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California Franchise Tax Board contacting nonfilers

Did you file your business state income tax return for 2013? If not, expect a letter from the Franchise Tax Board soon.

FTB announced that it would be sending out more than 46,000 letters to California business as a first step to recover unpaid taxes. By comparing approximately 5 million tax records from various federal and state agencies with the 1.7 business tax returns filed in 2013, the FTB is able to identify nonfilers.

30 days to respond

If your business receives a letter, you must file a tax return or an explanation why one is not required within 30 days. After this time, the FTB will assess taxes owed along with interest, fees and penalties based on information reported to the agency.

A federal tax audit and required notifications

Issues are often not only on the state level. The IRS may examine your federal corporate tax return and issue a revenue agent report. You must report any change or correction in gross income or deductions to the FTB. This is the case even if it will not result in an increase in your California tax bill.

This requirement applies to any corporation required to file a California corporate tax return, partnership with corporate partners or limited liability company (LLC) treated as a corporate entity.

When a federal change could increase the California tax your corporation owes, a notification must be sent within 6 months. On the flip side, you have two years to claim a refund when a change decreases your California tax liability.

As we have counseled before in this blog, the main thing is to open any letter from the FTB or IRS. The situation will not get any better by ignoring the letter and leaving it in a stack for later.

Source: State of California Franchise Tax Board, “What to do When Your Company Has Been Under Federal Audit

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