Gotcha! CA Filing Enforcement Program may be coming for you! Come in before contacted and limit the number of years for Franchise Tax Board to look back!
The California Franchise Tax Board (FTB) has dramatically improved their ability to identify potential business entity non-filers. I have obtained four clients in the last month that were notified they may have a filing requirement. Two of the four did have a filing requirement. The look back period for one is 16 years. For them it is too late to limit the look back! It doesn't have to happen to you!
FTB has two programs that may work for you! It can be tricky, let’s talk about it! firstname.lastname@example.org
Voluntary Disclosure Program
The Voluntary Disclosure Program allows qualified entities, qualified shareholders, or beneficiaries that may have incurred an unpaid California tax liability or an unfulfilled filing requirement to disclose their liability voluntarily. The qualified entities, qualified shareholders, or beneficiaries that choose to participate in the Voluntary Disclosure Program are required to disclose their California tax liability ONLY for the immediately preceding six taxable years.
A “qualified entity” is an entity that meets ALL of the following criteria:
◦ Is a corporation (including S corporation), limited liability company (not classified as a corporation), or trust;
◦ Never filed a return with FTB;
◦ The trust has never performed its administration duties in California;
◦ The trust has had no resident beneficiaries (other than a beneficiary whose interest in that trust is contingent);
◦ Never been the subject of an inquiry by the FTB with respect to liability for any taxes, and;
◦ Voluntarily come forward, prior to any unilateral contact with FTB, and makes both an application for a voluntary disclosure agreement and a full and accurate statement of its activities in California for six immediately preceding taxable or income years.
Even if an entity meets all of the above listed criteria, the entity will not be considered a “qualified entity” and will not be eligible to participate in the voluntary disclosure program if it is:
◦ organized and existing under the laws of California;
◦ qualified or registered with the Office of the Secretary of State of California; or
◦ an entity that maintains and staffs a permanent facility in California. (The storing of materials, goods, or products in a public warehouse pursuant to a public warehouse contract does not constitute maintaining a permanent facility in California.)
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Filing Compliance Agreement Program
Franchise Tax Board (FTB) provides business entities, partnerships, and trusts the opportunity to voluntarily enter into a Filing Compliance Agreement (FCA) if they have a filing requirement for the past years, and an unpaid California tax liability. Qualified business entities, partnerships, and trusts eligible to enter into a FCA must voluntarily disclose, file, and make full payment to FTB for all years they failed to file a California tax return. Based upon showing reasonable cause, FTB will waive penalties where reasonable cause is a defense associated with unfiled tax returns identified in the agreement. Business entities, partnerships, and trusts who received a notice from FTB cannot be considered for FCA.
If you are in the class of business entities, partnerships, or trusts described in RT&C Section 19192 and you are not eligible for VDP, you may apply to enter into an FCA. The following partnerships and the nonresident partners of the partnerships are eligible to apply for an FCA:
• Partnerships as defined under RT&C Section 17008,
• Limited Partnerships (LP) as defined under RT&C Section 17935, and
• Limited Liability Partnerships (LLP) as defined under Corporations Code Section16101.
A shareholder of an S corporation, a beneficiary, a member of an LLC or a partner, who are nonresidents, may apply for agreement if the entity also files an FCA request.
If you received a notice from FTB requesting a tax return, you do not qualify for FCA.
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