Tax News

CCH (cch.taxgroup.com) reports:

  The California Franchise Tax Board (FT has addressed frequently asked questions (FAQs) regarding the new penalty applicable for taxable years beginning on or after January 1, 2003, to corporations that have an understatement of California corporation franchise or income tax in excess of $1 million. Details of the new law were previously reported. (TAXDAY, 2008/10/02, S.2)

  The FAQs address questions regarding what the penalty is, what an understatement of tax is, what tax years are subject to the penalty, who is subject to the penalty, how the penalty is computed, when the FTB will assess the penalty, and more.

  The penalty is 20% of the entire amount of the understatement. The understatement is measured by the difference between the tax reported on the original return or shown on an amended return, filed on or before the extended due date, and the correct tax liability.

  For the purpose of this penalty for taxable years 2003-2007, a taxpayer can file an amended return and pay the tax shown on the amended return by May 31, 2009, to treat the tax shown on the amended return as tax shown on the original return. This will increase the self-assessed tax base against which the understatement is measured to reduce the likelihood of receiving this penalty for these taxable years.

  The FTB will issue an FTB Notice and provide additional FAQs in the near future to prescribe procedures on the following subjects:

  -- the filing of amended returns under Rev. & Tax. Code Sec. 19138(b);

  -- the payment of the amount shown on the amended return under Rev. & Tax. Code Sec. 19138(b); and

  -- the method to alleviate the burden of filing amended returns in situations involving pending, disputed, and final proposed assessments.

  Concerns and recommendations related to the FAQs should be sent via e-mail to Ting Lee at ting.lee@ftb.ca.gov.

  Subscribers to CCH Tax Research NetWork can view the FTB release.

Large Corporate Understatement Penalty FAQs , California Franchise Tax Board, January 21, 2009