Interest suspension: plus: employment law and partnership agreements.

• Author: Williams, Leonard W.

The FTB has announced it will follow the federal rule for interest suspension on amended returns.

The IRS released Rev. Rul. 2005-4 Jan. 7, 2005, which held that the interest suspension period of Sec. 6404(g) applies to deficiency notices and to self-assessed amounts shown on amended returns filed by the taxpayer.

The federal ruling holds that for taxpayers filing amended returns, the suspension period ends on the date the amended return is filed if the individual pays the tax due with the amended return, or within 21 days following the date on which the individual files the return, if they do not pay the additional tax due with the amended return.

FTB Notice 2005-4, issued Sept. 27, 2005, states that it will follow the federal Rev. Rul. 2005-4, and suspend interest on amounts reported on self-assessed amended returns in which the taxpayer:

* Is an individual;

* Files a timely original return for a taxable year ending after Oct. 10, 1999; and

* Filed an amended return for the taxable year, increasing the taxpayer's liability, more than 18 months after the filing of the original return.

If these requirements are met, interest will be suspended--not charged--from 18 months from the later of the date the original return was filed or the due date for the original return, without extension, until 15 days after the amended return is filed.

Interest suspension does not apply to an amended return filed by a taxpayer on or after Jan. 1, 2004, reporting additional tax as the result of the use of a potentially abusive tax shelter where:

* The taxpayer was contacted by the FTB about the use of a potentially abusive tax shelter; and

* The taxpayer has taxable income greater than $200,000.

The FTB will take action to refund interest on those accounts for taxable years ending after Oct. 10, 1999, for which the statute of limitations was open as of Jan. 7, 2005. Taxpayers do not need to write to the FTB about this interest abatement.

What forms should an employer file if a worker is an employee for California purposes, but an independent contractor for federal purposes?

Jim Counts, CalCPA's Employment Development Department liaison, recommends issuing only a 1099-Misc. Form to the worker. In the form's Memo section, indicate the amount of state and SDI withholding.

If the employer files a W-2 with the EDD, but not with the IRS, the IRS will use the W-2 filing as an argument against the business to say that the worker is an employee and not an independent...