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FTB follows IRS Chief Counsel Advice

For IRC Section 409A

California's Revenue and Taxation Code (R&TC) Sections 17501 and 24601 allow IRC Section 409A to apply to California taxpayers.

In February 2007, the Internal Revenue Service (IRS) created a Compliance Resolution Program (Announcement 2007-18) that permitted employers to pay their rank-and-file employees' additional taxes arising under Internal Revenue Code (IRC) Section 409A. After the IRS established its Compliance Resolution Program, FTB issued FTB Notice 2007-1, California's Compliance Resolution Program for Employers Participating, or Intending to Participate, in the IRS Compliance Resolution Program Regarding Internal Revenue Code Section 409A.

The FTB 409A Compliance Program paralleled the IRS Compliance Resolution Program. Employers were required to file a notice of intent with FTB by March 15, 2007, in order to participate in the FTB 409A Compliance Program, and submit payment to FTB by June 30, 2007.

On July 13, 2007, the IRS released Chief Counsel Advice (CCA) 200728042 (available online), which relates to the application of IRC Section 409A to certain backdated stock options. Due to California's conformity with IRC Section 409A, FTB is following CCA 200728042.

We are accepting further submissions from employers who believe that, pursuant to CCA 200728042, some employees included in their original submission to the FTB 409A Compliance Program should have been excluded. The purpose of the further submission is for the employer to make a refund claim for amounts submitted to FTB on behalf of employees that were not subject to 409A as described in CCA 200728042.

For employers that participated in both the IRS 409A Compliance Resolution Program, described in IRS Announcement 2007-18, and the FTB 409A Compliance Program, described in FTB Notice 2007-1, a further submission requesting a refund must include:

  • A copy of the corresponding federal submission.
  • Any IRS response.
  • Information and documentation to establish that the amounts reported as part of the FTB 409A Compliance Program do not violate IRC Section 409A, pursuant to CCA 200728042.

For employers that did not participate in the IRS 409A Compliance Program, but did participate in the FTB 409A Compliance Program, a further submission requesting a refund must include all information and documentation to establish that the amounts reported as part of the FTB 409A Compliance Program do not violate IRC Section 409A, pursuant to CCA 200728042.

Please fax and mail any submissions for refund. The fax number is (916) 845-9398. The mailing address for any submission for refund is:

State of California
Franchise Tax Board
409A Compliance Program
Attn: Deirdre O'Connor @ MS F350
PO Box 1779
Rancho Cordova CA 95741-1779

For further information, please contact Deirdre O'Connor at (916) 845-7335.