Found: a live one at the FTB; disputed penalties, shared Schedule Cs and more - California Tax

California CPA, Nov, 2002 by Leonard W. Williams

A TaxTalk participant recently posted an encouraging note. In a controversy with the FTB about whether or not a certain payment had been made, he received an e-mail from an actual person who bad her own FTB e-mail address.

The CPA was told to fax the FTB representative a copy of the check that would prove the disputed payment. It turned out that the FTB was correct; the payment had not been made. The CPA e-mailed the FTB rep, relaying that fact, and asked that a bill be sent to him--with penalty and interest included--so that one check would handle everything.

To the CPA's surprise, the FTB rep replied via e-mail that because of the speed with which the matter was cleared up, no penalty or interest would be charged. (Note: the tax payment involved was only $700, so the forgiveness didn't represent a lot of money. Nevertheless, any forgiveness is appreciated.)

However, another TaxTalk participant complained that an FTB auditor would not accept a spreadsheet via e-mail.

One TaxTalk participant has started to include his e-mail address beneath his signature on all "snail mail" and faxes to facilitate the transition to faster e-mail correspondence.

Who's Doing Business in Your City?

Yes, the FTB provides cities with information about businesses there.

This line of inquiry began when one TaxTalk member was shocked that a client had received a letter from the city of Azusa reading: "We are writing you because we have become aware that you have declared business activity at the above address by filing Schedule C, Profit or Loss from Business, with your 2001 tax return."

Several participants assured him that this was a recent legislative change, pushed through so cities can determine who is operating a business without a business license. There also was a discussion of it in the February issue of Spidell's California Tax Letter.

However, there can be a lot of errors in this process. For example, if a taxpayer puts his home address on Schedule C, then the city probably will pursue him for a business license for that address, even though the business might be located elsewhere. That would be the taxpayer's error because Schedule C asks for the business' location.

Consider also if the taxpayer's business moves before filing an income tax return and uses the new address on the tax return when the business was at a different address the prior year.

Finally, cities also will use FTB information to enforce zoning laws, such as those banning home occupations in residential neighborhoods.

Useful Websites

The U.S. Department of Labor, www.dol.gov/esa/minwage/america.htm, provides each state's minimum wage rates and information about their overtime rules.

The FTB, www.ftb.ca.gov/forms, provides forms and publications that can be downloaded.

Property tax questions can be answered at CalCPA member Jim Bone's website, www.calproptax.com. Bone, who has written a book on property taxes that is available through his website, subscribes to a common sense policy on questions. He considers short questions "networking," and he's happy to help. If it turns into a project, then it becomes billable.

This should remind everyone of clients who call and say, "I have a quickie." Of course, what's a quickie in their minds often involves a few hundred dollars worth of your time to research or explain to them.

Property Tax Problem

John and Mary were a widower and widow, respectively. They fell in love and married. Mary sold her house, which she bought in 1973, for $1.7 million, and buys half of John's house for $1.2 million. Does Mary qualify for relief under Proposition 60?

Proposition 60 allows for transfer of a base-year value for someone over 55 who buys a replacement residence for the same or lower price as the prior one was sold for.

Alas, they did it in the wrong order.

* California Revenue & Taxation Code Sec. 69.5 implements Proposition 60. It requires a purchase or new construction.

* R&T Sec. 67 says "purchased" or "purchase" means a change in ownership for consideration.

* R&T Sec. 63 excludes all inter-spousal transfers from change in ownership.

So, they should have executed the transaction before they got married.

Join the Discussion

CalCPA's TaxTalk listserve is a gold mine of almost 400 CPAs and attorneys who discuss tax issues, ask tax questions and share information.

To subscribe to TaxTalk, get yourself a Yahoo ID at www.yahoo.com, then go to CalCPA Online, www.calcpa.org/ members/listservers and sign up.

When posting a message, remember to sign off with your name, followed by CPA, Esq. or both, public practice or industry and your city.

Thanks to the following CalCPA members who participated in the discussions that generated this article: Jim Counts, Bill West, Woody Fox, Cherie Putman, Harriet Reiter, Woody Rowland and Jim Bone.

Leonard W. Williams, CPA, is a Sunnyvale-based sole practitioner. He is a member of CalCPA's Committee on Taxation, an AICPA Thx Division member and a former Peninsula Chapter president. Williams can be reached at williams@/wwilliamscpa.com.