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So you renewed your license to sell real estate, do hair, etc. Enrolled Agents ask the CA Franchise Tax Board why they may send a tax bill if you don’t use the license?

California Franchise Tax Boards response to the California Society of Enrolled Agents as a result of the question being asked at the 2017 Taxpayers Bill of Rights Hearing:

The Filing Enforcement (FE) Program uses active licensing information from California occupational and professional Licensing Boards as an indicator that a taxpayer may have participation in an income generating activity. In practice, the FTB estimates income of a taxpayer who holds a license by averaging the income from all other license holders from the same Licensing Board who filed a federal tax return from a California address.   

The FE Program has used occupational licensing information since its inception (TY 1999).  Those nonfiler cases have generated nearly 350,000 tax returns and more than $400 million dollars in new revenue for the State of California.  

FTB does understand that not every individual who voluntarily applies for and pays to keep their occupational license active is deriving income from that license. When taxpayers do receive a Return Request Letter for a nonfiler case based on occupation licensing information, that letter contains a questionnaire that allows them to quickly and simply indicate that they are not using the license. They can also call or visit the FTB website and provide that same information. FTB staff will verify the information provided and close the nonfiler case, if appropriate. Additionally, when FTB staff identify nonfiler cases that were created for taxpayers who are not deriving income from their licenses, there are procedures in place to contact the taxpayers less frequently because they have established why they do not file with California for the tax year in question. We appreciate the idea of using data FTB receives via the Financial Institution Records Match (FIRM) Program. However, for privacy reasons, FTB only receives FIRM Program banking information for those taxpayers who have a debt with FTB, not all of the filers and potential nonfilers that FTB is aware of.   

The FE Program continually looks for ways to improve their practices and are in the process of evaluating the use of the occupational licensing information. The evaluation will include leveraging existing data in order to improve the quality of contacts to potential nonfilers.  

To see FTB’s responses to the California Society of Enrolled Agents questions raised during the 2017 Taxpayers Bill of Rights Hearing click here:

https://www.ftb.ca.gov/aboutFTB/taxpayer_advocate/Taxpayer_Bill_of_Rights_Hearing/2017-Charvez-Response%20.pdf

steve@stevesimsea.com