CATax New Penalties

November 01, 2012
Late-filing Corporations Could be Subject to Fines

By Leonard W. Williams, CPA
Several years ago, a true story was recounted here about how a practitioner had run into a bureaucratic roadblock on a client’s problem. A more experienced CPA had advised him to contact the client’s local state senator to see if he or she could dislodge the roadblock.

It worked, and the matter was handled. The practitioner got a phone call from the state senator’s office that they had arranged for him to meet with a certain official within the FTB. They met, and the problem was resolved. A reader of this column wanted to know how the state senator could do that.
The answer was—and remains—senators just can. This doesn’t mean that you should go hollering to your assembly member or state senator for every little thing. That’s a good way to become persona non grata. But it certainly is an avenue of last resort.

A recent discussion on the CalCPA Committee on Taxation’s listserve reinforced this tactic. One member had a client who was trying to close a loan on property held by an LLC. The Secretary of State website said that it had been cancelled. He called the FTB, and the FTB said all taxes had been paid and the account was OK. They noticed that in 2008 the entity was cancelled for an unknown reason, and not reinstated, but the FTB continued to accept its returns and money.

When the member tried to call the Secretary of State, the automatic answering device said that “Due to funding, the service is not available at that time.” The member called the client’s state senator’s office and explained that a constituent had the above problem. It was resolved shortly.
Of course our highly regarded FTB Taxpayer Advocate, Steve Sims, also is great for solving a ton of these problems.

New and More Severe Penalties
California corporations—usually lapsed corporations—that don’t file a corporate income tax return within 60 days of it being requested by the FTB are subject to a $2,000 penalty, unless the taxpayer can establish “reasonable cause.” This is in addition to any other penalty that may be due (AB 318, adding Sec. 18410 to the Rev. & Tax Code).

Other Developments
The CalCPA Committee on Taxation’s meeting Sept. 10 was a productive one. A list of the tax related bills that did not pass was distributed. This is handy information because the rumor mill often is in a panic about things that no longer are germane.
Among tax related bills that did not pass:
  • The Mandatory Single Sales Factor, AB 1500 (J. Perez) would have mandated the use of the single sales factor formula for apportioning business income to California.
  • The attempted repeal of the net operating loss carrybacks, AB 2408 (Skinner). The bill was seeking to repeal provisions allowing taxpayers to carry back net operating losses incurred in 2013.
  • The Car Tax Increase, SB 1455 (Kehoe), proposed extending vehicle registration fees that otherwise will expire in 2015 and 2016.
  • AB 226 (Solorio) warned employers of increased employment taxes and would have required the Employment Development Department to include in its semi-annual Unemployment Insurance Fund report to the Legislature the estimated federal employment tax increase on employers from California’s default of its UI Fund loan from the federal government, and the estimated amount the state is expect to pay in interest charged on the outstanding loan. This was sent to the Senate Inactive file Aug. 30.
  • The California Senate rejected AB 494 (Gatto), which would have required property tax agents representing taxpayers in assessment matters to register with counties (in counties that require registration of lobbyists). It was rejected by the Senate by a vote of 13-19. Reconsideration was granted, but bills that fall this short on the first vote seldom are brought back for another vote.
Appreciation is extended to Mike O’Connor, Jim Counts, Loella Haskew, George Paulson and Mike Wheeler for their contributions to this column.
Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. He is a member of CalCPA’s Committee on Taxation, the AICPA Tax Division and a former Peninsula Silicon Valley Chapter president.
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