Tax highlights; Booby Traps, Paychecks, EDD and LLCs and more.

• Author: Williams, Leonard W.
• Position: California tax - Employment Development Department and Limited Liability Company

The following are some recent highlights from the TaxTalk listserve and other sources.

Another Booby Trap in the California Rev. & Tax Code

A taxpayer is on an 18-month assignment from California to China. Normally, residence in California would be broken due the length of the assignment. However, Rev. & Tax Code Sec. 17014 says that the residence cannot be broken if the taxpayer has more than $200,000 of income from stocks, bonds or other intangible property.

[ILLUSTRATION OMITTED]

Paychecks Not Drawn on a California Bank May be a California Problem

According to California's Labor Code, all employers in California are permitted to pay employees by check only if the check is "negotiable and payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument" [CA Labor Code Sec. 212(a)(1)].

Dollar Tree Stores Inc. got into trouble with this very point, when a U.S. District Court ruled that the company was liable for as much as $10 million for not following paycheck rules (Fleming v. Dollar Tree Stores Inc., N.D. Cal. No. C06-03409 MJJ, 9/15/06).

The company had more than 9,800 employees in California and had issued more than 100,000 paychecks the year before the lawsuit was filed. The checks were drawn on Wachovia Bank, N.A, a national bank with branches in many states, but none in California at that time. Many employees were charged fees for cashing their paychecks, or had to wait for several days for the funds to be credited, because they were drawn on a bank outside of California.

The court said that the company could have offered to cash employees' checks or could have contracted with a California bank, paying the fees required for cashing those checks.

How Long Do I Have to Hang on to my Tax Stuff?

Without reciting the rules that most readers of this column are familiar with, the most important rule to relay to clients is that they should retain the file copies of their returns permanently, although not necessarily all of the supporting data.

There are two major reasons for this: The first is that if no return is filed, the statute never runs out, so a taxpayer may be hit with a proposed assessment at any time if the government has no record of the return having been filed.

The second is that being able to produce 10 years of tax returns has enabled retirees to obtain Social Security benefits when the Social Security Administration has no record of...