Estimating certainty: Property Taxes, Corporate dissolution and more

California CPA, Jan-Feb, 2003 by Leonard W. Williams

Do your clients know whether or not they have paid their estimated taxes?

Many CPAs seem to have some clients who don't know whether they made their estimated tax payments or how much they paid.

To avoid problems down the road, information regarding California estimated tax payments can found at https: //webapp.ftb.ca.gov/pitpbd/index.asp?submit=Continue.

Since getting the information about California estimates paid is much easier than getting the federal estimated tax payment information, some CPAs check California only. If those payments are in line with the estimates that CPAs set up for their clients, then they feel safe in assuming that the federal estimates were paid correctly.

Income Earned Abroad

Is the Form 2555 exclusion on the federal return equally applicable to a 540NR return?

Federal Form 2555 computes the allowable exclusion of income earned abroad. This is not an exclusion or deduction for California income tax purposes. (See Page 326 of the 2001 California Package X, under instructions for Schedule CA Form 540NR).

Here, it tells you to see the instructions for Line 21, which are on Page 328 of the 2001 California Package X. Finally, it says that the Federal Sec. 911 exclusion (which is what Form 2555 is all about) is an add-back to Column C of Schedule CA.

Corporate dissolution processing

Many TaxTalk listserve participants complained about the difficulties of dealing with the FTB and the Secretary of State over the issue of whether a corporation has been dissolved in time to avoid paying an additional $800 for a subsequent year.

The dissolution process was covered in the November 2002 issue of Spidell's California Tax Letter, which gave this website for obtaining general guidelines and sample dissolution documents: www.ss.ca.gov/business/business.htm.

The article also included information for liquidating LLCs, LLPs and LPs.

The documents that go to the Secretary of State's office should be hand delivered to the Sacramento office or sent via certified mail, with return receipt required.

Documents should not be turned in to local Secretary of State offices.

Spidell's article provides the Secretary of State's mailing address, as well as a website to find private legal service companies that will take the documents to the Secretary of State's Sacramento office.

Other States Requesting Non-Resident Returns

If a California resident has realty income from another state and the tax owed is small, many CPAs will not prepare their client's tax return for the other state.

Often, all that is involved is a $100 (or so) tax for the other state and a corresponding credit on the California return via Schedule S. The amount of tax paid is the same, but the cost of the extra state's return preparation is disproportionate to the amount of tax involved.

When limited partnership interests were widely held, only rarely did a taxpayer get a request from another state for its tax on the sale of the property in that state. Even then, the suspended losses usually wiped out any tax due.

Apparently, with the recession hitting states' tax receipts pretty hard, states now are looking for additional sources of revenue.

Minnesota recently approached a client of a listserve participant with a demand for unfiled taxes going back to 1989. They compromised and agreed to go back to 1995.

The Minnesota income tax division knew the precise date that the California taxpayer had inherited the old family farm back in 1989.

Once again, the project is an exercise in trivia for each year, with the income even being below the Minnesota filing requirement in some years and a tax in the $200 range other years.

Additional Property Tax Information Website

November's column listed CalCPA member Jim Bone's website, www.calproptax.com.

Other listserve members have furnished these websites:

* www.calcpaweb.org/resource-Click on Taxes, then Property Tax, Counties.

* www.netronline.com/frameset.asp?page=California. Here, you'll find links to county assessors, recorders and tax collectors in California and other states.

Practical Property Tax Problem

A client has a 20 percent interest in his parents' house. Both parents died in 2001. He wants to buy the remaining 80 percent from his siblings. The house is in the parents' living trust. What should he do to take advantage of the Prop. 68 exemption and avoid a reassessment?

Answer: Be sure that he buys the interest from the trust--not from his siblings. If he buys it from his siblings the county assessor will reappraise the property. He should have the title company file the Prop. 68 claim form with the county assessor's office.

Thanks to the following TaxTalk listserve participants for their input: John Halim, Jim Counts, Dale Isaacs, Woody Rowland, Bill West, Bill Downs, Bill Grace and Mitch Nakagaki.

Leonard W. Williams, CPA, isa Sunnyvale-based sole practitioner. He is a member of CalCPA's Committee on Taxation, an AICPA Tax Division member and a former Peninsula Chapter president. You can reach him at williams@lwwilliamscpa.com.