TaxTalk highlights: trust ownership, multi-state tax, nonresident tax and more.

Change in ownership for beneficiaries is a frequent subject on the TaxTalk listserve.

In 1991, the Board of Equalization issued a Letter to Assessors (LTA) 91/08, "Change in Ownership Consequences of Real Property in an Estate or Trust Distributed on a 'Share and Share Alike' Basis." It is old, but still in force (the BOE withdraws out-dated LTAs).

The letter explains trust ownership concepts, and how it is possible to avoid a fractional reassessment on a distribution, given the right fact set.

The CPA who posted this information said that his office has used the concept to distribute property to one beneficiary using loans from the beneficiaries into the trust to balance the equities.

You can find the letter at www.boe.ca.gov/proptaxes/pdf/91_08.pdf.

Incorporated Entertainers or Professional Athletes who Perform in Many States

A CPA with a client who is an entertainer and performs in many states commented that she has had to file returns in California, Connecticut, New York, North Carolina and New Jersey in prior years. However, the client does not work in all of those states every year. But after filing once, those states have requested a return and a minimum tax fee regardless of whether or not the client earned any money there in a subsequent year.

The question was whether these are perpetual motion situations, or if there is a way to get out of the loop if there is no activity in subsequent years?

The question isn't easily or quickly answered. In addition, the rules for income taxes differ from those for employment and sales/use taxes.

The California CPA Education Foundation course, "Multi-State Taxpayer," which will be held Oct. 19 and taught by past CalCPA Chair Bob Petersen, looks into the complexities of this issue and offers helpful information.

Dealing with Employee Advances

A participant posted some verbiage from California's Employment Development Department indicating its position that employee advances are taxable when received, not when reported to the payroll service.

Another CPA commented that advances definitely need to be short term--less than one year outstanding. He added that in his experiences with examinations, he has had no arguments from IRS or EDD auditors as long as the advances were paid back or put through payroll within six to nine months.

In longer-term advances, the auditors have looked for a note of indebtedness that the company loaned the money to the employee. They also have looked for an interest provision.

Taxation of Nonresidents and Individuals who Change Residency

Corporate employees who have been sent on short-term assignments overseas or to a state with no state income tax often mistakenly believe that they aren't California residents for income tax purposes for those short periods.

For California purposes, employees must be on an assignment that lasts for more than 545 days to be considered nonresidents and, therefore, escape California tax on their earnings. They should be sure to have a written agreement for the assignment, which indicates the assignment's length.

There are several FTB publications (available at www.ftb.ca.gov) on the subject, including FTB Pub. 1031, "Guidelines for Determining Resident Status," and FTB Pub. 1100, "Taxation of Nonresidents and Individuals Who Change Residency."

Pub. 1100 covers such common transactions as installment sales, stock options, partnerships, S corporations and certain trusts, among others.

Miscellany: Booby Trap in the Lemon Law 

California's lemon law provides that if a manufacturer or its representative in this state fails to repair a new vehicle to conform to any express warranty after a reasonable number of attempts, the manufacturer must replace the vehicle or pay restitution.

A recent California Supreme Court ruling held that this does not apply if the vehicle was purchased in another state, even if the buyer was a California resident and the car was brought to a California facility for repairs [Cummins v. Superior Court (Cox) filed 7/18/05, cite as 2005 SOS 3545].

Tax Status of Registered Domestic Partners

Beginning Jan. 1, 2005, wages paid to registered domestic partners will be treated the same for tax purposes as wages paid to spouses for unemployment insurance, employment training tax, state disability insurance, California personal income tax (PIT) withholding and PIT wages.

However, for California tax returns, the filing status of registered domestic partners will not be treated the same as the filing status of spouses.

A registered domestic partner is an individual partner in a domestic partner relationship within the meaning of Section 297 of the Family Code (EDD's "California Employer" 2nd Quarter, 2005).

For more information, contact the EDD's Taxpayer Assistance Center at [phone].

Thank you to CPAs Jim Bone, Michael Chambers, Jim Counts, John Kramer, Bob Petersen, Harriet Reiter and Rueben I. Rubinson for their participation.

[ILLUSTRATION OMITTED]

By Leonard W. Williams, CPA

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of CalCPA's Committee on Taxation, the AICPA Tax Division and a former Peninsula Chapter president, you can reach him at [e-mail].