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CA late filing penalty


Jack from Ohio

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We electronically filed this client's 2012 Fed and CA returns.  Acknowledged on 7/9/2014.  They just received this notice from CA FTB.  This is a new one to me.  They were to receive a refund of $388.

 

Has the FTB become so desperate for money that they are imposing this penalty now?

 

CA_Notice0001.PDF

 

I personally filed 2010, 2011, 2012 & 2013 for a client in CA in the last 6 months.  All refunds received and not a single notice like this one.

 

Any ideas from you CA preparers?  I am at a loss about how to respond.

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The only thing I can come up with is a previous letter from the FTB requesting additional information.  Who knows if or when a letter was sent or even received by your client  I had a similar situation years ago.  Talked to the Hot Line, the letter was "qued" but never sent!

 

The penalty is assessed for failing to provide requested information. 

 

"Failure to Provide Information Requested/Failure to File a Return Upon Demand
 Any taxpayer for failing to provide requested information, or failing to file a return after notice and demand.
 
25% of total tax liability assessed without regard to any payments or credits."
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This is a little different than a late filing penalty. (R&TC Code 19131), which is similar to the IRS.  It is a demand for information (return) (Code 19133) and carries a flat 25% penalty.  Sometimes it is called a demand penalty.  Did your client receive a Filing Enforcement letter (FE)?  

It has been in place as long as I can remember - nothing new.  Also, it can't go away as you can see, because otherwise your client would have had a refund.

 

California FTB is onerous in many ways.  They can assess an unfiled year based on income docs (same as IRS SFR). But they can also assess based on estimates.   Pay mortgage interest?  They multiply by four and use that as your income. $20K M.I. becomes $80K "income".

Have a CA licensed profession or tradesperson, which includes just about anybody in a service profession, contractors, insurance sales people, doctors, nurses, barbers, etc. etc.  They take the average earned by your trade or profession and assess based on it.

 

 

From Jack from Ohio

"I personally filed 2010, 2011, 2012 & 2013 for a client in CA in the last 6 months.  All refunds received and not a single notice like this one."

They were not under Filing Enforcement., otherwise they would have the penalty tacked on.

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  Call:

Tax Practitioner Services
✓ Hotline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 916.845.7057
✓ Hotline (fax) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 916.845.9300
✓ e-file . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 916.845.0353
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Thanks everyone. 

 

Called the practitioner line.  Client SWEARS they did not receive a "Demand For Return" notice.  However, FTB says one was mailed 2/11/14 with a required response date of 3/19/14.  We received the information to prepare the 2012 return on 6/18/14.

 

The person at the FTB said the client should write a letter and prove that the client did not receive the notice.

Me:  Just how is he to do that?

Him: Well he has to convince us to remove the penalty.

Me: If you had to prove that he received it, how would you do that?

Him:  Uhhhhmmmmmmm   We could not.

Me: Most tax agencies send letters of such importance Certified.  Was it sent Certified?

Him: No it was sent regular First Class Mail.

Me: So when my client writes the letter, what is in your system trumps what my client says, even with no proof on your part of delivery of the notice?

Him:  Yes, that is the case.

Me: Thank You very much.  You have given me the information I was looking for, and much much more.  "Click"

 

GRRRRRRRRRRRRRRRRRRRRRRRRRRR

 

One more item...

 

Him:  Did the client know the return was late?

Me: I cannot answer that question because I did not specifically ask my client.

Him: But did he know the return was late?

Me: Does the statute say that even without receipt of the notice, if the taxpayer "knew" the return was late, you can assess the penalty?

Him: No it does not say that, but if the taxpayer knew it was late, even without a notice, he should not object to the penalty.  The statue has been in place since 1996.

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They wrote it to give the t/p no 'outs' at all.  Iff they claim they sent the demand, that's it.  Unless he can prove he was out of the country, or that they sent it to the wrong address, they are screwed.  CA needs the money, don't you know?  The fact that they had more withheld than they owed matters to the IRS, but not  to CA.  

 

I do 'suspect' that he MIGHT have gotten the demand letter which spurred him to come to you and get the return done.  But at this point it's irrelevant.  

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I believe most clients in this situation have a drawer full of notices from the IRS and/or state tax depts.  They do their best to ignore it until one day the tax authority drains their bank account or attaches their pay, then they show up at your door.  You ask them to bring in all correspondence they have received and they deliver a handful of letters that, judging by the notice sequence numbers, you know represent about 1/4 or less of what they really got.

 

The habit of ignoring letters from the IRS backfired on one of my clients recently.  He came in after they attached his pay.  I filed 7 years of returns, all of which had big refunds (some too late to collect).  I came into work this week to find a stack of IRS letters telling me (their representative) that their refund checks for 2009, 2010, and 2011 weren't cashed for a year and expired.  Would they please call to have the checks reissued.  These are middle-class folks with a child in college who could certainly use $8k.  I think they got in the habit of ignoring IRS correspondence and did the same with these letters that contained refund checks!

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They wrote it to give the t/p no 'outs' at all.  Iff they claim they sent the demand, that's it.  Unless he can prove he was out of the country, or that they sent it to the wrong address, they are screwed.  CA needs the money, don't you know?  The fact that they had more withheld than they owed matters to the IRS, but not  to CA.  

 

I do 'suspect' that he MIGHT have gotten the demand letter which spurred him to come to you and get the return done.  But at this point it's irrelevant.

I am surprised that this has not been taken to court.

If he did receive the notice in February, he waited 4 months to send us the information to do the return. Not likely that the notice, if he did receive it, was the impetus for them to send their information to us.

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It's been upheld in court.  It's not 'fair' but it is the law, as passed by the state government, and we all know tax laws that are not 'fair'.  Their 'estimated income' system is even worse, believe me!

 

They may have just procastinated knowing that they would have a refund.  

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I am sure it is useless to ask, Jack, but did you compare both sets of figures as they advised, you know ... could this be a hunting for unreported income ...

 

https://www.ftb.ca.gov/aboutFTB/Public_Service_Bulletins/2013/Bulletin_1324.shtml

 

https://www.ftb.ca.gov/law/meetings/attachments/120413/5a.pdf

The numbers match exactly. The only difference is the penalty.
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Welcome to the Republic of California Jack!  Glad you came over to see us.  Nice conversation to have with your client now.  Ask those of us who practice here why we always get CA cleaned up and paid before we talk to the IRS.  The IRS is a pussycat compared to FTB/EDD/BOE.

 

Tom

Hollister, CA

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