Hello? help, please; FTB's hotline issues, court rulings and exchanges.

• Author: Williams, Len
• Position: CATax - Franchise Tax Board

Many TaxTalk participants complained in March about service on the FTB Hotline. Many alleged that the hotline staff had been cut, along with other state personnel cuts.

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Our own intrepid Jim Counts pursued the matter and proffers the following:

* There has been no drop in the number of people answering the phones. They normally have 15 working phones, which can increase to 18 during peak times.

* During tax time, every available staff member is on the phones.

* The first two weeks of March, which some call March Madness, are always the busiest time.

* Many of the calls are from practitioners who want to verify estimated tax payments. But that information can be obtained via the FTB website, www.ftb.ca.gov.

* The people answering the phone average 100 calls or more per day, with some as high as 180 calls in an eight-hour shift.

* As a historical aside, there usually is a mild lull for a few days after March 17. Then the high level of phone calls resumes and continues through April 15.

So, bottom line, they have the same problems that we do.

"Pay First, Litigate Later" Rule

The rule when dealing with California tax disputes requires that a taxpayer challenging a tax determination must first pay the tax, then sue for refund. In a recent court case, (California Logistics, Inc., v. State of California, filed 3/25/08, First District, Div. Five. Cite as 2008 SOS 1785), a prior determination that certain persons were independent contractors rather than employees of the taxpayer did not permit the taxpayer to contest the EDD's contrary determination without first paying the tax liability resulting from that determination.

"Prevailing Wage" Matters

In a December case (Steamfitters, Local 290 v. Duncan, filed 12/11/07, First District, Div. Three. Cite as 2007 SOS 7227), the landlord of a privately owned building had to pay the prevailing wage on improvements because a public entity had leased a portion of the building. CPAs need to know about these things, and refer clients to their own attorneys, because clients usually have more contact with their CPAs than they do with their attorneys.

FTB and Sec. 1031 Exchanges

Word on the street is that the FTB is auditing more returns that report Sec. 1031 exchanges.

This was somewhat confirmed in the FTB's November publication, Tax News for Tax Professionals.

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They seem to be looking for two different things, although they might find them in a single transaction.

The...