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Head of Household (HOH) audit letter ­ 2007 tax year

PURPOSE OF BULLETIN

To inform staff we will begin mailing the 2007 tax year HOH audit letters in August 2008.

BACKGROUND

Each year we review the returns of taxpayers who claim the HOH filing status because the qualifications for this filing status are commonly misunderstood. We anticipate mailing approximately 130,000 HOH audit letters for the 2007 tax year between August 2008 and December 2008.

HOH AUDIT LETTER

The audit letter tells taxpayers:

  • Why we are reviewing their filing status information.
  • How to obtain assistance in completing the questionnaire.
  • How to return the completed questionnaire.
  • The qualification requirements for HOH.
  • Frequently asked questions about HOH.

AUDIT PROCESS

Taxpayers should complete the 2007 HOH Audit Letter and return it to us by the response due date on the letter.

HOH audit staff will:

  • Review completed questionnaires to determine if taxpayers qualify for the HOH filing status.
  • Call taxpayers or send follow-up letters if responses are incomplete or contain conflicting information.
  • Send an HOH Acceptance Letter to qualified taxpayers.
  • Send a Notice of Proposed Assessment disallowing the HOH filing status to taxpayers who do not respond to the audit letter, or do not qualify for the HOH filing status based on their responses in the questionnaire. A failure to furnish information penalty will be assessed on all taxpayers who do not respond by the due date on the audit letter.

Note: Acceptance letters only apply to the specific tax year examined and do not qualify the taxpayer for any other tax year.

TAXPAYERS WHO E-FILED

Taxpayers who filed electronically and claimed the head of household filing status had the option of completing and including an electronic HOH questionnaire (Schedule HOH/FTB 4803E) with their e filed return. We will not send an HOH audit letter to taxpayers who submitted this information. However, they may still receive a follow up audit letter if the information they provided electronically was incomplete or conflicting. Please advise these taxpayers to complete and return the follow up audit letter.

NEW THIS YEAR

Under California law, in tax years 2007 and later, Registered Domestic Partners (RDPs) must file their California income tax returns using either the married/RDP filing jointly or married/RDP filing separately filing status. RDPs will have the same legal benefits, protections, and responsibilities as married couples unless otherwise specified. See Publication 737 for more information on RDPs.

MAILING SCHEDULE AND VOLUMES

The 2007 HOH audit letter mailings will begin August 2008. We anticipate weekly mailings of approximately 7,000 letters to continue through December 2008.

TAXPAYER INQUIRIES

We cannot take the 2007 HOH information over the telephone. Tell taxpayers to complete and return the audit letter questionnaire by the date specified on their letter. Taxpayers may:

  • Return the questionnaire to us by mail.
  • Fax the completed audit questionnaire to the fax number shown on the cover letter.
  • Respond by using the new HOH web Response Application.

A list of frequently asked questions is attached to this bulletin. The same questions are also included with the audit letters we mail to the taxpayers. Taxpayers can get more information about HOH filing status by visiting our web page at:

/individuals/hoh/index.shtml

Or access the HOH web Response Application at:

/online/hoh/index.asp

FAQs

Q. What if I need more space to answer the questions on the audit questionnaire?
A. If you need more space to answer any of the questions or to provide explanations for your answers, use a separate sheet of paper and include it with your response.
Q. Why do you want to know my marital status?
A. Your marital status is a factor in determining if you qualify for head of household filing status
Q. Who is a qualifying person?
A. A qualifying person is a relative, including an eligible foster child, who can qualify you for the head of household filing status. To determine which relatives can qualify you for the status, see the Head of Household Qualification Requirements for 2007 on page 5 of the audit letter.
Q. I lived with my girlfriend and her child during the year.  May I consider the child as my stepchild or foster child and claim the head of household filing status using the child as my qualifying person?
A. No. Because you were never married to the child’s parent, the child is not your stepchild, and the child cannot qualify you to use the head of household filing status. Beginning in 2005, only a child who is placed with you by an authorized placement agency or by judgment, decree, or another order of the court can qualify as your eligible foster child. Your girlfriend's child cannot be your foster child and cannot qualify you for the head of household filing status. However, you may be eligible to claim a dependent exemption for the child if the child meets all the requirements. See California Head of Household Filing Status (FTB Pub. 1540) for more information on claiming a dependent exemption. To order FTB Pub. 1540 by telephone or to download FTB Pub. 1540, see our Head of Household Assistance Information on page 2 of the audit letter.
Q. Can I claim my parent as my qualifying person for the head of household filing status?
A. It depends. If you are married on the last day of the taxable year, you cannot claim your parent as your qualifying person, even if you did not live with your spouse during the last six months of the taxable year.

If you are single on the last day of the taxable year, you can claim your parent as your qualifying person if you are entitled to claim a dependent exemption for your parent and you meet all of the qualification requirements. Your parent must be a citizen, resident or national of the United States, or a resident of Mexico or Canada.  Your parent need not live with you as long as you paid more than half the cost of keeping up the home that was your parent’s main home for the entire taxable year.

See California Head of Household Filing Status (FTB Pub. 1540) for more information. To order FTB Pub. 1540 by telephone or to download FTB Pub. 1540, see our Head of Household Assistance Information on page 2 of the audit letter.

Q. Can my child qualify both parents for the head of household filing status?
A. No. A child can qualify only one parent for the head of household filing status in a particular taxable year, and that parent must meet all the head of household requirements. See the Head of Household Qualification Requirements on page 5 of the audit letter.
Q. My spouse and I lived apart the entire year, but we are still legally married. My son lives with me. I meet the requirements to claim a dependent exemption for him, but I have signed an agreement allowing his other parent to claim the dependent exemption. Can I still use the head of household filing status?
A. Yes. You can claim your son as your qualifying person if you otherwise meet all of the head of household requirements and the only reason you did not claim a dependent exemption for him was because you signed an agreement allowing the other parent to claim the dependent exemption.
Q. I am divorced. My ex-spouse and I lived apart and shared equal custody of our child, who lived with each of us for 50 percent of the tax year. Can I claim the head of household filing status?
A. No. To claim the head of household filing status, your child must have lived with you for more than 50 percent of the tax year. However, you may qualify for the Credit for Joint Custody Head of Household. See the California Resident Personal Income Tax Booklet for 2007 to determine if you qualify for this credit.
Q. My spouse and I separated during the year. Our son lived with me after we separated. I want to use the head of household filing status. In figuring the number of days our son lived with me, can I count the time he lived with my spouse and me before we separated?
A. If you and your spouse separated during the period January 1 to June 30 and you were still married at the end of the year, you can count only half of the time that you, your spouse and your son lived together and all the time you and your son lived together without your spouse.

If you and your spouse separated during the period July 1 to December 31 and you were still married at the end of the year, you cannot qualify for head of household filing status because to be considered unmarried, you must have lived apart form your spouse at all times during the last six months of the year.

If you and your spouse separated during the year and you were divorced or legally separated by the end of the year, you can count half of the time that you, your spouse and your son lived together and all the time you and your son lived together without your spouse.

Q. My spouse and I were separated from the beginning of 2006 until November of 2007, when we reconciled. Since we were separated for more than six months of the year, can I still file using the head of household filing status?
A. No. Because you were married on the last day of the year, you must live apart from your spouse for the entire last six months of the taxable year to qualify for the head of household filing status. Since you lived with your spouse during a part of the last six months of the taxable year, you do not qualify for the head of household filing status.
Q. Can I provide the head of household information when I file my tax return?
A. Yes. If you e-file your tax return and use the head of household filing status, you can provide the head of household information with your tax return by submitting the completed Schedule HOH/FTB 4803e at the time your return is filed. The Schedule HOH/FTB 4803e will allow us to determine if you qualify for the filing status without later having to issue you an audit letter.

To find out more about e-filing, go to our Website at www.ftb.ca.gov or talk to your tax preparer, if you use one.

Q. Question 3 on the Head of Household Audit Questionnaire asks if my qualifying person’s gross income was less than $3,400 in 2007. My mother is my qualifying person.  Her only income is $6,000 of social security income.  Is social security income counted as part of gross income?
A. Not in this case. Generally, gross income for head of household purposes only includes income that is taxable for federal income tax purposes. It does not include nontaxable income such as welfare benefits or the nontaxable portion of social security benefits.  The law states that if half of social security benefits plus other income is $25,000 or less, none of the social security income is taxable. In this case, you would not include your mother’s Social Security Income in the gross income amount for Question 3. Get IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits,if you need more information.
Q. If I qualified to use the head of household filing status in a previous year, why did the Franchise Tax Board send me an audit letter this year?
A. Each taxable year stands on its own. We cannot determine if the circumstances that qualified you for the head of household filing status in a previous taxable year remained the same or if they changed for taxable years that followed.

 

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