United States

California: Penalty Relief May Be Available to Taxpayers Affected by Amended Market-Based Sourcing Regulation

Apr 10, 2017
From KPMG TaxWatch

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The California Franchise Tax Board (FTB) recently issued Notice 2017-02, which addresses the steps for requesting penalty relief due to compliance with the recently amended regulation for sourcing sales of other than tangible personal property. The amended regulation, CCR 25136-2, became effective on January 1, 2017 but applies to taxable years beginning on or after January 1, 2015. As such, certain taxpayers may be required to file original or amended returns to report new or revised tax liabilities for taxable years beginning on or after January 1, 2015. A new, original return filing obligation may exist because the market-based sourcing rules apply to determine if the taxpayer meets California factor-presence nexus threshold. For example, a taxpayer that previously assigned investment interest to the location of the customer may now have a California filing requirement when (as required under the revised regulation) interest is assigned to California based on the location where the investment is managed. Because the amendments apply retroactively to taxable years beginning on or after January 1, 2015, but became final on September 15, 2016, the FTB will presume reasonable cause and not willful neglect in the case of a late payment attributable to the amendments and will waive the associated late payment penalties. The FTB will not grant similar relief for delinquent filing penalties, which would occur if the taxpayer, applying the revised regulation, now has a California filing obligation. A taxpayer's remedy in the case of a delinquent return would be to submit a claim for refund of the amount paid to satisfy a delinquent filing penalty. The FTB will consider such claims on a case-by-case basis. The Notice includes specific instructions for requesting relief. Please contact Oksana Jaffe at 916-554-1119 or Gina Rodriquez at 916-551-3132 with questions.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.