Chat with an FTB Representative

2005 California Tax Amnesty: Who's eligible, how to apply, etc.

Last updated: December 23, 2004

Overview

  1. What is tax amnesty?
  2. What if I don't file for amnesty?
  3. Do I lose any options if I choose tax amnesty?
  4. Is my amnesty choice binding?
  5. How will tax amnesty participation affect me?
  6. There is no way I can pay all the taxes I owe during the amnesty period. Will FTB penalize me for this?
  7. I paid all or part of my penalties prior to February 1, 2005. Will you waive the penalties I paid and refund the penalty payments to me?

Eligibility

  1. Who is eligible?
  2. Do I have to be a California resident to be eligible for amnesty?
  3. Can I participate if I am currently under IRS audit, or recently completed an IRS audit?
  4. If I am currently applying for an Offer In Compromise, can I still apply for amnesty?
  5. Can I apply for amnesty if I am in bankruptcy?
  6. If I filed returns or paid during the tax amnesty period but did not apply for tax amnesty, can I still apply?

Applying

  1. How and when do I apply?
  2. Can I file an extension for amnesty?
  3. Can my representative sign the applications for me?
  4. Can I delay filing and paying past-due taxes until the amnesty period begins?

Paying

  1. When must I pay?
  2. If I file an application during amnesty, can I file my returns and pay after the March 31, 2005 deadline?
  3. Can I make installment payments?
  4. Is it true we only need to pay the tax and interest, but not the penalties and fees?

Special Situations

  1. Can tax amnesty be revoked?
  2. Can I request a review of a denial or revocation?
  3. What if I receive more than one amnesty notification from the FTB?

Overview

  1. What is tax amnesty?
  2. Tax amnesty is a limited-time opportunity for individuals and businesses to pay past-due income, franchise, sales, or use taxes and the related interest - free of most penalties and fees and without fear of criminal prosecution. It runs from February 1 through March 31, 2005. Taxpayers who are eligible to participate in amnesty but choose not to do so will be subject to substantial, new penalties.

  3. What if I don't file for amnesty?
  4. Amnesty legislation provides for increased enforcement actions for years 2002 and prior:

    • The accuracy-related penalty increases from 20 to 40 percent on new tax assessments
    • An amnesty penalty is imposed at the rate of 50 percent of the existing unpaid interest amount on years for which you could have applied for amnesty.
    • An amnesty penalty is also imposed at the rate of 50 percent of accrued interest on tax assessments that become final after the March 31, 2005.
  5. Do I lose any options if I choose tax amnesty?
  6. After you've completed amnesty and we've waived the related fees and penalties, you may not submit a claim for refund or credit for any amount you paid for amnesty. Additionally, you may not maintain a protest or appeal of the amnesty amounts, and if you have a pending refund litigation case, you must request a dismissal from the court. If you're currently contesting a tax liability, you may want to consult your tax professional for advice before applying for amnesty.

  7. Is my amnesty choice binding?

    Yes, your choice is binding. You can't change it once you submit your application.

  8. How will tax amnesty participation affect me?

    You can apply for income tax amnesty on any tax years beginning before January 1, 2003, for which you have an outstanding obligation, you have not filed a return, or you have underreported your tax liability. If you apply and meet the requirements, we'll cancel certain penalties and fees associated with the applicable years. In addition, we'll agree not to criminally prosecute you for those tax years.

    The FTB may not bring criminal action against taxpayers for the taxable years or tax reporting periods for which amnesty is allowed for the nonreporting or underreporting of tax liabilities or the nonpayment of any taxes previously assessed or proposed to be assessed.

    After March 31, 2005, however, the FTB may propose a deficiency upon an amnesty return, impose penalties and fees or initiate action with respect to the difference between the amount shown on that return and the correct amount of tax.

    To maintain amnesty, you must remain in compliance by filing and paying your taxes in 2005 and 2006. If you pay past-due taxes through an amnesty installment agreement, you must also meet the requirements of that agreement. If you don't meet either of these requirements, we must revoke your amnesty, reinstate canceled penalties and fees, and assess new amnesty-related penalties.

    On years for which we grant you amnesty, you give up your right to submit a claim for refund or credit for any amount paid during amnesty. You also agree to give up your protest and appeal rights (including protests or appeals in settlement) for any amounts selected for amnesty.

    California has a tax information exchange agreement with the IRS. What you disclose under state tax amnesty will be available to them.

  9. There is no way I can pay all the taxes I owe during the amnesty period. Will FTB penalize me for this?

    If you cannot pay your outstanding balance by the May 31, 2005, deadline, you may apply for an amnesty installment agreement, which extends your time to pay until June 30, 2006. If you don't meet the June 30 deadline, we will revoke your amnesty and reassess penalties and related interest plus new amnesty penalties based on your balance at the time of default.

  10. I paid all or part of my penalties prior to February 1, 2005. Will you waive the penalties I paid and refund the penalty payments to me?

    The law does not allow us to give a refund or credit for penalties paid before February 1, 2005.

Eligibility

  1. Who is eligible?

    Amnesty is open to both individuals and businesses for taxable years 2002 and prior, if they:

    • Did not file the required California tax returns.
    • Underreported income on a previously filed tax return.
    • Claimed excessive deductions.
    • Did not pay previously assessed taxes, interest, penalties, or fees.

    The following taxpayers or transactions are not eligible for amnesty:

    • Taxpayers currently under criminal investigation or prosecution on tax-related matters;
    • Abusive tax shelter transactions that were eligible for relief under California's Voluntary Compliance Initiative or the 2003 IRS Offshore Voluntary Compliance Initiative - These initiatives applied to taxpayers with non-reported or underreported tax liability amounts attributable to an investment in an abusive tax shelter.

    Note: These taxpayers are eligible for amnesty for non-abusive tax shelter items.

  2. Do I have to be a California resident to be eligible for amnesty?

    Nonresidents are eligible for amnesty. All eligibility restrictions apply.

  3. Can I participate if I am currently under IRS audit, or recently completed an IRS audit?

    Yes, unless you were in an abusive tax shelter and were eligible to participate in either last year's Voluntary Compliance Initiative or the 2003 Offshore Voluntary Compliance Initiative. However, you may wish to consult with your tax professional regarding this matter.

    If you choose to apply, you must do so by March 31, 2005. File an original or amended return, showing the amounts adjusted or expected to be adjusted, for each year for which you are claiming amnesty. Be sure to indicate on the amended return that a federal audit is involved (Form 540X, question "a"). You must then either pay your amnesty balance, or enter into an installment agreement with us by May 31, 2005.

  4. If I am currently applying for an Offer In Compromise, can I still apply for amnesty?

    Yes.

    Note: amnesty requires that your balance due be paid by June 30, 2006.

  5. Can I apply for amnesty if I am in bankruptcy?

    Yes. If you want to participate in tax amnesty but are currently under the protection of Title 11 of the United States Code, you will need an order approving your participation from the Federal Bankruptcy Court having jurisdiction over your case.

    See special rules for taxpayers who have received a discharge in bankruptcy, where the pre-petition lien survived the bankruptcy.

  6. I filed returns or paid during the tax amnesty period but did not apply for tax amnesty, can I still apply?

    You must apply between February 1 and March 31, 2005, to participate in tax amnesty. The law doesn't authorize any extension of time to apply for amnesty.

Applying

  1. How and when do I apply?
    • Complete and return a signed amnesty application by March 31, 2005. (Since March 31 is a state holiday, we will accept applications postmarked April 1, 2005.)
    • By May 31, 2005, file any missing income or franchise tax returns for those years for which you applied for amnesty.
    • File amended income or franchise tax returns by May 31, 2005, for any years you underreported your tax.
    • Pay all outstanding tax liabilities and interest by May 31, 2005. Or, set up an installment payment agreement that will fully pay the amnesty years liability by June 30, 2006.
  2. Can I file an extension for amnesty?

    No. Amnesty applications must be postmarked by March 31, 2005. (Since March 31 is a state holiday, we will accept applications postmarked April 1, 2005.)

  3. Can my representative sign the applications for me?

    Yes. However, we must have on file a completed Power of Attorney Declaration (FTB 3520) giving your representative authorization to sign on your behalf.

  4. Can I delay filing and paying past-due taxes until the amnesty period begins?

    No. The state will continue its normal compliance, enforcement, and collection efforts to enforce the tax laws. This means that new audits will be conducted and non-filer enforcement efforts will proceed as planned. It also means that normal billing and collection actions will continue. This can result in a levy against your bank account, garnishments of wages, filing of a tax lien, and other actions allowed by law.

Paying

  1. When must I pay?

    You must pay your tax amnesty balance by May 31, 2005. If you cannot pay by this deadline, you may set up an amnesty installment agreement to pay the outstanding amnesty liability by June 30, 2006.

  2. If I file an application during amnesty, can I file my returns and pay after the March 31, 2005 deadline?

    Yes, but you must file returns and pay your amnesty liability by May 31, 2005. You may be eligible to enter into an amnesty installment agreement that extends your final payment due date to June 30, 2006. However, this extension for payments does not extend the time to file necessary returns.

  3. Can I make installment payments?

    Yes you can make installment payments if you can substantiate that payment in full will create a financial hardship.

  4. Is it true we only need to pay the tax and interest, but not the penalties and fees?

    Generally, yes. Amnesty forgives most unpaid penalties and fees related to past due taxes, and waives criminal prosecution for qualified applicants. You must pay the tax and any related interest. Interest is not waived in amnesty.

Special Situations

  1. Can tax amnesty be revoked?

    Yes, for those who don't complete their amnesty obligation. To complete amnesty, applicants must:

    • By May 31, 2005, pay in full or apply for an installment agreement to cover all amounts due under amnesty.
    • If paying by installment agreement, pay all amounts due under amnesty by June 30, 2006. During the installment agreement period, we may revoke amnesty for applicants who default on their amnesty installment agreement without reasonable cause.
    • Timely file and pay 2005 and 2006 California income and franchise tax obligations.

    In addition, we will revoke amnesty if you file a false or fraudulent return, or attempt to evade the correct tax that is due.

  2. Can I request a review of a denial or revocation?

    Yes. If we deny or revoke your application, you may request a review. Also, if we issue a correction notice because of an amnesty application, taxpayers have 15 days from the date of the notice to pay the revised amount. We consider payments made in response to those notices as being made within the amnesty period.

  3. What if I receive more than one amnesty notification from the FTB?

    If you receive multiple amnesty notifications from us, and want amnesty for any tax matters the notices address, you should respond according to the specific instructions provided on each notice.

Back to Tax Amnesty Homepage