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California FTB to focus on falsely claimed tax credits

When filing a federal or a California income tax return, people are always on the hunt for deductions and credits that can reduce their tax liability. While deductions are useful, credits are even more valuable because they reduce a person's tax owed dollar for dollar. Some credits are even refundable, meaning the taxpayer will get money back if the credits exceed a person's tax liability. California and the federal government offer a wide variety of credits designed to create incentives for certain taxpayer behavior while others are meant to help lower-income individuals.

But many people improperly claim credits on their returns. Sometimes this is attributable to an honest mistake. Other times, however, it may be an instance of tax fraud: Taxpayers may be unable to resist the value of the credits and intentionally claim credits for which they are not eligible. The California Franchise Tax Board has recently announced that it will be examining returns closely and cracking down on residents who wrongly claim credits, intentionally or not.

If the FTB finds a return with falsely claimed credits, it will revoke the credit and may apply penalties and fines to the taxpayer. Some California residents may choose to have a tax preparer fill out their return. They should be careful to engage the services of reputable preparers and make sure that they qualify for any credits the preparer claims on their behalf.

The FTB said it would also be applying scrutiny to credits carried over from a prior year. Taxpayers accused of filing false returns should know what the potential consequences are as well as understand their legal rights and options.

Source:, "California Franchise Tax Board cracks down on tax credits abuse," Kerriann Sheppard, July 18, 2012.

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