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The FTEs needs: notifying the FIB post-audit, prop 13 & controversy.

This is a reminder that the conclusions or IRS audits. CP-2000 adjustments. amended returns or other changes must be reported to the FT B they will have a tax impact. Failure to clo will have a negative impel on clients' perceptions or their CPAs when die other shoe drops and they get an unexpected notice/bill from the FTB rot. the California impact or what has transpired.

There is an incentive to report the change to the There's a six-month period for the taxpayer to notify FTB of the change and if either the taxpayer or the IRS notifies the FIB, then the FTB is given two years to issue a notice of proposed deficiency adjustment

If, however. the FIB hasn't been informed of the change within that six-month period, then the FIB is auuborized to send a deficiency notice at any time.

If the taxpayer or the IRS notifies the FIB of the change outside of that six-month window, then the 1.1B is allowed four years to issue a deficiency notice.

A state Board of Equalization (BOE), summary decision from earlier this year illustrates the harsh consequences a taxpayer Sufrered for failing to adhere to the above rules. In Barry Rossum. NO. 69590'3 (March 25. 2014) the BOE allowed the FIB LO proceed with an assessment against a taxpayer 11 years alter the original state return k' as filed. which is many years beyond the normal four-year California Statute of limitations for individual income tax matters.

The taxpayer alleged that he had tiled an amended California return. hut could not produce either a copy amended return. or a cancelled check showing payment Noy. 20. 2014 issus Lexology) .

The late Steve Kramer had a very efficient way of handling the required notification: Fled send a copy of the IRS report to the FTB with a cover memo saying that this was its notification and Cor it to recalculate the California lax accordingly. Then he'd simply review what the FTB calculated.

How Long Do I Have to Keep This Tax Stuff?

As a minimum. taxpayers should keep the file copies of their income tax returns permanently and. with thy advent of electronic filing. Aso keep the acknowledgement that the taxing authority received the return. A1though such acknowledgoment come from the software

Take this story as in illustration:

A client of mine always sent in his tax return via certified mail with return receipts required. A few years ago. he got a notice from the FTB that he hadn't filled tax returns for 1997 1998 and 1999 Although he received the notice long after the normal four-year statuke of limitations. the statute of limitations never starts if return was filed.

Copies those returns, plus copies of the certified mail receipts that they's been received, were sent to the FTB, along with a cover memo that I wrote. which said: "We don't know what you did with you copies but here are copies of what we sent along with the return receipts that you'd received them Please correct your records accordingly

A few days later. I received a phone call from the FTB saving: "We received your response. and you're obviously correct. But can't imagine how we could have made a mistake like that."

My answer to him was: "I have no trouble imagining it at all."

There's More Than One Way to Skin a Cat

Prop. 13 provides that. in the instance partnerships and LLCs. a sale or exchange of partnership interest interest--or interests--amounting to more than 50percent perecent is a change in ownership.

Suppose that all of an LLC's membership interests: are sold. but no one person or entity obtains. directly or indirectly. more than a perceta interest in the capital and profits. Does his constitute a Prop. 13 change in ownership or the property? The answer is no [Oceam Ave. LLC v. Counly of Los Angeles (2014) 227 Cal App. 4th 344]

There's an interesting story behind this in that there originally was to have been a sale of the property but one of the buyers is a big name in the tech world and had his legal staff look at it before the sale went into escrow

When his lawyers It at all the information, they had the original sales contract cancelled and reconstructed the transfer as above.

This saved more than $300,000 in annual real *state taxes from hi Jan. 3 Silicon Valley Bar Association tax update.

Thanks to Jim Counts. CPA for his contribution to this article

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of the CalC PA Committee on Taxation, the CAlCPA Tax Division and a former Peninsula/ Silicon Valley Chapter president, you can reach him at williams@lwwilliamscpa.com.
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Title Annotation:Full Time Equivalent; Family Income Benefit
Author:Williams, Len
Publication:California CPA
Geographic Code:1U9CA
Date:Jan 1, 2015
Words:790
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