Vous êtes sur la page 1sur 12

M A R C H 1 9 9 9

FTB Offers Credit Card Option Inside ...


In January the Franchise Tax Board launched date, although FTB may not actually post the
a pilot program that allows some taxpayers to payment to the taxpayer’s account until 2 ... New Members Join Tax Board
use their credit cards to pay their tax three to five days after the transaction. 2 ... Service on the Rise During
liabilities. To make a credit card payment, the taxpayer Filing Season
During the six-month pilot, certain qualified calls the toll-free number provided in the 3 ... Frequently Asked Questions:
FTB’s Credit Card Payment
taxpayers will receive an insert along with FTB insert and accesses an interactive voice Program
their tax bill explaining how they can use their response (IVR) system operated by an FTB- 3 ... Convenience Fee Chart
Discover/NOVUS, MasterCard or American approved credit card payment-processing 4 ... Court Opinions
Express credit card to pay their past due state vendor. Once the IVR has all the required 4 ... The Question Column
tax bill. Estimate payments and payments information, it gives the taxpayer a 5 ... ABCs of LLCs
made with a tax return are not yet part of confirmation number. That number serves 5 ... FTB Calendar
FTB’s credit card program. as the taxpayer’s receipt.
6 ... What’s Your Excuse? Better to
The current program allows taxpayers to use The payment will show up later on the File Late Than Not at All
their credit cards to pay all or part of their taxpayer’s credit card statement as a 6 ... FTB e-filers: Keep Signature
bill. Taxpayers may also use more than one payment to FTB. Documents
credit card to pay their liability. 7 ... Check SSNs on Mortgage
Taxpayers will be charged a convenience fee Statements
With credit card payments, the date the by the vendor for use of the automated credit 7 ... Voluntary Disclosure Program
taxpayer completes the credit card transaction card service. For more information about Helps Nonfilers
is the effective date of the payment. That the fee see: “Credit Cards: Frequently Asked 7 ... Not Everyone Has to File
means that the interest charges stop on that Questions,” on page 3. .7 ... Wanted: New FTB e-filers
7 ... FTB Calendar
8 ... Manufacturers’ Investment
Credit: Avoid Common Errors
Tax Help: At Your Fingertips Found With MIC
8 ... Manufacturers’ Investment
Credit: For Your Information
9 ... Tax Form Corrections
Announced
9 ... Free Seminars For Businesses,
Taxpayers
10 ... Head of the House or Head of
Household?
10 ... FTB Offers e-pay Option
11... Head of Household
Presentations Available

A customer uses a kiosk to download tax forms tax store. Please see the article on page 2
at a prototype tax store in the Great Mall of the entitled “Service on the Rise During Filing
Bay Area. FTB is also participating in the new Season.” FTB photo by Dan Chan
Page 2

New Members Join Tax Board


The California Franchise Tax Board has California Assembly for 12 years.
two new members. Gage, who was appointed director of the
Volume 99-2 March 1999
Johan Klehs, the newly elected chair of Department of Finance in December by
TAX NEWS is a bimonthly the State Board of Equalization, and B. Governor Gray Davis, has held several
publication of the Communications
Services Bureau, California Franchise Timothy Gage, the newly appointed finance positions in state government,
Tax Board. Its primary objective is to director of the Department of Finance, most recently four years as chief fiscal
provide information to income tax now serve on the three-member Franchise advisor to the Senate President Pro
professionals about state income tax
laws, regulations, policies and Tax Board. Tempore.
procedures. He also worked for seven years as the
Klehs was first elected to the State Board
Members of the Board: of Equalization in November 1994 and chief consultant to the Assembly Ways
was re-elected in 1998. He served as the and Means Committee and six years as
Kathleen Connell, Chair assistant fiscal advisor to the Senate
State Controller chair of the State Board of Equalization in
1995 and 1996 and therefore also served President Pro Tempore.
Johan Klehs as a member of the Franchise Tax Board
Chair, State Board of Equalization Klehs and Gage join Kathleen Connell,
in those years. who was re-elected State Controller in
B. Timothy Gage Before his election to the State Board of 1998. Connell is the chair of the
Director, Department of Finance
Equalization, Klehs served in the Franchise Tax Board.
————————
Executive Officer:
Gerald H. Goldberg
Editor:
Marvin Meek
Service on the Rise During Filing Season
To update or correct your address or before April 15 (March 20 and 27 and
to subscribe to TAX NEWS (send $12 April 3 and 10), from 8 a.m. until 5 p.m.
for a one-year subscription), write:
TAX NEWS There are several ways to reach the Tax
PO Box 2708 Practitioner Support Unit. If you have
Rancho Cordova, CA 95741-2708 questions about account resolution
or call: (916) 845-7070.
problems or questions about tax law, call
To view TAX NEWS on the Internet (916) 845-7057 or send a fax with your
or to request an electronic mail question to (916) 845-6377.
subscription, contact FTB on the
Internet: If you have questions concerning the
www.ftb.ca.gov collection of personal income taxes, send
For information about a client’s a fax with your question to (916)
account, contact: 845-0494.
Tax Practitioner Support Unit
(916) 845-7057 (phone) Typically, the Tax Practitioner Support
(916) 845-6377 (fax) Unit responds to questions received by
For recorded answers to questions on fax within three working days. The
California taxes, to order forms or maximum wait for a response by fax is
check on a refund, call: seven working days.
F.A.S.T. (800) 338-0505
From outside U.S. (916) 845-6600 Remember, the FTB Tax Practitioner
To send a facsimile about a client’s Support Unit provides on-line and written
account, transmit to: Trinh Vo, facility manager of the tax store, assistance solely to qualified tax
Electronic Correspondence prepares a sign for the front window. FTB practitioners, attorneys, enrolled agents
(916) 845-6377 photo by Dan Chan and certified public accountants.
—————————-

,
Information Center:
(800) 852-5711 ncreased hours of operation and Taxpayer Assistance
From outside U.S. (916) 845-6500 telephone system upgrades have made FTB has also made it easier for taxpayers
Hearing Impaired: it easier to get assistance from the to get assistance during the 1999 filing
TDD (800) 822-6268 Franchise Tax Board during the 1999 season. From January 4 through April
__________________ peak filing season. 15, the FTB general toll-free telephone
FTB on the Internet service is available Monday through
www.ftb.ca.gov Tax Practitioner Assistance Friday, 6 a.m. until midnight; Saturday
The Tax Practitioner Support Unit is and holidays, 8 a.m. until 5 p.m.
available Monday through Friday, 7 a.m.
From within the United States, the
to 8 p.m., and on the last four Saturdays
CONTINUED ON PAGE 12

March 1999
Page 3

Convenience
Here are the answers to frequently asked advance fee that taxpayers could be
Fee
questions about FTB’s credit card
program for personal income tax
charged for making a tax payment Chart
using a credit card?
liabilities: Discover/NOVUS and American Express Taxpayers will be charged a
Why should I use my credit card to pay will not charge a cash advance fee for the convenience fee by the vendor
my tax liability? tax payment transaction. Some banks that for use of the automated credit
Payment by credit card is another issue MasterCard credit cards may charge card service.
payment option. Taxpayers can still make a cash advance fee for tax payments. The convenience fee amount
payment by check, money order, cash or Cardholders should check with the varies according to the payment
Western Union money transfer. financial institution that issued the credit amount. The chart below
Taxpayers who are unable to pay the total card to see if there is a cash advance fee. shows what a taxpayer can
amount owed may also request a payment The credit card payment processor’s IVR expect to pay for payment
arrangement. However, with partial system also has been programmed to amounts up to $4,999.99. For
payments, the interest and/or penalties notify cardholders if their bank charges a payments of $5,000 or more,
will continue to accrue on any unpaid cash advance fee for the FTB payment. eligible taxpayers can contact
balances. Cardholders then have the option of the credit card processing
continuing the transaction, using another vendor at to find out exactly
Which credit cards will FTB accept? credit card or ending the call. how much the vendor will
Taxpayers can use their Discover/ Can taxpayers make partial payments charge them to make the
NOVUS, MasterCard and/or American with their credit card? payment.
Express cards.
Yes. Taxpayers may pay all or part of the
Is FTB accepting credit cards for all balance due by credit card; however,
types of taxes? Fee Chart
interest and/or penalties will continue to
No. The pilot program is limited to accrue on any unpaid past due balances. Amount Charged Fee
individual taxpayers who have a past due Can parents or friends use their own $ 1-99.99 $ 3
state tax liability. FTB plans to expand credit card to pay balance due taxes for $ 100-199.99 $ 6
the program to other types of tax another person?
payments in the future. $ 200-399.99 $ 11
Yes. The credit card program allows $ 400-699.99 $ 16
Will FTB have access to taxpayers’ relatives or friends to pay the tax bill for
credit card information? $ 700-799.99 $ 19
the taxpayer in certain situations, as long
No. FTB’s credit card processing vendor as they have the appropriate taxpayer $ 800-1099.99 $ 25
will not disclose taxpayers’ credit card information when they make the $ 1100-1599.99 $ 35
numbers to FTB at any time during payment. $ 1600-2299.99 $ 49
the process. What should taxpayers do if they have $ 2300-3099.99 $ 68
How much is the convenience fee? a problem with their credit card $ 3100-3999.99 $ 87
The convenience fee amount varies payment?
$ 4000-4999.99 $ 109
according to the payment amount. For If taxpayers have questions or problems
example, the credit card processing concerning billing errors, fees or interest $5000 and up, contact the credit
card processing vendor.
vendor will charge taxpayers a charged, they should first contact the bank
convenience fee of $19 for a $740 that issued the credit card. If they have
payment. For payments of $5,000 or questions or a dispute concerning the
more, eligible taxpayers can contact the amount of the tax owed or any other
credit card processing vendor to find out matter concerning their tax return, they
exactly how much the vendor will charge should call FTB’s general toll-free
them to make the payment. (For more telephone service at (800) 852-5711.
information about the convenience fee,
see the related article on this page entitled
“Convenience Fee Chart.”
Are there any other fees such as a cash
Page 4

The Question Column


Court Opinions

On January 26, 1999, the Power of Attorney br. Lexis 139) bridged the gap between
the reporting requirements of the Revenue
Third Appellate District Will FTB accept an Internal Revenue and Taxation Code (RTC) Section 18622
(Sacramento) California Service IRS Form 2848,
and the filing requirements of Section
Court of Appeal decided “Power of Attorney?”
523(a)(1)(B)(i),11 U.S.C.
William Schatz, et. al. v. Yes, provided the power of attorney
Franchise Tax Board. In cases involving Chapters 7, 11 and 12
includes language that states it also
bankruptcies, when the IRS produces a
In a published opinion, the applies to the taxpayer’s state income
final federal determination, it creates a
court held that a California tax matters.
new filing requirement with FTB. The
assessment of additional tax Will powers of attorney ever be due date for taxpayers to report any
did not become final (and so centralized at the Franchise Tax Board changes to their federal return is six
was not discharged in like at the IRS? months after the IRS’ final determination.
bankruptcy) until amended The additional assessment must not fall
returns self-assessing Yes. FTB is currently developing a
system that will allow it to store power of under the “Exceptions to Discharge”
additional tax based on the Section 523, 11 U.S.C.
federal determination were attorney information in a central location
accepted and posted by FTB. and allow employees to access that In other words, the additional assessment
information from anywhere in the has a new three-year rule and 240-day
The court rejected the department. rule under Section 523 (a)(1)(A), 11
taxpayer's argument that a U.S.C. and a new two-year rule in Section
self-assessed amended return Does FTB accept powers of attorney
sent by fax? 523 (a)(1)(B), 11 U.S.C.
created an immediate due and
payable liability. The court Yes. FTB accepts powers of attorney For the additional assessment to be
explained that "assessment" forms sent by fax. However, if it appears dischargeable, the debtor must volunteer
for bankruptcy discharge that the form has been forged or is the information as specified in RTC
purposes does not occur until invalid, an original will be required. Section 18622. If the debtor provides the
FTB formally and finally final determination or amended return
fixes the amount payable by 240-Day Rule after the time specified in RTC Section
accepting the computation What is FTB’s position on the 240-day 18622, it would be treated as a delinquent
shown on the amended rule in the following situation? return for bankruptcy purposes. In this
returns and posting the situation the delinquent return would have
(1) The taxpayer files an original
additional tax on its records. to be filed more then two years before the
return;
petition date as required in Section
See “240-Day Rule” found in (2) Then the IRS issues a notice of 523(a)(1)(B)(ii), 11 U.S.C.
“The Question Column” on deficiency;
this page. If the debtor does not volunteer the
(3) Then the taxpayer fails to file an additional assessment based on IRS
FTB Form 540X, “Amended Individual information, it is not dischargeable.
Income Tax Return;” However, FTB is not actively collecting
(4) As a result, FTB makes an on these liabilities until there is a binding
assessment; decision in the 9th circuit on this issue. It
may take another two years to have this
(5) After 240 days pass, the taxpayer issue fully resolved.
files for Chapter 7 bankruptcy.
What is the current status of the
FTB's position is that if the debtor fails to
"Blutter" issue?
report the information and FTB receives
it under the exchange of information The "Blutter" issue is working its way to
agreement with the IRS (Internal Revenue conclusion. The department has one case
Code 6103(d)), the additional assessment pending in the Ninth Circuit Court of
is not dischargeable under section Appeals. Oral argument was held
523(a)(1)(B)(i), 11 U.S.C. December 11, 1998 and the department is
expecting a decision by mid-year.
This situation is equivalent to the person
not filing a return for the additional
assessment.
The court in: Blutter (177 br. 209; 1995

March 1999
Page 5

FTB Calendar

March
• Requests for Tax Return
are mailed to individuals
who have not filed their
1997 personal income tax
return.
• Notices of Proposed
Assessment are mailed to
individuals who have not
Limited Liability Co: Anything But Simple filed their 1997 tax
returns.
For many years there were three basic Note: Limited partnerships must file
types of business entities: (1) sole Secretary of State Form LP-4/7, 20 Previous month
nonresident withholding
proprietorships, (2) partnerships and (3) “Certificate of Cancellation,” or payments are due if total
corporations. Form LP-9, “Certificate of Merger,” withholding exceeded
In recent years, a new legal structure has to end their filing and annual tax $2,500.
been created — limited liability requirements. An automatic six-
month extension is available for April
companies (LLCs). • Requests for Tax Return
filing the return, however; if an
Generally, California tax law mirrors annual tax is due, file form FTB are mailed to individuals
federal tax law. However, major 3538, “Payment Voucher for who have not filed their
differences exist in the treatment of the 1997 personal income tax
Automatic Extension for Limited return.
conversion of a partnership into an LLC Partnerships, LLPs, and REMICS,”
not classified as a corporation. with payment, by the regular due date • Notices of Proposed
Assessment are mailed to
Federal tax law treats general of the short period return. individuals who have not
partnerships, limited partnerships, limited 3 File Form 568, “Limited Liability filed their 1997 tax
liability partnerships and limited liability Company Return of Income,” on or returns.
companies treated as partnerships in the before the 15th day of the fourth 15 1998 personal income tax
same manner. Consequently, they all file month after the end of the LLC’s returns are due.
Form 1065, “U.S. Partnership Return of short taxable year. An automatic six- 15 First quarter 1999
Income.” month extension is available for personal income tax
An LLC not classified as a corporation filing the return. However; if an estimate payments
for California tax purposes is subject to LLC annual fee or nonconsenting are due.
additional requirements. This creates a nonresident members’ tax is due, file 20 See March 20.
requirement for the converting business form FTB 3537, “Payment Voucher May
entity to file two short period returns. for Automatic Extension for Limited
Liability Companies,” with payment, • Requests for Tax Return
The specific requirements of an LLC are are mailed to individuals
by the regular due date of the short who have not filed their
explained in Form 568, “Limited Liability
period return. The LLC annual fee 1997 personal income tax
Company Tax Booklet.”
for the current taxable year is also return.
In summary, three steps need to be taken due on or before the 15th day of the
by business entities converting from a • Notices of Proposed
fourth month after the beginning of Assessment are mailed to
partnership into an LLC: the LLC’s taxable year. individuals who have not
1 File form FTB 3522, “Limited For more information about California’s filed their 1997 tax
Liability Company Tax Voucher,” filing requirements for LLCs, contact the returns.
and pay the annual tax on or before Tax Practitioner Support Unit at (916) 20 See March 20.
the 15th day of the fourth month after 845-7057. To download, view or print
the beginning of the LLC’s short Form 568, visit the FTB Web site at
taxable year. www.ftb.ca.gov and go to the CONTINUED ON PAGE 7
2 File Form 565, “Partnership Return Tax Forms page.
of Income,” on or before the 15th day
of the fourth month after the end of
the partnership’s short tax year.
Page 6

FTB e-filers:
Keep Signature
Documents
Most tax practitioners who e-
file already know that both
the Internal Revenue Service
and the Franchise Tax Board
require a signature document
for each return filed. Fewer
know the proper way to
process them.
The confusion lies in what to
do after the taxpayer and the
electronic return originator
(ERO) complete the form.
FTB asks that EROs do not
mail form FTB 8453,
“California Individual Income
Tax Declaration for e-file” to
FTB. EROs are to retain the
original signed form FTB
8453 in their files for four
years. In addition, FTB
FTB Graphic By Frank Soto
instructs EROs not to mail a
copy of FTB’s form FTB
8453 to the IRS.
The IRS, however, does
require EROs to mail the IRS
What’s Your Excuse?
original signed federal Form
8453 to the appropriate IRS Better to File Late Than Not at All
service center.
The FTB e-file process is
truly paperless. “If we need a
copy of any signature
documents, we will contact
“M y dog ate my tax return.”
“I was going to file but my accountant
The Franchise Tax Board is currently in
the process of reminding nearly 700,000
of those individuals of their need to file.
If the required returns aren’t filed, FTB
was abducted by aliens.” “My husband will likely follow up with proposed
the ERO,” said Alison used our tax return to wrap the fish he assessments based on the information that
Adams, lead analyst in FTB’s caught.” is available to the department.
Electronic Document
Services Unit. “If an ERO These are just about the only excuses the The key is to file the return. Even if your
inadvertently mails any Franchise Tax Board hasn’t heard yet for client receives a notice of proposed
signature documents to FTB, why people didn’t file their 1997 tax assessment for not filing, the proposed
we mail them back to the returns on time. figures will be adjusted based on the
ERO,” she added. Reasons for not filing have ranged from validated figures when a return is filed.
For more information about “accidentally tucking it away in a Also, by filing before they are contacted
the e-file program, contact the neglected corner” to having them “eaten” (or within 30 days of a request for tax
FTB e-file Help Desk at (916) by a personal computer.” return), they can avoid being charged
845-0353. Help Desk hours The good news is, regardless of the additional penalties, interest and fees over
are 8 a.m. until 5 p.m., reason people haven’t filed their 1997 and above what they would already
Monday through Friday. return yet (even though the 1998 due date owe.
is almost here), they can still file.

March 1999
Page 7

Check SSNs on Mortgage Statements Wanted:


You may have clients who received a these notices because their mortgage New
notice requesting that they file a 1997 tax lenders are reporting the wrong social
return because they 1) paid over $10,000 security numbers on the Form 1098, FTB e-filers
in mortgage interest during 1997, and 2) “Mortgage Interest Statement.”
had not yet filed a return. Practitioners should verify that their More and more practitioners
If they received the notice, they were clients’ social security numbers are are joining the FTB e-file
among the nearly 25,000 people who correctly reflected on all their tax program. By the close of the
were contacted recently as part of a new documents, including Forms 1098, Form 1998 filing season, FTB had
FTB nonfiler program. The request for W-2, Forms 1099 “ and Schedule K-1s. accepted 5,618 tax
return notices were issued to individuals Problems also arise when a Form 1098 practitioners into its e-file
who had not filed tax returns, although is reported under the social security program.
information reported to FTB indicated number of a deceased spouse or an ex- At press time, that number
that they may have had enough income to spouse who no longer pays the mortgage had grown to 7,157, an
require that one be filed. on the property. increase of 27 percent over
These individuals should file the required If you find that your client’s social last year.
returns as soon as possible to keep at a security number has been reported To join the FTB e-file
minimum the additional penalties, interest incorrectly, contact the reporting program, access form FTB
and fees associated with the nonfiling. organization to have it corrected. 8633, “California Application
Some individuals, however, are receiving to Participate in the e-file
Program.” from the FTB Web
site at www.ftb.ca.gov/forms.
Voluntary Disclosure Program Helps Nonfilers Download the form, complete
it and send it by fax to FTB at
The Franchise Tax Board’s Voluntary directed to the Corporation Filing (916) 845-0287.
Disclosure Program allows a qualified Enforcement Unit at (916) 845-3294 or
business entity or shareholder to (916) 845-3795. For more information, call the
voluntarily file up to six past due tax FTB e-file Help Desk at
returns and pay all outstanding tax (916) 845-0353. Help Desk
liabilities. hours are Monday through
Not Everyone Has to File Friday, 8 a.m. until 5 p.m.
As part of the voluntary agreement, FTB
may waive penalties associated with the Beginning January 1, 1996,
return filings. corporations not incorporated under FTB Calendar
A qualified business entity is one that is the laws of California may be
not registered with the California Office excluded from California filing CONTINUED FROM PAGE 5
of the Secretary of State, has never filed a requirements if they are engaged
solely in convention and trade show June
return with FTB and has not been the
subject of an inquiry by FTB with respect activities. • Requests for Tax Return
are mailed to individuals
to liability for any taxes. For the corporation to be excluded who have not filed their
A qualified shareholder is an individual from a filing requirement and not be 1997 personal income tax
who is a nonresident on the signing date subject to the minimum franchise return.
of the voluntary disclosure agreement and tax, the corporation must be • Notices of Proposed
is a shareholder in an S corporation that engaged in such activities for seven Assessment are mailed to
has applied for a voluntary or fewer days during the income individuals who have not
disclosure agreement. year and earn gross income from filed their 1997 tax
such activities of $10,000 or less. returns.
Representatives for qualified business • Requests for Tax Return
entities and shareholders who want to This tax provision does not apply to
corporations qualified to do are mailed to
apply for a voluntary disclosure corporations who have
agreement can call (800) 852-5711 to business in California through the not filed their 1997
request form FTB 4925, “Application for California Office of the Secretary of corporate tax return.
Voluntary Disclosure.” Qualified State. Qualified corporations must
still report California gross income 15 Second quarter 1999
business entities or shareholders are not personal income tax
required to identify themselves when and pay the corporate tax. estimate payments are
they call. due.
Questions about the program can be 20 See March 20.
Page 8

Manufacturers’ Manufacturers’ Investment Credit:


Investment
Credit: Avoid Common Errors Found With MIC
For Your
In the July 1998 issue of Tax News, firms and biopharmaceuticals.
Information “qualified taxpayer,” “qualified Nonqualified taxpayers, however, have
property” and “qualified costs,” the erroneously included costs for parking
Information that will help three key requirements for claiming the lots, landscape, fencing and buildings.
your clients better understand Manufacturers’ Investment Credit (MIC),
the manufacturers’ investment Qualified Cost
were discussed. The following is an
credit (see article on this overview of common errors found with This is an area where errors are frequently
page) is available from the these requirements. made. For example, some taxpayers
Franchise Tax Board. erroneously include sales or use tax
Qualified Taxpayer amounts paid to other states. Some
FTB 1113, “Frequently
Asked Questions About the Generally, the taxpayer’s business activity taxpayers also erroneously include as
Manufacturers’ Investment must be in manufacturing as described by qualified costs those amounts upon which
Credit (MIC),” provides codes 2011 through 3999 in the Standard no sales or use tax were paid or incurred.
answers to 19 questions about Industrial Classification (SIC) Manual, Generally, there are two basic
the credit. The questions 1987 edition. Codes 2011 through 3999 requirements for costs to be qualified for
include, “How is the MIC are under Division D, manufacturing, of the MIC. First, California sales or use tax
claimed?” and “Do leases the SIC Manual. must be paid, directly or indirectly, on all
qualify for the MIC?” For a One common error found involves costs, with the major exception of
copy, visit FTB at its taxpayers that have business activities in capitalized labor costs.
www.ftb.ca.gov Web site. other divisions of the SIC Manual. Some The MIC law states that qualified costs
Click on “Tax Forms” and of these taxpayers erroneously claim the are an amount upon which California
scroll to “Miscellaneous credit. For example, taxpayers who are sales or use tax is paid, either directly or
California Income Tax engaged in the retail sale of bakery goods indirectly. For example, if you pay $100
Forms, Instructions and are claiming a MIC for costs paid for for a machine, plus $8 in California sales
Publications.” Or write: qualified property. However, these tax, for a total cost of $108, then the
Tax Forms Request Unit taxpayers would generally be classified in qualified cost for the MIC is $100, not
Franchise Tax Board SIC Code 5461, “Retail Bakeries.” Since $108. Thus, the qualified costs for the
PO Box 307, these taxpayers are not engaged in an MIC can never include sales or use tax
Rancho Cordova, CA activity described under Division D, amounts paid. If, however, you did not
95741-0307. manufacturing, the taxpayers are not pay the $8 in California sales tax, the
Or you may call considered qualified taxpayers for $100 paid for the machine would not be
(800) 852-5711. purposes of claiming the MIC. treated as a qualified cost.
You also can obtain form Qualified Property Another common error found with
FTB 3535, “Manufacturers’ Qualified property can either be new or qualified costs is the inclusion of costs
Investment Credit,” from the used tangible personal property that is that are currently expensed under Internal
same FTB sources. The form used in a qualified activity such as Revenue Code (IRC) Section 179. The
includes instructions that manufacturing. Tangible personal second requirement for qualified costs is
feature the Standard Industrial property means any tangible property that amounts must be properly chargeable
Classification (SIC) Manual’s except land and improvements. Some to your capital account.
Division D listings. taxpayers have erroneously included real In order to meet this requirement, costs
Also, see MIC regulations at property (buildings, foundations, docks, must be properly includable in the tax
Title 18, California Code of etc.) and intangible assets such as patents, basis for computing depreciation. Costs
Regulations, Sections copyrights and purchased technology that are not included in the depreciable
17053.49-0 through when listing qualified property. basis for tax purposes, such as amounts
17053.49-11 and 23649.0 One exception to the general tangible currently expensed under IRC Section
through 23649.11. personal property requirement is for 179 and similar provisions (such as the
“special purpose buildings and Los Angeles Revitalization Zone business
foundations” owned by taxpayers engaged expense deduction) are not eligible for the
in specified SIC codes. Generally, this MIC. For example, if you purchased 10
exception applies to “clean rooms” used stainless steel racks for $100 and elected
by computer chip manufacturers, biotech to expense the item for California
franchise tax purposes, the $100 paid
CONTINUED ON PAGE 9

March 1999
Page 9

Tax Form Corrections Announced


Tax practitioners should note the 2. Reduce Schedule A, line 27 by
following corrections to the 1998 tax the amount of the casualty and theft
form information that has already been loss deduction and enter here _____
distributed: 3. Recalculate Schedule A, line 20
Instructions for Schedule CA (540 and through line 26 including the casualty
540NR), page 6, column 2, line 38. and theft loss deduction and enter
Add the following new paragraph: here ____ Free Seminars
Casualty and Theft Losses for 4. Add line 2 and line 3 ____ For Businesses,
Income-producing Property - You may 5. Subtract line 5 from line 1 and
need to make an adjustment for this include it as a negative number on Taxpayers
deduction since California and federal line 38.
law are not the same. California law Instructions for Form 5805, “Taxpayer Service Days” and
does not conform to the federal “Underpayment of Estimated Tax by “Small Business Fairs” are
provision that allows taking the full Individuals and Fiduciaries,” page 2, free, educational conferences
deduction for the loss rather than a column 3, line 10: featuring representatives from
miscellaneous itemized deduction the State Board of
subject to 2% of AGI. If you included a Delete the second bullet reading "IRC Equalization, Franchise Tax
casualty or theft loss from income- Section 644, tax on trusts." Board, Internal Revenue
producing property on federal Schedule Form 5805F, “Underpayment of Service, Employment
A, line 27 and Schedule A, line 26 is: Estimated Tax by Farmers and Development Department,
• More than zero — no adjustment is Fishermen.” County Assessor's Office and
necessary. First line directly below title: several other local, state, and
federal agencies.
• Zero — make the following Insert "or Form 541" after
adjustment: "Form 540NR." The following seminars have
been scheduled:
1. Enter the total of the amounts on
your federal Schedule A, line 26 and Friday, March 12, in Long
line 27______ Beach at the Long Beach
Convention Center.
(310) 516-4330
Manufacturers' Investment Credit: Avoid Errors Thursday, March 18, in
CONTINUED FROM PAGE 8 entire credit for such item of property Stockton at the
must be recaptured by adding the amount University of Pacific.
would not be treated as a qualified cost (209) 932-2338
since the amount is not properly of credit claimed to the “tax” of the
chargeable to your capital account. qualified taxpayer for the following Tuesday, March 23, in
taxable or income year. Inland Empire at
Capitalized labor costs for constructing California State University,
or modifying qualified property can also Recordkeeping
San Bernardino.
qualify for the MIC as long as they are What records do you want to keep? (909) 680-6705
treated as “direct” costs under IRC Generally, invoices, contracts, books and
Section 263A. Direct costs include basic Wednesday, March 24, in
records should be maintained and will be Chico at
compensation, overtime pay, payroll adequate for purposes of substantiating
taxes, holiday pay, sick pay, etc. California State University,
the MIC. However, sales tax payment, Chico.
Some taxpayers, however, erroneously where required, must be evident (usually (916) 227-1883
include “indirect” costs such as training shown on invoices and contracts). Books
costs, officer’s compensation, insurance, and records should be kept as long as the
CONTINUED ON PAGE 11
travel and entertainment expenses, statute of limitations, generally four years
utilities, and freight charges. from the original due date or the date the
Recapture return was filed, remains open.
Regarding recapture: if within one year
of the date the qualified property is
placed in service, such property is (1)
removed from California, or (2) primarily
used in a non-qualified activity, or (3)
transferred to an unrelated party, then the
Page 10

FTB On December 9, 1998, eighty-five tax joint return because the spouse is
practitioners and taxpayers came to the undocumented and does not have a
Offers e-pay Franchise Tax Board to participate in a valid social security number.)
Option symposium on the head of household
filing status.
No. To qualify for the head of household
filing status, the taxpayer must be
The symposium provided an opportunity unmarried at the end of the year or meet
The Franchise Tax Board is for participants to learn more about head the requirements for being considered
offering an electronic of household filing status requirements unmarried at the end of the year. For this
payment (e-pay) option to and to discuss their comments and taxpayer to be considered unmarried, the
taxpayers who file electronic questions about the filing status with a taxpayer would have to have met all the
returns with balances due. panel of experts from FTB and the following requirements:
With the new option, an Internal Revenue Service. • Taxpayer filed a separate return from
e-filer with a balance due may Representatives from FTB also his or her spouse.
authorize FTB to debit his or
her bank account on a
demonstrated FTB’s new computer-based • Taxpayer paid more than half the
FTB Publication 1540, “California Head cost of keeping up his or her home
specified date for the amount of Household Filing Status Information,”
due. Now, not only can your for the year.
on CD-ROM.
clients e-file, but e-pay also, • Taxpayer’s spouse did not live in the
eliminating the need to mail a Listed below are some of the questions taxpayer’s home at any time during
check and form FTB 3582, and answers discussed at the symposium: the last six months of the year.
“Payment Voucher for
Electronically Transmitted
How can a parent prove that his or her • For more than half the year, the
home was his or her child's main home taxpayer’s home was the main home
Returns,” by April 15. for more than one half the year? of his or her child, stepchild or
A parent could submit evidence to FTB. adopted child or, for the entire year
FTB will consider any and all evidence. the taxpayer’s home was the main
Such evidence could include a notarized home of his or her foster child.
statement signed under penalty of perjury • Taxpayer was entitled to claim his or
from the other parent, a copy of the joint her child, stepchild, adopted child or
custody agreement, records kept by the foster child as his or her dependent.
parent or a calendar reflecting the time
the child lived with the parent. Because the taxpayer's spouse lived in the
taxpayer’s home during the last six
Can parents take turns claiming the months of the year, the taxpayer cannot be
head of household filing status every considered unmarried, and thus cannot
other year? qualify for head of household filing
Yes. The parent claiming the filing status status.
must have met all of the head of If the taxpayer's spouse is not eligible for
household requirements, including the a social security number, the spouse can
requirement that the parent's home was apply for an individual taxpayer
the child's main home for more than half identification number (ITIN) by filing a
the year. Form W-7 “Application for IRS
If a taxpayer’s alien spouse lives with Individual Taxpayer Identification
him or her all year, can the taxpayer Number” with the IRS.
qualify for the head of household filing For a taxpayer to qualify for the head
status? (The taxpayer could not file a of household filing status, is the age of
CONTINUED ON PAGE 11

March 1999
Page 11

Head of the House or Head of Household?


CONTINUED FROM PAGE 10
the taxpayer’s child important ? of the tax year and the Godek opinion
Yes and no. If the taxpayer is single, the
addresses taxpayers who were legally Free Seminars
married at the end of the tax year.
age of the taxpayer's child is not
significant unless the child is married. If Is the question in Section C of the Head
For Businesses,
the child is married, he or she must
qualify as the taxpayer's dependent by
of Household Audit Letter, "Did any
other person live with you," an
Taxpayers
meeting the five dependency tests, in invasion of the taxpayer’s privacy? CONTINUED FROM PAGE 9
which age is a factor. No. This question is asked on the audit Saturday, March 27, in
If the taxpayer is married and lived letter to determine if there were any Sacramento at American
separate from his or her spouse for the members of the household who could River College.
last six months, the child must qualify as qualify the taxpayer for the head of (916) 227-1883
the taxpayer’s dependent by meeting the household filing status. Some taxpayers
completing the audit letter list a person Tuesday, March 30, in
five dependency tests, in which age is Ventura at
a factor. that cannot qualify them for head of
household. If the taxpayer provides Ventura Community College.
How does having a child placed in the information about another person, that (805) 677-2771
taxpayer’s home for adoption affect person could possibly qualify the Wednesday, March 31, in
the taxpayer’s ability to qualify for the taxpayer for the head of household Bakersfield at
head of household filing status? filing status. Bakersfield College.
Before legal adoption, a child is (805) 334-3929
considered the taxpayer's child if the child
Thursday, April 1, in
was placed with the taxpayer for adoption
Fresno at
by an authorized placement agency. To
California State University,
qualify for the head of household filing
Fresno.
status, a taxpayer must meet all of the
(209) 248-4209
requirements, including the requirement
that “the taxpayer's home was the child's Head of Household Saturday, May 1, in Hayward
main home for more than half the year.” at California State University,
(If the child was born during the last half Presentations Available Hayward.
of the year, the taxpayer's home must (510) 637-2473
have been the child's main home for the Head of household presentations similar
to the symposium held at the Franchise To attend a seminar, call the
portion of the year after the child was telephone number provided
born.) Tax Board’s Central Office have been
well received in other California cities for the location of your
How does the State Board of as well. choice. For-up-to-date
Equalization (SBE) become involved information about these and
with head of household cases? Since December, FTB has conducted other taxpayer education
head of household presentations in Santa opportunities, visit the BOE
When a taxpayer disagrees with the Barbara, Stockton, Watsonville, Web site at www.boe.ca.gov
Franchise Tax Board's action on the Lancaster and Escondido. and click on “Taxpayer
taxpayer's protest against a proposed
The presentations are geared towards Education.”
assessment or a denial of a claim for
refund, the taxpayer may file an appeal helping practitioners better understand For more information about
with the State Board of Equalization. the head of household filing status. A FTB’s participation in the
typical presentation includes a head of seminars, contact Alvaro
Explain the difference between the household program overview, an Hernandez, FTB Small
SBE Appeal of William Tierney (97- explanation of the qualification criteria Business Tax Education
SBE-006-A) and the new SBE opinion for using the head of household filing Coordinator, at
on the Appeal of Barbara Godek status and a discussion about important
(98-SBE-005). (916) 845-5257.
questions that practitioners should ask
Both SBE opinions address how to treat their clients who file head of household.
the time a taxpayer, taxpayer's spouse and For information on how to get a head of
taxpayer's claimed qualifying individual household presentation conducted in your
lived together to determine how long a area, contact FTB’s Head of Household
taxpayer’s home was the claimed Unit at (916) 845-6265.
qualifying individual’s main home during
the year. The Tierney opinion addresses
taxpayers who were unmarried by the end
Page 12

toll-free number is (800) 852-5711. Taxpayers can file their returns


Service From outside the United States, the electronically from the store site or drop
off completed paper tax returns.
number is (916) 845-6500 (This number
on the is not toll-free). Taxpayers can also obtain tax forms and
information and use available auto-dialers
Rise FTB Field Offices to contact FTB and IRS telephone centers.
Taxpayers can also visit FTB at one of Tax forms and publications can be
the 16 field offices located throughout downloaded from the kiosks and printed
CONTINUED FROM PAGE 2 for the taxpayer on-site.
California. Office hours are Monday
through Friday, 8 a.m. to 5 p.m. The field FTB’s hours of operations during the
offices offer extended hours on 1999 filing season will be Monday
Wednesdays until 7 p.m. and are open on through Friday, 10 a.m. to 7 p.m.;
Saturdays from 8:30 a.m. until 12:30 p.m. Saturday, 10 a.m. to 4 p.m.; and Sunday,
In addition, all field offices will be open 11 a.m. to 4 p.m.
Thursday, April 15 from 8 a.m. to 7 p.m.
The Tax Store
The Franchise Tax Board is participating
with the Internal Revenue Service in a
prototype tax store in the Great Mall of
the Bay Area located in Milpitas.

Presorted
First-Class Mail
U.S. Postage Paid
P.O. Box 520 Sacramento, CA
Rancho Cordova, CA 95741-0520 Permit No. 312

Address Service Requested