Articles Posted in Tax Litigation and Tax Controversy

The Internal Revenue Service (IRS) has long been required to send notices to a Taxpayer’s last known address. However, California state law has never specifically provided the address to which notices are sent, although according to the legislative history the California Franchise Tax Board (FTB) has as a matter of internal practice generally followed the IRS rules. New legislation which is effective on Jan. 1, 2008, now requires that the FTB send notices to a taxpayer’s last know address. Much like federal law the new state law defines “last know address” as the address that appears on the taxpayer’s last return filed with the FTB, unless the taxpayer has provided to the Franchise Tax Board clear and concise written or electronic notification of a different address, or the Franchise Tax Board has an address it has reason to believe is the most current address for the taxpayer. Revenue and Taxation Code 18416(c).

TIP. If you move after you have filed your federal or state income tax returns it’s a good idea to notify both the IRS, and Franchise Tax Board, just in case they want to contact you. Who knows, sometimes they actually need your address to send you good news.

If you are undergoing a tax audit, and you move it would be foolhardy not to notify them. Why? This is one time when out of sight, out of mind it is not a good rule to rely on. If the IRS or the FTB sends a notice to your last know address, and you don’t get it because you have moved you are still responsible for responding in a timely fashion. If you don’t you could be subject to penalties, or lose various rights of appeal. In my practice I consistently meet with new clients who have lost their rights because they didn’t receive IRS and FTB notices because they moved, and didn’t notify the taxing agencies. On the other hand, Brager Tax Law Group has had great success helping clients who didn’t receive notices because the IRS failed to follow its own procedures in determining their last known address.

The California Franchise Tax Board (FTB) has been given the green light by the California Legislature to disallow deductions for payments made for personal services if the payor fails to provide a Form 1099 or a W-2. For many years the California Revenue and Taxation Code has provided that the FTB may disallow any deductions for personal services if the individual making the payments fails to file the appropriate reporting forms when due. An identical statute applies to corporations. There was some concern that there were technical problems with the statute so the FTB sponsored a bill to “clarify” the statute. That bill became effective on January 1, 2008.

Note that the statute says “may” not must or will. This leaves some room for arguing that this discretion should not be exercised, perhaps because the failure to file the documents wasn’t willful, or was otherwise due to excusable neglect.

In addition to the deductions being disallowed taxpayers can be hit with a penalty of $50 for each form not filed. Perhaps that’s not much for each form, but for even a mid-size company it can add up pretty quickly. In addition the Internal Revenue Service (IRS) imposes a $50 penalty under Internal Revenue Code § 6721, and in cases of intentional disregard of the filing requirement the penalty goes to $100 per form.