FTB Outlines Big Changes at Meeting with COT.

Sweeping changes to the FTB's policy on nonfilers as well as radical changes to its protest and audit regulations were outlined at this year's FTB liaison meeting with CalCPA's Committee on Taxation, Oct. 23. Updates on the state's e-government initiatives, power-of-attorney project and recent legislation as well as an extensive question-and-answer session were also on order at the meeting.

PROPOSED REGULATIONS

Calling it the most radical changes he's seen in his 20 years with the FTB, Executive Officer Gerald Goldberg announced that the FTB's Protest Regulation has been approved and now is working its way through to the Office of Administrative Law. The proposed regulation is an effort to speed up the protest process by allowing a two-year timeframe for all protests. This impacts audits and appeals, but does not allow the FTB to re-audit at the protest level. "This means that our audits will have to be more intensive and extensive than they have been in the past," said Goldberg. "With a two-year timeframe this will mean more subpoenas to get information and there will be more appeals."

Additionally, an audit regulation (Draft Reg. 19504), which calls for a one-year audit period, has been proposed. Currently, the audit period begins at the time of filing. Goldberg noted that this audit proposal probably will change significantly after a Dec. 1 symposium to consider public comment on the proposal.

E-GOVERNMENT INITIATIVES

"E-government is a revolution that could cause a shift in political and social power," said Frank Lanza, director of the Office of Electronic Tax Administration.

In addition to e-filing, electronic fund transfers and downloadable tax forms, the FTB is seeking to expand its e-services. One project that is still in the proof-of-concept pilot stage is "secure e-mail" by which the FTB provides a digital- and thus highly secure-certificate to CPAs and others who need to correspond confidentially via e-mail with attorneys, auditors and others.

The FTB was moving forward to offer the functional equivalent of telefiling by using a procurement method. H&R Block and Intuit objected to the method, on the grounds that the government was competing against commercial services, and sought to block its development with a lawsuit. As part of the settlement, the FTB is now developing a Web portal that will accept tax returns directly from taxpayers who prepare them using commercial software.

"Governor Davis wants to be known as the 'e-governor' and we're dealing with mandates and guidelines from all of our oversight agencies to more aggressively pursue services-so it is inevitable and required," said Lanza. However, he did acknowledge that a digital divide exists and that the government should not move faster than the citizen's ability to use Internet-based services.

NONFILER PROGRAM/DEMAND PENALTY

In response to the legislature's rejection of AB296, the FTB recently made a quiet change to its policies regarding nonfilers. AB296 would have changed the computation of the FTB's penalty fee to match the IRS' in which there is no penalty if the taxpayer is owed a refund or there is no tax owed. Currently, the FTB's penalty fee is assessed on 25 percent of the entire year's state tax bill. The new policy removes demand language on notices to first-time nonfilers and the FTB will not pursue payment of the fee. Repeat nonfilers are subject to the fee, which some have claimed is the harshest in the nation; however, the FTB will consider individual cases to abate the penalty for reasonable cause.

FTB representatives encouraged CPAs to contact their representatives to request that the penalty be reduced.

POWER OF ATTORNEY 

The FTB announced that it is fine-tuning its Power of Attorney Program to make it more like the IRS', but not identical. Theria Grady, manager of the information administration section says the FTB plans to provide a check- box to the signature area of a return, authorizing preparers to discuss filing matters with the FTB. This is similar to the recent IRS "checkbox initiative" that gives a paid preparer the authority to serve as designee to resolve processing-related matters by checking a box on their individual tax form. Grady states that a study team will examine the issue and determine the feasibility for its deployment in 2002.

Grady also noted that more than 40,000 POAs are currently on the system and they are receiving 4,000 new ones each month. Grady reports that processing timeframe commitments are being met in the following way: mailed documents are processed within five days, faxes within 48 hours and emergencies and special situations are handled within 24 hours.

Deanna McCrary is a CalCPA editor/writer.