CATax: COT Meets FTB

California CPA: December 2009

Legislative updates, changes to the auditing department and communication methods were just some of the topics tackled at the Oct. 28 CalCPA Committee on Taxation/FTB annual liaison meeting. A transcript of the questions submitted by CalCPA members and respective answers from the FTB will be available in late January and posted to CalCPA's website .

The FTB is adjusting to budget cutbacks, said executive officer Selvi Stanislaus, which include a three-day per month furlough program. At the same time, Stanislaus said, the FTB is being asked by more California agencies to assist in collection efforts. With fewer resources, however, Stanislaus said taxpayers and practitioners will experience processing and service delays.

Legislative Update
Brian Putler, director of the Legislative Services Bureau, mentioned that the most notable piece of legislation that did not pass was AB 1580, the conformity legislation. This bill would have changed California’s specified date of conformity to federal income tax law from Jan. 1, 2005, to Jan. 1, 2009. Further, this would have extended the California provision for exclusion of cancellation of mortgage debt on a personal residence to 2009.

Other bills of note that passed:
ABX3 3 : Addresses the fiscal emergency declared by Gov. Schwarzenegger by:

• Increasing personal income tax rate by .25 percent for tax years 2009 and 2010;
• Increasing the alternative minimum tax rate; and
• Decreasing the dependent exemption credit from $309 to $99.

ABX3 15 :

• Provides a $3,000 credit against tax for each increase in qualified, full-time employees hired by a qualified employer, limited to a cumulative total of allowable credit of $400 million; and
• Allows specific entities to elect to use a sales-only formula to apportion income starting Jan. 1, 2011.

ABX4 17 :

• Increases the withholding rate on wages by 10 percent for wages paid on or after Nov. 1, 2009. This provision also increases the fixed rate of tax withheld from supplemental wages from 6 percent to 6.6 percent, and increases the fixed rate withheld from stock options and bonus payments from 9.3 percent to 10.23 percent for amounts paid on or after Nov. 1, 2009; and
• Modifies the estimated tax payment schedule from 25 percent per quarter to 30 percent, 30 percent, 20 percent and 20 percent until Jan. 1, 2010; and then to 30 percent, 40 percent, 0, and 30 percent for taxable years beginning on or after Jan. 1, 2010.

ABX4 18 :

• Requires the Social Security number or other taxpayer identification number of the recipient of income to be furnished upon demand by the person paying the income; and
• Conforms California tax law, with modifications, to the federal back-up withholding regime to require withholding at a rate of 7 percent on reportable payments made on or after Jan. 1, 2010. Interest, dividends and any release of loan funds made by a financial institution in the normal course of business are specifically excluded from California back-up withholding.

SBX2 15 : Provides a tax credit to an individual who purchases a qualified principal residence. The credit is equal to the lesser of 5 percent of the purchase price or $10,000. This act is operative for purchases made on or after March 1, 2009, and before March 1, 2010.

More information is available on the FTB's website .

Audit Update: Coping and Cutbacks
Audit Division Chief Debbie Langsea reported that because of budget constraints and furloughs, the department is capable of 300,000 fewer audit hours, which means there are delays in audits across the board. Langsea said to expect three months to 12 months for the division to conduct an individual audit, and about 24 months for a business audit.

COT Asks, FTB Answers
It was pointed out that California Form 540X does not allow a tax overpayment resulting from the amended return to be applied to a succeeding tax year, and that Line 34 only allows an overpayment to be refunded to the taxpayers. Since federal Form 1040X allows an overpayment to be applied to another tax year, the question posed was: Can’t California provide the same application?

Data Processing Manager Chris Reali responded: “We have a team studying the issue allowing overpayment on amended California Form 540X and California Form 100X to be applied to a succeeding taxable year. We hope to implement the option to apply to 540X and 100X overpayments as estimated tax payments beginning in 2011 for amended returns filed for any income year.” 

Damien B.M. English is CalCPA’s managing editor.