ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT DOES IT TAKE TO FILE A VALID REFUND CLAIM?
By Robert S. Schriebman
Filing a claim for refund can be a tricky and challenging process. What to say, how to say it, and when and how to file your claim can be confusing. Every taxing agency in California has its own unique statue of limitations and requirements for what constitutes a valid claim. Refund statutes are also important because if you miss the claim filing deadline, you lose your refund. A lost refund is exactly that – lost! The monies held for refund are never allowed as a credit if the claim period expires.
The elements composing a valid claim for refund are usually not set forth specifically in any statute. Refund claim statutes are deliberately vague. For the FTB and EDD no particular form is available. The old FTB Form 3543 has been abolished. Basically, the claim must be in writing and must be specific enough for the FTB or the EDD to be able to tell what the claim is all about. When making a claim for refund, specifics and detail cannot be over emphasized. The last thing you want to happen is to have an FTB or EDD attorney deny your claim or challenge your refund suit on the grounds that the claim is not specific enough. You could be in real trouble if this happens because the period for filing a claim or amending a claim, may have long expired by the time the government reviews your claim or the time you file a refund suit. Therefore, when you draft your claim for refund, you should err toward putting in as much factual and legal detail as possible.
The IRS has Form 843 entitled Claim for Refund and Request for Abatement. While your claim may be a state claim, it’s a good idea to review the IRS version so you can see all of the elements for a valid claim. A valid claim for refund should have the following as a minimum requirement:
• Your name, address and contact information including your email;
• Your Social Security number;
• Your state account number;
• Type of tax, for example, personal income tax (PIT);
• Form number, such as 540, DE 9, DE 9C, etc.;
• Tax periods involved;
• The date of payment of the tax;
• The amount of your claim;
• Grounds for refund and possible exhibits;
• Sign and date your claim.
Your claim should be sent so that you can prove that you send it in the event it gets lost in transit or by the taxing agency. Use FedEx, UPS, etc. If you use the UPS, make certain that you send your claim by certified mail, return receipt requested and get your receipt round stamped. Avoid the use of private postage meters as these offer no legal proof of mailing.
The recent case of Peach Tree Investments LLC decided by the Office of Tax Appeals (OTA), shows the importance of making your claim as complete as possible (2020-OTA-218, May 28, 2020).
The Case of Peach Tree Investments LLC
Peach Tree Investments, LLC (Peach) was continuously tardy in filing tax returns and paying California related LLC taxes between the years 1999 through 2019. The FTB continuously sent Peach notices and demands to file returns and pay its taxes. The FTB levied four penalties and taxes against the LLC including the following:
• Annual LLC minimum tax
• Late filing penalty
• Late payment penalty
• Post-amnesty penalty
In 2019 Peach paid the penalties and interest in full and filed a claim for refund but only for the two late penalties and interest. The claim did not include the annual LLC minimum tax or the post-amnesty penalty. During the hearing before the OTA, Peach requested a refund for the penalties for which it did not file a claim. In the meantime, the statute of limitations for filing a claim in those early years had expired.
The OTA stated that a tax refund claim “must state the specific grounds upon which it is founded. The claim must set forth in detail each ground upon which a refund or credit is claimed and facts sufficient to apprise the FTB or the exact basis thereof. (Cal.Code Regs.,tit. 18, § 19322(a)). The filing of a refund claim is a “simple, straightforward statutory requirement.” The OTA ruled that Peach did not file a valid refund claim for the annual LLC tax or post-amnesty penalty, and did not give the FTB any other actual notice of its desire to claim such a refund. Accordingly, the OTA refused to entertain verbal amendments.
This article has given you the basics of what constitutes a valid calim for refund for any California taxing agency. The time to submit a complete refund claim is in the early stages when the claim is initially submitted. All possible grounds must be included in your claim. If you leave out anything, it’s too late to stand before a judge and say, “Oh by the way judge, we forgot to include the following…” the judge will not be pleased with you and will refuse to add anything other than what was submitted.
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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