Talking California Tax.
A benefit of CalCPA membership is the TaxTalk listserve where members post tax-related questions usually phrased as: "Has anyone seen or dealt with (insert topic of choice here)?" After reading the query, listserve members who have something to contribute will respond. If the subject isn't interesting to a member, the individual deletes the e-mail and goes on with life.
Following are some California tax issues recently discussed on TaxTalk:
Must limited partners be given a copy of the partnership's tax return?
This discussion took place Feb. 7 with the following results: California Corporations Code Sec. 15634(b)(2) appears only to require that a copy of the return be made available to limited partners if they ask for it.
SDI for Self-Employed Individuals
Although this is reasonably widely known, many TaxTalk members didn't seem to know that it is possible for self-employed people to obtain short-term disability insurance for themselves via State Disability Insurance. A March 28 reply to a member's question explains the procedure: go to http://www.edd.ca.gov, select For Small Businesses and then select DI Elective Coverage. Here, you'll find an explanation of the coverage and an application to download.
One listserve member routinely searches for abandoned property for clients, and tells the story of how doing so mollified a client's complaint about the fee. The client was complaining about the fee for doing estate work, until the CPA found a $100,000 bond for the estate via the abandoned property search. For unclaimed California property: https://scoweb.sco.ca.gov/scoup/inquiry/index.html. For property by address or parcel number: http://www.caltitle.com/. The ultimate weapon, with many databases: http://www.merlindata.com.
Corporations--Dissolve or Die?
A widely held view when it's time to end a corporation is: "Don't dissolve the corporation, just quit filing and let it die." TaxTalk members have debated the efficacy of this advice, with no single view prevailing.
The FTB is going after some of the owners of those "dead" corporations, and trying to hit them up for the $800 minimum tax plus penalties for non-filing. Two TaxTalk tales of woe cited one assessment for more than $6,000 and another for more than $12,000.
Part of the TaxTalk discussion has centered around whether or not the FTB could pierce the corporate shield and collect those taxes, penalties and interest from the former owners. The prevailing view was that the FTB could not, unless the former owner had taken something out of the corporation such as inventory.
LLCs: A Viable Alternative?
Are LLCs a viable business alternative for small businesses? In light of the LLC fee that California charges, which is a percentage of the business' gross receipts, an S corporation usually winds up being the preferable way to go.
Some interesting unanswered questions have arisen with respect to "gross income." The IRC defines gross income as the remainder after subtracting cost of goods sold. But California R&TC Sec. 24271 defines gross income to include the cost of goods sold. R&TC Sec. 24271 refers to IRC Sec. 61, which says that gross income included gains derived from dealings in property.
The question that arises is: Must gross proceeds from the sale of land held for investment be included as gross receipts for the LLC fee, or just the net gain, since land held for investment does not seem to be "cost of goods sold?"
A facilitator of delayed Sec. 1031 exchanges takes momentary title of a property and transfers it to a third party. Do the gross receipts for this business include receipts from the sale, or just the commission or fee involved in the transaction? The CPA who posted this question said that she advised the client to do business in a form other than an LLC.
RRSPs: Taxable in California?
Clients who move here from Canada frequently have what are called RRSPs, which are similar to our 401(k)s or IRAs. The buildup in those is not subject to federal income tax, but it had been widely believed that it was subject to California income tax.
A CalCPA member checked with the FTB taxpayer advocate's office and was told by phone that the FTB ruled some time ago that the buildup in RRSPs is not subject to California income tax.
Property Tax Software
Software programs for county property tax Forms 571-L are available. Listserve members have favorably mentioned the following:
* Declare 2001 Software; (530)745-9565 or http://www.calprosoft.com; and
* County Software; (480)759-5983 or http://www.countysw.com.
To sign on, send an e-mail to TaxTalkemail@example.com. Jim Counts, a Hemet-based CPA is the originator of this listserve, and serves as its moderator and administrator. Questions about Taxtalk can be directed to Jim at firstname.lastname@example.org.
Thanks to CalCPA members Jim Counts, Robin Hall, Keith Plottel, Elaine Soost, William Sturgeon, Melody Thornton, Professor Kitty Wright and Don Yamagishi for their input which resulted in the above items.
Leonard W. Williams, CPA, is a Sunnyvale-based sole practitioner. He is a member of CalCPA's Committee on Taxation, AICPA Tax Division member and former Peninsula Chapter president. Williams can be reached at williams@/wwilliamscpa.com.