annual fee and any nonconsenting
legislation now allows previously members’ tax that is due. The 1998 Your clients that plan to
excluded insurance brokers and agents to $800 LLC tax payment also is due on register as limited liability
form LLCs. And the Legislature is April 15, 1998; it should be mailed companies (LLCs) in
considering several bills that would allow with Form 3522, not with the tax California can obtain
other excluded businesses, such as real return. information from the
estate brokers and contractors, to form • They must file their tax returns on California Secretary of State.
LLCs under certain circumstances Form 568, “Limited Liability
including carrying a minimum bond or Both California and out-of-
Company Return of Income.” state clients can learn about
insurance for consumer liabilities. Because the Internal Revenue Service organizing and registering
As more taxpayers register as LLCs, requires LLCs to file using a LLCs here by writing:
misunderstandings about tax requirements partnership return, Form 1965, some Limited Liability Company
are emerging. If you have LLC clients LLCs are filing California returns on Unit, California Secretary of
that are classified as partnerships, provide Form 565, “Partnership Return of State, P.O. Box 944228,
them with these reminders: Income,” by mistake. Sacramento, CA 94244-2280.
• They must pay an $800 tax each year • In addition to the $800 annual tax, Or call the unit at
for the privilege of doing business in LLCs must pay an annual fee with (916) 653-3795.
California. Some companies fail to Form 568. The fee is based on “total For more LLC information,
make their initial payment on time;
they mistakenly pay the $800 tax the
income for the taxable year from all
sources reportable to California.”
†
see the article on this page.
following year when their return is “Total income” is defined as gross
due. income, plus the cost of goods, from
This tax is due each year on the 15
th all sources before taking into account
day of the fourth month of the LLC’s apportionment and allocation. Use
taxable year, which is April 15 for Schedule Q on Form 568 to compute
companies that file on a calendar- this income.
year basis. If an LLC organized in For taxable years beginning on or
another state registers with the after January 1, 1996, the annual fee
California Secretary of State or is $500 if the total income is at least
begins doing business here after the $250,000 but less than $500,000.
date for paying the $800 tax, the The fee is $1,500 if the total income
amount is due immediately. LLCs is at least $500,000 but less than $1
should send the $800 tax to the million, $3,000 if at least $1 million
Franchise Tax Board with Form but less than $5 million, and $4,500
3522, “Limited Liability Company if $5 million or more. This fee is due
Tax Voucher,” not with their tax within three months and 15 days
return. after the close of the LLC’s taxable
For example, an LLC that registers year.
with the California Secretary of State • If they have nonresident members,
or that begins doing business in LLCs must file form FTB 3832,
California on January 1, 1997, must “Limited Liability Company’s List of
make its initial $800 tax payment Members and Consents,” with Form
with Form 3522 by April 15, 1997. 568 and, if required, pay a
However, an LLC that organized in “nonconsenting members’ tax.” The
another state and that registers with LLC’s nonresident members who
the California Secretary of State on sign form FTB 3832 give their
June 15, 1997, which is after the
CONTINUED ON PAGE 12
Page 12

Corporations with California Connections


May Owe 1995 Returns
Approximately 40,000 corporations that corporation believe that it does not have a
have not filed 1995 tax returns will California filing requirement, they must
1996 Returns: receive demands to file next month. complete the entire questionnaire and
Electronic Filing Based on information that FTB receives
return it to FTB. Then, based on the
questionnaire information, FTB will
from the Internal Revenue Service,
Calendar Employment Development Department
determine whether the filing requirement
exists.
and State Board of Equalization, these
If you are still planning to file corporations appear either to be doing If the questionnaire or other information
California tax returns business in California or to have income shows that a corporation has a
electronically, keep these from a California source. qualitatively or quantitatively nontrivial
dates in mind: connection to California, then the
Included among the entities being asked
October 15: corporation has a filing requirement. An
for 1995 returns are “qualified”
Last day to file a 1996 activity is usually considered nontrivial if
corporations that have registered with the
electronic return. it is conducted regularly or systematically
California Secretary of State. These
October 18: within California and if it is directed to
qualified corporations are required by law
Last day to retransmit a return establishing and maintaining a market
to file a California return each year until
rejected for errors.† they either formally dissolve or withdraw.
here. Also, establishing that the
corporation’s activities account for only a
Nonqualified corporations that have not relatively small part of the overall
registered with the Secretary of State will business conducted does not establish the
also be asked for 1995 returns. Along activities as a nontrivial connection with
with the demands to file, nonqualified California. †
corporations will receive a questionnaire
about their California business activity.
Planning to If the officials of a nonqualified
Move? Limited Liability Companies
Do you plan to move soon?
CONTINUED FROM PAGE 11
If there’s a change of address
th th
in your future, be sure to alert consent to California’s jurisdiction to 15 day of the 10 month following
Tax News. tax their pro rata share of income that the end of the taxable year, which is
Send your new address and is attributable to California sources. the extended due date, if they are not
telephone number to: If nonresident members do not sign able to file their California return by
the form, the LLC must pay the tax the original due date. California does
Tax News on their distributive share of income. not require LLCs to file a written
P.O. Box 520 An LLC that fails to pay the request for an extension. However,
Rancho Cordova, CA nonresident members’ tax is subject the extension to file is not an
95741-0520. to penalties and interest. Any amount extension to pay the annual fee or the
Also include the account paid by the LLC on behalf of a nonconsenting members’ tax. These
number that you will find on nonresident member is considered a amounts should be mailed on the
page 16 of this issue above payment made by the member. return’s original due date with Form
your name and address. † The LLC must compute the 3537, “Payment Voucher for
nonconsenting members’ tax on Automatic Extension for Limited
Schedule T, included in Form 568. Liability Companies.”
Multiply the distributive share of LLCs are subject to penalties and interest
income by 9.3 percent, the maximum charges for failing to follow filing and
tax rate, if the member is an payment requirements:
individual, a partnership or an estate • Failing to file a return on time or
or trust, by 8.84 percent if the failing to file required information
member is a corporation and by 1.5 on a return. The penalty for each
percent if the member is an S month or part of a month, up to five
corporation. months, that the failure continues is
• They may file any time through the $10 multiplied by the total number of
CONTINUED ON PAGE 13

September 1997
Page 13

Big Opportunities for Small Businesses


If you live in Orange, San Diego, Use Tax Return.” All four agencies
Riverside or San Bernardino counties,
you and your small business clients have
will participate in a panel discussion
of “Audits and Appeals.”
Will More
an opportunity to pick up a wealth of tax In addition, the Orange County Taxpayers File
information without charge. program will feature presentations on Electronically?
Upcoming small business tax days will “Social Security Benefits and the
provide the information at a series of Small Business Owner” by the Social Electronic filing is on the rise.
workshops and also at information Security Administration, “Financing
booths. Participants include Options” by the Small Business Although more paper and
representatives of federal, state, county Administration, “Understanding the scannable returns were filed
and city government agencies. Business Property Statement” by the for the 1996 tax year, the
Orange County Assessor’s Office and number of electronically filed
Mark your calendar and bring your returns increased by 53
questions and concerns to events on these a compliance overview by CAL/
OSHA. Many government agencies percent. And the Franchise
dates: Tax Board expects a 65
also will provide information at
• September 27 - Orange County. booths. percent increase next year.
The Orange County Small Business Next year’s increase is
Tax Day will be held at California For more information, call
(714) 461-5739. anticipated primarily because
State University, Fullerton from of a new feature, the direct
9 a.m. to 3 p.m. • October 4 - San Diego County. deposit of refunds. A second
The Internal Revenue Service will You can attend the seventh San new feature for the 1997 tax
present a workshop on “Federal Diego County Small Business Tax year is the addition of Form
Deposit Rules for Employment Taxes Information Day at Point Loma 540NR, “California
and Employment Tax Forms,” and Nazarene College from 9 a.m. to 3:30 Nonresident or Part-Year
the Franchise Tax Board will offer p.m. Resident Income Tax
“Small Business and Income Taxes.” In addition to the EDD, FTB, IRS Return,” to the forms that can
The Employment Development and SBE, participants in the event be filed electronically.
Department’s Tax Branch programs include San Diego’s City Treasurer’s In addition, the notion of
are “Reporting Requirements and Office, Contracting Opportunities filing returns electronically is
Major Tax Topics,” “California Center and Small Business new to many people,
Employer vs. Independent Development Center, as well as the including tax practitioners.
Contractor” and “Employer San Diego County Assessor, But as more taxpayers
Contribution Rates.” And the State Recorder and Public Library. Also become aware that the
Board of Equalization’s topics are on board are the Immigration and process produces a faster
“Sales and Use Tax - Common refund and that electronic
Pitfalls” and “Preparing a Sales and filing saves paper, they are
CONTINUED ON PAGE 14
expected to join the ranks of
the current electronic filers.
Limited Liability Companies The process also is virtually
CONTINUED FROM PAGE 12 error-free. Because the
information on an
members in the LLC during the that the fee is unpaid. Also, the electronically filed return is
months the return is overdue. penalty cannot exceed 25 percent of transferred automatically to
Interest is charged on the penalty the unpaid fee. The penalty and the FTB’s computer database,
from the date of the notice that the interest are computed from the the risk of errors produced in
Franchise Tax Board sends the LLC. payment’s due date. keying the data into the
The exception to this penalty for system is eliminated.
LLCs classified as small partnerships For more information, see the Form 568
“Limited Liability Company Tax For more information about
for federal purposes does not apply electronic filing, contact FTB
for California tax purposes. Booklet.” For guidance on registering as
at its http://www.ftb.ca.gov
• Failing to pay the LLC fee on time,
an LLC in California, see the article on
page 11.† Internet address. †
failing to pay the total nonresident
members’ tax on time or failing to
pay the annual LLC tax on time.
In all three cases, the penalty is 5
percent of the unpaid fee, plus 0.5
percent for each month or part of a
month, but not more than 40 months,
Page 14

Study Shows 1995 Income Gain


In 1995, four Bay Area counties median income reported on joint returns.
continued their 24-year hold on Sierra County, the second smallest in the
California’s highest median incomes, state in terms of population, showed the
Internet Has according to a study of state income tax largest percentage gain in median income
returns for that year. reported on all returns; the increase was
1995 Median 7.7 percent.
Median income represents income
Income Data reported by a typical California individual The statewide median income on all
or couple. Half of all tax returns report returns was $24,128 in 1995, an increase
The Franchise Tax Board has income above and half report income of 3.2 percent over the previous year. For
posted on the Internet a below the median point. joint returns, the statewide median income
complete county-by-county was $43,006, a 3.4 percent increase.
breakdown of 1995 Marin, Contra Costa, Santa Clara and San
Mateo counties captured the high-income The study also shows that in 1995
taxpayers’ median income Californians filed approximately 12.6
(see “Study Shows 1995 honors for 1995. For joint returns, Marin
County had the highest median income, million state income tax returns and
Income Gain” on this page). reported more than $533 billion of
which at $66,962 was a 6.3 percent
To access the information, increase over 1994. Contra Costa County adjusted gross income (AGI). The figure
contact FTB at its ranked second with $59,638. Santa Clara is 7.4 percent higher than 1994’s AGI.
http://www.ftb.ca.gov Internet County came in third with $59,444, and More than a quarter of all the tax returns
site. Then, see the July 1997 San Mateo County was fourth with were filed by Los Angeles County
press release under either $57,452. In terms of median income taxpayers. Coming in second to Los
“Recent Additions” or “Other
FTB Information.” † reported on all returns filed, Contra Costa
County came in first, followed by Marin,
Angeles’ 3.3 million returns was Orange
County with close to 1.1 million, followed
San Mateo and Santa Clara. by San Diego, Santa Clara, Alameda and
The least populous county, Alpine, San Bernardino counties.†
showed the greatest gain, 7 percent, in

Big Opportunities for Small Businesses


CONTINUED FROM PAGE 13

Naturalization Service, CAL/OSHA, SBE; “Employee vs. Independent


SCORE, Secretary of State, Small Contractor” by the IRS and EDD;
Business Development and “Employer Contribution Rates” and
International Trade Center, Small “Employer Reporting Rules and
Business Institute of Point Loma Major Tax Topics” by EDD; “Tax
College, Small Business Tips for Restaurants” by SBE and
Administration, Social Security IRS; “Understanding the Business
Administration, State Compensation Property Tax Statement” by
Insurance Fund and U.S. Department Riverside and San Bernardino
of Commerce.
For a brochure on the event, call CONTINUED ON PAGE 15
(760) 744-1330, extension 410.
• October 25 - Riverside/San Small Business Tax
Bernardino. The Inland Empire
Small Business Tax Day at the Day Announced
California Tower in Riverside will be
open from 8:30 a.m. to 3 p.m. At press time, another Small Business
Workshops include “Small Business Tax Day (see article beginning on
Forms of Ownership, Record page 13) was scheduled. It will be
Keeping and Filing Requirements for held in Van Nuys at Los Angeles
Income Tax” by FTB; “The Audit Valley College on Saturday,
and Appeals Procedures” by EDD, October 18, from 8:30 a.m. to 3 p.m.
FTB, IRS and SBE; “Escrow - Sales For additional information, call
of Business, Tax Clearance, Lien
Releases, Etc.” by FTB, IRS and
(818) 901-5690. †
September 1997
Page 15

Scannable Returns: Looking Good SBE Opinions


A common error on “scannable” tax the return and the payment to Image
returns has nothing to do with itemized Processing, Franchise Tax Board,
Appeal of CRG Holdings,
deductions, adjusted gross income, P.O. Box 94267, Sacramento, CA
exemptions or other potential pitfalls. It 94267-0001. † Inc., formerly Charles of
the Ritz Group, Ltd.,
involves entering the state name twice in May 8, 1997. Taxpayer was
the address section. not allowed to adjust its basis
Scannable returns are computer-generated Big Opportunities for in its subsidiaries’ stock
by tax practitioners and processed by the based on a consent dividend
Franchise Tax Board’s imaging Small Businesses properly declared pursuant to
equipment. the Internal Revenue Code.
CONTINUED FROM PAGE 14
The common error on the scannable Appeal of Kelly Service,
returns occurs when tax practitioners Counties; “Disability and Worker’s Inc. and Subsidiary
automatically, but incorrectly, add the Compensation Costs” by the State Corporations, May 8, 1997.
state name right after the city name in the Compensation Insurance Fund, The Michigan Single
city field and then correctly enter it in the EDD’s Disability Insurance Branch Business Tax measures
designated state field. All scannable tax and the Social Security economic activity and is not
forms have separate fields for city, state Administration; “I-9 Verification an income tax. The tax may
and zip code. Procedures” by the Immigration and be deducted on a California
The error does not interrupt the Naturalization Service; and franchise tax return even
processing of returns or delay any “Budgeting and Money though the ultimate base upon
refunds. But it requires running a “clean- Management” by the Consumer which the tax is measured
up” program to correct the computerized Credit Counseling Service. Also does not contain a return of
taxpayer database. participating in the event are the capital in the context of a
Social Security Administration and service-intensive business.
By press time, FTB’s imaging equipment the Greater Riverside Chamber of
had processed 4.7 million 1996 scannable Appeal of Rapid-American
Commerce. Corporation, Opinion on
personal income tax returns, about
For more information, call Rehearing, May 8, 1997.
100,000 more than the previous year.
Overall, the quality of the returns, (909) 680-6705. † No California authority exists
produced by software packages, and the that would support a parent
accuracy of the information that tax corporation increasing its
practitioners input have improved. basis in the stock of a unitary
subsidiary by the amount of
Even so, in addition to the incorrectly the subsidiary’s undistributed
placed state designation, FTB has
identified a few recurring errors. If you
Corporations: earnings and profits, even
though those earnings and
plan to send FTB scannable returns for Take Credit Where Credit profits may have been
your clients this year or next, here are included in a combined
some tips to follow: Is Due unitary report.
• Print the apartment number in the CONTINUED FROM PAGE 2 Appeal of Michael E.
apartment field. Do not add it to the Curtis, August 1, 1997. A
street address field. • Enter an amount on line 27 on Form child and his mother live in
100 or on line 26 on Form 100S only
• Print the taxpayer’s and/or spouse’s when there is at least one entry on
the home and are dependents
middle initial in the middle initial of an unrelated taxpayer who
lines 23 through 25 on Form 100 or claims head of household
field. Do not add a middle initial to on lines 22 through 24 on Form
the first name field. filing status on the basis that
100S. the child is his qualifying
• Mail the original, signed scannable • Verify that the credit amounts have individual. Because the child
return to FTB. Do not substitute a been added correctly and that the is in the care of his mother,
photocopy of the return. sum is entered on the correct line. the child is not a foster child
• Mail the scannable return to the • Verify that the tax preparation and does not qualify the
correct address. software has not entered erroneous taxpayer for head of
If the return shows that a refund is credits. household filing status.
due or that no amount is due, send it • Attach Schedule P (100) to the At press time, case numbers
to Image Processing, Franchise Tax had not been assigned to
Board, P. O. Box 942840,

return if Form 100 is filed.
Attach all supporting credit
these opinions.†
Sacramento, CA 94270-0009.
If the return has a balance due, send
schedules. †
Page 16

Are Adjustment and Examination the Same?


Explore FTB’s Sometimes, the Franchise Tax Board questioned. So, an adjustment does not
makes adjustments to tax returns when constitute an examination or audit of the
Internet Links they are processed. When the result is a return. As a result, there are no appeal
greater tax liability for the taxpayer, does rights as there would be under an
The Franchise Tax Board’s the adjustment constitute an examination? examination.
Home Page on the Internet And does the taxpayer have appeal However, an adjustment may lead to
provides links to other rights? appeal rights in some cases. For example,
government agencies. If the change occurs during processing, it FTB notifies taxpayers of any
From the FTB site, you can is a “math verification” adjustment. adjustments made to their returns. Then,
reach the California Home These adjustments merely correct errors a taxpayer who disagrees with the
Page and Web sites for the in math or failures to follow instructions. adjustment can telephone FTB at the
Employment Development All the information needed to make the number given on the notice. After talking
Department, Internal Revenue correction is either on the return, in the with an FTB staff member, a taxpayer
Service, State Board of instructions or, in the case of California who still disagrees can pay the amount
Equalization, State withholding adjustments, available from owed and file a formal claim for refund.
Controller’s Office and data that FTB receives from the If FTB denies the refund, the taxpayer
Secretary of State. may file an appeal with the State Board of
†
Employment Development Department.
You can locate FTB at its In these cases, the correctness of the Equalization.
http://www.ftb.ca.gov Internet figures reported on the return is not
address.†