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California Tax Board: 98 03

California Tax Board: 98 03

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Published by: Taxman on Jan 22, 2008
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Want Head of HouseholdSymposium?Contact FTB Now!
 Inside ...
2 ... Taxpayers using new paymentvoucher2 ... Corporations fail to file for19953 ... Who qualifies to exclude homesale gain?3 ... Andal is new board member4 ... Need Package X?4 ... Excess state disability insurancecredit refunded4 ... Legal ruling addresses timber,mineral royalties5 ... What to expect duringpartnership audits - part 25 ... Tax News by E-mail5 ... FTB calendar6 ... Long Beach office relocates6 ... Small business expenses: State/ federal differences6 ... Small business expenses6 ... Roth IRAs: California conforms7 ... Tax form clarificationsannounced7 ... Head of the house? Or head of household?8 ... Electronic filing in 20018 ... Electronic filing: Check the’Net8 ... 1997 tax returns received byFebruary 15, 19989 ... Some electronic filers forget tosend check 9 ... Partnerships’ nonpaperSchedule K-1s: Two millionbefore 2000?9 ... Water’s-edge electionsymposium is March 119 ... 1997 electronic filing calendar10 ... Send EFT payments to UnionBank 10 ... Where to find tax educationinformation10 ... Most business taxes paidelectronically11 ... President declares disasterareas11 ... Thirty-one counties are disasterareas12 ... Tax Talk video is honored12 ... Tax Talk: New ways to earneducation credits12 ... FTB contacts more 1996nonfilers
 M A R C H 1998
As Far as the Eye Can See
Electronic filing has advantages for both youand your clients.If you offer electronic filing as an option, youcan:
Assure your clients that they will receiverefunds within one to two weeks, which isfaster than refunds issued when paperreturns are filed.
Arrange for your clients to have theirrefunds directly deposited in their bank accounts. This option is open only toelectronic filers and cuts the refund timeeven further. The Franchise Tax Boardexpects to issue between 70,000 andAre you interested in learning all the ins andouts of the head of household filing status?The Franchise Tax Board is considering asymposium in the Sacramento area to increaseawareness of the qualifications needed toclaim the status, if enough tax professionalsshow an interest. So, if you want informationand an opportunity to have all your questionsanswered, be sure to get in touch.
 At the Franchise Tax Board, filing “cabinets” for paper tax returns are warehouse size. FTB’sinformation storage operation houses more than 90 million returns and documents.
Why and How to FileElectronically
Page 2March 1998Tax professionals and individualtaxpayers are using the Franchise TaxBoard’s new tax payment voucher ingreater numbers than expected. At presstime, more than six out of 10 taxpayerswith tax liabilities have mailed theirpayments and returns with Form 540-V,“Return Payment Voucher forIndividuals.”Although there is no penalty for not usingthe voucher, FTB has asked taxpayers tofill it out and mail it in with their returnsbecause it is helpful in processing returnsand payments accurately and efficiently.If you are one of the tax professionalsadvising clients to use the voucher, youwill find a revised version of thevoucher instructions at FTB’s
Internet address.You may download the revisedinformation as a separate form or as partof either the “Resident Booklet” or the“Nonresident Booklet.” The revised formalso is included in the paper and CD-ROM versions of the 1997 Package X.(The original version was included in the1997 personal income tax booklets andalso printed as a separate form availableby mail order from FTB.)The revised voucher instructions clarifythat the amount entered on the vouchershould match the amount of the check ormoney order being remitted, includingany 1997 penalties or interest. Theinstructions read: “Enter the amount of payment that you are sending with yourreturn. If you are paying penalties orinterest in addition to the tax you owe, besure to enter the total amount of yourcheck or money order on Form 540-V.”
Volume 98-2 March 1998
is a bimonthlypublication of the Taxpayer AdvocateBureau, California Franchise TaxBoard. Its primary objective is toprovide information to income taxpreparers about state income taxlaws, regulations, policies andprocedures.
Members of the Board:
Kathleen Connell, ChairState ControllerDean AndalChair, State Board of EqualizationCraig L. BrownDirector, Department of Finance
Executive Officer:Gerald H. GoldbergEditor:Pat Huberty
To update or correct your address or to subscribe to TAX NEWS (send $12 for a one-year subscription), write:
TAX NEWSP.O. Box 520Rancho Cordova, CA 95741-0520or call: (916) 845-7070.
For information about a client’saccount, contact:
Tax Practitioner Support Unit
(916) 845-7057 (phone)(916) 845-6377 (fax)
For recorded answers to questionson California taxes, to order formsor check on a refund, call:
(800) 338-0505From outside U.S. (916) 845-6600
To send a facsimile about a client’saccount, transmit to:
Electronic Correspondence
(916) 845-6377
Information Center:
(800) 852-5711From outside U.S. (916) 845-6500
Hearing Impaired:
TDD (800) 822-6268
FTB on the Internet
Printed on recycled paper.
Taxpayers UsingNew PaymentVoucher
In December 1997, the Franchise TaxBoard asked about 8,100 corporations tofile their delinquent 1995 tax returns.This month, FTB will send Notices of Proposed Assessments (NPAs) to theones that did not produce a return orexplain why they do not have a filingobligation.The assessments include not only FTB’sestimate of the tax due but also penalties,interest and fees related to thedelinquency.FTB bases its tax assessments oninformation about the corporations’income and activities that the InternalRevenue Service, State Board of Equalization and EmploymentDevelopment Department supply:
The IRS provides the names of corporations that file federal returnsand that have California addresses.Also included is income informationfrom the federal tax return.
The SBE supplies incomeinformation on corporations withactive California sales and use taxpermits.
EDD provides the names of corporations with employees subjectto payroll withholding requirements.Also this month, FTB will contact anadditional 25,000 corporations withrequests to file a delinquent 1995corporate tax return.If some of your clients receive either theNPA or the request to file, you may beable to save them money by urging themto respond quickly. The sooner theycomply with the tax laws the smaller theamount of interest and penalties will be.Clients who want more information abouteither notice will find answers tofrequently asked questions by callingFTB’s automated voice response systemat (800) 478-7194.
CorporationsFail to Filefor 1995
Page 3
Who Qualifies to ExcludeHome Sale Gain?
Married couples may now exclude up to$500,000 of gain from the sale of theirprincipal residence as long as they meetcertain conditions.California conforms to new federal lawthat permits the exclusion, starting with1997 tax returns. The law also allowssingle taxpayers to exclude up to$250,000 of gain.To qualify for the $500,000 exclusion:
A couple must file jointly for the taxyear in which the property was sold.
One or both of the spouses must haveowned the property for two years.
Both spouses must have used theproperty as a principal residence forany 24 months in the preceding fiveyears. If only one spouse meets thisrequirement, the exclusion is limitedto $250,000.
Neither spouse must have used theexclusion in the preceding two years.However, this limitation of one saleevery two years applies only to homesales that occur after May 6, 1997.And, the limitation does not stop ahusband and wife who file a jointreturn from excluding up to $250,000of gain from the sale of each spouse’sprincipal residence.In a divorce, the spouse that receives ahouse in a property settlement isconsidered to have owned the propertyduring the time that the other spouseowned it. However, the spouse receivingthe house is not considered to have usedthe property during the time that the otherspouse used it.Taxpayers who have sold principalresidences within the last two years andsome taxpayers who fail to meet theownership and use requirements mayexclude a reduced amount. To qualify,they must meet both of these conditions:
The regular exclusion does not applyeither because the taxpayer does notmeet the ownership and userequirements or because theexclusion is limited to one sale everytwo years.
 Inside ...
13 ... The question column:Must carryover creditsbe claimed in a specificorder?Who gets estimatepayment credit indivorce?Which securities aretaxable?13 ... Software errors identified14 ... Omit SSN from returnpostcard14 ... Are you moving?14 ... More expected toring intax returns14 ... “Striking Gold” winsaward14 ... Ruling addressesmanufacturers’investment credit issue15 ... Sacramento area head of household symposium15 ... Package X notice15 ... Reminder for installmentpayers16 ... When is SSN required?16 ... In 1999, missing “wages”entry will delay refund
Dean Andal, as the new chair of the StateBoard of Equalization, now serves on thethree-member California Franchise TaxBoard.Andal was elected to the Board of Equalization in 1994. He previously wasthe President of Andal Communicationsin Stockton. In 1992 and 1993, he servedin the state Assembly, representing the17
Assembly District. He was named1992 Legislator of the Year byCalifornia’s major taxpayer organizationsand served as the chief budget negotiatorfor Assembly Republicans.On the Franchise Tax Board, Andal joinsController Kathleen Connell, who is theboard’s chair, and Department of FinanceDirector Craig L. Brown.
Andal Is NewBoard Member
The taxpayer is selling or exchanginga principal residence because of achange in the place of employment,health considerations or certainunforeseen circumstances.Only one difference exists betweenCalifornia and federal law on the newrules for excluding gain from the sale of aprincipal residence. In California, up tocertain limits, time spent away from theresidence due to Peace Corps servicecounts as time during which the propertywas used.The new rules for excluding gain from aprincipal residence sale replace a law thatallowed taxpayers older than 55 a once-in-a-lifetime exclusion of a lesser amount.The law permitting deferral of gain if amore expensive home is purchased hasbeen repealed.

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