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The State of California recently authorized an amnesty program effective from February 1, 2005 through March 31, 2005. The program applies to personal income, corporation, franchise (income), and sales and use taxes for reporting periods beginning before January 1, 2003. The Board of Equalization is authorized to waive penalties, but not interest. In order to be eligible for the amnesty, taxpayers must have not filed California tax returns or underreported income on tax returns they did file, claimed excessive deductions, or paid their taxes late.

Taxpayers already under investigation for tax issues and taxpayers who could have participated in California’s Voluntary Compliance Initiative or the 2003 IRS Offshore Voluntary Compliance Initiative are not eligible. To participate, taxpayers must submit completed and signed amnesty applications by March 31, 2005, and amended or missing tax returns and payment of liabilities and interest must be remitted by May 31, 2005. An installment payment agreement plan will also be available, with all payments due by June 30, 2006. The amnesty application and tax forms for 1994 through 2003 are currently available online. If taxpayers do not participate in the amnesty program but owe sales or use tax for reporting periods beginning before January 1, 2003, the Board will assess a penalty equal to 50% of the interest on the unpaid tax amount as of March 31, 2005. If the Board issues a notice of determination on or after April 1, 2005, the penalties included in that determination will be doubled, excluding the previously described penalty. The amnesty program has also increased the statute of limitations for the open periods to ten years. The state Voluntary Disclosure Program remains in force, its terms include a three year look-back period and potential waiver of penalty if conditions have been satisfied, but the additional 50% interest on post-2003 liability would still apply.

It is our recommendation that if you have any potential issues in the periods related to the amnesty program, that you participate in the amnesty program as the penalties and statute of limitations imposed by the State of California are severe and can impact your company significantly.

If you have any questions or would like any assistance in applying for the program, please contact Diane Yetter of Yetter Consulting Services, Inc. at 312-701-1800 or via email at dyetter@ycstax.com or Barbara Timek of Yetter Consulting Services, Inc. at 973-347-0107 or via email at btimek@ycstax.com.

(03/03/2006)

The California State Board of Equalization has issued an informational letter in response to questions proposed at the recently held amnesty information meetings. The letter specifically addresses what the Board thought were the main areas of concern. Those areas are: the 10-year statute of limitations, impact of the 10-year statute of limitations on audits, amnesty for petitioned notices of determination, and credits as applied to amnesty eligible tax liabilities. In regards to how the 10-year statute of limitations (SOL) works, the Board offered the explanation that the SOL allows the Board to issue a notice of determination within ten years of the original due date of the tax liability being assessed, but only if the notice of determination is issued on or after April 1, 2005 for amnesty eligible tax reporting periods in which the taxpayer underreported or did not reports its tax liability. The ten-year SOL only applies to eligible tax reporting periods for which a notice of determination could still be issued as of August 16, 2004 and keeps these periods open for ten years from the original due date for each tax reporting period. The Board further stated they do not plan to modify their existing three-year audit selection cycle, which is used internally to identify accounts eligible for audit. However, the Board listed certain transactions that would cause them to audit a period outside of the normal cycle. In regards to amnesty for petitioned notices of determination, the Board stated that if a notice of determination is being petitioned, a taxpayer may apply for amnesty for any amounts contained in that notice which relate to amnesty eligible tax reporting periods. Also, the Board stated that it would handle issues regarding credits for refundable overpayments and offsets of overpayments against deficiencies as they are currently handled. (Amnesty IP Meeting Follow-Up Letter, California State Board of Equalization, January 21, 2005)

(03/04/2005)

The California State Board of Equalization has provided answers to frequently asked questions surrounding the current sales and use tax amnesty program. The Board submitted these answers in a bulletin format for taxpayers to help them better understand the program and its applicability. The sales and use tax amnesty program started on February 1, 2005 and applications are due by March 31, 2005. The bulletin covers many topics including an amnesty definition, eligibility requirements, amnesty benefits, tax periods covered, and the 10 year statute of limitations. (Sales and Use Tax Amnesty Program Frequently Asked Questions, California State Board of Equalization, February 1, 2005)

(03/04/2005)

In two recent amendments to California regulations, the State Board of Equalization stated that the partial manufacturing equipment exemption as it relates to the purchase and lease of tangible personal property used in manufacturing is no longer in effect as of January 1, 2004. This is due to the fact that non-aerospace employment in the state dropped below the 100,000 job threshold provided for in the Revenue and Taxation Code Section 6377. As a result of the amendments, no retailer or “qualified person” may claim the exemption for any purchases or leases entered into after December 31. 2003. (California Reg. 1525.2, California Reg. 1525.3)

(02/24/2005)

Governor Schwarzenegger has just signed S.B. 1100 authorizing an amnesty to run from February 1, 2005 through March 31, 2005. The program shall apply to personal income, corporation, franchise (income), and sales and use taxes for reporting periods beginning before January 1, 2003. Penalties, but not interest, will be waived. In order to be eligible, taxpayers must either not have filed California tax returns, underreported income on tax returns they did file, claimed excessive deductions, or paid their taxes late. Taxpayers already under investigation for tax issues and taxpayers who could have participated in California’s Voluntary Compliance Initiative or the 2003 IRS Offshore Voluntary Compliance Initiative are not eligible. To participate, taxpayers must submit completed and signed amnesty applications by March 31, 2005, and amended or missing tax returns and payment of liabilities and interest must be remitted by May 31, 2005. An installment payment agreement plan will also be available, with all payments due by June 30, 2006. The amnesty application will be available online by January 15, 2005 and tax forms for 1994 through 2003 are currently available at http://www.ftb.ca.gov/index.html; for years before 1994 taxpayers may order forms by calling (800) 852-5711. Eligible taxpayers who do not participate in the 2005 amnesty will face an increase in accuracy-related penalties from 20% to 40% on new tax assessments and an amnesty penalty of 50% on the unpaid interest for years included in the 2005 amnesty. (Senate Bill 1100, effective as noted above)

(01/20/2005)

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