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Establishing the right to a refund

While most claims for refund are made on a completed amended return with a sufficient level of support, we have recently been seeing an influx of claims that are not providing enough information for us to determine whether the taxpayer has established a right to the refund. Moreover, some taxpayers do not have information readily available when we request it.

We are reminding all taxpayers to include a sufficient level of support for their refund when they file their claims. This will expedite consideration of your clients’ claims, and refund processing. Sufficient support includes forms, calculations, or schedules used in determining the amount of refund, as well as detailed explanations for the change. For example, amended returns filed to claim an Enterprise Zone credit should include FTB Form 3805Z, Enterprise Zone Deduction and Credit Summary; Schedule Z, Computation of Credit Limitations – Enterprise Zone, and all worksheets referenced in the Form 3805Z.

Claims for refunds must be in writing, signed by the taxpayers or their agents, and must specify the grounds on which the claims are based. The taxpayer must also "affirmatively establish the right to a refund of the taxes by a preponderance of the evidence." (Consolidated Accessories Corp. v. Franchise Tax Board (1984) 161 Cal.App.3d 1036, 1039; Paine v. State Bd. of Equalization (1982) 137 Cal.App.3d 438, 442; Honeywell, Inc. v. State Bd. of Equalization (1982) 128 Cal.App.3d 739, 744.) 

In other words, the choice to file claims for refund obligate taxpayers with the burden to establish by a "preponderance of evidence" that they have the right to the claimed refund. When appropriate, we may request in writing that the taxpayer provide a completed amended return, and a sufficient level of support within a certain number of days. The claim may be denied if the information is not provided within the time requested.

Taxpayers should have documentation that supports their claim amount and basis readily available when they file their claims. For example, in a claim for refund to report an Enterprise Zone credit, documentation would include relevant accounting or financial records, such as payroll records, fixed assets journals, invoices, hiring credit vouchers, tax credit studies or other key documents required to substantiate the basis of the claim for refund. Making sure that your clients provide the right information at the time the claim is filed, and have the substantiating documentation readily available upon request, accelerates the resolution of all claims.