N O V E M B E R 1 9 9 7
Package X: Installment
Order Now for Payment Program Inside ...
2 ... Legal notice addresses refund
January Delivery Is Streamlined claims
2 ... 1099 reporting of punitive
damages: California follows
The 1997 California Package X in paper and Qualifying to pay taxes in installments is federal
CD-ROM versions will be distributed on a about to get easier. 3 ... How to order Package X, Tax
first-come, first-served basis. News
Starting in January 1998, California taxpayers
3 ... Package X: What’s on the
Your best bet for an early delivery is to order will be able to make installment payments CD-ROM?
right now, even though the Package X will not without filling out a financial statement. To 4 ... Electronic filing: Two new
be shipped until January. All early orders will qualify, taxpayers must owe no more than advantages
be processed immediately so that labeling $10,000 and agree to pay their liabilities by 4 ... Electronic filing: Who needs to
information is ready to print as soon as the electronic funds transfer (EFT) within three apply?
Package X is produced. years. They also must have filed all required 4 ... What are Package X CD-ROM
tax returns. specifications?
In most cases, paper versions of the 5 ... Questions answered according
Package X will be distributed to street To apply for the installment payment to topic
addresses by an expedited delivery as they agreement, taxpayers must send the new form 5 ... FTB calendar
were last year. As a result, deliveries are FTB 3567, “Installment Agreement Request,” 6 ... Use revised form 100X
expected to be completed quickly once the to the Franchise Tax Board. The form is not 7 ... Reducing the R&D credit:
books are produced. Previously, paper yet available. However, by the first of the S corporations and shareholders
use different rates
CONTINUED ON PAGE 2 7 ... Clarification
CONTINUED ON PAGE 2
8 ... Taxpayers’ Bill of Rights
hearing is this month
Putting It on Paper 8 ... California has new Taxpayers’
Bill of Rights
9 ... It’s the law!
9 ... Want copy of new law?
10 ... Tax Talk offers learn-at-home
10 ... Interest rates
11 ... Are you a Tax News
12 ... SBE opinions
13 ... Watch for Tax News index
14 ... Visit FTB in cyberspace
14 ... 1099s: When magnetic media is
14 ... FTB has new EFT bank
15 ... Scannable/substitute forms
producers need FTB approval
15 ... Does your software support
16 ... Disaster victims reside in 48
16 ... New tax law aids disaster
CONTINUED ON PAGE 3
California tax forms will be printed on paper from giant rolls like these,
in place at the Office of State Printing.
Legal Notice Addresses Refund Claims
The Franchise Tax Board has published raise the failure to pay as a
its position regarding refund claims and jurisdictional issue.
Volume 97-6 November 1997
the “full payment rule.” Earlier, based on various recent court
TAX NEWS is a bimonthly FTB Notice 97-8 provides guidance on decisions, FTB withdrew a 1977 Legal
publication of the Taxpayer Advocate
Bureau, California Franchise Tax administrative claims and appeals to the Ruling holding that a refund claim would
Board. Its primary objective is to State Board of Equalization (SBE) and be valid if, when it was filed, all assessed
provide information to income tax also to refund actions filed in court. It or asserted tax and penalties, although not
practitioners about state income tax
laws, regulations, policies and states that, pending a final controlling interest, had been paid.
procedures. appellate judicial decision on the issue: Notice 97-8 states that taxpayers may
Members of the Board: • For purposes of administrative claims avoid uncertainty by paying all amounts,
and SBE appeals, FTB will continue including interest, when or before they
Kathleen Connell, Chair to accept refund claims that are filed file a refund claim.
with or after the tax, additions to tax You will find the notice, issued on
Ernest J. Dronenburg, Jr. and penalties are paid in full. Interest
Chair, State Board of Equalization September 4, at FTB’s
does not need to be paid. However, http://www.ftb.ca.gov Internet Web site.
Craig L. Brown any unpaid interest amount will It also has been published by most tax
Director, Department of Finance continue to compound daily,
according to Revenue and Taxation
Executive Officer: Code Section 19521(b).
Gerald H. Goldberg
• For refund actions filed in court, if all
tax, additions to tax, penalties and 1099 Reporting of
interest are not paid in full, FTB will
To update or correct your address or
to subscribe to TAX NEWS (send $12
for a one-year subscription), write:
Package X: Order Now California Follows
P.O. Box 520
Rancho Cordova, CA 95741-0520 for January Delivery Federal
or call: (916) 845-7070.
CONTINUED FROM PAGE 1 If you or your clients paid punitive
For information about a client’s damages recently, keep in mind that
account, contact: versions were sent by fourth class mail,
Tax Practitioner Support Unit California conforms to the change in
(916) 845-7057 (phone) which is a much slower process. federal information reporting
(916) 845-6377 (fax) CD-ROM for Windows versions of the requirements.
For recorded answers to questions Package X will be distributed by first- Payers must now report on Form
on California taxes, to order forms class mail. 1099-MISC all payments for punitive
or check on a refund, call:
To obtain a Package X order form, call damages of $600 or more, including those
F.A.S.T. (800) 338-0505
From outside U.S. (916) 845-6600 (916) 845-7070. related to physical injury or physical
—————————- sickness. For information reporting
Information Center: purposes, the change applies for
(800) 852-5711 Installment Payment payments after August 20, 1996. This
From outside U.S. (916) 845-6500 change in information reporting does not
Program Is Streamlined mean that punitive damages related to
TDD (800) 822-6268 CONTINUED FROM PAGE 1 physical injury or physical sickness were
__________________ previously excludable from gross income
FTB on the Internet year, it may be obtained from FTB’s reported on income tax returns.
http://www.ftb.ca.gov F.A.S.T. (Fast Answers about State
Taxes) service; call (800) 338-0505, Internal Revenue Code Section 104(a)(2)
Printed on recycled paper.
access “Personal Income Tax Forms has been modified to reaffirm that
Request” at the voice prompt and then punitive damage payments related to
enter code 949. The form will be personal physical injury or physical
included in the 1997 California sickness are taxable. California Income
Package X. It also will be available at Tax Law Section 17131 incorporates this
the first of the year at FTB’s federal law section.
http://www.ftb.ca.gov Internet address
and by mail from Tax Forms Request, CONTINUED ON PAGE 6
P.O. Box 307, Rancho Cordova, CA
How to Order Package X, Tax News
Would you like a 1997 California • Do not add sales tax.
Package X? • If you want to send one check for
To order a Package X in either a paper or multiple subscriptions to Tax News
CD-ROM for Windows version, call and/or copies of Package X and you
(916) 845-7070 for an order form. You want them sent to different Inside ...
also can use the form to renew your Tax individuals and/or different CONTINUED FROM PAGE 1
News subscription or to subscribe for the addresses, print “Multiple
first time. Addresses” prominently on the front 16 ... Were tax returns lost in flood?
of the order form. Then, attach a 17 ... Comments sought on proposed
The Tax News/Package X order form has telecommunications/electronic
a new look this year, including a vertical sheet of paper with the other names services regulation
bar code and full and half boxes for the and addresses and indicate which part 17 ... Address correction
information you fill in. The changes have of the order goes to each person or 17 ... Tax practitioner contacts
been instituted as a prelude to the image- address. 17 ... Send vouchers with all 1997
processing of order forms and checks, • Be sure to enclose your check or tax payments
which will begin in mid-1998. money order, payable to the 18 ... Wage amounts to be verified
Franchise Tax Board. Orders 18 ... Automated checks lead to
To order: withholding adjustments
without payments are not processed.
• Use the 1997 order form. Do not use Do not send cash.
a form from a previous year. Even if
you cross out the year and replace it • Mail the form and your check or
with “1997,” you are using an out-of- money order to: Tax News/
date order form and your order may Package X, P.O. Box 2708, Rancho
be delayed. Cordova, CA 95741-2708.
• Make any necessary corrections to For more information about Tax News or
your name and mailing address that Package X, call (916) 845-7070. Also,
see other articles about Tax News and
are printed on the form.
• Fill in your telephone number.
Package X in this issue.
• Supply a street address in the space
provided if the mailing address at the
top of the order form is a post office
box. A street address is required by
the Package X delivery service. Package X:
• To renew a Tax News subscription or What’s on
subscribe for the first time, multiply
the number of subscriptions you want the CD-ROM?
by $12 and enter the full amount in
the space at the right of the form. The CD-ROM version of this year’s
Package X provides 1997 California tax
• To order a 1997 Package X, list the
forms and much more.
number of bound, loose-leaf or CD-
ROM for Windows versions you are If you order the CD-ROM, which must be
ordering. Then, multiply the number used with Windows software, you get:
of paper copies by $12. Multiply the • 1997 California Package X forms.
number of CD-ROM versions by
$19. • 1997 Internal Revenue Service
Package X forms.
• Follow the same procedure to order a
paper version of Package X for a • California Package X forms for the
prior year. Prior year loose-leaf three previous years.
versions of Package X are available • Information on electronic filing.
only for 1993, 1994, 1995 and 1996. The CD-ROM has a search feature so that
(1994 through 1996 Package Xs are you can locate references to special words
included on the CD-ROM.) or terms in both the tax forms and
• Add the above amounts and write the instructions. And in March you will
total in the space marked “Total receive a second disk with updated forms.
CONTINUED ON PAGE 4
Electronic Filing: Who Needs to Apply?
For the coming tax season, tax Record Layouts for the State of California
practitioners who are electronic filing Individual Income Tax Returns.” It will
Electronic Filing: veterans generally do not need to reapply be available on disk in early December.
but newcomers must apply in order to V
It also will be available on the Internet.
Two New participate.
If you are already enrolled in California’s
Advantages electronic filing program, do not apply
If you participate in
again unless the information on the
application you submitted earlier has
California’s electronic filing changed. For example, you should What’s on the CD-ROM?
program, you now can offer reapply if your business moved, if you
clients two new advantages: designate someone new as a contact CONTINUED FROM PAGE 3
direct refund deposits and person or if you have a new telephone
nonresident filing. The tax forms on the CD-ROM are not
number. The Franchise Tax Board will interactive. You must print out the form
For the first time, California perform a suitability check to make sure in order to enter data on it. You cannot
tax refunds can be directly that you are still in compliance with enter data onto the forms by computer.
deposited in your clients’ electronic filing policies.
The CD-ROM will be delivered by first
bank accounts, but only if
they file their returns
If you are new to electronic filing, you
must apply by December 1, 1997.
class mail in January. V
electronically. Direct deposit
Whether you need to reapply or are
may be available to taxpayers
who file their returns on paper applying for the first time, be sure to use What Are Package X
the 1997 version of form FTB 8633,
“California Application to Participate in CD-ROM
In addition, nonresidents may the Electronic Filing Program.” You can
use the electronic filing obtain a copy of the form by: Specifications?
system for the first time. For
the 1997 tax year, taxpayers • Downloading it from FTB’s If you plan to order the 1997 California
may electronically file Form http://www.ftb.ca.gov Internet Package X on CD-ROM for Windows,
540NR, “California address. make sure that your computer is
Nonresident or Part-Year • Calling the Electronic Filing Help compatible with the disk.
Resident Income Tax Desk at (916) 845-0353. Also call You should be able to use the CD-ROM if
Return,” as well as Schedule the Help Desk for additional you have:
CA (540NR), “California information on FTB’s electronic
Adjustments - Nonresidents filing program. • A 386DX, 486DX or Pentium
or Part-Year Residents,” and computer with a processor speed of
• Contacting your local IRS district 33 megahertz or faster.
Schedule P (540NR), coordinator.
“Alternative Minimum Tax • Microsoft Windows 3.1 or later with
and Credit Limitations - When you fill out the form FTB 8366, be a mouse.
Nonresidents or Part-Year sure to:
Residents.” V • Sign the application. FTB cannot
• Four megabytes of RAM (main
process applications without
signatures. • Double speed or greater CD-ROM
drive capable of reading ISO 9660
• Include a business address where you format.
can be reached by mail all year, not
just during the tax filing season. • VGA, SVGA or higher resolution
color video display/adapter.
• Provide the name of a person FTB
can contact year-round and a • PostScript Windows-compatible
telephone number where that person printer or Hewlett-Packard Laserjet
can be reached during traditional III and above with 1 megabyte of
business hours. user RAM.
• Add your Internet electronic mail If you have questions about your
address, if you have one. computer’s compatibility with the
Package X CD-ROM, send a fax to the
FTB will send you a copy of the tax year Franchise Tax Board’s CD-ROM
1997 FTB Publication 1345, “Electronic
Filing Handbook, File Specifications and
coordinator at (916) 845-4788.V
According to Topic FTB Calendar
Do you have a question? Give the • General tax information, which
Franchise Tax Board a ring. provides answers to commonly asked November
The answer to your question may be questions about personal income • Demands to file 1995 tax
taxes, bank and corporation taxes and returns continue to be
available from one of FTB’s interactive mailed to corporations.
voice response (IVR) telephone services. homeowner and renter assistance.
All of the IVR numbers are available in • Personal income tax refund 7 1997 Package X order
forms are distributed as
English and Spanish, 24 hours a day, information, which provides the part of Tax News.
seven days a week, unless the information status of the caller’s current year
below states otherwise. And you must refund. If the refund has not been 17 Franchise Tax Board’s
Taxpayers’ Bill of Rights
use a touch-tone phone. authorized, the caller will be told hearing.
You and your clients can dial up a wide how long the refund process may
take. The caller also will be told if 14 Last day to mail payment
spectrum of information, categorized by and order for Tax Talk
subject matter. Here are the topics and the refund has been applied to the home study course.
the numbers to call about tax- and next year’s estimated taxes or to
another tax year liability or 20 Previous month
revenue-related matters: withholding at source
intercepted by another agency. payments due if total
Bank and corporation collection -
(888) 889-8876. You will hear answers • Personal income tax forms, which withholding exceeded
callers may order for the current year $2,500.
to questions about California corporation
tax and exempt organization fees and and the three previous years. Internal December
Revenue Service forms also may be
taxes, suspension of a corporation, • Demands to file 1996 tax
revivor of a suspended corporation, FTB ordered from January through April returns are mailed to
mailing addresses and telephone numbers, 15. individuals.
corporation filing requirements, penalties, • Bank and corporation forms, which 1 Deadline for submitting
contract voidability, how to get exempt may be ordered for the current year. electronic filing
status and how an exempt organization • Personal income tax payment applications.
can incorporate without paying verification and account balance 20 See November 20.
corporation fees and costs. (Available in information, which provides the 26 1997 personal income tax
English only.) status of the caller’s tax account. forms are mailed.
Delinquent corporations and limited To order forms or check a refund status or January
partnerships - (800) 478-7194. Your
business entity clients may want to call
account information, call between 6 • Demands to file 1996 tax
a.m. and 10 p.m., seven days a week returns are mailed to
this IVR service if they receive a notice except state holidays. Also, callers must individuals.
asking for a tax return or a Notice of
Proposed Assessment (NPA). Depending
enter their Social Security or account • Wage verification
numbers, the numbers in their street program will begin.
on their delinquency situation, they can address and their zip codes.
hear, among other things, answers to • Package X is published
commonly asked questions for qualified Head of household - (800) 338-0505. and distributed.
and nonqualified entities, information on Out of the country - (916) 845-6600. 2 Written comments on
California’s Taxpayers’ Bill of Rights, Taxpayers who receive a head of proposed regulation
Schedule K-1 guidelines and an household audit questionnaire will get 25137.13 are due.
explanation of penalties, interest and the step-by-step and line-by-line instructions 12 Electronic filing return
effects of suspension. (Available in for answering the questions. They also transmissions begin.
English only.) may hear the qualifications for claiming 15 Personal income tax
the head of household filing status, payments are due.
F.A.S.T. (Fast Answers about State answers to questions about audit letters
Taxes) - (800) 338-0505. Out of the 20 See November 20.
and information about letters stating that
country - (916) 845-6600. When you their head of household claim has not February
call FTB’s F.A.S.T. telephone number, been changed. 20 See November 20.
you may listen to general tax information,
order tax forms or check on personal
income tax refunds. Specific options
include: CONTINUED ON PAGE 6
1099 Reporting of Punitive Damages:
Use Revised California Follows Federal
CONTINUED FROM PAGE 2
Individuals, partnerships, corporations forms must be filed annually with both the
The form used to amend a and other organizations that are engaged Internal Revenue Service and the
California corporate tax in a trade or business in California and Franchise Tax Board.
return has been revised. that make payments in the course of their
If you have questions about information
trade or business must report the amounts
Be sure to use the most recent reporting, call FTB at (916) 845-6304 or
on Form 1099-MISC. Payments
version of the Form 100X, check FTB’s Internet Web site at
reportable on Form 1099-MISC include
“Amended Corporation http://ftb.ca.gov and look under “General
payments for punitive damages, any
Tax Information, Information Return
Franchise or Income Tax
Return,” so that your
damages for nonphysical injuries or
sickness and other taxable damages. The
corporate clients’ returns will
be processed quickly. Using
the correct form also ensures Questions Answered According to Topic
that any refunds due will be
issued as quickly as possible. CONTINUED FROM PAGE 5
Form 100X underwent a Installment agreements -
major revision in 1993, when (916) 845-4470. After validating their Withhold-at-source - (916) 845-4900.
three columns replaced the Social Security number, current address Callers will hear information about
former one-column “Income and zip code, your clients can access the withholding that is required on payments
and Deductions” and current balance due on their tax accounts. of California source income made to
“Computation of Tax” Also available is general information nonresidents of California. They can
sections. And Form 100X about installment agreements, electronic listen to general information about the
was further refined in funds transfers, missed or skipped withholding requirements on California
subsequent years. Recent payments, where to mail payments, how sourced income earned by nonresident
modifications include to update addresses, Earnings sellers of California real estate,
additions and revisions to the Withholding Orders for Taxes and Orders nonresident partners and members,
series of questions on side to Withhold received by their bank. entertainers and athletes and nonresident
one of the form and the Callers also may order financial statement independent contractors. General
addition of symbols that aid and power of attorney forms. Although information on the nonadmitted insurance
in the efficient capture of data the IVR system is available all day, every tax and on bulk transfers also is available.
when the forms are processed. day, representatives are available Monday And callers can select options to obtain
through Friday from 8 a.m. to 5 p.m. withhold-at-source forms and publications
The most recent version of
the Form 100X should be Personal income tax filing enforcement by fax or mail. (Available in English
used to amend all corporation - (800) 545-5009. Callers will hear only.)
tax returns. And you should answers to commonly asked questions Withhold-at-source forms -
indicate which year you are about letters they receive informing them (800) 998-3676. You may request forms
amending in the box in the that they should file a tax return. The IVR to be sent to you by fax. (Available in
upper left corner. The form program lets callers respond to the letters English only.)
will be included in the 1997 and gives them the opportunity to fully
resolve their accounts. In fact, callers FTB also maintains four IVR telephone
Package X. In January, it will
may cancel an assessment if the required services related to its non-tax debt
be available on the Internet at
return is already on file. This telephone collection activities:
the Franchise Tax Board’s
http://www.ftb.ca.gov line is open from 6 a.m. to 8 p.m., seven Child support collections -
address. You also may order days a week, except state holidays. (916) 845-4010. Callers may listen to
the form from FTB’s F.A.S.T. Personal income tax NPA - general information about child support
(Fast Answers about State (800) 895-5440. You can listen to billing notices, notices to employers,
Taxes) system by calling general information about personal earnings withholding and child support
(800) 338-0505. Or write income tax NPAs and hear answers to collection.
Tax Forms Request, P.O. Box questions associated with the NPAs. Court-ordered debt collections -
307, Rancho Cordova, CA
Anyone who calls also may order prior (916) 845-4064. Callers will receive
95741-0307. year personal income tax forms. general information about payment
notices, earnings withholding and notices
CONTINUED ON PAGE 7
Reducing the R&D Credit:
S Corporations and Shareholders
Use Different Rates
If both your S corporation client and your full credit, and the Schedule K-1 should
S corporation shareholder client elect to reflect each shareholder’s allocable share In the September issue of Tax
reduce their research and development of the credit. News, a Question Column
credits by the amount of tax imposed, be For example, the XYZ Corporation, response to a question on
sure to use different rates to compute each which is an S corporation, generates a depreciation stated that the
one’s credit. research and development credit of camera of a photographer
For taxable years beginning after $300,000 in tax year 1996. XYZ elects to who is a Schedule C filer
December 31, 1989, a corporation’s, an take a reduced credit of $295,500 does not qualify as eligible
S corporation’s or an individual ($300,000 x 98.5 percent) before personal property under
taxpayer’s business deduction for applying the one-third limitation on Internal Revenue Code
research and development expenditures S corporation credits. The corporation Section 179. The response
under Internal Revenue Code (IRC) ends up with a research and development assumed that the camera was
Section 174 must be reduced by the credit of $98,500 ($295,500 ÷ 3). Ms. not used exclusively for a
amount of the research credit for the year. Smith, the 100 percent shareholder, also business purpose. The
However, the taxpayer may make an elects to take a reduced credit. Her pro camera would qualify as
irrevocable election to reduce the research rata share of the research and eligible personal property if it
is used exclusively for
credit that is generated by the amount of development credit is $300,000 and her
tax that is imposed, using the highest tax reduced credit is $272,100 ($300,000 x business purposes.
rate for the taxpayer. The election must 90.7 percent).
be made when the tax return for the credit
For tax or income years prior to
year is filed, either at the original due date
January 1, 1997, S corporations and their
or at the time of the automatically
shareholders were allowed to make
extended due date.
separate decisions about whether to
For California tax purposes, different tax reduce the research credit by the tax
rates are used in computing the reduced imposed. However, the Governor
credit at the S corporation and recently signed SB 5 – Lockyer
shareholder levels. For S corporations, it (Ch. 97-610) that, for tax or income years
must be the highest corporate rate. And after January 1, 1997, requires
for shareholders, it must be the highest shareholders to make the same research
individual rate. To determine the tax and development election that the S
rates, refer to California Revenue and corporation makes. So, if the S
Taxation Code Section 24440 for bank corporation elects to reduce a credit in tax
and corporation taxpayers and Section year 1997, the shareholders also would
17270 for personal income taxpayers. have to reduce the credit. However,
Both sections modify the federal tax rates different tax rates for the S corporation
given in IRC Section 280C. and the shareholder still must be used to
For income years prior to 1993, a reduced compute the credit. V
credit at the S corporation level is 97.5
percent of the full credit, to be offset
against a 2.5 percent franchise tax. For
income years 1993 and later, a reduced Questions Answered
credit at the S corporation level is 98.5
percent of the full credit, to be offset CONTINUED FROM PAGE 6
against a 1.5 percent franchise tax. On to employers.
the other hand, for tax years prior to
1996, a reduced credit at the shareholder
level is 89 percent of the full credit, to be Student loan collections -
offset against a potential 11 percent (916) 845-5775. You can access general
personal income tax. For 1996 and later, information about billing notices and
a reduced credit at the shareholder level is earnings withholding notices.
90.7 percent of the full credit. As a
Vehicle registration collections -
result, the Schedule K that the S (916) 845-6872. Callers will receive
corporation produces should reflect the general information about Department of
California Has New Taxpayers’ Bill of Rights
California taxpayers are the beneficiaries terms of an installment agreement or
of a new Taxpayers’ Bill of Rights. if it determines that a levy release
Assembly Bill 713 - Caldera would facilitate collection or be in
Taxpayers’ Bill of (Ch. 97-600), which takes effect on the best interests of the state.
Rights Hearing January 1, 1998, conforms the laws • If FTB files or records a lien in
administered by the Franchise Tax Board violation of its administrative
Is This Month to the federal Taxpayers’ Bill of procedures or of the terms of an
Rights II. Among other things, the new installment agreement, it must follow
November 17 is the date of law, which the Franchise Tax Board the procedure for releasing the lien as
the Franchise Tax Board’s sponsored, institutes these provisions: though the lien were filed or recorded
Taxpayers’ Bill of Rights • Taxpayers may file a joint return if in error.
hearing this year. they qualify even if either taxpayer • A taxpayer can sue the state for
The hearing, where taxpayers has not paid a previous, separate damages and costs up to $500,000, if
may present proposals for liability. FTB employees or officers
changing existing state • Third parties, such as payers of intentionally enticed the taxpayer’s
income tax law, is scheduled wages, interest or dividends, must representative to provide information
for the early part of a regular include a telephone number in in exchange for settling or
meeting of the three-member addition to name and address on any compromising the representative’s
Franchise Tax Board. The California-only information return tax.
meeting begins at 2 p.m. in that they are required to file with a • If married persons filed a joint return
Room 121, 450 N Street, taxpayer and FTB. with an amount due and are no longer
Sacramento. married or living together, either one
• Thirty days before terminating an
Changes proposed at the installment payment agreement can find out from FTB whether FTB
hearing should be intended to without the taxpayer’s consent, FTB has attempted to collect the
improve the clarity and must mail the taxpayer a notice delinquency from the other taxpayer,
understanding of tax law. stating the reason for the termination. the general nature of the collection
Anyone who plans to make a activities and the amount collected.
proposal should submit a • After receiving a notice and demand
for payment, a taxpayer has 15 • During an appeal of an amount that
written statement prior to the FTB assessed as a result of certain
hearing. The statement instead of 10 calendar days to pay an
amount due without incurring income items reported by third
should include the proposed parties on information returns filed
law change and the Revenue additional interest.
with FTB or wage information filed
and Taxation Code (R&TC) • Enrolled agents are included as third- with the Employment Development
sections that would be party recordkeepers for the purpose Department and that FTB used, FTB
affected. Taxpayers should of serving subpoenas. may have the burden of proving that
send their statements to
• FTB can abate interest attributable to the information is correct, if the
Taxpayer Advocate Bureau, taxpayer fulfills certain criteria.
unreasonable errors or delays that are
P.O. Box 520, Rancho
Cordova, CA 95741-0520.
caused by an FTB officer or • FTB must make a reasonable attempt
employee. to notify the taxpayer if it is unable to
The annual hearing is • An FTB regulation applies locate the taxpayer’s account within
required by a provision of the retroactively only if FTB issues it 60 days of receiving a payment.
Taxpayers’ Bill of Rights,
within 24 months of (a) the • FTB must send a taxpayer with a
21001-21022. V publication date of a federal
temporary or final regulation as long
delinquent personal income tax or
business entity tax liability a
as California conforms to the delinquent notice at least once a year,
underlying law or (b) the date that the unless the post office returned
California underlying law was previous notices to the same address
enacted. or the taxpayer’s account was no
• In civil actions involving taxes, the longer being held responsible for the
state may reimburse prevailing tax.
taxpayers for reasonable litigation • In determining whether tax returns or
costs and expenses and appeal fees payments are timely, FTB will
and expenses. process “mail” from private delivery
• FTB must release a levy on property
that is in violation of either its CONTINUED ON PAGE 9
administration procedures or the
It’s the Law!
A number of legislative measures dealing counties to refer to FTB for collection
with taxes or affecting the Franchise Tax amounts associated with court-ordered
Board were signed into law by press time. fines, penalties, forfeitures or restitution
Among other things, the new laws cover: orders. It also allows restitution that is
due to a victim to be referred to FTB for
Customer comment forms. AB 206 -
Hertzberg (Ch. 97-416) requires every
collection under certain conditions. It
allows FTB to prescribe the extent to
Want Copy of
state agency to put a customer comment which partner information must be New Law?
form on its Internet Web site. (FTB’s included with limited partnership returns
form will be available on the Internet by and member information with limited Would you like to have a
July 1, 1998.) liability company returns. The bill copy of one of the legislative
Confidentiality. SB 458 - Peace amends Chapter 952 of the 1996 statutes measures recently signed into
(Ch. 97-685) prohibits state agencies from to reflect that its provisions apply to law by the Governor?
mailing correspondence to an individual if taxable or income years beginning on or You can request a copy by
it contains personal information about the after January 1, 1997. It changes writing Legislative Bill
individual including, but not limited to, Administration of Franchise and Income Room, Room B-32, State
Social Security, driver’s license, Tax Laws Section 19340 so that, when an Capitol, Sacramento, CA
telephone and credit card numbers, unless overpayment is credited against any 95814. Or call the Bill Room
the correspondence is sealed and no amount due, any interest on the at (916) 445-2323.
personal information can be seen from the overpayment also is credited against the
If you have Internet access,
outside of the envelope. The law applies amount due. It clarifies changes to
you also will find new laws at
to all correspondence mailed after California Qualified Stock Options
January 1, 1998. (CQSO) by requiring corporations that
which is the Official
want to issue a CQSO to designate it as
Conformity. SB 455 - Alpert California Legislation
(Ch. 97-611) generally conforms one when the option is granted. And,
Information Web site
California’s Personal Income Tax Law among other things, the bill specifies that
for purposes of enterprise zone and Los
and Bank and Corporation Tax Law to the
Internal Revenue Code (IRC) that was in Angeles Revitalization Zone net operating
effect on January 1, 1997. Until now, loss deductions, taxpayers may use the
California law generally conformed to the carryover against the income that derived
IRC as it was on January 1, 1993. The from an expired zone business as though
bill also provides some exceptions and the zone remained in existence.
modifications to the conformity. Most of Deposit credit. AB 1520 - Vincent
the provisions apply to taxable or income (Ch. 97-497) allows a credit of 20 percent
years beginning on or after January 1, of the amount of each “qualified deposit”
1997. into a “community development financial
institution.” The bill also allows the
Court-ordered debt collection,
partnerships, interest, stock options, credit to be recaptured if the deposit is
etc. SB 1106 - Senate Revenue and reduced or withdrawn before the end of a
Taxation Committee (Ch. 97-604), 60-month period. The law is effective for
sponsored by FTB, allows the state and taxable and income years beginning on or
after January 1, 1997, and before
January 1, 2002.
California Has New Disaster losses. AB 1X- Cardoza (Ch.
97-3X) allows special disaster treatment
Taxpayers’ Bill of Rights of losses sustained as a result of storms or
flooding or any other related casualty that
CONTINUED FROM PAGE 8
occurred during December 1996 or
services that the IRS designates as January 1997 in any county that was
though it had been mailed with the declared a disaster area. (See “New Tax
postal service. V Law Aids Disaster Victims” in this issue.)
The bill also amends Revenue and
Taxation Code provisions about property
CONTINUED ON PAGE 10
It’s the Law!
CONTINUED FROM PAGE 9
Disclosure. SB 504 - Johnston SB 965 - Costa (Ch. 97-603) provides
(Ch. 97-192) requires anyone who language that cleans up enterprise zone
submits a written communication to a tax incentive provisions of three 1996
Tax Talk Offers state agency to disclose the identity of any
person for the production of the
bills that substantively changed the
Enterprise Zone Act. The law is effective
Learn-at-Home communication if it was created January 1, 1997, as a tax levy and applies
specifically for presentation to the state to taxable and income years beginning on
Videos agency. The law is effective January 1, or after January 1, 1996.
1998. Electronic mail. SB 1273 - Hurtt
The first entry in the Tax Talk
Continuing Education Video Economic development areas. AB 797 - (Ch. 97-697) permits a state agency to
Series is now available. Takasugi (Ch. 97-461) makes changes send correspondence and other
under the Government Code to the communications by electronic mail at the
“Office-in-Home Deductions” Enterprise Zone Act regarding both recipient’s request, unless doing so is
is the initial title in the series. “targeted employment areas” as defined impractical or contrary to federal or
It will be followed later this and preferences given to certain contracts. another state law. The law is effective on
year by “California Tax Rules The bill also requires FTB to give the January 1, 1998.
for Nonresidents.” Each Trade and Commerce Agency and the
course includes a one-hour Entity classification. SB 1234 - Alpert
Legislature information each year on the (Ch. 97-608) conforms to the federal
videotape, textbook, dollar value of the enterprise zone tax
workbook and brief, “open credits that are claimed each year. The CONTINUED ON PAGE 11
book” examination. Anyone law is effective January 1, 1998.
who correctly completes the
examination earns three AB 1217 - Bustamante (Ch. 97-602)
continuing education credits. authorizes a new kind of economic
development area, called a “targeted tax
Both courses are expanded area,” under the Government Code. It
adaptations of presentations For the first six months of 1998, the
requires the Trade and Commerce Agency interest rate on under- and over-
at Tax Talk seminars. Each to designate one targeted tax area in
costs $60. payments of California income taxes
addition to the 39 enterprise zones. will continue to be 9 percent. The
If you would like either or Under the Revenue and Taxation Code, following table lists interest rates
both of the videos, call the bill also extends to businesses since 1986.
(916) 845-7070 for an order engaged in manufacturing (except
form. Or contact the tobacco), warehousing, certain Effective date Rate
Franchise Tax Board’s transportation fields and wholesaling, as 1 Jan. 1986 - 30 June 1986 10%
www.ftb.ca.gov/Education/ specified by Standard Industrial 1 July 1986 - 31 Dec. 1986 9%
taxtalk.htm Internet address Classification Manual codes, tax 1 Jan. 1987 - 30 Sept. 1987 8%
for the order forms. V incentives similar to those available to
businesses operating in enterprise zones.
1 Oct. 1987
1 Jan. 1988
31 Dec. 1987
31 Mar. 1988
The law applies to taxable or income 1 Apr. 1988 - 30 Sept. 1988 10%
years beginning on or after January 1, 1 Oct. 1988 - 30 June 1989 11%
1998. 1 July 1989 - 31 Dec. 1989 12%
1 Jan. 1990 - 30 June 1990 11%
SB 200 - Kelley (Ch. 97-609) authorizes 1 July 1990 - 31 Dec. 1990 11%
a new type of economic development 1 Jan. 1991 - 30 June 1991 11%
area, called a “manufacturing 1 July 1991 - 31 Dec. 1991 10%
enhancement area.” It requires the Trade 1 Jan. 1992 - 30 June 1992 10%
and Commerce Agency to designate two 1 July 1992 - 31 Dec. 1992 9%
of the new areas in addition to the 39 1 Jan. 1993 - 30 June 1993 8%
enterprise zones. It also allows the 1 July 1993 - 31 Dec. 1993 7%
agency to specify that, to qualify for the 1 Jan. 1994 - 30 June 1994 7%
tax credit, businesses located in the areas 1 July 1994 - 31 Dec. 1994 7%
must hire at least 50 percent of their 1 Jan. 1995 - 30 June 1995 8%
workforces from the county in which the 1 July 1995 - 31 Dec. 1995 9%
area is located. It also allows businesses 1 Jan. 1996 - 30 June 1996 9%
operating in the new areas a hiring credit 1 July 1996 - 31 Dec. 1996 9%
similar to the hiring credit allowed to 1 Jan. 1997 - 30 June 1997 9%
businesses operating in enterprise zones. 1 July 1997 - 31 Dec. 1997 9%
The law is effective on January 1, 1998. 1 Jan. 1998 - 30 June 1998 9%
It’s the Law!
CONTINUED FROM PAGE 10
entity classification or check-the-box excepted, and provides specific language
regulations and generally provides that to exempt banks from existing provisions
the classification adopted for federal of the Administration of Franchise and
purposes must be used for California Income Tax Laws (AFITL) and the Bank
purposes. It also provides special rules and Corporation Tax Law for which Are You a
for single-member limited liability intentional differences between the
companies that are disregarded for federal treatment of corporations and banks is Tax News
tax purposes. The law applies to taxable clear. (This would reverse FTB’s policy
or income years beginning on or after of not applying Section 24411 to banks
January 1, 1997. and allow a foreign bank to pay exempt
dividends to a water’s-edge taxpayer.) If you do not subscribe to Tax
Exemptions, conformity. SB 1233 - News, this is your chance to
Lockyer (Ch. 97-612) increases the The bill also changes AFITL Section
19340 so that, when an overpayment is sign up for the newsletter.
dependent exemption credit by $50 in
credited against any amount due, any This issue of Tax News is
1998 and $100 in 1999 and conforms to
interest on the overpayment also would be being mailed to a number of
the federal Tax Relief Act of 1997 by
credited against the amount due. The bill tax professionals who do not
making permanent the capital gains
removes the election provision from the currently subscribe. It is the
exclusion for home sales and by adopting
Los Angeles Revitalization Zone (LARZ) Franchise Tax Board’s way of
enhancements to IRA programs. The bill
sales or use tax credit, the Local Agency introducing the newsletter to
also increases the exemption amounts
Military Base Recovery Area (LAMBRA) more registered tax preparers,
used in calculating the alternative
sales or use tax credit and the LAMBRA certified public accountants,
minimum tax for individuals and annually
hiring credit and replaces it with a enrolled agents and others. It
indexes the exemption amounts. Other
provision limiting the taxpayer to one is also a means of distributing
provisions eliminate the increase in the S
credit. And, among other things, the bill information on the 1997
corporation tax rate set by SB 5 and
repeals Bank and Corporation Tax Law California Package X to a
conform to the federal treatment of
sections referring to offset provisions for broad audience.
excluding gain on a principal residence
after July 1, 1998 (See SB 5 on page 12). personal property taxes or license fees To subscribe to Tax News or
Most provisions apply to taxable or that are obsolete. order a Package X, call
Non-tax debt collection - child support. (916) 845-7070 for an order
income years beginning January 1, 1998.
AB 1542 - Ducheny (Ch. 97-270) creates form.
Grapevines. AB 122 - Brown
a Child Support Collection and
(Ch. 97-607) extends to grapevines
Enforcement Advisory Committee to
infested with Pierce’s Disease provisions
review and make recommendations about
that allow accelerated depreciation for
the development and implementation of a
grapevines invested with phylloxera. It
Child Support Centralized Collection and
also would make changes to property tax
Distribution Unit, which federal law
provisions for grapevines. The law
requires. FTB representatives will be
applies to taxable or income years
included on the committee. The law is
beginning on or after January 1, 1997.
effective on January 1, 1998.
Indebtedness discharge, bonds, AB 573 - Kuehl (Ch. 97-599) allows
corporation definition, economic district attorneys to voluntarily refer
development areas, offsets, current child support obligations to FTB
overpayment interest. AB 1040 - for collection. Also, it requires the
Assembly Revenue and Taxation Employment Development Department to
Committee (Ch. 97-605), which was give the Governor and the Legislature a
sponsored by FTB, allows FTB to receive report on independent contractors for
federal information return data on the purposes of collecting delinquent child
discharge or cancellation of indebtedness, support. The law is effective on
creates a reporting requirement for payers January 1, 1998.
of interest or dividends from bonds that
are issued by another state and are exempt AB 702 - Villaraigosa (Ch. 97-697),
from federal tax, and amends Chapter 952 through a cooperative agreement with the
of the 1996 statutes, which enacted SB Department of Social Services, allows
715, to reflect that its provisions apply to FTB to operate an “information match”
taxable or income years beginning on or with financial institutions doing business
after January 1, 1997. The bill also in California. Using automated data
modifies the definition of “corporation” exchanges as much as possible, the
to include banks, unless otherwise
CONTINUED ON PAGE 12
It’s the Law!
CONTINUED FROM PAGE 11
system each quarter must match persons the federal research credit made by the
who owe delinquent child support with Small Business Job Protection Act of
accounts maintained at the financial 1996. The law applies to taxable or
SBE Opinions institutions. The law is effective on income years beginning on or after
January 1, 1998, but requires an January 1, 1998.
implementation plan in the annual Budget S corporations, sale of principal
Appeal of William Tierney, Act.
97-SBE-006-A, residence. SB 5 - Lockyer (Ch. 97-610)
September 10, 1997, Order AB 1395 - Escutia (Ch. 97-614) requires substantially conforms California law to
Denying Petition for district attorneys to refer all their child the changes made to federal S corporation
Rehearing. For purposes of support accounts that are 91 days rules by the Small Business Protection
head of household filing delinquent to FTB for collection and Act of 1996. The law:
status, if the taxpayer was allows them to refer accounts that are • Increases the number of
married at some time during more than 30 days but less than 91 days S corporation shareholders to 75.
the year but was legally delinquent. Counties with child support
programs and systems that were in • Allows electing small business trusts
divorced under a final decree to hold S corporation stock.
of divorce or legally operation as of April 1, 1997, and that are
separated from a spouse comparable to FTB’s program and system • Extends the post-death qualification
under a final decree of legal may apply for an exemption from to two years for certain trusts.
separation, one-half of the participating in FTB’s program. The bill • Allows financial institutions to hold
time during which the also provides that, when an individual safe-harbor debt and to become
taxpayer, the taxpayer’s ex- owes both delinquent taxes and child S corporations.
spouse and a child or other support, FTB would give priority to tax
qualifying individual lived in collection. The bill allows district • Expands the post-termination
the taxpayer’s home may be attorneys to request FTB to search for the transition period.
included in determining if the Social Security numbers of noncustodial • Allows exempt organizations to be
taxpayer’s home was the parents in any child support case, using S corporation shareholders.
principal place of abode of tax enforcement or child enforcement
information for the search. The law is • Allows S corporations that
the qualifying individual for terminated within the previous five
more than one-half the effective on January 1, 1998.
year.V SB 247 - Lockyer (Ch. 97-601) shifts the
years to reelect to be S corporations.
The bill also conforms California to the
funding for FTB’s child support
collection program from county incentive federal S corporation rules dealing with:
payments to the state’s General Fund. • The termination year for shareholders
The law is effective on January 1, 1998. who sell an interest.
Open meetings. SB 95 - Ayala and • Distributions during loss years.
Kopp (Ch. 97-949) revises the Bagley- • The carryover of losses and
Keene Open Meeting Act, to which FTB deductions under the at-risk rules.
is subject. Among other things, it
requires a state body to list on agendas • The treatment of inherited stock and
more detailed descriptions of discussion gain from subdivided real estate.
items for closed sessions. The law is With certain exceptions, the bill provides
effective January 1, 1998. conformity to the federal rules relating to
Peace officers. SB 951 - Johnson inadvertent invalid elections and
(Ch. 97-670) amends the Penal Code and termination, the treatment of
the Government Code to include FTB’s S corporations under Subchapter C and
special agents in the list of designated S corporation ownership of subsidiaries.
peace officers. The bill is effective on The bill also provides transitional relief
January 1, 1998. under the Revenue and Taxation Code
regarding estimated tax payments; as a
Renter’s credit. AB 1592 - Leonard result, a C corporation that elects to be an
(Ch. 97-292) suspends the renter’s credit S corporation in 1997 could request to
until January 1, 1998. have part of the estimated tax payment,
Research credit. AB 1042 - Wayne which would be an amount in excess of
(Ch. 97-613) conforms state law to the S corporation’s expected tax liability,
federal, except as otherwise modified, to transferred to the principal income tax
permit the alternative way of calculating
CONTINUED ON PAGE 13
It’s the Law!
CONTINUED FROM PAGE 12
accounts of the shareholders. Most of the SB 78 - M. Thompson (Ch. 97-87)
S corporation provisions are effective for reenacts and extends to January 1, 2002,
taxable or income years beginning on or the operation of the Endangered and Rare
after January 1, 1997. The bill also Fish, Wildlife, and Plant Species
increases the tax rate on S corporations Conservation and Enhancement Fund Watch for
for 1997 and subsequent years. voluntary contribution. It also provides
In addition to Small Business Protection that the fund must receive $250,000, Tax News Index
Act of 1996 conformity, the bill also indexed annually for inflation, in
contributions each year to remain on the The 1997 Tax News Index is
conforms to changes made by the scheduled to be published in
Taxpayer Relief Act of 1997 to the income tax return. The law is effective on
January 1, 1998, and first applies to 1997 the January 1998 issue.
federal treatment of excluding gain up to
$500,000 from the sale or exchange of a individual tax returns filed in 1998. The index will list all articles
principal residence. The change is SB 532 - Solis (Ch. 97-596) extends the from 1997 issues of the
newsletter, categorized by
effective from May 7, 1997, through June
30, 1998. The existing state $125,000
operation of the California Firefighters’
Memorial Fund voluntary contribution to subject matter. V
once-in-a-lifetime exclusion and rollover January 1, 2001. It requires the fund to
of gain provisions do not apply during receive a minimum contribution of
that time. $100,000 for 1999 and $250,000 in
Student loans. AB 364 - Baca subsequent years to remain on the tax
(Ch. 97-228) provides that any loan made return. The law is effective on January 1,
pursuant to the California State 1998, and first applies to 1997 individual
University’s Forgivable Loan Program is tax returns filed in 1998.
a “student loan” for purposes of exclusion AB 1033 - Frusetta (Ch. 97-630) reenacts
from gross income resulting from and extends the operation of the
discharges of student loan indebtedness. Children’s Trust Fund voluntary
The law applies to taxable years contribution to January 1, 2002. The law
beginning on or after January 1, 1997, is effective on January 1, 1998, and first
and to discharges occurring on or after the applies to 1997 individual tax returns
same date. filed in 1998.
Tuition. AB 530 - Higher Education SB 602 - Alpert (Ch. 97-337), among
Committee (Ch. 97-851) establishes in the other things, extends the operation of the
Education Code the Golden State California Breast Cancer Research Fund
Scholarshare Trust, a prepaid tuition plan voluntary contribution to January 1, 2003.
to be administered by the Student Aid The fund must receive a $250,000
Commission. Under the Revenue and minimum contribution, adjusted for
Taxation Code, the bill excludes from inflation, to remain on the tax return. The
gross income any interest accruing on a law is effective on January 1, 1998, and
Scholarshare Trust during the taxable first applies to 1997 individual tax returns
year. The law applies to taxable years filed in 1998.
beginning on or after January 1, 1998. Warrants. AB 874 - Takasugi
Voluntary contributions. SB 1253 - (Ch. 97-920) restructures the negotiability
Mountjoy (Ch. 97-856), among other of state warrants, generally reducing the
things, reenacts the California Military negotiable period from four years to one
Museum Fund voluntary contribution and year. The law applies to all state warrants
extends its operation to January 1, 2002. issued on or after
The fund must receive a $250,000 January 1, 1998. V
minimum contribution, adjusted for
inflation, to remain on the tax return. The
law is effective on January 1, 1998, and
first applies to 1997 individual tax returns
filed in 1998.
SB 39 - Johannessen (Ch. 97-7)
appropriates the monies in the California
Military Museum Fund and the D.A.R.E.
(Drug Abuse Resistance Education) Fund.
The law is effective now.
1099s: When Magnetic Media Is Required
Some of your clients who file information
returns in California may experience a medium to another, such as from tape
“magnetic pull.” to diskette.
That’s because they are required to file on
Visit FTB in magnetic media with the Franchise Tax
First-time magnetic media direct
filers must file form FTB 4092,
Cyberspace Board if they file 250 or more of one kind “Magnetic Media Filing
of information return. However, anyone Application,” by December 31, 1997.
who files information returns may choose The Franchise Tax Board generally
Contact the Franchise Tax
to file on magnetic media, no matter how responds within three weeks with a
Board on the Internet for tax
many returns are involved. filing package that includes media
forms, FTB news and quick
access to other government All the Form 1099 series, 1098, 5498 and labels, a transmittal form and an
agency Web pages. W-2G are subject to the magnetic media information bulletin that covers any
filing requirement. Keep in mind that changes in filing procedures for the
You can locate FTB at its
Forms 1099-R, even ones with year. Anyone who filed magnetically
withholding, are now filed with FTB.
And Forms 1099-C and 1099-LTC must
in a past year will automatically
receive the filing package in
be filed with FTB beginning with the November.
1997 calendar year. All information • Indirect filing. With this method, a
returns are due February 28, except the transmitter acts as an agent on the
5498 returns, which are due May 31. filer’s behalf. The transmitter may
FTB does not have an electronic filing file under the combined program or
program for information returns, but directly with California. The
magnetic media filers may use diskette, transmitter is responsible for
cartridge or tape in certain formats. Filers submitting any required IRS approval
also may choose from one of three letter or application to FTB.
methods of filing: If you have any questions or want to
• Combined federal/state filing request an application to file
program. With this program, a filer magnetically, call FTB’s magnetic media
does not need to file separately with
California, because the Internal
Revenue Service will forward the
magnetically filed information it
receives to the Franchise Tax Board.
However, a filer must request IRS
New EFT Bank
approval to participate in the The Franchise Tax Board soon will use a
program by sending the IRS a test new bank account for tax payments made
file between November 1 and by electronic funds transfer (EFT).
December 31. The IRS informs the
filer by letter whether the test file is Starting January 1, 1998, EFT payments
acceptable. An approved filer then must be transmitted to a Union Bank of
must send a copy of the approval California account, instead of to a Bank
letter to the Franchise Tax Board. of America account. FTB will mail the
Not all types of information returns necessary bank account information to all
can be filed through the combined affected EFT participants during the first
federal/state program. For week of December. The participants in
information on the program, call the turn must provide the information to their
IRS at (304) 263-8700. financial institutions for any payments
due in January 1998 or later.
Direct filing. Anyone who files
directly with California is not The change in EFT transmission
required to submit a test file. information applies to business entity
However, magnetic media filers taxpayers who remit payments by EFT.
might want to send a test the first However, only taxpayers who remit
time or if their organization has either payments by the Automated Clearing
undergone a significant system House (ACH) credit method or by
change or is changing from one Fedwire are affected. With the ACH
CONTINUED ON PAGE 18
Scannable/Substitute Forms Producers Need FTB Approval
Are you planning to use scannable or CLR/Ace Division (770) 432-1996
substitute 1997 state tax forms? CLR/Fast Tax (800) 327-8829
CompuCraft Tax Services (800) 435-7829
If so, make sure they meet the Franchise Computer Systems Analysis Corporation
Tax Board’s requirements. Otherwise, Consolidated Business Systems
the software you use may produce forms (800) 262-4461
that cannot be processed quickly. CPASoftware (800) 434-2685 Does Your
CPSystems, Inc. (804) 346-0640
Processing problems are especially likely
to happen when unapproved Schedule Creative Solutions Inc. (313) 426-5860 Software Support
K-1 forms are filed. Curtis Publications Inc.
Data Technology Group, Inc. (617) 661-1118
All companies that publish, produce or Dave Gomberg’s JCF Systems
sell electronically-processed substitute
California tax forms or image-processed David Osman’s Tax and Accounting If any of your clients file on a
scannable Forms 540 and 540A must file Deloitte & Touche Tax Technologies LLC
(800) 966-1639 fiscal-year basis, make sure
an agreement to comply with FTB DRAKE Software (704) 524-8020 that the tax software you use
requirements for the forms. Also, FTB EXACTAX Inc. (800) 352-3638 accommodates their needs.
must approve the forms before they are Federated Tax Service Inc.
sold or provided to tax preparers. Com- Not all tax software supports
Gear Up Tax Seminars (916) 268-6508 fiscal-year filing. As a result,
panies that sell or provide photocopies of Gemisys Corporation (303) 705-6000
official FTB forms do not need approval. you may need to fill out some
Hambrecht & Quist (415) 576-3300
H&R Block/Tax Systems Development clients’ tax forms manually.
To date, the companies listed below have (816) 753-6900
filed form FTB 1096, “Agreement to Whether you use tax software
Hayden R. Wisdom, E.A. (916) 888-1040 or fill out the forms manually,
Comply with FTB Publication 1098,” for Hogan & Hartson, L.L.P. (202) 637-8566
the 1997 tax year. The form states that be sure to enter the fiscal-year
HowardSoft (619) 454-0121 date in the appropriate place
the companies agree to follow certain Independent Preparer Services, Inc.
rules for developing scannable and (818) 701-3090 on the form. If you do not,
substitute forms. Filing form FTB 1096, Inland Society of Tax Consultants the tax return will
however, does not constitute approval Intuit, Inc. (619) 784-4274 automatically be processed as
from FTB. ITS, Inc. (800) 487-8291 a calendar-year return. When
Jackson Hewitt Tax Service (757) 473-3300 this happens, the taxpayer
Be sure to ask a company to show you JTR Bookkeeping & Tax (888) 869-4017 most likely will appear to be
FTB’s letter of approval before you use KPMG Peat Marwick LLP delinquent in some way. As a
its forms. Do not accept a general Lacerte Software Corporation (972) 490-8500 result, the taxpayer could
statement that the forms have been Les Blend Co. (650) 917-0558 receive a delinquent or late
approved. Instead, give the company a MAVRICC Management Systems payment of tax penalty or an
list of the forms you plan to use, and (248) 614-4500
Mercury Printing and Stationery Co. underpayment of estimated
make sure that each one is approved. (800) 421-2220 tax penalty and may be
Companies that have filed form FTB Micro Vision Software, Inc. (800) 829-7354 assessed interest.
1096 to date are: Nelco, Inc. (920) 337-2848
If you have questions about
ORRTAX Software (800) 377-3337
AEI Fund Management, Inc.
Pencil Pushers Tax Software (617) 273-4556
your software’s ability to
Abel-Wagner Inc. (714) 572-8585 support fiscal-year filing,
PETZ Enterprises, Inc. (209) 835-2720
Accountant Stationers & Printers contact the company that
Accountware (513) 561-1881
Prestige Graphics (619) 560-8213
Professional Stationers Inc. (800) 874-7383 produces the software. V
Alpine Data Inc. (800) 525-1040 Probate Software Co., Inc. (970) 330-3260
AM Software (816) 741-7848 RealNet Software, Inc.
American Tax Services Reynolds & Reynolds (formerly Duplex
Products, Inc.) (408) 934-8540
Applied Information Solutions
(303) 893-8936 Rosemberg Escobar Services (213) 563-0497
Arthur Andersen LLP (941) 365-9469 Service Data Corporation (402) 691-6338
Atilla M. Taluy (805) 984-0248 Short Form Software (914) 353-4177
ATX Forms (207) 455-4848 Spidell Publishing Inc. (714) 776-7850
Block Financial Corporation (Tax Cut) STF Services Corporation (800) 541-7197
(913) 599-2885 Tax And Accounting Software Corporation
Brass Tax Presentations (619) 487-2553 (800) 998-9990
Bryan Cave LLP Tax Biz (408) 243-1472
BSoft Corporation (408) 438-7071 Tax Form Library (800) 466-9110
CCH Federal and State Tax Unit Tax Forms, Inc.
CCH Incorporated (Torrance) (310) 543-6200 Tax Link, Inc. (614) 457-1949
CCH Incorporated (Wichita, KS)
(316) 685-8100 CONTINUED ON PAGE 16
New Tax Law Aids Disaster Victims
A new California law provides special by April 15, 1997, and corporation
disaster loss carryover treatment for disaster victims were required to file by
victims of last year’s storms and floods. the 15th day of the third month after the
It also allows some victims additional close of the 1996 income year.
Disaster Victims time to elect to claim their disaster losses For losses suffered in 1997. Individual
on the preceding year’s tax return. disaster area victims who file on a
Reside in A disaster loss is a casualty loss that is calendar year basis must claim the loss on
48 Counties due to a disaster and that is not
reimbursed by insurance or other
an original return filed by October 15,
1997, or on an amended 1996 return filed
Disaster victims in 48 payments. no later than October 15, 1998.
California counties are Assembly Bill 1X - Cardoza (Ch. 97-3X), Corporation victims must file their
affected by the provisions of which became law in September, states amended 1996 returns no later than the
15th day of the tenth month after the
Assembly Bill 1X (see article
on this page).
that flood and storm victims in 48
California counties (see list on this page) V
The 48 counties, declared during December 1996 and January 1997
disaster areas due to the
December 1996 and January
may carry forward 100 percent of the
disaster loss for five years. Fifty percent
Were Tax Returns
1997 storms and floods, are of any remaining loss may be carried
forward for the next 10 years.
Lost in Flood?
Alameda, Alpine, Amador,
Butte, Calaveras, Colusa, The new law also deals with electing to Did any of your clients lose their tax
Contra Costa, Del Norte, claim a loss on a preceding year’s return: returns in the December 1996 or January
El Dorado, Fresno, Glenn, 1997 storms and floods?
Humboldt, Kings, Lake, For losses suffered in 1996. The bill
extended to October 15, 1997, the date by They can request free copies of lost or
Lassen, Madera, Marin, damaged returns by writing the Franchise
Mariposa, Mendocino, which individuals who file on a calendar
year basis could amend previously filed Tax Board. FTB keeps personal income
Merced, Modoc, Mono, tax returns up to four years. For example,
Monterey, Napa, Nevada, tax returns in order to claim the loss in the
prior year. For corporation disaster as of this month, FTB has personal
Placer, Plumas, Sacramento, income tax and partnership returns for tax
San Benito, San Francisco, victims, the date was extended to the 15th
day of the tenth month after the close of years 1994, 1995 and 1996. Beginning in
San Joaquin, San Luis January, FTB also will have returns for
Obispo, San Mateo, Santa the 1996 income year. Prior to AB 1X’s
passage, individual disaster victims were 1997. Bank and corporation returns are
Clara, Santa Cruz, Shasta, kept up to five years.
Sierra, Siskiyou, Solano, required to file an amended 1995 return
Sonoma, Stanislaus, Sutter, Your clients may request copies of returns
Tehama, Trinity, Tuolumne, by completing and mailing form FTB
Tulare, Yolo and Yuba. V Scannable/Substitute 3516, which on one side is a “Request for
Copy of Personal Income Tax or
Forms Producers Fiduciary Return” and on the other side is
CONTINUED FROM PAGE 15 a “Request for Copy of Bank and
Corporation or Partnership Return.” Or
Tax Systems, Inc. (713) 682-1791
TAXBYTE, Inc. (800) 245-8299 your clients can send a letter to FTB
Tax$imple, Inc. (800) 989-8955 stating the tax year and type of return they
Taxware Systems, Inc. (800) 877-1065 need. They should write to RID Unit,
Taxworks by Laser Systems (801) 552-8800 Franchise Tax Board, P.O. Box 942840,
Technology Funding, Inc. (505) 982-2200 Sacramento, CA 94249-0060.
TFP Data Systems Victims of the storms and floods in
TK Publishing Inc. (Tax Shop) (407) 351-0966 counties designated as disaster areas by
TMI Tax Services, Inc. (612) 935-6111
the President will not be charged for
Total Peripherals, Inc.
Universal Tax Systems (706) 232-7757 copies of their tax returns if they print
U.S. Tax Systems, Inc. (800) 966-8787 “DISASTER” at the top of the letter or
Visible Computer Service (630) 377-2586 form FTB 3516. For other taxpayers, the
Wallace Computer Service (630) 377-2586 charge for a copy of a personal income
Weaver Tax Service (408) 258-0912 tax return is $10. Charges for copies of
Westpro LTD partnership or bank and corporation
William H. Downs, CPA (818) 981-4313 returns vary according to the number of
XPRESS Software, Inc. (800) 285-1065 V pages. FTB will notify the taxpayer of
the amount due. V
Comments Sought on Proposed
Services Regulation Send Vouchers
The Franchise Tax Board is seeking (916) 845-3354 or send a fax to With All 1997
public comment on a draft regulation (916) 845-3648. And information is
affecting businesses involved in available at FTB’s http://www.ftb.ca.gov Tax Payments
telecommunications, subscription Internet site.
Starting with the 1997 income
television, Internet access and electronic The notice states that, in 1995, FTB held tax forms, all of your clients
information services. The regulation a symposium on apportionment for who owe taxes must attach a
would prescribe special apportionment affected businesses. A second voucher as well as a check to
rules for dividing the businesses’ income symposium or a public meeting may be their returns.
for tax purposes. held before the formal notice process for
The new vouchers will be
FTB Notice 97-9 is a request for public the regulation begins. Notice 97-9, issued
published in all 1997 income
on September 5, has been published by
comment on the draft of proposed tax booklets for both
regulation 25137-13. The draft was most tax services.
individuals and business
prepared for discussion purposes, and entities. They are a cost-
written comments are due to FTB by saving measure, designed to
January 2, 1998. Address Correction make the processing of
The draft, among other things, proposes returns faster and more
An article in the September issue of Tax
rules for determining the property factor News listed two addresses for mailing efficient.
and sales factor numerators of the scannable returns. The correct address
apportionment formula to be applied to for mailing scannable returns showing
affected taxpayers. that a refund or no amount is due is Image
To obtain copies of the discussion draft Processing, Franchise Tax Board, P.O.
regulation and explanation, write Legal Box 942840, Sacramento, CA 94240-
Branch-Telecommunications, Franchise 0009. Scannable returns with a balance
Tax Board, P.O. Box 1720, Rancho due should be sent to Franchise Tax
Board, P.O. Box 942867, Sacramento,
Cordova, CA 95741-1720. You may call
the FTB’s Legal Branch at CA 94267-0001. V
Tax Practitioner Contacts
Tax Practitioner Support Unit (not toll free)
California Telephone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(916) 845-7057
Franchise Fax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(916) 845-6377
Tax Board General Public Services
F.A.S.T. (Fast Answers about State Taxes). . . .(Phone) (800) 338-0505
Internet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . http://www.ftb.ca.gov
General Information (Phone)
From within the U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 852-5711
From outside the U.S. (not toll-free). . . . . . . . . . . . . . . (916) 845-6500
Hearing impaired TDD. . . . . . . . . . . . . . . . . . . . . . . . . (800) 822-6268
FTB 1029 (REV 10-97) SIDE 1
Wage Amounts to Automated Checks Lead to Withholding Adjustments
Be Verified By the end of August, the Franchise Tax identified another 11,000 tax returns that
Board had adjusted the withholding will be reviewed at a later date when they
amounts claimed by almost 80,000 can be checked against more complete
What happens when the
amount that a taxpayer claims taxpayers on their 1996 returns. EDD employment information.
as wages on a California tax The withholding amount increased for
return is not the same amount some taxpayers because the wages they
that the Employment claimed were substantiated. In fact, FTB FTB Has
Development Department increased more taxpayer withholding
reports? claims on 1996 returns than for any New EFT Bank
Due to a new automated wage previous tax year. However, more often
CONTINUED FROM PAGE 14
verification system, the than not, the adjustments led to a decrease
Franchise Tax Board will in the amount of the withholding claimed. credit method, the taxpayer’s bank debits
discover discrepancies as A automated on-line withholding the taxpayer’s account and credits the
1997 tax returns are verification process allows FTB to check state’s bank. Fedwire is an electronically
processed. When errors are withholding amounts that taxpayers claim transmitted payment system offered by the
spotted, FTB will check with on their returns against amounts that the banking industry.
employers and, in June 1998, Employment Development Department (Taxpayers who make EFT payments with
will begin correcting the reports. It is one aspect of an automated the ACH debit, instead of the credit,
returns. FTB will notify information exchange between FTB and method are not affected by the change in
taxpayers of the corrections. EDD and part of an ongoing integration bank accounts. With the ACH debit
Taxpayers do not have to file of California’s personal income tax and method, taxpayers authorize the state’s
amended returns to correct employment tax systems. A wage bank to debit the taxpayer’s account on
the errors. verification process will begin in 1998 each payment occasion and specify the
The wage verification (see article on this page). payment’s amount and date.)
program that begins in June As a result of the withholding verification Business entity taxpayers must pay their
will be a pilot. FTB will process, FTB has reviewed 2.5 million taxes by EFT if any single estimated tax
implement a permanent 1996 tax returns since the first of the year payment or extension payment exceeds
program the following year. and made adjustments to the withholding $20,000 or if their total tax liability
Wage verification is the amounts claimed on 78,486 returns. Of exceeds $80,000 for any income year.
second automated, on-line these adjustments, 21,038 were increases, Others may volunteer to pay taxes by
check to determine if taxpayer and 57,448 were decreases. In addition, EFT.
and EDD information match. the verification process identified If you or your clients have not received
The first verification process approximately $2 million in fraudulent the new bank account information by
checks withholding refund claims that then were denied.
information. V The withholding verification process also
December 20, call FTB’s EFT Help Desk
at (916) 845-4025. V
Tax Practitioner Contacts (continued)
FTB on the Internet — The Franchise Tax Board
Which Number Do I Call? Web site gives you access to tax forms and
Tax Practitioner Support Unit Telephone — Do information 24 hours a day, 7 days a week. You can
you need a quick answer? Specially trained download tax forms and publications and access
technicians are available from 8 a.m. to 5 p.m., specific program information, e.g., electronic filing,
Monday through Friday, to answer questions related withhold-at-source and Legal Rulings. (This service
to client accounts. (This service is for tax is available to the general public.)
Tax Practitioner Support Unit Fax — Do you F.A.S.T. — An interactive voice response service
need to write to FTB? You can fax your provides recorded answers to more than 160 of the
correspondence any time, 24 hours a day, 7 days a most commonly asked state income tax questions,
week. (This service is for tax practitioners only. 24 hours a day, 7 days a week. Tax refund status
Please limit faxes to 15 pages.) and forms ordering are available from 6 a.m. to 10
p.m., 7 days a week, except state holidays. (This
service is available to the general public.)
FTB 1029 (REV 10-97) SIDE 2