Tax News December 2022

Assembly Bill (AB) 2660 Estimated Tax Payment Updates For Tax Year 2022

For taxable years beginning on or after January 1, 2021, and until January 1, 2026, AB 2660 allows nonresident aliens receiving California source income to elect to be included on a group nonresident return filed by an authorized representative, in lieu of filing an individual nonresident return

As a result of the administrative burden in processing estimated tax payments for electing nonresident aliens, the Franchise Tax Board (FTB) did not require estimated tax payments to be made for electing nonresident aliens that were included on a nonresident group return for the 2021 tax year. Similarly, for the 2022 tax year, FTB will not be requiring estimated tax payments to be made for electing nonresident aliens included on a nonresident group return for the 2022 tax year.

For additional information regarding AB 2660, including how to make a payment, and information on how to include a nonresident alien who is not eligible for or has not been issued a federal SSN or ITIN in the group nonresident return, see our previously published news article AB 2660 estimated tax payment information or the 2022 Publication 1067, Guidelines for Filing a Group Form 540NR.

Senate Bill (SB) 201 Offers New Foster Youth Tax Credit and Expands Young Child Tax Credit

Under Senate Bill 201, for taxable years beginning January 1, 2022, the Foster Youth Tax Credit (FYTC) of up to $1,083, will be available to taxpayers who qualify. This is a new refundable tax credit, similar to the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit (YCTC), and is claimed on FTB 3514, California Earned Income Tax Credit. Unlike CalEITC and YCTC, the credit is available per qualifying individual, up to a maximum of $2,166 per tax return. To qualify for the FYTC, taxpayers must meet all of the following requirements:

• Qualify for CalEITC
• Be age 18 through 25 at the end of the tax year
• Have been in foster care at age 13 or older and placed through the California foster care system
• Satisfy foster care verification requirement

In addition, for taxable years beginning January 1, 2022, the YCTC requirements have been expanded to include taxpayers who have no earned income and otherwise meet the CalEITC requirements and have a child under the age of six at the end of the tax year. The maximum credit amount for tax year 2022 is $1,083. (Note that taxpayers without at least $1 of earned income would not qualify for CalEITC but may still qualify for the YCTC under this new expansion.)

We will update FTB 3514 and the public website with the new FYTC and expanded YCTC in the coming weeks. Information about CalEITC is also currently available on our website.

MyFTB Expands Paperless Noticing

Select notices and documents will no longer be provided by U.S. mail to taxpayers who choose a paperless delivery option. Instead, taxpayers will receive an email notification when a new notice or document is available in their MyFTB account

For a full list of notice and document types that may be provided in a paperless format, go to Digital notice delivery: Go paperless.

Two New Tax Credits for Eligible Cannabis Businesses

Both credits are for taxable years beginning on or after January 1, 2023, and before January 1, 2028.

High Road Cannabis Tax Credit

The High Road Cannabis Tax Credit is for cannabis businesses with a Type 10 (retailer) or a Type 12 (microbusiness) license issued by the Department of Cannabis Control (DCC).   

The amount of credit is equal to 25% of qualified expenditures, up to a maximum credit of $250,000 per taxpayer, per taxable year. An aggregate total of $20 million is available for this credit

Qualified taxpayers must pay wages to full-time employees of between 150% and 350% of California minimum wage. The value of certain employee benefits paid by the employer may be used to meet the 150% threshold. In addition, employers must provide group health insurance, and pension or retirement benefits to the full-time employees.

Qualified taxpayers are required to apply for a Tentative Credit Reservation (TCR) from FTB each taxable year. Taxpayers whose taxable year begins from January through July must apply for their reservation in July of the taxable year. If the taxpayer’s taxable year begins from August through December, the taxpayer must apply for a TCR within 30 days of the start of their taxable year.

Cannabis Equity Tax Credit

The Cannabis Equity Tax Credit is a $10,000 credit for cannabis businesses who receive approval for the fee waiver and deferral program (including approval contingent on the approval of funds), as administered by the DCC. The DCC will provide FTB with a list of eligible taxpayers.

How to Make an Address Change

It is essential to have the most recent, and best, mailing address on file with us to maintain compliance, and that you can receive future correspondence if applicable. Taxpayers should complete FTB 3533, Change of Address for Individuals if they file any of the following income tax returns and change their address.

• Forms 540, 540 2EZ, California Resident Income Tax Return, or 
• Form 540NR, California Nonresident or Part-Year Resident Income Tax Return

An updated mailing address will ensure future correspondence is received timely. If the change also affects the mailing address of children who filed separate tax returns, complete a separate FTB 3533 for each child. If you are a representative filing for the taxpayer, go to ftb.ca.gov/poa for more information.

The quickest way to update a mailing address is through a MyFTB account.

1. Select “Profile” from the tool bar
2. Choose “Update contact information” to view the address on file
3. Select “Edit address” to update or add a new address
4. Select “Save” to complete the update.  
   1. Call 800-852-5711 to make an address change. If an address is changed online or by phone, an FTB 3533 does not need to be mailed

If a post office does not deliver mail to a street address, affected individuals should show their PO Box number instead of a street address

If an individual has a foreign address, follow the country’s practice for entering the city, county, province, state, country, and postal code. Do not abbreviate the country name

Mailing

Mail FTB 3533 to: 

FRANCHISE TAX BOARD
PO BOX 942840 
SACRAMENTO, CA 94240-0002

15-day Rule for Corporations and Limited Liability Companies

The 15-day rule states that business entities (Limited Partnerships, Limited Liability Partnerships, Limited Liability Companies and Corporations) with a tax year of 15 days or less are not required to file a tax return or pay the $800 annual/minimum tax, if they meet both of the following: 

• They did no business in California during the tax year 
• Their tax year is 15 days or less 

For example, if an entity filing on a calendar year basis is formed on or after December 17th and does no business for the remainder of the year, it may not have to file a tax return and/or pay the $800 annual/minimum tax for that short year

Additionally, if an entity meets the 15-day rule and is not required to file a tax return, this time period is not considered the first taxable year. The following tax year will be considered the first taxable year

For example, if a corporation filing on a calendar year basis incorporates on December 20, 2022, and does not conduct business from December 20, 2022, through December 31, 2022, then it meets the 15-day rule and does not need to file a 2022 tax return. The corporation’s first tax year will start January 1, 2023

For more information on the 15-day rule for LLCs and corporations, go to Limited Liability Company Filing Information Publication and  Guide for Corporations Starting Business in California

Annual Legislative Proposal Stakeholder Meeting

On Tuesday, November 15, 2022, FTB hosted its annual Legislative Proposal (LP) Stakeholder Meeting to gain input from the public. We appreciate the attendees for taking the time to participate and share their thoughts.

Conditional Revivor for Limited Liability Companies (LLCs)

Summary

Under current statutory authority, corporations and LLCs classified as associations, who are suspended, are granted an opportunity to revive without payment in full if the Franchise Tax Board (FTB) determines the revivor will improve collection prospects. However, LLCs classified as partnerships or disregarded entities, are not provided the same opportunity because the definition of "corporation" does not include those entities. This LP would make changes to numerous sections in Article 7 under the Corporation Franchise Tax, related to suspension and revivor, specifically changing the term “corporation” or “corporate” to either “taxpayer” or “entity,” that would allow LLCs classified as partnerships or disregarded entities the same treatment as corporations and LLCs classified as associations.

Next Steps for the Legislative Proposal

We plan to present the LP for approval at the next three-member FTB Board Meeting, scheduled on December 8, 2022. If the FTB Board approves the LP, we will begin to look for a legislative sponsor for the approved proposal.

FTB will also continue to seek authors for several prior board-approved proposals in the coming year.

Change to the Frequency of the Conformity Stakeholder Meeting

We will host our next Conformity Stakeholder Meeting in 2023, and then every other year thereafter. This change is an opportunity to enhance meeting discussion and content and to optimize participation. Hosting a biennial meeting will continue to allow us to provide an open discussion forum, gather input and comments from stakeholders, and allow time to gather more relevant federal information. Additionally, we may hold a meeting sooner than the regularly scheduled one if there is major federal legislation enacted.

Internal Revenue Service (IRS) Information

We recently partnered with IRS to provide monthly IRS articles to assist our tax professional and small business communities. We are excited to share this information; however, if you have questions about the content, you will need to contact the IRS directly

Processing Time frame for Form W-7, Individual Taxpayer Identification Number (ITIN)

IRS is currently processing Form W-7s received in mid-August. Taxpayers will be notified once their ITIN has been assigned, or if additional information is needed. Original identification documents submitted with the Form W-7 will be returned to taxpayers at the mailing address of record as quickly as possible. The associated tax return will then be submitted for processing. Learn more IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service.

Revised e-file Application 

IRS updated Publication 3112, IRS e-file Application and Participation, with important new information. IRS recommends e-file applicants, as well as current participants read this publication to become familiar with the requirements for acceptance or continued participation. New sections include “Stay Informed” and “What You Need to Know," with information about: 

• New electronic fingerprinting process for e-file applicants
• New option to digitally upload support documentation
• Updated IRS e-file information for participants

Renew Your PTIN Now for 2023

IRS is now processing PTIN applications and renewals for 2023. Preparers must renew or register for their PTIN by December 31. The fee to apply for or renew PTINs for 2023 is $30.75. The PTIN system has been updated with a new look and feel. You may be prompted to update some of your account information upon login. To renew a PTIN online: 

• Start at Tax Professionals
• Select the "Renew or Register" button 
• Select "Log in" and enter the user ID and password to access the online PTIN system 
• Select the "Renew my PTIN" button from the main menu

Once completed, users will receive confirmation of their PTIN renewal

2022-26 Strategic Plan

IRS announced that, for the first-time ever, the agency’s Strategic Plan for Fiscal Years 2022-2026 is now available in Spanish. This announcement aligns with the IRS’s continued effort to expand tax resources in more languages to provide taxpayers with the service they deserve.

Ask the Advocate

It is the time of year when we often pause and reflect.

I enjoy looking back to review the services we provided to our clients, business partners, and peers, and changes implemented to better serve those same people

The Advocate team did our best to meet our goals and will continue to identify what we can do better in the future.

To capture some of our accomplishments, here are highlights in 2022:

• Assisted more than 4,000 taxpayers with our partners in the Executive Services Section 
• Responded to over 1,400 small business owner inquiries through our  Small Business Liaison email
• Assisted over 100 taxpayers who were unable to resolve their issues through our normal communication channels
• Provided 60 presentations about California Tax Updates, Common Forms of Business Ownership, and many of the products and services we offer.
  • If you’d like one of our team members to make a presentation about tax-related issues, visit Education and Outreach for more information
• Updated the Tax News publication layout and actively sought ways to provide more timely articles about improvements to our products and services, and now include sections for Careers with FTB and select notifications from the IRS.
• Expanded the use of the Report an Issue feature to coordinate correct and timely replies from our program areas about concerns with the way we do business

It has been said before, but worth repeating, we truly value and appreciate the collaborative relationships we have with you, the tax professionals. Without our relationships, much of what we do to keep you informed and up to date would not be possible

As 2022 comes to a close, I wish you and yours the happiest of holidays

Our Commitment to Train and Develop Competent Staff

We strive to train our staff to “become experts at what they do.” We seek out individuals who possess the core and job-specific competencies necessary to do their jobs effectively. We invest in and support our staff throughout their careers to build upon and strengthen our most valuable assets - our employees.

Initial Onboarding

Once hired into the FTB work family, employees go through a formal onboarding process where they learn about our mission, values, culture, and the primary responsibilities of each business area. They work with and learn from subject matter experts and are welcomed personally by members of our executive management team. Employees receive specific job-related training from their respective business areas, and dependent on the business area, this initial training could last anywhere from a few days to up to eight weeks.

Annual and as Needed

Some training is required to be refreshed annually or biannually on topics such as the requirement to (and how to) keep confidential information safe, and reminders regarding compliance with key departmental policies, rules, regulations, and laws. When there are new, required training courses (such as those related to new or updated health and safety regulations), they are also rolled out and required of all employees

Self-initiated

Employees have access to an online catalog of more than 8000 classes, and besides those that are approved to be completed during work hours, employees also have the option to take classes from the course catalog on their own time. In addition, FTB encourages and supports staff to obtain and maintain their Certified Public Account (CPA) and Enrolled Agent (EA) licenses. Throughout the year there are ample opportunities for CPAs and EAs to earn their required continuing education credits

Our technology staff keep their skills up-to-date and evolve with emerging technological advances through outside training classes. Keeping their skills sharpened facilitates providing the very best services to California taxpayers

Talent Development Center

We have an onsite Talent Development Center at our main location where employees can brush up on basic skills or take online training. Employees can also make appointments with talent management staff for assistance with career counseling and job interview preparation.

Reimbursement

There are some subsidy programs and funds available for partial reimbursement of approved, job-related, completed university courses, and certifications

FTB is committed to our employees. We strive to provide our employees with opportunities and incentives for growth and development, while making our organization stronger and ultimately resulting in better service to the taxpayers of California and our business partners in the tax community

Tax News Flash Links

Tax News Flashes are real-time FTB news releases which inform taxpayers of the latest breaking tax-related events. These articles are published separately from our monthly Tax News edition.

There were no Tax News Flashes sent for the month of November.

FTB Career Opportunities

We have a wide variety of jobs that offer the growth and challenge you may be looking for

If you are a student, recent graduate, or experienced professional, we encourage you to apply. For more information careers with the State of California at Franchise Tax Board.

Event Calendar

As part of our education and outreach to the tax professional community, we participate in many different presentations and fairs. We provide a calendar that shows the events we attend, as well as other events happening with us, such as interested party and Board meetings.