ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT YOU NEED TO KNOW ABOUT THE FTB’S “ME TOO” ASSESSMENT – PART 2
By Robert S. Schriebman
Every California taxpayer concluding a matter with the IRS whether the matter be an audit, Tax Court decision or a decision by the federal court, is required to notify the FTB. If the taxpayer fails to give a timely notice or to timely amend a tax return, there is no statute of limitations on the FTB’s issuance of its corresponding “me too” deficiency assessment based upon the federal adjustments. A “me too” assessment means that the FTB is allowed to levy a tax that it would otherwise never get because the statute of limitations for an audit assessment had long expired.
FTB Audit Statutes of Limitations
The statute of limitations for issuing an assessment for personal income tax is normally four years after the return was filed (R&TC 19057). The statute of limitations is six years if the taxpayer omits an amount in excess of 25% from gross income stated in the return (R&TC 19058). However, when the IRS enters the taxpayer’s life, the statute of limitations for assessment is suspended indefinitely until the conclusion of the IRS matter and until the taxpayer provides notice to the FTB.
R&TC § 18622(a)
R&TC § 18622(a) requires that any change or correction to an IRS tax return be reported to the FTB within 6 months after the date of the final federal determination. If the notice to the FTB is timely made, the FTB only has two years to make its “me too” assessment. This notice must be sufficiently detailed to allow the FTB to make an accurate assessment. If no notice is given, the FTB has no statute of limitations for its “me too” assessment. The FTB can wait until Johnny Mathis’ hit song, “The 12th of Never.”
In my practice, I am surprised how few tax professionals know this rule and how few of them comply with the law.
Notice Requirements Under R&TC § 18622(a)
RTC §18622 states in substance that once the final IRS income tax determination is made, a taxpayer has a duty to notify the FTB within 6 months after the date of each final federal determination and shall concede the accuracy of the determination or state how and why it is erroneous. Compliance with the notification rules is met when the taxpayer either files an amended return or provides other written notice. An amended return is not required unless the change increases the amount of taxes payable to the IRS (R&TC §18622(b)). If the notice is given by other than an amended return, it must be sufficiently detailed to allow the FTB to compute the resulting California tax changes (R&TC §18622(c)).
If I do not file an amended return with the FTB, I prepare another type of written notice that complies with the statute. I leave the preparation of an amended return to CPAs and return preparers.
Address your notice as follows:
RAR/VOK MS F310
Franchise Tax Board
PO Box 1673
Sacramento, CA 95867
For written notification I recommend the following be clearly stated:
- Name(s) of taxpayer(s)
- Social Security Number(s)
- Federal EIN, if a business entity.
- State that the Notice is being sent pursuant to R&TC §18622(a).
- Tax year(s) in issue
- State how the matter was resolved, i.e., audit determination, Appeals settlement, or US Tax Court decision
- Concede the accuracy of the final federal determination.
- Enclose a complete copy of either the audit report, Appeals settlement or Tax Court decision.
- State the name and contact information of the IRS agent or Appeals Officer.
- Request that a prompt decision be timely issued by the FTB.
- Sign and date the notification.
- Enclose an extra copy along with a self-addressed stamped envelope so the FTB can confirm receipt of your notice and returns it to you.
Sending the Notice
When notifying the FTB of the results of an IRS audit, send your notice by registered or certified mail, along with proof of mailing from the post office. Make sure you get your proof of mailing “round stamped.” This will show the official date of mailing and will start the statute of limitations for the “me too” assessment.
I am always astonished by tax practitioners who are ignorant of these laws and neglect to notify the FTB when an audit is completed or a settlement reached with the IRS. It is a lucky day when I am able to timely notify the FTB of the final federal determination of a tax controversy. Even when timely notifying the FTB, one must be diligent that the FTB timely issues its “me too” assessment. This is where the post office round-stamp comes into play and allows one to confront the FTB that they are late on issuing their assessment. And take it from me that the FTB frequently is late when it comes to issuing an assessment.
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 50 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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