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California rundown: EDD Auditing, Property Tax and BOE taxes.

There have been several TaxTalk postings about seemingly irrational determinations by EDD auditors of a deemed salary.

As one example, an EDD auditor claimed a young startup company owed more than $5,000 in payroll taxes. The company's CPA asked the EDD auditor, "How can you expect a company that hasn't made money to compensate its employees?"

The EDD auditor understood. The proposed assessment went away.

CalCPA's EDD liaison suggests that when these situations arise, and it can't be worked out with the auditor, then phone the office manager--the EDD doesn't have "group" managers. If no agreement can be reached at that level, then file an appeal.

Practical Property Tax Question

A man inherited property from his parents. It was bequeathed to him and his two adult sons equally. The man thought that under Prop. 13 there would be no reassessment because less than 50 percent of the property passed from one owner to another.

At least he asked.

The rule for Prop. 13 changes in ownership is in RTC Sec. 60: "A 'change in ownership' means a transfer of a present, interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest." Thus this is a change in ownership.

However, the son may apply for one of the many exemptions to change in ownership--the parent-child transfer exclusion. The grandchildren are not eligible.

The 50 percent rule that the taxpayer cites only applies to the indirect ownership of property by owners of legal entities. In that situation, if an ownership interest of less than 50 percent is transferred between owners, there would not be a change in ownership unless an individual or entity acquires more than 50 percent of the entity.

In that event, 100 percent of all of the California real property owned by the entity would be subject to 100 percent reassessment.

BOE Special Taxes Division

Innocent spouse regulations for Board of Equalization-administered special taxes became effective June 17. The qualification requirements are in new Reg. 4903, which will apply essentially the same way to innocent spouse relief for special taxes and fees that are available in Reg. 1705-1 for sales tax liabilities.

The BOE also has adopted implementing regulations for each specific tax--private railroad car, timber, motor vehicle fuel, underground storage, use fuel, diesel fuel, oil spill, energy resources, emergency telephone, alcoholic beverage, hazardous substances, waste management, and cigarette and tobacco taxes.

Sales Taxes and the Sale of a Practice

One TaxTalk participant phoned the BOE practitioner hotline about collecting sales tax on the assets of a professional corporation that was being sold. In the live-and-learn category, he learned that the sale of tangible personal property by a professional practice is an "occasional sale" in that the professional practice doesn't have to have a "seller's permit."

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Are 'Joint Tenancy with Right of Survivorship' and 'Community Property' the Same Thing?

Though we know that they aren't, this question has been debated long and hard on TaxTalk. Still, people often think that they are the same for California residents--and more than a few professionals also are confused.

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If the property is indeed community property, then the step-up of both halves definitely applies.

If it is JTWRS, then only the decedent's half gets stepped up in the hands of the survivor, unless both halves would be included in the estate of the deceased.

The situation gets muddy in that there are California cases holding that property held in joint tenancy may be "joint tenancy for convenience only" and really community property. Some say that if the deed says JTWRS, you're pretty well stuck with it--but it's not that simple.

For instance: married couples may execute a written agreement stating that all of their property, irrespective of title form, is community property.

It is essential that, if it's JTWRS, someone has to analyze whether, why and how the joint tenancy property really is community property. Those deciding that it is also have to determine whether or not they have authority for the step-up of both halves.

It's more of a legal question than anything else.

Thanks to CPAs Dale Bender, Jim Bone, Jim Counts and Craig Fechter, and to attorney Woody Rowland for their contributions to this column.

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 williams@lwwilliamscpa.com.
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Title Annotation:CATax
Author:Williams, Leonard W.
Publication:California CPA
Date:Sep 1, 2010
Words:747
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