Franchise Tax Board (FTB) and State Board of Equalization (SBE) will administer an amnesty program starting Feb. 1, 2005 and ending March 31, 2005. The amnesty covers all taxpayers with potential underpayments on their pre-2003 returns. Under the program penalties and fees applicable to non-reporting, nonpayment or underreporting of taxes for pre-2003 tax liabilities are waived. Any taxpayer that qualifies under the program but fails to come forward will owe significantly increased penalty and interest.
Who should consider amnesty?
– Have an unpaid balance due on an installment agreement
– Have an unpaid balance due but no formal installment agreement
– Involved in a federal audit
– Have a federal assessment but have not notified or paid the state’s comparable assessment
– Involved in a state audit, protest, petition, or appeal
– Have unreported income, sales, or purchases, or questionable or overstated deductions
– Have not filed income, franchise, or sales and use tax returns
The tax amnesty applies to all taxpayers for all open tax years prior to 2003. This program does not only target those with known issues and liabilities but all taxpayers and will impose harsh new penalties indiscriminately on all deficiencies identified after the amnesty period.
How and when to apply: To participate in the program, taxpayers must complete and return a signed amnesty application during the amnesty period ending on March 31, 2005. Taxpayers need to file returns, including amended returns, on or before May 31, 2005. Also, taxpayers need to pay taxes and interest or enter into an amnesty installment agreement on or before May 31, 2005. Taxpayers have until June 30, 2006 to pay tax and interest amounts under an amnesty installment agreement.
Penalties for failing to apply for amnesty: For tax years prior to 2003, taxpayers are subject to 40 percent (rather than 20 percent) accuracy-related penalty. Also, 50 percent additional interest computed from due date of return through March 31, 2005. Taxpayers must pay all taxes, penalties, and fees for the 2005 and 2006 taxable years to remain in compliance with the amnesty. FTB will reinstate any penalties and fees and assess the new amnesty penalties if noncompliant.
IRS audit completed: For example, Janak received a final determination letter for a pre-2003 tax year and paid the balance owed per changes made by IRS. He has not amended the California return for those changes. If Janak applies for amnesty, the FTB will waive the penalty and the related interest when he files his amended return by May 31, 2005. As the FTB has a taxpayer information exchange program with the IRS, the FTB will share any information obtained from the amnesty program with the IRS.
No refund rights for FTB: For the FTB only, amnesty participants give up the right to appeal or to file a claim for refund for amnesty-related payments.
Taxpayers considering amnesty should carefully weigh their options. You can find additional information on Franchise Tax Board’s website: www.ftb.ca.gov
Parveen Maheshwari, C.P.A. has an office in Bur-lingame. (650) 340-1400. parveen@cpamax.com.