California Tax

ACCT 456

Introduction

(1) Prep Form 540

(2) CASales Taxes and Prop Taxes (local)

(3) Personal Inc Tax (and corp)

(4) CA v. federal - diffs; assume some knowl of fed (indiv)

Law as of + conformity/nonconformity

Reading - condensed material (Guidebook)

Income Tax

Tax Rate Schedules and Tables Current Individual Rate Schedules and

Tables Individual Maximum Rate

Current Corp Franchise Tax, Inc Tax Corp max and min

– max 8.84% (yrs begin after 96)– S Corps: 1.5%– min: 800

0 1st yr, 0 2nd yr (new C & S)

(yrs begin after 99)

Combined CA Inc Tax and Fed Inc Tax Individuals: remember

– deduc of CA tax on fed return– upper brackets (phase outs: exemptions,

itemized - fed & CA)

Return Prep - Formula

RESIDENTS (v. part yr, nonresidents) Formula - CA now an AGI state basically start fed AGI + or - modifications to income + or - modifications to itemized deductions;

TI personal exemption credit(s) dep exemp credit other credits

Much of Federal Law is Conformed to

e.g. AMT - Sch P e.g. Kiddie Tax - Form

3800 Due date 4/15 paperless ext. 10/15

paym Form 3519

Return filing requirements:

Using CA GI & AGI Single

– GI– AGI

MFJ– GI– AGI

Resident:

In state other than temporarily or transitorily

9 months presumption = resident or domicile in state and outside temporarily

or transitorily = resident see cases and factors

Filing Status

usually same as fed exceptions: spouse

different state resident or active military - option

Personal & Dep Exemptions:

Credits:– pers - t/p & sp – dependents

reduced if fed AGI> threshold – MFS 1250 x 6 – Single HOH 2500 x 6 – MFJ 2500 x 12

Blind and/or > age 65 - additional

Standard Deductions

single, MFS MFJ, HOH, QW Dependent claimed on another return may elect differently from federal - i.e.,

standard v. itemized

Conformity and Nonconformity and Other Diffs

Conformity or not (Spidell) – failure to adopt fed changes

Other Differences - state policy

Modifications - To Fed AGI - (more imp) Schedule CA Interest on State & Local Obligationss - add

back other than CA Interest of Fed Obligations - subtract Deprec - post 86 MACRS & 87-92 179, CA

= fed (no addition or subtraction) – pre 87 not ACRS for CA but pre ACRS

methods– corps still use pre ACRS

179 expense (an example of non-conformity)87-92 CA & fed same

93-96 CA 10,000; fed 17,500

97-98 CA 13,000 7 16,000; FED 18,000 & 18,500

99-02 CA & Fed same

99 19,000

00 20,000

01-02 - 24,000

03 – 25,000 CA; 100,000 Fed (JGTRRA ’03)

Cap G&L - same after 86 (Sch D, 540)(except for depreciation differences)

State income tax refund – subtract if from CA or any other state– rationale: no tax benefit (not deduc’d

540) Unempl Comp - not taxed (subtract)

Social Security - none taxed in CA (subtract if included on federal) (fed formula)

CA lottery winnings - exempt (subtract) IRA & Keogh - post 86 limits were same so

taxable on distrib same if all from post 86

Expenses related to tax exempt income (see below)

PAL - rules same (except R/E pros - fed 93) other G or L (fed 4797) (CA D -1) (rules

same)

NOL

No CB in CA 10 yr CF

00-01 55%

02-03 60%, suspended

04 100% No NOL 91 & 92

Modifications – to fed itemized – (more imp) Schedule CA Need not elect same as fed (itemized or standard)

(need not attach Schedule A) Taxes – state & local inc taxes (incld SDI) NOT

deduc (sub) Attach Schedule A – usually not

Not 540A

540 if 1040 attached forms other than A&B (attach on file 1040)

If itemized CA, but not fed – mock A

Tax Exempt Income Expenses: – fed obligs - not deduct exps bec not incld

inc (subtract)– state obligs: - deduct exps (add) (other

than CA) bec include in inc– CA (no change)

CA lottery - not deduct expenses (subtract)

Itemized Deduc Phase Out

6% v. fed 3% fed AGI> threshold

single, MFS H of H MFJ

Credits (more imp)

Order specified form for each > 3 attach Schedule P renters: back in 1998 non refundable

– amount– phaseout– 93-97: none

Credit - Inc Taxes Paid to Another State net income tax paid to state (not local)

(exclude AMT or like) if income sourced to other state & taxed

also in CA intangibles producing income = attrib’d to

CA only (e.g., out-of-state bank acct of CA resid)

Limit - proportion of CA tax

no c/o Schedule S & copy

of other state return

Other Credits

Personal & dependency exceptions

Household & dep care credit– Back in 100, % of

federal, refundable

Teacher Retention Credit

After `99, suspended ‘02 Teach in elem/sec/vocat sch/in CA, K-12 Credit Years of service req’d

– 250 4 – less than 6– 500 6 – less than 11– 1000 11 – less than 20– 1500 20 or more

Limit teacher retention credit: 50% x total x ratio (teacher wages & salary (total AGI)

Ratio 1 Total tax = pers inc tax: before ests, less all

credits except teacher excess unemploym contribs, w/h any refundables

Other Items

Excess SDI– (>annual amount)– (>1 employer usually)

Distinguish Contributions (compare federal presidential check off

Estimated Tax

Penalties - including minimum Min pen: $100 or 100% of tax if return not

filed w/i 60 days due date Fail to file: 15%/mo; max 75% Fail to pay: 5% & ½%/mo

Income Tax Administration - CA

FTB - State Controller, Director Department of Finance, Chair of SBE

FTB & IRS exchange info (CA t/p’s required to report changes to fed return)

Tax return preparers: CPA, PA, CA Bar, EA need not register

Others - register with Dept of Consumer Affairs-Ann fee, bond, (60 hrs, 20 CPE)

FTB

issue rulings audit manual litigation fees taxpayer Bill of Rights

Change of address Fed form 8822 CA 1-800-852-

5711 CA form 3533

Deficiencies

FTB determines additional tax due math error Jeopardy assessment estimate income tax + levy notice of proposed deficiency denial renter’s credit

Protest w/i FTB

w/i 60 days of mailing of notification signed by t/p or representative (power of attorney -Form 3520 - need not be

admitted or have particular qualifications) 2 copies of protest + notice suggested oral hearing - request, branch office,

representative

Taxpayer Bill of Rts

Recovery of Litigation costs; but 10,000 pen for friv lit

State defense: substantially justified Also civil action for economic damages Plus possible reimb of reas fees on appeal

to SBE from FTB (discretionary) And burden shift on appeal to SBE And more

Appeal - to SBE

upon notice of FTB action on protest w/i 30 days of date FTB notice 2 copies of appeal 2 copies of supporting documents (effective

1/1/92-SBE mails to FTB)

Requirements - Appeal - SBE

In writing State: is an appeal Name of appellants Amounts, years

date FTB notice facts points & authorities portion t/p concede signature

Hearing - SBE

formal sworn testimony reps not req’d to be

admitted 30 days for petition

for rehearing

SOL on assessment: CA SOL for mailing notice v. Fed SOL for assem:

General rule - CA 4 yrs after filing (if late, filing) (if early, from due date )

Fed 3 yrs from actual filing Waiver - possible, automatic if fed waiver

(runs to 6 mo after fed) Omit 25% GI - 6 yrs (like fed); False or no

return - no SOL (like fed);

Fail to report changes or amendment of fed - CA open

if report - 2 yrs from report or CA SOL, whichever later; 4 yrs if out of time to report

T/p document w/i 60 days of assessment SOL - FTB has another 60 days lim: + 60 days

No CA mitigation 3d party record keeper - intervention by t/p

to quash subpoena - suspend SOL (like fed)

SOL on Collection

10 yrs federal similar

Refunds

claim - usually 540X, individuals appeal - 90 days from disallowance by

FTB, to SBE SOL - general rule: 4 yrs from last day for

filing (w/o extension) or 1 yr from overpayment (later)

federal refund SOL: 3&2, from actual filing unless file early

waivers - federal rules differ 2 yrs from giving notice of amended fed (if

>CA general rule)

Suit: only after file claim

FTB no rt to appeal adverse dec by SBE

Time to file: Later of– 4 yrs from due date return– 1 yr from date tax paid– 90 days from notice FTB action (no

action 6 mos - disallowance)– 90 days from notice SBE action

Death Taxes (after 6/8/82)

Today - 2 death taxes: estate, GST = pickup = amount of state credit allowed

against fed taxes (state credit on fed 760 phasing out per EGTRRA `01)

previously - CA inheritance tax: 1893 - 6/8/82; CA gift tax 1939 - 6/8/82

State reaction to EGTRRA `01

Fed credit depends on situs of prop, apportion credit among states based on gross value

Return due - DOD, delinquent after 9 mos File - CA + copy of Federal (form 706)

Deficiency - State controller administers

4 yr SOL or agreement no SOL fraud or fail

to file GST - if resident at

transfer or prop (R/E or personal) w/i CA