Articles Posted in California Franchise Tax Board

The California Franchise Tax Board (FTB) has arrested an individual for felony income tax evasion. According to the FTB Phillip Leech was the CFO of In & Out Desighns, Inc. which allegedly earned more than $1.3 million over a three year period, but didn’t file corporate income tax returns. There are a couple of interesting things about this tax fraud case. One is that Leech was apparently not the owner of the corporation; nevertheless because he was the CEO and CFO the FTB pointed out that he had a duty to file the income tax returns, and was charged with tax evasion. The amount of tax alleged to be owed by the corporation was not huge, $122,000, but the FTB still brought a criminal tax fraud case.

Another interesting point is that the criminal tax fraud case was brought only after the FTB issued notices to the corporation requesting tax returns. Sounds like Mr. Leech should have paid more attention to his mail!

If you have a tax problem with the California Franchise Tax Board, the Internal Revenue Service, or another California tax agency call the tax litigation lawyers at Brager Tax Law Group, A P.C.

Beginning January 1, 2004 the California Franchise Tax Board (FTB) was required, with some limitations, to grant innocent spouse relief to individuals who had previously been granted innocent spouse relief by the Internal Revenue Service (IRS) pursuant to Revenue and Taxation Code Section 18533(h). The idea was that someone who had gone through all of the expense and trouble of obtaining innocent spouse relief from the IRS should not have to go through the same process with the FTB again. After all, portions of the California innocent spouse statute are identical to the federal innocent spouse statute Internal Revenue Code Section 6015. Unfortunately the Revenue and Taxation Code Section 18533(h) expired at the end of 2008.

The California Franchise Tax Board, however, announced that it would apply the same rules as existed under former Section 18533(h) in determining whether or not innocent spouse relief should be granted. However, since there is no longer a statutory basis for doing so if the FTB were to decide for any reason that the old statute didn’t apply a person could no longer appeal to the California Board of Equalization (SBE or BOE) or the courts on the basis that the FTB hadn’t followed Revenue and Taxation Code Section 18533(h) in applying the innocent spouse rules.

If you think that you are an innocent spouse, and would like to arrange a consultation with one of our tax litigation lawyers please contact Brager Tax Law Group, A P.C. Alternatively, if your spouse is requesting innocent spouse relief, and you don’t believe he or she should qualify, our tax attorneys may be able help too.

An article in the California Franchise Tax Board (FTB) November 2008 Tax News publication highlighted the other tax problems that can arise from a tax audit by the California State Board of Equalization (SBE or BOE). Many sales tax audits by the BOE result in a changes to a company’s gross receipts. The BOE tax auditors have instructions to provide the FTB with audit reports which show that not all sales were reported. In turn the FTB may open an income tax audit resulting in additional state income tax due.

Although not mentioned in the FTB Tax News article, when the FTB is done with its tax audit it routinely provides that information to the Internal Revenue Service (IRS), and the IRS may, in turn, begin a federal income tax audit. With all of these tax audits, and with potential tax penalties and interest there is the possibility that a business could wind up paying more to the taxing agencies then it took in.

For these and other reasons it is important to have a qualified tax attorney represent your business; especially if you believe that there are any significant issues on your California Sales tax returns. Feel free to call the tax problem attorneys at Brager Tax Law Group, A P.C.

The California Franchise Tax Board (FTB) joined with the California Tax Education Council (CTEC) to warn taxpayers about unregistered tax return preparers. In California only certified public accountants (CPA), attorneys, Internal Revenue Service enrolled agents, and CTEC-Registered tax return preparers are legally permitted to charge for preparing tax returns. According to the FTB it is believed that there are 3,000 to 4,000 tax return preparers throughout California breaking the law. The FTB then set forth some signs that should set off alarm bells. For example if a tax preparer:

Claims to be a registered tax preparer but is not listed on CTEC’s Website.

Fails to give you a name, address, phone number, and bond information.

The Franchise Tax Board (FTB) announced that it has filed tax evasion charges against a Diamond Springs, California couple who failed to file income tax returns, and failed to report all of their income from their painting businesses on their California State income tax returns for four years running. According to the press release issued by the FTB the total tax, penalty and interest due is relatively small– $29,000. Nevertheless it is possible that they could be sentenced up to 12 years in jail. The couple was booked into the El Dorado County, California jail.

Clients sometimes ask me whether failing to file tax returns is tax fraud or tax evasion. There is a common belief that it is better not file a tax return at all rather than file an incorrect one. While it is true that at the federal level the IRS Criminal Investigation unit generally prosecutes failure to file cases as misdemeanors that is not always the case. Furthermore, as this press release illustrates the FTB can and does prosecute failure to file a tax return as a felony.

Some clients, and their CPAs also sometimes believe that because the amount of tax owed is small they don’t have to worry about tax fraud charges. While it is certainly true that the larger the amount owed the more likely criminal tax evasion charges become this prosecution demonstrates that even small amounts of tax can result in tax fraud charges being filed by the FTB.

The Internal Revenue Service (IRS) has long been required to send notices to a Taxpayer’s last known address. However, California state law has never specifically provided the address to which notices are sent, although according to the legislative history the California Franchise Tax Board (FTB) has as a matter of internal practice generally followed the IRS rules. New legislation which is effective on Jan. 1, 2008, now requires that the FTB send notices to a taxpayer’s last know address. Much like federal law the new state law defines “last know address” as the address that appears on the taxpayer’s last return filed with the FTB, unless the taxpayer has provided to the Franchise Tax Board clear and concise written or electronic notification of a different address, or the Franchise Tax Board has an address it has reason to believe is the most current address for the taxpayer. Revenue and Taxation Code 18416(c).

TIP. If you move after you have filed your federal or state income tax returns it’s a good idea to notify both the IRS, and Franchise Tax Board, just in case they want to contact you. Who knows, sometimes they actually need your address to send you good news.

If you are undergoing a tax audit, and you move it would be foolhardy not to notify them. Why? This is one time when out of sight, out of mind it is not a good rule to rely on. If the IRS or the FTB sends a notice to your last know address, and you don’t get it because you have moved you are still responsible for responding in a timely fashion. If you don’t you could be subject to penalties, or lose various rights of appeal. In my practice I consistently meet with new clients who have lost their rights because they didn’t receive IRS and FTB notices because they moved, and didn’t notify the taxing agencies. On the other hand, Brager Tax Law Group has had great success helping clients who didn’t receive notices because the IRS failed to follow its own procedures in determining their last known address.

The California Franchise Tax Board (FTB) has been given the green light by the California Legislature to disallow deductions for payments made for personal services if the payor fails to provide a Form 1099 or a W-2. For many years the California Revenue and Taxation Code has provided that the FTB may disallow any deductions for personal services if the individual making the payments fails to file the appropriate reporting forms when due. An identical statute applies to corporations. There was some concern that there were technical problems with the statute so the FTB sponsored a bill to “clarify” the statute. That bill became effective on January 1, 2008.

Note that the statute says “may” not must or will. This leaves some room for arguing that this discretion should not be exercised, perhaps because the failure to file the documents wasn’t willful, or was otherwise due to excusable neglect.

In addition to the deductions being disallowed taxpayers can be hit with a penalty of $50 for each form not filed. Perhaps that’s not much for each form, but for even a mid-size company it can add up pretty quickly. In addition the Internal Revenue Service (IRS) imposes a $50 penalty under Internal Revenue Code § 6721, and in cases of intentional disregard of the filing requirement the penalty goes to $100 per form.