(April 1, 2005) The state Franchise Tax Board (FTB) has once again delayed taking action to address concerns raised by the California Chamber of Commerce and other business organizations regarding the tax amnesty program.

The agenda for the board’s March 29 hearing included seven clean-up proposals presented by the FTB staff. Two of the seven narrowed the scope of the amnesty penalties. The board tabled these two proposals until its next hearing in June — after the state’s amnesty period has ended.

State Finance Director Tom Campbell made a motion to direct FTB staff to begin drafting regulations that would prevent “good-faith” taxpayers from being caught in the amnesty penalty trap. The Chamber and other organizations applauded Campbell for this effort.

But board members Steve Westly, state controller, and John Chiang, board chair, did not agree, and the motion failed.

Proposals Tabled
The two proposals tabled until June would have:

• attempted to address the concerns regarding tax deficiencies ensuing after the amnesty period had closed.
• sought to clarify the definition of the phrase “due and payable” to make it consistent with Revenue and Tax Code Section 19049 (which generally states that a deficiency becomes “due and payable” 15 days from the date the notice and demand of the final assessment is mailed to the taxpayer).

“The business community is disappointed the FTB has delayed action on these concerns. We believe that these proposals were a good starting point for meaningful reform,” said Erika Frank, Chamber legislative advocate. “We will continue to voice our concerns and push for amnesty reforms.”

The five proposals adopted by the FTB included establishing a statute of limitations on collections, establishing discretion on extinguishing certain taxpayer debt, continuing the compliance requirement, providing technical clarification of certain amnesty provisions and clarifying issues relating to “netting” tax payments for amnesty purposes.

Business Concerns
Starting April 1, both the FTB and Board of Equalization (BOE) will apply the 50 percent interest penalty from the due date of the original return through March 31, 2005, with no exceptions or dispute allowed.

The new penalties associated with this program have been one of the business community’s main concerns. These pen-alties could be imposed on all taxpayers, large and small, corporate and individual, for any unpaid taxes for tax years before 2003. The penalties may be imposed regardless of whether a taxpayer was under audit, protest or litigation under the amnesty period.

Amnesty Program
To participate, a taxpayer must have filed an application by April 1 indicating for which years or tax reporting periods the amnesty is requested. The taxpayer has until May 31 to pay all taxes and interest owed, or enter an installment agreement.

The tax program applies to all taxpayers for all open tax years before 2003, covering both sales and use taxes administered by the state BOE, and the personal and corporate income and franchise taxes overseen by the state FTB.

The two entities differ, however, on specifics such as waiving fees (the FTB will waive most fees for amnesty participants, but the BOE won’t); and whether they will take installment payments (for business taxpayers, FTB won’t, but the BOE will).

Staff Contact: Erika Frank