Property tax queries: plus: FTB collections, penalties and 1031 exchanges.

• Author: Williams, Leonard W.
• Position: CATax

A Tax Talk participant recently asked this property tax question: A client owns outright an oil well in Hurlong. Calif. The federal government has a right to purchase this lease for $1. If the government relinquished this right, does that create a re-appraisal for property tax purposes?

Answer: No. An option isn't a present interest in realty, it doesn't include the current beneficial use of the property and usually isn't equal to the value of the fee interest in the property: So it fails all of the main tests of a change in ownership as specified in Revenue and Taxation Code Sec. 60.

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With the exception of when an option is a disguised sale, the transfers of options to purchase or lease realty are not in themselves changes in ownership.

Collection Updates

The FTB began mailing 40,000 notices per day (200,000 notices per week) June 1 to taxpayers who either owed money on their 2008 returns or whose 2008 returns were adjusted. The mailing's later start date was to avoid the problems of prior years when received notices during the filing season for balances due on e-filed returns--although they had until April 15 to pay.

In May, the FTB started collecting on child support dual liability cases. Previously, they only sent an annual notice to taxpayers who also owed a child support obligation and did not pursue collection.

FTB Penalizes Frivolous Submissions

The FTB will begin imposing a $5,000 penalty in response to a specified frivolous submission, pursuant to Revenue and Taxations Code Sec. 19179(d). Taxpayers that are notified they have submitted a "specified frivolous submission" have 30 days to withdraw it in writing.

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For more information, visit www.ftb.ca.gov and search "frivolous submissions."

Individuals Do Not Have Standing to Sue for Alleged Sales-tax Breaches

A department store charged sales tax on a to-go cup of coffee, and the customer then sued the store to get a refund for a class of customers that had bought hot coffee to go.

The California Court of Appeals, Second District, held that it's not allowed for a taxpayer to sue a retailer to get a refund unless the Board of Equalization has determined that the retailer overpaid and is required to repay the customers (Loeffler v Target Corporation).

FTB, Sec. 1031 Exchanges and Property Owned by Trusts

Disposing and replacing rental, business or investment, realty by a Sec. 1031 exchange is a common occurrence.

There are variations, such as...