Tax News June 2023

Limited Time Resolution Offered for Abusive Micro-Captive Insurance and Syndicated Conservation Easement Transactions  

On May 31, 2023, Franchise Tax Board issued FTB Notice 2023-02 Resolution of Micro-Captive Insurance and Syndicated Conservation Easement Transactions. This Notice permits Eligible Taxpayers that have entered into abusive micro-captive insurance transactions and/or syndicated conservation easement transactions to submit closing agreements to reverse the tax benefits and receive reduced penalties for any applicable tax year. Letters will be sent to identified taxpayers inviting them to participate in this resolution. However, participation is not limited to those who have received an invitation letter and is open to any Eligible Taxpayer who wishes to participate.  

Eligible Taxpayers must submit a complete and signed Notice 2023-02 Closing Agreement from July 10, 2023, through November 17, 2023, and pay all taxes, applicable penalties, and accrued interest by November 17, 2023, or enter into an installment payment arrangement to pay the full amount over a period not to exceed 12 months.

For more information see Resolution of Transactions.

Enhancements to the Business e-file Program – CA Exempt Organization Business Income Tax Return 

Starting January 2024, the CA business e-file program will enable charities and non-profits filing Form 109 California Exempt Organization Business Income Tax Return to file their returns electronically. 

Our business e-file program already allows the ability to submit original, amended, or superseded returns for corporation, partnerships, limited liability companies, and exempt organizations filing the Form 199 California Exempt Organization Annual Information Return electronically.

Contact your software provider to see if they will support the ability to e-file CA Form 109 Exempt Organization Business Income Tax returns.

Stay connected with our website and Tax News for more information about our business e-file program.

Enhancements to the “Stand-alone” Electronic Payment Program  

Beginning January 2024, exempt organizations will be able to submit an electronic fund withdrawal (EFW) request for certain payment types using tax preparation software.  

These payment requests will be accepted as “stand-alone,” and can be submitted separately from the e-file return. The return can be filed at a later date. 

The following new payment types will be available: 

• Extension payments
• Quarterly estimate payments

Corporations, partnerships, limited liability companies, and exempt organizations can still submit EFW requests for return and estimate payments with the e-filed return using tax preparation software. 

As a reminder, the following stand-alone EFW payment types are currently available for the following programs: 

• Individuals
  • Quarterly estimate payments
  • Extension payment

• Fiduciary (Estate/Trust)
  • Quarterly estimate payments
  • Extension payments

• Business Entities (Corporations/Limited Liability Companies/Partnerships)
  • Quarterly estimate payments
  • Extension payments
  • Annual tax payments
  • Estimated fee
  • PTE elective tax

Contact your software provider to see if they support “stand-alone EFW” payments for Exempt Organizations. Stay connected to our website and Tax News for more information about our e-file program. 

Reminder: California Statute of Limitations (SOL) for Net Operating Loss (NOL) Carrybacks 

California does not conform to the extended federal SOL period with respect to NOL carrybacks. Under IRC section 6501(h), for federal purposes only, taxpayers may file amended returns to claim a NOL carryback provided that the statute of limitations period remains open for the tax year in which the NOL is generated.   

California does not conform to IRC section 6501(h). Consequently, taxpayers may amend their returns to claim a NOL carryback only in cases where the statute of limitations is still open for the carryback year.   

Generally, the SOL for filing a claim for refund is the later of: 

• Four years after the date of a timely filed return, if filed within the extension period;
• Four years from the original due date of the return, determined without regard to extensions; or
• One year from the date of overpayment

This nonconformity does not impact NOLs claimed on current year tax returns since California only allowed NOL carrybacks generated in tax years 2013 through 2018. However, it may continue to have practical application in cases where taxpayers are still able to amend 2018 returns which were filed within the extension period to report NOLs that were otherwise not claimed on the original return.  

Identity Theft

We’ve seen a significant number of fraudulent schemes attempted against FTB and California taxpayers over the past few years, and FTB continues to work diligently to protect taxpayer information to prevent tax-related identity theft and fraud.

How to Recognize Identity Theft

Identity theft is someone using taxpayer information, including name, Social Security Number (SSN), employment information, or credit card number, for an unlawful purpose.

Taxpayers may discover tax-related identity theft in one or more of the following ways:

• Tax is owed, but the taxpayer did not file a tax return.
• FTB rejected an e-filed tax return.
• Taxpayer received an unexpected refund.

Identity Theft Notices

FTB sends the following letters to taxpayers who may be subject to identity theft:

• FTB 3904:Tax return was filed, and confirmation is required to process the return.
• FTB 4734D:Additional information is needed to confirm wage and withholding discrepancies. 
• FTB 4502:Additional information is needed to approve the California Earned Income Tax Credit, Young Child Tax Credit and/or the Foster Youth Tax Credit.

If a taxpayer receives any of these notices, the quickest way to have their tax return processed is to call the phone number on the notice. Typically, the account can be resolved during the call. FTB’s fraud experts can quickly resolve these notices.

Report Identity Theft and Fraud

Taxpayers are urged to report suspected tax scams and identity theft schemes to FTB as soon as possible, preferably using our online notification tool.

Unfortunately, tax preparers have increasingly become targets for cybercriminals as well. Tax preparers and business owners who believe they have been targeted should contact FTB at 916-845-7088 and select option “1”.

For more information about identity theft, fraud, and scams.

Middle Class Tax Refund Payment and Money Network 

The Middle Class Tax Refund (MCTR) payment is a one-time payment to provide relief to California taxpayers. Nearly 32,000,000 California taxpayers and their dependents have benefitted from MCTR payments. The MCTR payment is not taxable for California state income tax purposes and should not be reported as income.   

FTB partnered with Money Network to provide MCTR payments distributed by debit card. Debit card recipients that have not activated their payment card will receive a reminder letter that includes instructions on how to activate their debit card.  

If a taxpayer was advised that a debit card was issued and needs additional assistance, refer the taxpayer to contact Money Network at 1-800-240-0223, weekdays from 8AM to 5 PM Pacific Standard Time for customer support, and 24/7 for card activation. 

Closing a Business Entity in California

As difficulties with the economy for some small business owners persist, it may be a good time to talk to your small business clients about how to close a California business entity in the proper way. Business entities doing or transacting business in California or registered with the California Secretary of State (SOS) can dissolve, surrender, or cancel when they cease operations in California and need to terminate their legal existence. 

• Domestic corporations (those originally incorporated in California) may legally dissolve.
• Foreign corporations (those originally incorporated outside California) may legally surrender.
• Limited liability companies and partnerships (both domestic and foreign) may legally cancel.

Steps to Dissolve, Surrender, or Cancel a California Business Entity  

If your client plans to dissolve, surrender, or cancel their California business entity, realize that it involves a multi-step, multi-state agency process that has requirements with both FTB and SOS. 

Requirements for FTB 

• File all delinquent tax returns and pay all tax balances, including any penalties, fees, and interest.
• File the final/current year tax return. Check the applicable Final Return box on the first page of the return and write “final” at the top of the first page. All tax returns remain subject to audit until the statute of limitations expires.
• Must cease doing or transacting business in California after the final taxable year.

Requirements for SOS 

• File the appropriate dissolution, surrender, or cancellation form(s) with the SOS within 12 months of filing your final tax return.

If a business entity is suspended or forfeited, it will need to go through the revivor process and be in good standing before being allowed to dissolve, surrender, or cancel. To revive a suspended or forfeited business entity, the business owner must: 

• File all delinquent tax returns.
• Pay all delinquent tax balances, including penalties, fees, and interest.
• File a revivor request form.

For more information go to revive your suspended or forfeited business entity .

Voluntary Dissolution/Cancellation 

If certain qualifications are met, a business entity may be able to voluntarily dissolve. A qualified domestic corporation or qualified domestic limited liability company can request voluntary administrative dissolution/cancellation. With a written request, a business must certify it: 

• Is not actively engaging in any transaction for the purpose of financial or monetary gain or profit.
• Has stopped doing business or never did business.
• Does not have any remaining assets.

Once the SOS formally dissolves or cancels the business, FTB may abate: 

• Unpaid qualified taxes
• Interests
• Fees
• Penalties

For more information about voluntary administrative dissolution/cancellation.  

Additional Steps

There are some additional steps to consider when closing a business entity:

• Notify all creditors, vendors, suppliers, clients, and employees of your intent to go out of business.
• Close out business checking account and credit cards.
• Cancel any licenses, permits, and fictitious business names.
• Publish a statement in a local newspaper of general circulation near the principal place of business that your business entity is no longer in business.

Additional Resources

Review these additional resources for more information: 

• Publication 1038, Guide to Dissolve, Surrender, or Cancel a California Business Entity 
• Publication 1123, Common Forms of Ownership 
• Business Help go to “Close a business” section.
• Sell or Close Your Business California Office of the Small Business Advocate Website
• How do I terminate (dissolve, surrender or cancel) my business entity? (This question is answered in the FAQ section of SOS website.)

What’s New with Tax Forms  

Understand What’s New with Tax Forms, get updates on changes to existing tax forms. 

Internal Revenue Service (IRS) Updates and More  

We partnered with the 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.    

IRS offers tips on preparedness and how to protect personal information during natural disasters

IR-2023-100, May 10, 2023 — In recognition of National Hurricane Preparedness Week and National Wildfire Awareness month, the IRS reminds taxpayers to protect important tax and financial information as part of a complete emergency preparedness plan.  

Now Open: 2024 Low Income Taxpayer Clinic grant application

IR-2023-99, May 9, 2023 — The IRS will accept applications for Low Income Taxpayer Clinic (LITC) matching grants from all qualified organizations. The application period will run from May 8, 2023, to June 26, 2023. The funding and the period of performance for the grant will be Jan. 1, 2024, to Dec. 31, 2024.

IRS: Going green could help taxpayers qualify for expanded home energy tax credits

IR-2023-97, May 4, 2023 — Reminds taxpayers that making certain energy efficient updates to their homes could qualify them for home energy tax credits.  

FTB Welcomes a New Taxpayers’ Rights Advocate

FTB appointed Angela Jones as the new Taxpayer Advocate, effective May 2. She has 16 faithful years with FTB and began her FTB career in the Audit Division where she served as an auditor and program specialist. Angela was formerly a program specialist III, serving as the Trade Media Liaison in the Taxpayers’ Rights Advocate’s Office (TRAO) where she responded to sensitive and complex inquiries from the trade media and tax professional community.

Prior to joining TRAO, Angela worked in the Individual and Pass-through Entity Audit Bureau as the department‘s Native American Taxation subject matter expert (SME). She collaborated with the Deputy Tribal Liaison, tribal chiefs, tribal attorneys, and the Governor’s tribal staff. She provided further support through the creation of FTB 3504, Enrolled Tribal Member Certification Form and was an integral part of the team that drafted Legal Ruling 2015-1. In addition, Angela managed the Tribal Hotline and facilitated the Multi-Agency Tribal Networking meetings. As a result of her exceptional work on the tribal workload, she received a Superior Accomplishment Award.

Angela was also a SME for sourcing, residency, and community property audit issues. In this capacity, she prepared and presented audit training materials and mentored auditors to assist in their professional growth and development, and has worked on several enterprise teams and projects.

Angela will be a great asset to taxpayers, tax representatives, and FTB. We are honored to have her as our new Taxpayers’ Rights Advocate.

Tax News Flash Links

There were no Tax News Flashes sent for May 2023.

FTB Career Opportunities

If you are a student, recent graduate, or experienced professional, we encourage you to apply. Find 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.