Tax News September 2026

August Tax News Flash

August 21, 2026 – FTB Issued Legal Ruling 2026-02

FTB Legal Ruling Issued on the Application of the Statute of Limitations Provisions to Overcollected Amounts Received by FTB Through Involuntary Collection Action

On August 21, 2026, FTB issued Legal Ruling 2026-02, relating to the application of the statute of limitations provisions to overcollected amounts received by FTB through involuntary collection action.  

Legal Ruling 2026-02 provides clarity as to what constitutes an overcollection  that can be returned to a taxpayer even if the statute of limitations for filing a claim for refund has expired. Overcollection occurs when FTB collects an excess amount at the time the collection action is taken as a result of a mechanical or clerical error by FTB. The Legal Ruling describes several circumstances in which the statute of limitations provisions do not apply to the return of payments that were the result of overcollection, and interest is not allowed on the return of an overcollection of tax.

The Legal Ruling applies to individual and business entity taxpayers in situations where amounts are overcollected, as opposed to overpaid, as a result of a clerical or mechanical error and the statute of limitations for filing a claim for refund has expired. 

Gig Economy Resources

We would like to remind you of the many resources available to you and your clients regarding the gig economy. The Education and Outreach team participate in several education and outreach events where they present important information including income tax filing requirements for taxpayers and small business owners. They include information and resources about the gig economy and discuss the different Forms of Ownership available for small businesses.

FTB also created the gig economy webpage. The webpage includes important information about filing requirements and a link to our Tax News Live Video which further explains the gig economy and potential filing requirements.

Additionally, the page has links to the different information returns you may receive if participating in the gig economy, such as; 1099-K, 1099-NEC, 1099-MISC, or a W-2.  

You will also find information about estimated taxes, what forms to file, what records to keep, and payment options. Lastly, a resources section is included that contains many helpful links to filing information, useful publications, and IRS-related gig economy information. 

Adjusted Interest Rates for January 1, 2027, through June 30, 2027

For the period January 1, 2027, through June 30, 2027, the interest rate will be 7%. This is the rate compounded daily that accrues with respect to various state taxes, to include:

• Personal income
• Corporate income
• Franchise income

The rate for corporation tax overpayments for the same period will be 4%.

For more information, go to interest and estimate penalty rates.

When to Pay the Limited Liability Corporation Fee

A limited liability company (LLC), not classified as a corporation for California tax purposes, must pay the LLC fee if it is organized, doing business, or registered in California and has total income from all sources derived from or attributable to California of at least $250,000.

For LLC fee purposes, “total income from all sources derived from or attributable to California” is gross income plus the cost of goods sold that are paid or incurred in connection with the trade or business of the taxpayer.

For calendar year LLCs, the estimated LLC fee is due by the 15th day of the sixth month. For 2025, payment may be accepted by June 16, as June 15 falls on a Sunday. For fiscal year LLCs, the estimated fee is due on the 15th day of the sixth month of the current taxable year.

Total California income rounded to the nearest whole dollar	Fee amount
$250,000 – $499,999	$900
$500,000 – $999,999	$2,500
$1,000,000 – $4,999,999	$6,000
$5,000,000 or more	$11,790

LLCs must use Form 3536, Estimated Fee for LLCs, or Web Pay to make estimated fee payments.

If the payment is less than the amount owed, we will assess a 10% penalty on the underpaid fee. The underpaid amount is the difference between the total amount of the LLC fee due for the taxable year, less the estimated fee paid on or before the estimated fee due date. An LLC may also be subject to a late payment penalty for the same taxable year.

For more information, review Common Penalties and Fees.

The penalty will not be imposed if the LLC’s estimated fee payment is equal to or greater than their prior year’s LLC fee. For purposes of whether the LLC estimate fee penalty applies, there is no requirement the prior taxable year be a full 12 months.

Internal Revenue Service (IRS) Updates

We partnered with the IRS to provide monthly articles to assist our tax professional and small business communities and are excited to share this information; however, questions about the content should be directed to the IRS. 

IRS reminder: Information return e-file system transitioning to a new platform

IR-2026-99, Aug. 24, 2026 — The IRS reminded information return filers who currently use the Filing Information Returns Electronically (FIRE) system to prepare now for the system’s retirement and transition to IRIS before the 2027 filing season.

Interest rates remain the same for the fourth quarter of 2026

IR-2026-98, Aug. 21, 2026 — The IRS announced that interest rates will remain the same for the calendar quarter beginning Oct. 1, 2026.

Treasury, IRS issue proposed regulations on eligible investments for Trump Accounts under the Working Families Tax Cuts

IR-2026-96, Aug. 20, 2026 — The Department of the Treasury and the IRS issued proposed regulations on eligible investments for Trump Accounts, a new type of traditional IRA under the Working Families Tax Cuts.

IRS launches digitally authenticated Tax Compliance Report

IR-2026-97, Aug. 20, 2026 — The IRS announced a digitally authenticated Tax Compliance Report available through IRS Individual Online Account.

IRS updates FAQs about the limitation on the deduction for business interest expense

IR-2026-94, Aug. 19, 2026 — The IRS updated frequently asked questions about the limitation on the deduction for business interest expense.

Treasury, IRS proposes rules to protect refundable tax credits from abuse by illegal aliens

IR-2026-93, Aug. 19, 2026 — The Department of the Treasury and the IRS issued proposed regulations to apply and clarify the federal law regarding the eligibility requirements for taxpayer-funded refundable individual income tax credits.

IRS, Security Summit remind tax pros they need a Written Information Security Plan to protect client data

IR-2026-92, Aug. 18, 2026 — The IRS and Security Summit partners reminded tax professionals to protect client data with a Written Information Security Plan.

Treasury, IRS issue guidance on rollovers between retirement plans and individual retirement accounts

IR-2026-91, Aug. 12, 2026 — The Department of the Treasury and the IRS provided guidance to simplify and standardize the rollover process by issuing sample forms for direct rollovers to or from a retirement plan, as required under the SECURE 2.0 Act section 324.

Treasury, IRS issue proposed regulations on employer contributions to Trump Accounts under the Working Families Tax Cuts

IR-2026-90, Aug. 11, 2026 — The Department of the Treasury and the IRS issued proposed regulations providing guidance to employers that choose to make contributions to Trump Accounts for employees or their dependents.

Treasury, IRS begin implementing Executive Order 14403 by announcing intent to issue proposed regulations on Saver's Match, which will benefit millions of low- and moderate-income taxpayers

IR-2026-89, Aug. 7, 2026 — The Department of the Treasury and the IRS issued Notice 2026-48 announcing an intent to propose regulations regarding the federal Saver’s Match program, which begins in 2027.

Business Tax Account gives eligible taxpayers more secure, convenient ways to manage federal tax obligations online

IR-2026-87, Aug. 6, 2026 — The IRS announced new and expanded features for Business Tax Account (BTA) users, giving eligible businesses and organizations more ways to view digital notices, make payments, and access and manage federal tax account information online.

IRS updates FAQs on qualified overtime deduction

IR-2026-88, Aug. 6, 2026 — The IRS updated frequently asked questions about the deductions for qualified overtime compensation.

Treasury, IRS Issue Guidance on the Permanent Expansion of Paid Family and Medical Leave under the Working Families Tax Cuts

IR-2026-86, Aug. 5, 2026 — The Department of the Treasury and the IRS issued Notice 2026-28, providing guidance on the employer credit for paid family and medical leave (PFML) under the Working Families Tax Cuts (WFTC).

Security Summit warns tax pros to watch out for phishing emails and other attacks

IR-2026-85, Aug. 4, 2026 — The IRS and Security Summit partners warned tax professionals to watch for phishing emails and other schemes designed to steal sensitive taxpayer data.

Ask the Advocate

Pass-through Entity Elective Tax Payment Corrections

As the Taxpayers' Rights Advocate, I want to highlight an issue impacting pass-through entities (PTEs) and the proper designation and correction of PTE elective tax payments. Recent questions have highlighted the importance of timely and accurate payment classification.

Correcting Payment Type Errors: What You Need to Know

If your client inadvertently makes the wrong payment type for an entity, the Franchise Tax Board (FTB) may be able to accommodate a request to correct the payment type depending on the circumstances. This is particularly relevant for the PTE elective tax, where statutory requirements provide no exceptions. 

Statutory Deadlines and Requirements

• June 15 Deadline: Any errors related to the June 15 payment must be corrected by June 15 of the taxable year of the election. This is essential to meet the requirements under Rev. & Tax Code sections 19904(a)(2) and 19914(a)(2).
• Consequences of Missed Corrections: If the June 15 PTE elective tax payment is not made in the prescribed form and manner and not corrected by June 15 the election will be invalid for taxable years 2022 through 2025. For taxable years 2026 through 2030, qualified taxpayers will be allowed a reduced credit. For more information: PTE Elective Tax FAQs

How to Request a Correction

• Written Request Required: The request must be submitted in writing, signed by an officer or owner of the entity, or a representative with a valid Power of Attorney (POA) on file.
• Acknowledgement of Penalties and Interest: The request must include an acknowledgement that correcting the payment may result in penalties and interest.

Practical Example

Consider S-Corporation A, which made an estimated tax payment on May 15, 2026, but intended to make a June 15 PTE elective tax payment for the 2026 taxable year. To avoid a reduced credit for qualified taxpayers, S-Corporation A must correct the error by June 15, 2026. The written request should explain the May 15, 2026, payment was incorrectly designated as an estimate tax payment and instead should be designated as a PTE elective tax payment. The written request will need to be signed by an officer or owner of the entity or a representative with a valid POA on file and acknowledge that correcting the payment may result in penalties and interest. 

Timely Correction

Timely action and clear communication are essential. If you discover a payment error, act quickly and submit the written correction request before the June 15 deadline. Ensure your clients understand the consequences of missed deadlines and the importance of proper payment designation.

If you have questions or need assistance, reach out to the Tax Practitioner Hotline during normal business hours 916-845-7057. They are here to support you and your clients in navigating these complex requirements.