Leaving California: And other hot state tax topics.

• Author: Williams, Leonard W.
• Position: California Tax - Brief Article

The TaxTalk listserve is a gold mine of almost 400 CPAs and attorneys who discuss tax issues, ask tax questions and share information. Following are recent California tax highlights from TaxTalk.

Leaving California to Avoid Tax

A member's client has owned and operated a C corporation in California for many years. The client received a lucrative offer to sell the business and asks his CPA about moving to Nevada before the sale, and executing all of the sale documents there. Is this an effective way to avoid California personal income tax on the sale's profit?

This stirred a lot of TaxTalk discussion. Most responded that California takes the position that once a Californian, always a Californian. So you start out with a heavy presumption against you by the FTB. If the taxpayer moves back to California, the FTB will treat the taxpayer as if he or she had never left.

A couple of CPAs told of former clients who had successfully executed such a maneuver. A byproduct was that the clients had to jettison their California CPA. The FTB will glom onto any contact with California as evidence that taxpayers haven't severed their ties with California.

An FTB "Audit?"

A CPA shared a story about her client who had a part-year residency return audited by the FTB. The FTB apparently investigated credit card records of expenditures, without notifying or asking the client any questions.

Although the salary split between California and the prior state was documented on a W-2, the FTB made its own allocation, based on its analysis.

The Tax Practitioner Hotline was able to fill in the CPA on the background of the notice that the client received. However, hotline staff was unable to assist in locating anyone in the FTB to whom the client and CPA could present their arguments.

When the dilemma was posted on TaxTalk, the prevailing advice was to contact the Taxpayer Advocate's office and ask for a re-audit.

Problems, Complaints or Suggestions for the FIB?

Don't forget that CalCPA's Committee on Taxation holds an annual liaison meeting with the FTB. To submit your queries for the FTB, contact Cindy Kuhlman at cindy.kuhlman@calcpa.org. Submissions are due by May 17.

Client Can't Pay Sales Tax Due?

The State Board of Equalization is amenable to payment plans. After a CaICPA member inquired about a client who couldn't pay sales tax owed to the state, several members said that the BOE is easy to work with in setting up a payment plan. The BOE is considerably less...