From time to time, the California Franchise Tax Board (FTB) may issue announcements that affect taxpayers. These announcements may be driven by legislation or environmental factors.
With tax deadlines approaching, California taxpayers should keep these updates in mind.
ONE-TIME PENALTY ABATEMENT FOR INDIVIDUALS
Good news for individuals filing personal income taxes: Taxpayers are allowed a one-time abatement of a failure-to-file or failure-to-pay timeliness penalty. This new statute, contained in Assembly Bill 194, was signed into law by Governor Newsom on June 30, 2022.
A few highlights relating to the penalty abatement include the following:
- It is only available to individuals subject to Personal Income Tax Law. It is not applicable to business entities.
- The individual taxpayer may request penalty abatement once in a lifetime.
- It is applicable for taxable years beginning on or after Jan. 1, 2022.
- The taxpayers may choose to forgo reasonable cause review or request abatement when reasonable cause is absent.
- The taxpayers are not required to pay any penalties for a one-time abatement.
To qualify for this abatement, the taxpayer must:
Be compliant with tax return filing requirements
Not previously been granted abatement under this section
Not been previously required to file a California tax return
Have paid or is current in all other tax, penalties, fees and interest due, other than the timeliness penalty they are seeking to abate
FTB will begin accepting one-time penalty abatement requests on April 17, 2023. Per FTB, the one-time penalty abatement request process is in progress and further details including applicable forms for one-time penalty abatement will be made available later. See FTB’s Tax News announcement for further details.
DELAYED CAPITAL ACCOUNT TAX BASIS REPORTING REQUIREMENT FOR TAX-YEAR 2022
The FTB delayed the requirement for partnerships and LLCs to report partners’ capital account tax basis under California law until tax-year 2023. As a result, the FTB will permit the taxpayer to report its partners' or members' capital accounts using the tax basis method as determined under federal law, as reported on Schedule K-1 (Form 1065) or by using the tax basis method as determined under California law. As such, FTB Notice 2023-01 supersedes and replaces FTB Notice 2022-01.
Beginning in taxable-year 2023, the FTB will require a taxpayer who files Form 565 or Form 568 to report its partners' or members' capital accounts on the Schedule K-1 (565) and the Schedule K-1 (568) using the tax basis method as determined under California law. Read FTB’s Public Service Bulletin for more details.
TAX RELIEF FOR TAXPAYERS IMPACTED BY WINTER STORMS
Note: After this blog was posted, the IRS and California FTB announced further relief for California taxpayers. (Click here to learn more about this update)
Winter storms in early January wreaked havoc in Southern California. Torrential rain and atmospheric rivers swept through the state causing major flooding, mudslides and snow. Considering the stress natural disasters can wreak on a person’s livelihood, the IRS and the FTB have decided to help by extending the filing and payment deadlines for individuals and businesses in California. On top of the extended deadline, those affected by the storms can claim a deduction for any loss caused by the storms.
The tax deadline has been extended to May 15, 2023. This deadline is extended for any filings or payments due after Jan. 8, 2023. The majority of taxpayers will see this extension impact individual income tax returns due April 18, business entities with returns and payments due on March 15 and estimated payments due Jan. 17 and April 18.
To claim the loss, documentation must be provided. Written statements showing the date and location of the disaster are needed on 2022 returns. For free, the FTB will also replace taxpayers’ most recently filed tax return that was lost or damaged during the storms during this time.
The relief described above is only available to taxpayers in the affected areas. The areas are designated by the Federal Emergency Management Agency (FEMA) and as of Jan. 11 include the following counties:
Any taxpayer who lives outside of these areas but files taxes within these areas will also be eligible for relief.
For a list of common federal tax forms that are affected by this announcement, read GHJ’s Tax Alert. For additional details on FTB’s announcement and how that affects California tax deadlines, read Gov. Newsom’s announcement.
Please reach out to GHJ’s State and Local Tax Practice to learn more about what California taxpayers should know going into tax season.