The California Franchise Tax Board (FTB) recently released an update about the 2018 tax filing season. As of May 31, 2018, the FTB had processed over 17 million personal income tax (PIT) and business entity (BE) returns. Ninety-one percent of personal returns and 85 percent of business returns were e-filed. The FTB issued 10.9 million personal refunds totaling $10 billion and 76,000 business refunds totaling $363 million, averaging $917 and $4,776, respectively. Over 1.3 million California Earned Income Tax Credits were claimed, and $292 million in credits/refunds were allowed.
The long-anticipated case Dynamex Operations West, Inc. v. Superior Court of Los Angeles, was issued on April 30, 2018. The case dealt with whether delivery drivers classified as independent contractors were misclassified as such under California Industrial Wage Commission Wage Order No. 9-2001.
The Franchise Tax Board (FTB) recently published its updated list of California's top 500 tax debtors, comprising both individuals and businesses that now collectively owe the state more than $505 million in income tax. Since October 2007, this list is updated twice annually. Taxpayers who receive notice of the FTB's intent to include them on the list and then make arrangements to pay their tax debt are removed from the publication.
On April 18, 2018, Ana Bajo, a California resident, pleaded guilty in the Northern District of California to conspiring to file fraudulent claims for more than $9.7 million in refunds by obtaining the personal information of others and filing more than 2,300 fraudulent income tax returns with her co-conspirators. The Internal Revenue Service (IRS) paid over more than $7.5 million as a result of the scheme. Bajo now faces a maximum of ten years in prison, plus supervised release, restitution, and monetary penalties. Her sentencing is scheduled for September 26, 2018.
On March 5, 2018, a former Internal Revenue Service (IRS) employee, Pamela Pringle, was sentenced in the Eastern District of California for "making opportunities for persons to defraud the United States and for making and subscribing false returns." While employed by the IRS, Pringle prepared and filed income tax returns for other individuals that included false deductions, and in several years she also filed fraudulent tax returns for herself, claiming deductions to which she was not entitled. Pringle entered a guilty plea in November 2017 and will spend 5 months in prison, then 36 months under supervised release, including 5 months of home confinement; she was also ordered to pay $56,857 in restitution.
The new California Office of Tax Appeals (OTA) just released its first seven opinions. All seven opinions were decided in the favor of the Franchise Tax Board (FTB); none of the taxpayer-appellants opted for representation by an attorney, although three appellants were represented by an Enrolled Agent or Certified Public Accountant. The first appeals heard by the OTA covered a variety of issues, including penalty and interest assessments, filing status, and ridesharing credits. Six of the opinions are confirmed as "nonprecedential," and one opinion is pending precedential status. To read the opinions in full, click here: https://ota.ca.gov/opinions/
Californians will be able to vote on two new legislative measures related to taxes on the June 5, 2018 Statewide Direct Primary Election ballot.
The California Tax Education Council (CTEC) began a public awareness campaign for the 2018 tax filing season targeting "ghost tax preparers," meaning paid tax professionals who do not sign the returns they prepare. The Council reminds taxpayers that "tax preparers who charge a fee to do your taxes, but never sign your tax return are breaking the law." Hiring a ghost preparer could lead to tax refund fraud, penalties, or additional taxes. For more information from CTEC on this issue, click here.
In September, 2017, the Internal Revenue Service (IRS) issued a directive to tax examiners concerning research expenditures for business entity taxpayers with assets of at least $10 million and that follow Generally Accepted Accounting Principles (GAAP) to prepare certified financial statements and records for research costs following ASC 730. Taxpayers are provided a federal credit for increasing research activities under IRC Section 41; the state of California has decided to follow the same directive for California business entity taxpayers.
The California Franchise Tax Board (FTB) has updated certain aspects of tax return filing starting with returns for tax year 2017. The standard deduction for taxpayers filing as single increased to $4,236; for taxpayers who are married filing jointly, the new standard deduction is $8,472. Personal exemptions were also raised to $114 and $228, respectively.