On August 16, 2004, California allowable a tax absolution (“Amnesty Program”) accoutrement both sales and use taxes and claimed and accumulated assets taxes.1 The declared purpose of the Absolution Affairs is to advance acquirement as able-bodied as accession new acquirement for California. The Senate Annual and Fiscal Review Committee estimated that the Absolution Affairs would accomplish $567.8 actor in revenues for the state.2 At the December 1, 2004, affair of the Authorization Tax Board (“FTB”), Accompaniment Controller Steve Wesley declared that the revenues accepted to be generated from the Absolution Affairs should break 14 percent of the state’s annual crisis. However, while the affairs is accepted to aftereffect in net acquirement assets in 2005 and 2006, a acquirement accident is projected for 2007, back the accompaniment will be appropriate to acquittance aboriginal payments fabricated by alert taxpayers gluttonous to abstain the arduous penalties of the Absolution Program.
This commodity describes the aloft accoutrement of the Absolution Program, and highlights the key differences amid the sales and use tax accoutrement and the assets tax provisions.
As discussed below, the legislation employs a “carrot and a stick” approach, advantageous taxpayers who participate in the Absolution Program, and backbreaking some of those who don’t. The clairvoyant should be acquainted that, as of the date of this writing, some important issues apropos the administering of the Absolution Affairs are still actuality decided.
The Absolution Program
The absolution aeon runs from February 1, 2005 to April 1, 2005,3 and the Absolution Affairs applies to tax liabilities due and payable for tax advertisement periods alpha afore January 1, 2003.4 The legislation provides that the sales and use tax affairs will be administered by the California Accompaniment Board of Equalization (“SBE”), and the claimed and association assets tax affairs will be administered by the FTB.5
Relief Provided by the Absolution Program
The primary annual of accommodating in the Absolution Affairs is that the SBE and FTB shall abandon all penalties and fees for the tax advertisement periods for which the Absolution Affairs applies for the nonreporting or underreporting of tax liabilities or the defalcation of any taxes ahead bent or proposed to be determined.6 In addition, no bent activity will be brought adjoin the aborigine unless the aborigine was already on apprehension that a bent analysis had been initiated.7 However, no acquittance or acclaim shall be accepted of any amends paid above-mentioned to the time the aborigine makes a address for tax amnesty.8
One cogent aberration amid the sales and use tax affairs and the assets tax affairs is that taxpayers accommodating in the Absolution Affairs may book claims for acquittance on sales and use tax paid but are banned from filing claims for refunds for authorization and assets taxes paid to the admeasurement that the aborigine alternate in the Absolution Program.9 Consequently, a aborigine entering the assets tax affairs (unlike the sales and use tax program), relinquishes any added rights to challenge the taxes paid in the assets tax program. Thus, the issues circuitous in because whether to participate in the assets tax affairs are added circuitous than for the sales and use tax program.
Except for taxpayers who acquire accurate chapter agreements, the Absolution Affairs additionally creates a austere new amends for underpayment of tax absolute as of April 1, 2005, behindhand of whether the SBE or FTB has bent that an underpayment exists by that date. The amends is according to 50 percent of the accrued absorption payable for the aeon alpha on the aftermost date assigned by law for the acquittal of that tax (determined afterwards attention to extensions) and catastrophe on the aftermost day of the absolution period.10 This amends is in accession to any added amends that may be imposed.11 Thus, for example, if on June 1, 2005, the FTB initiates a claimed assets tax analysis for tax year 2001 and issues a absence appraisal on March 1, 2006, the aborigine would be accountable to a amends of 50 percent of the absorption that accrued amid April 16, 2002, and April 1, 2005, in accession to any added penalties that ability acquire applied.
It is important to agenda that this 50 percent absorption amends is mandatory; there is no approved barring to the amends nor any accouterment to abandon the penalty. This has accessible implications for affairs that are currently awaiting at audit, in protest, on appeal, or in settlement, as able-bodied as for affairs that acquire yet to be articular by the SBE or FTB. In addition, because taxpayers may not book a affirmation for acquittance on the 50 percent absorption penalty,12 the alone way to abstain the amends appears to be to auspiciously defeat the basal tax.
In addition, for underpayments of sales and use tax begin to be due afterwards April 1, 2005, for a aeon above-mentioned to January 1, 2003, the SBE may appraise a amends “that is bifold the bulk of penalties declared in law….”13 If the SBE issues a absence appraisal beneath this provision, it may do so aural 10 years afterwards the aftermost day of the agenda ages afterward the annual aeon for which the bulk is proposed to be determined.14 In effect, the SBE is accustomed a bound 10-year statute of limitation for all accessible years above-mentioned to January 1, 2003.
In contrast, the FTB cannot affair penalties at bifold the rate, nor does it acquire a 10-year statute of limitation. However, the accuracy-related amends is added from 20 percent to 40 percent for any underpayments of assets tax begin to be due afterwards April 1, 2005, for a aeon above-mentioned to January 1, 2003.15 This added accuracy-related amends bulk does not administer if the aborigine is beneath audit, protest, appeal, adjustment or in activity as of February 1, 2005.16
In addition, if any overpayment of tax apparent on an aboriginal or adapted acknowledgment filed beneath the assets tax absolution is refunded or accustomed aural 180 canicule afterwards such acknowledgment is filed, no absorption shall be accustomed on that overpayment.17
Requirements for Accord in the Absolution Program
There are three accepted requirements to authorize for accord in the Absolution Program: (1) the aborigine charge be acceptable to participate in the Absolution Program; (2) the aborigine charge book a completed absolution appliance with the SBE or FTB, active beneath amends of perjury, electing to participate in Absolution Program; and (3) aural 60 canicule afterwards the cessation of the Absolution Program, the aborigine charge book completed tax allotment for all tax advertisement periods for which he or she has not ahead filed a tax acknowledgment and book completed adapted allotment for all tax advertisement periods for which he or she underreported his or her tax liability, and the aborigine charge pay in abounding the taxes and absorption due for all periods for which absolution is requested.18 The aborigine additionally may administer for an chapter agreement, to be paid in abounding by June 30, 2006.19 It is cryptic whether the FTB and SBE will automatically acquire all requests for chapter payments, forth with the agreement requested. If these agencies intend to exercise acumen in accepting or abnegation these requests, it is cryptic what standards they would administer in the exercise of this discretion.
The aboriginal affirmation apropos accommodation is not acutely defined. It appears that any aborigine with an accessible year above-mentioned to January 1, 2003, qualifies, including taxpayers currently beneath audit, on a address for redetermination, in adjustment or in litigation. Consistent with the approved affirmation that the activity be as automated as accessible to ensure best participation, it is advancing that the SBE and FTB will booty an all-embracing appearance of who is eligible. Two bright exceptions abide for accommodation in the program: (1) taxpayers in bankruptcy, who are appropriate to acquire an adjustment of the defalcation cloister to participate in the Absolution Program,20 and (2) tax violations for which a apprehension of bent activity has been beatific to the taxpayer.21
In addition, the franchise/income tax Absolution Affairs does not administer to any nonreported or underreported tax accountability amounts attributable to tax apartment items that could acquire been appear beneath either the FTB’s 2004 Voluntary Compliance Initiative or the IRS’s Offshore Voluntary Compliance Initiative declared in Acquirement Procedure 2003-11.22 Thus, the Absolution Affairs is not advised to accommodate a “second chaw at the apple” for taxpayers who should acquire entered VCI. However, inasmuch as taxpayers were appropriate to “self-assess” their accomplishment for VCI, this raises issues as to the acceptation of what “could acquire been appear under” VCI. Although we acquire not accustomed acceptance from the FTB, we accept that this limitation will alone administer to items such as listed affairs or added acutely articular tax apartment transactions. In addition, we accept that taxpayers should be able to put some non-listed affairs into the Absolution Program, alike if the aborigine additionally has listed affairs for those aforementioned years that are barred from the Absolution Program.
The additional affirmation is self-explanatory. The SBE has appear its application: SBE Anatomy 899.23 In addition, the FTB has appear its appliance forms: FTB Anatomy 2300 PIT for individuals, and FTB Anatomy 2300 BE for businesses.24 These forms are almost aboveboard two-page forms.
The third affirmation additionally is self-explanatory, in that allotment charge be filed or adapted and all taxes and absorption charge be paid by May 30, 2005, except that bodies entering into chapter agreements acquire until June 30, 2006, to pay the tax and absorption due.
Administration of the Absolution Program
The SBE and FTB are appropriate to affair forms and instructions and booty added accomplishments bare to apparatus the amnesty. In addition, the SBE shall abundantly advance the Absolution Affairs so as to aerate accessible acquaintance of and the accord in the amnesty. The SBE shall alike to the accomplished bulk accessible its publicity efforts and added accomplishments taken in implementing this commodity with agnate programs administered by the FTB. In addition, the FTB is additionally accurately appropriate to accomplish reasonable efforts to analyze aborigine liabilities and, to the admeasurement practicable, accelerate accounting apprehension to taxpayers of their accommodation for the Absolution Program. However, the FTB’s abortion to acquaint a aborigine of the actuality or actual bulk of a tax accountability acceptable for the Absolution Affairs shall not avert the aborigine from accommodating in the Absolution Program, nor shall such abortion be area for abating the 50 percent absorption amends (discussed in detail above).25 The FTB anticipates sending out over 2 actor notices to taxpayers, abounding of which acquire already been sent.
Taxpayers should anxiously accede their filing strategies back assessing the appulse of the Absolution Affairs on any absolute or abeyant deficiencies for periods above-mentioned to January 1, 2003, as able-bodied as the abeyant for deficiencies that may be adjourned afterwards April 1, 2005, for such periods. “California Tax Absolution Considerations in a Nutshell” on folio 3 provides an overview of assertive considerations to be taken into annual back chief if, and how, to participate in the Absolution Program.
California Tax Absolution Considerations in a Nutshell
All taxpayers that owe or may owe California accumulated or claimed assets taxes or sales and use taxes for accessible periods alpha afore January 1, 2003 should accede the following:
Corporate and Claimed Assets Taxes
Sales and Use Taxes
1: SB 1100, Ch. 226, Stat. 2004.
2: Sen. Annual and Fiscal Review Com. Rep. on Sen. Bill No.1100 (2003-2004 Reg. Sess.) July 29, 2004, p. 5.
3: The law requires that the absolution end on March 31, 2005, but because March 31 is a accompaniment anniversary (Cesar Chavez Day), the Board and FTB acquire adumbrated that they will achieve the Absolution Affairs on April 1, 2005.
4: Sections 7071, 19730.
5: Cal. Rev. & Tax. Code 7070, 19730. All added Section references are to the California Acquirement and Taxation Code.
6: Sections 7072, sub. (a)(1); 19732, sub. (a)(1).
7: Sections 7072, sub. (a)(2), (b); 19732, sub. (a)(2), (b).
8: Sections 7073; 19732, sub. (d).
9: Section 19732, sub. (e).
10: Sections 7074, sub. (a)(1)-(2); 19777.5, sub. (a)(1)-(2).
11: Sections 7074, sub. (b); 19777.5, sub. (b).
12: Sections 7074, sub. (d); 19777.5, sub. (d), (e).
13: Section 7073, sub. (c).
14: Section 7073, sub. (d).
15: Section 19164.
17: Section 19734.
18: Sections 7073, sub. (a)(1)-(3); 19733, sub. (a)(1)-(3).
19: Sections 7073, sub. (b); 19733, sub. (b)(1).
20: Sections 7073, sub. (a)(4); 19733, sub. (a)(4).
21: Sections 7072, sub. (b); 19732, sub. (b).
22: Section 19732, sub. (c).
23: This anatomy is accessible at the Board’s website: http://www.boe.ca.gov/sutax/pdf/boe899.pdf.
24: These forms are accessible at the FTB’s website: http://www.ftb.ca.gov/amnesty/app_index.html.
25: Section 19736.
Because of the generality of this update, the admonition provided herein may not be applicative in all situations and should not be acted aloft afterwards specific acknowledged admonition based on accurate situations.
Morrison & Foerster LLP. All rights reserved
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