On August 16, 2004, Governor Arnold Schwarzenegger signed into law S.B. 1100 requiring the Franchise Tax Board and the State Board of Equalization to develop and administer a tax amnesty program for taxpayers to voluntarily pay delinquent taxes and the interest owed on delinquent personal income tax, corporate income/franchise tax, and sales and use tax amounts for tax years before 2003. The program will run from February 1, 2005 to March 31, 2005.
Under the amnesty program, the Franchise Tax Board and the State Board of Equalization will waive penalties and fees for the nonreporting or underreporting of tax liabilities or the nonpayment of any taxes previously determined or proposed to be determined. Additionally, no criminal action will be brought against taxpayers for eligible years for the nonreporting or underreporting of tax liabilities.
Who
California individual and corporate taxpayers for taxable years 2002 and prior, if they: (1) did not file the required California tax returns; (2) underreported income on a previously filed tax return; (3) claimed excessive deductions (4) did not pay income/franchise, sales, or use taxes on time. A taxpayer that has filed for bankruptcy protection must obtain an order form the Federal Bankruptcy Court approving participation in the program.
The program is not available to taxpayers currently under criminal investigation or prosecution on tax-related matters. It is also not available for abusive tax shelter transactions that were eligible for relief under California’s Voluntary Compliance Initiative or the 2003 IRS Offshore Voluntary Compliance Initiative.
How
In order to participate in the program, eligible taxpayers must complete the required applications by March 31, 2005 and pay and file the required returns by May 31, 2005 (or set up an installment arrangement to fully pay the liability by June 30, 2006). Taxpayers cannot get a refund of penalty amounts previously paid.
Most Importantly, Why
Taxpayers that are eligible to participate in the program but do not participate may be subject to substantial new penalties. The Franchise Tax Board may take the following actions against taxpayers who choose not to participate in the program: (1) impose a mandatory 50 percent interest-based penalty on any existing unpaid interest amount on amnesty eligible tax years; (2) impose a mandatory 50 percent interest-based penalty on future liabilities assessed for amnestyeligible tax years (3) assess an increased accuracyrelated penalty on new deficiency assessments; (4) pursue stepped-up enforcement efforts. Such actions can be taken as early as April 1, 2005. Similarly, the State Board of Equalization may impose penalties at double the normal rate plus an added charge equal to 50 percent of the interest due.
Taxpayers should carefully consider whether they should participate in this program. Among other things, taxpayers that participate in the Franchise Tax Board program may not later file refund claims for amounts paid under the program. As such, some taxpayers may consider paying the tax prior to March 31, 2005 outside the amnesty program to preserve the right to file a claim for refund.
For assistance in determining whether you should enter the program, please contact Ossie Ravid in Jones Day’s Atlanta office.
Additionally, more information can be found at the Franchise Tax Board’s website (www.ftb.ca.gov) and the State Board of Equalization’s website (www.boe.ca.gov).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.