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Tax deposits, interest netting, and informal claims

FTB guidance on tax deposits, interest netting, and informal claims

Background

Tax Deposits: FTB Notice 2005-6 explained that California has now conformed to the federal "tax deposit" procedures for payments made after a return has been filed but before a final tax liability is assessed, and that FTB would follow federal procedures as outlined in Rev. Proc. 2005-18. Under the new rules, amounts remitted or credited when there is no final liability for the tax year are "deposits" that become "payments" when they are applied to a final liability or the taxpayer requests in writing that they be applied or refunded.

Informal Claims: FTB Notice 2003-5 explained the procedure for informal claims as added by Revenue and Taxation Code Section (RTC §) 19322.1. Where a taxpayer has made a tax payment (not a deposit) and filed a refund claim, the claim remains as an informal claim until it is perfected by full payment of all amounts due for the year. There is no corresponding federal statute to §19322.1.

Interest Netting: AB 911 (Stats. 2005, Ch. 398) amended RTC §19777.5 to allow interest netting to apply in computing the post-amnesty penalty. Interest netting allows an overpayment amount that would have received interest if it had been refunded, to instead be applied to an unpaid deficiency or due and payable amount. Underpayment interest is reduced for the period of time that overpayment interest would have been paid.

FTB staff is developing forms and procedures to implement the tax deposit process, and to clarify how these various provisions interrelate.

  1. How do I make a tax deposit?
  2. Can I make a tax deposit for more than one tax year?
  3. Can I make more than one tax deposit per tax year?
  4. How do I request a return (refund) of a tax deposit?
  5. If I request a refund of my tax deposit, will California offset it against any other balances due?
  6. How is the post-amnesty penalty computed?
  7. I made a "protective claim" tax deposit for my corporation before the end of the amnesty period (3/31/05). I paid the full amount of the proposed deficiency, including proposed interest on that deficiency amount. Can I now request a return of the portion of my tax deposit equal to the interest amount and still avoid the post-amnesty penalty?
  8. Does my tax deposit automatically convert my protest to a refund claim or my deficiency appeal to a claim appeal?