Inside scoop from the FTB: Officials answer CalCPA members' taxing questions.

• Author: Williams, Leonard W.
• Position: California Franchise Tax Board, California Society of Certified Public Accountants - Brief Article

Among the many benefits of CalCPA membership are the annual liaison meetings that the Tax Committee holds with the Franchise Tax Board and IRS. Following are highlights from the FTB meeting.

Multiple-Year Tax Returns Filing

The FTB has implemented special handling procedures that allow multiple returns with interrelated issues to be processed together by its Information Validation Section.

The CPA should file all of the related returns in the same envelope. Attach a copy of a cover letter to each return, identifying the taxpayer, I.D. number, tax year, and total number of returns being submitted, along with any specific instructions.

The cover letter should be stapled below the entity information on each return. Although balance due, refund and prior vs. current year returns have different processing priorities and requirements, the attached cross-referenced cover letters will help FTB personnel identify the special processing need and finalize processing of the multiple returns concurrently.

Incapacitated Taxpayers

Who signs the individual return, and in what capacity, under the following scenario: The taxpayer has become incapacitated during the year, and as a result, no power of attorney has been executed. The taxpayer's adult child is the successor trustee of the taxpayer's irrevocable (sic) trust.

The FTB will follow the IRS procedure here: If the adult child is in charge of the taxpayer and his/her property, there is sufficient evidence of implied intent for the successor trustee to act on behalf of the taxpayer as an authorized agent.

The trustee should contact the IRS for permission by submitting IRS Form 2848, the Power of Attorney form. After permission has been granted, the trustee will sign his/her name in the signature block under the capacity of an authorized representative. If the IRS accepts the trustee as the taxpayer's representative, California will follow.

Stock Options and Nonresidents

A taxpayer earned and was granted stock options while performing services in California. The options were exercised subsequent to the taxpayer giving up his California residence. What is the status of the income from the exercise of these options as far as California is concerned?

According to the FTB, the income's status depends upon the type of options that were exercised.

* Nonqualified stock options: When a taxpayer exercises nonqualified stock options while a nonresident, the income is characterized as compensation for services with...