FTB Q&A highlights: plus: FTB audit emphasis and selected EDD issues.

• Author: Williams, Leonard W.
• Position: Franchise Tax Board

One of many CalCPA benefits is rapid access to the information tax authorities share at their annual liaison meetings with CalCPA's Committee on Taxation.

These Q&A sessions, with their resulting transcripts, are a great, but often overlooked, resource for tax practitioners.

Highlights from CalCPA's 2005 FTB liaison meeting follow, and the complete transcript of 38 Q&As can be downloaded from www.calcpa.org/members/committees/tax.htm. For a hardcopy version, contact Cindy Kuhlman at cindy.kuhlman@calcpa.org or Cindy Kuhlman; 1201 K St., Suite 1000; Sacramento, CA 91203.

Refunds From Amended Returns

The FTB has issued the following guidelines regarding refunds associated with amended returns:

* For individual returns, normal processing times are 60 to 75 days.

* For general/multi-state corporations, normal processing time is four to six months for those with income less than $25,000.

* For those with income more than $25,000, that time increases to 12 months.

Cost Segregation Studies

California has conformed to the IRS automatic change in accounting methods based on cost segregation studies, unless there is a difference between federal and state law.

Delaware Series LLC

The FTB's position is that each series in a Delaware Series LLC is considered a separate LLC and must file its own Form 568, Liability Company Return of Income, and pay its own separate LLC annual tax and fee.

April 1 Due Date for Form 571-L, 'Business Property Statement'

This due date is just one more thing to contend with during the normal income tax filing period. It turns out that, as a practical matter, most counties don't penalize the filers as long as the form is filed by May 7.

It's too late to offer any relief for this year, but keep an eye on it toward the end of the year to see if the escape hatch is still available in 2007.

'Drop & Swap' Sec. 1031 Exchanges

Apparently, the FTB is auditing various types of alleged Sec. 1031 exchanges. A common FTB audit candidate involves qualifying real estate held by a partnership, in which the partners have different goals when the property is going to be sold.

A valid game plan is to convert the ownership to tenants-in-common between the partners, and operating it in that form for some protracted period of time before the disposition. Then, those who want a sale may sell and those who want to exchange may do an exchange with their tenancy-in-common interests.

Part of the conversion to tenancy-in-common ownership should be to...