Talking California Tax.

• Author: Williams, Leonard W.
• Position: Brief Article

There's No Such Thing as a Stupid Tax Question

Non-California Tax-free Interest

As you know, tax-free interest from non-California sources is taxable on California income tax returns even though it is tax-free for federal income tax purposes. Until recently, the Franchise Tax Board had been unable to discern whether or not taxpayers had met this obligation in all cases. Now, brokerage firms are required to report the non-California portion of tax-free interest received by California residents. As a result, the FTB has been sending corrective notices to taxpayers.

Dissolve or "Let It Die?"

No consensus has been reached on the ongoing TaxTalk listserve debate about whether to dissolve a corporation or let it die. However, more facts have been posted that should be considered when making a decision.

If the corporation is allowed to "go suspended" by not paying the minimum tax, the corporation will be unable to defend itself during an IRS or FTB audit, or in Tax Court. In addition, the corporation will lose its corporate name and its right to use the California courts.

The FTB will harass whichever corporate officers or shareholders it can locate, in an effort to collect the minimum taxes. The harassment. often continues for about five years. The FTB can't prevail if the officer or shareholder has withdrawn nothing (cash or inventories) from the corporation that should have gone for tax payment.

A listserve participant, who favors just letting corporations die, says that he changes the corporate address to his office address, and receives all of the PTB's notes and phone calls knowing that they can't do anything.

NOL'S Significance for S Corps

What is the significance of a California net operating loss computed for an S corporation? California S corps are subject to a California tax--1.5 percent of taxable income. The NOL for a year can be carried forward to reduce the subsequent year's taxable income.

Family Partnership with Realty

When forming a family partnership with realty, at what stage should the partnership be formed? The partnership should be formed first, followed by the contribution of the property. The reasoning is that in California this will preserve the Prop. 13 property tax basis, at least initially. And, it is easier to gift a partnership interest each year than to re-title the property.

Avoiding State Tax on an IRA

There is no such thing as a stupid question in the tax arena, and this was actually posted: Can taxpayers avoid...