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ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE FTB’S SHORT ASSESSMENT STATUTE – HOW TO TAKE ADVANTAGE OF IT

By Robert S. Schriebman

2020

Introduction

The Franchise Tax Board, the FTB, has a short 2-year assessment statute for IRS related activities. Here’s the story.

If you are audited by the IRS, and that audit results in an assessment, you are required to report the final federal determination to the FTB.  The same rule applies when you file an amended federal return owing money.  California has a “me too” piggy-back assessment process that allows the FTB to issue its assessment based upon IRS activity.  If you tell the FTB in a timely fashion, they only have 2 years to issue their assessment.  If you are tardy, they have more time.  If you totally fail to notify the FTB, they have an unlimited period of time for a “me too” assessment. 

If you timely notify the FTB, but they wait too long to issue their “me too” assessment, you may be able to walk away without giving them a dime.  But, if you are not timely, you are going to be exposed to taxes, penalties, and daily compounding interest.

Unfortunately, many professional tax advisers and tax return preparers are not aware of these rules.  The result for their clients is a potential disaster caused by long periods of accruing interest and penalties.

In this article, I will discuss the short assessment statute.  I will give you the FTB address for notification and a few pointers of what you need to tell the FTB.

The Office of Tax Appeals (OTA) on August 12, 2020, issued a decision in the Foster case declining tax relief because the taxpayer did not send a timely notification to the FTB of the results of an IRS audit (Foster, OTA 407-212).

R&TC § 18622

R&TC § 18622 requires a taxpayer to notify the FTB about the results of an IRS audit assessment or the filing of an amended IRS return where there is a deficiency.  Here are the basic rules:

  • If you notify the FTB within 6 months of the date of the final federal determination from an audit or a US Tax Court decision, the FTB has only two years to issue its “me too” assessment.
  • If you notify the FTB after 6 months, the FTB has 4 years to issue its “me too” assessment.
  • If you fail to notify the FTB, there is no time limit for the assessment.

What Constitutes Proper Notice?

You can’t merely tell the FTB you were audited by the IRS.  You must give them all relevant documentation such as Form 4549, “Report of Income Tax Examination Changes,” a copy of the Tax Court decision, or a Deficiency Notice that you have elected not to challenge in the Tax Court.

You must also state that you concede the accuracy of the IRS determination.  You should also provide the name and contact information of your auditor. 

Where to Send Your Notice to the FTB

You must send the Notice to the following address:

RAR/VOL MS F310
Franchise Tax Board
PO BOX  1673
Sacramento, CA 95867

How to Send the Notice

You must be able to have proof that you timely notified the FTB.  A postmark from a private postage meter is not sufficient.  You cannot merely drop the Notice in the mail because that gives you no proof of mailing. You best bet is to go to the Post Office and send the Notice via certified mail return receipt requested and have the receipt “round-stamped.”  This is the best proof you can have.

Conclusion

The FTB must issue a proposed assessment within 2 years of the date of notification providing you gave them a timely Notice within the provisions of R&TC § 18622.  Always send the Notice by certified mail as set forth above.  The FTB is often late on issuing its “me too” assessment when these rules are followed.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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