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NOVEMBER 1 9 9 8

Time to Order Package X Inside ...

It is time to order your 1998 California and comes with:
2 ... FTB Hosts Head of Household
Package X. • 1998 California Package X forms; Event
The Franchise Tax Board is accepting orders 2 ... FTB, BOE Offer Taxpayer
• 1998 Internal Revenue Service Package Service Days
now and will mail the Package X in January. X forms;
All early orders will be processed 3 ... Pat Huberty Says Farewell as
immediately so the labels are ready to print as • Ten fillable forms; Tax News Editor
3 ... Taxpayers’ Bill of Rights
soon as the Package X is produced. • California Package X forms for the four Hearing Set For December
There are three versions of the 1998 Package previous years; and 3 ... Taxpayer Service Center
Debuts in Oakland
X to choose from. The bound and loose-leaf • Information on electronic filing (e-file).
paper versions cost $12 plus sales tax. The 4 ... FTB Expands Direct Deposit
The CD-ROM for Windows version also has 4 ... Change of Address? Use New
best value, however, is the CD-ROM for
a search feature so that you can locate Form
Windows version. It costs $19, plus sales tax
4 ... Register For Free e-file
CONTINUED ON PAGE 14 5 ... FTB Gives e-filers Break From
Head of Household Review
5 ... Interest Rates
One-Stop Shopping Comes to Sacramento 5 ... FTB Calendar
6 ... FTB Identifies 1997 Nonfilers
6 ... Forms Producers Need FTB
6 ... Avoid Penalties, Respond to
Corporate Filing Notices
7 ... Satisfy Educational Needs With
Video Courses
8 ... Partnerships Must File Federal
Form 1065 First
9 ... It’s the Law: A Summary of
Legislation Affecting FTB
9 ... Vague K-1 Entries Delay Form
565 Processing
10... FTB Uses New Program to
Find Nonfilers
11... Tax Practitioners’ Institute
Offers Training
12... News from the State Board of
Equalization: BOE Offers New
Way to Pay Sales and Use
14... Add Sales Tax When
Purchasing Package X
16... Package X/Tax News Order

This new Taxpayer Service Center, located at State Board of Equalization, Employment
3321 Power Inn Road in Sacramento, opened Development Department and the Department
for business in September. The service center of Alcoholic Beverage Control.
houses staff from the Franchise Tax Board,
Page 2

FTB Hosts Head of Household Event

Volume 98-6 November 1998 The Franchise Tax Board will host a Head • Full name
TAX NEWS is a bimonthly of Household (HOH) Symposium from 9 • Telephone number
publication of the Communications a.m. until noon, on Wednesday, Dec. 9.
Services Bureau, California • If you are a practitioner
Franchise Tax Board. Its primary The free symposium will be held at FTB’s
objective is to provide information central office facility located at 9645 • The number of seats you would like
to income tax professionals about Butterfield Way, Sacramento, CA., and is to reserve
state income tax laws, regulations,
policies and procedures. open to tax practitioners and taxpayers. • Your mailing address
Tax practitioners can earn two educational
Members of the Board: • The name and mailing address of
credits by attending the symposium.
each person for whom you are
Kathleen Connell, Chair The symposium, which will feature a reserving a seat
State Controller
HOH program overview, case studies and
• If you would like educational credits
Dean Andal a panel of experts answering questions
Chair, State Board of Equalization for attending
about HOH issues, came about as the
Craig L. Brown result of taxpayers and tax practitioners • If you would prefer a call back to
Director, Department of Finance expressing an interest in learning more confirm your reservation
about the HOH filing status. Some of the Participants can also fax the information
———————— HOH situations that will be addressed
Executive Officer: to (916) 845-6756, e-mail it to
Gerald H. Goldberg include more than one family in the same Hoh_Sym@FTB.ca.gov or mail it to:
home, individuals living with partners and
Editor: Franchise Tax Board
Marvin Meek divorced or legally separated individuals.
P.O. Box 1998
To update or correct your address or
Those interested in attending the Rancho Cordova CA 95741-1998
to subscribe to TAX NEWS (send $12 symposium should reserve their seat with
for a one-year subscription), write: FTB by Nov. 30. To make a reservation,
TAX NEWS call FTB at (916) 845-6899 and provide
P.O. Box 520
Rancho Cordova, CA 95741-0520 the following information:
or call: (916) 845-7070.
To view TAX NEWS on the Internet
or to request an electronic mail
subscription, contact FTB on the
FTB, BOE Offer Taxpayer Service Days
For information about a client’s Dean Andal, Chair, State Board of of tax subjects including employment tax,
account, contact: Equalization (BOE), will sponsor a series property tax, sales tax and the problem
Tax Practitioner Support Unit of free seminars in 1999, designed to be a resolution process. Attendees will also be
(916) 845-7057 (phone) one-stop source of tax information for able to participate in workshops on
(916) 845-6377 (fax)
taxpayers and small business owners. specific tax-related topics.
For recorded answers to questions
on California taxes, to order forms Each seminar will run from 9 a.m. until 3
or check on a refund, call: p.m., with registration and refreshments
F.A.S.T. (800) 338-0505 beginning at 8:30 a.m. The following
From outside U.S. (916) 845-6600 Attendees will have an Taxpayer Service Day seminars have
To send a facsimile about a client’s opportunity to receive free been confirmed:
account, transmit to:
Electronic Correspondence Thursday, March 18, in Stockton at the
(916) 845-6377 counseling on an assortment University of Pacific.
Information Center: of tax subjects. (209) 932-2338
(800) 852-5711 Wednesday, March 24, in Chico, at
From outside U.S. (916) 845-6500 California State University, Chico.
Hearing Impaired: Taxpayer Service Days are all-day (916) 227-1883
TDD (800) 822-6268 Saturday, March 27, in Sacramento at
__________________ educational conferences featuring
representatives from BOE, Franchise Tax American River College.
FTB on the Internet Board, Internal Revenue Service, (916) 227-1883
Employment Development Department, Thursday, April 1, in Fresno at California
Printed on recycled paper. County Assessor's Office and several State University, Fresno. (209)
other local, state and federal agencies. 248-4209
Attendees will have an opportunity to CONTINUED ON PAGE 3
receive free counseling on an assortment

November 1998
Page 3

Taxpayers’ Bill of
Rights Hearing Set
For December
The Franchise Tax Board’s annual
Taxpayers’ Bill of Rights hearing is
scheduled for Dec. 15, 1998. Taxpayer
The hearing, where taxpayers may present
proposals for changing existing state Service Center
income tax law, is scheduled for the early
part of a regular meeting of the three- Debuts in
Pat Huberty member Franchise Tax Board. The
meeting will be held in Room 121,
450 N Street, Sacramento, CA.
Pat Huberty Changes proposed at the hearing should be Add Oakland to the growing
intended to improve the clarity and
Says Farewell as understanding of tax law. FTB asks that
list of California cities with a
Taxpayer Service Center.
anyone who plans to make a proposal
Tax News Editor submit a written statement before the
hearing. The statement should include the
The Franchise Tax Board
closed its field office located
proposed law change and the Revenue and on Broadway Avenue in
Readers of Tax News will have to Taxation Code (R&TC) sections that Oakland and moved into a
look closely to note any changes in would be affected. Taxpayers can send Taxpayer Service Center with
the bi-monthly publication. their statements to the Taxpayer Advocate the State Board of
Bureau, P.O. Box 157, Rancho Cordova, Equalization. The new
So here’s a tip: if you look in the service center allows
masthead on page two, you will CA 95741-0157.
taxpayers and tax
notice that Tax News has a The annual hearing is required by a practitioners to get a variety
new editor. provision of the Taxpayers’ Bill of Rights, of tax information and
Marvin Meek debuts as editor with R&TC Sections 21001-21022. assistance from both agencies
the November issue succeeding The time of the hearing was not confirmed at one central location.
Patricia Huberty, who retired in by press time. For more information about The new Oakland Taxpayer
September after guiding Tax News the hearing, call the Tax Practitioner Service Center is located at
for six years. Support Unit at (916) 845-7057 or visit 1515 Clay Street
Ms. Huberty drew praise from her FTB at its www.ftb.ca.gov Internet Suite 3N-305
colleagues at Franchise Tax Board address. Oakland
for her management of Tax News, Service centers have also
which included adding color to the been established in
publication, increased circulation Taxpayer Service Days Sacramento, San Bernardino,
and delivery via the Internet. CONTINUED FROM PAGE 2 Stockton, Bakersfield, Long
"I will miss her ‘easy to work with' Beach and Ventura.
style," said Gerald H. Goldberg, To confirm your admittance to the
executive officer, who frequently seminar, call the telephone number
collaborated with Huberty provided for the location of your choice.
on articles. For-up-to-date information about these and
Huberty said that she saw her other taxpayer education opportunities,
mission as “providing more visit the BOE Web site at www.boe.ca.gov
information, which would help and click on Taxpayer Education. To get
people do their jobs, and making information about FTB’s participation in
it understandable.” the seminars, contact Alvaro Hernandez,
FTB Small Business Tax Education
Coordinator, at (916) 845-5257.
Page 4

FTB Expands Direct Deposit

Register For Tax Practitioners Can
requests. That amounted to more than 22
percent of all e-file refunds issued by
Free e-file Now Offer Direct Deposit
FTB and is comparable to what the
participation rate is for other states
Seminars to First-time Filers offering direct deposit,” said Alison
Adams, lead analyst in the Electronic
Document Services Unit at FTB.
The Franchise Tax Board and
the Internal Revenue Service If you participate in California’s e-file Direct deposit allows taxpayers to have
are co-sponsoring free e-file program, you can now offer direct deposit their tax refunds deposited directly into
seminars. You can learn to more of your clients in 1999, thanks to their bank accounts and is only available
about everything from how to the enhancements the Franchise Tax with e-file. With direct deposit, the tax
fill out an e-file application to Board has made to its direct deposit refund will normally be deposited in the
how to read the program. taxpayer’s bank account within 5-7
acknowledgement report you banking days from the date FTB
The most significant change involves
receive when your tax returns acknowledges receipt of the
taxpayers who are filing a California tax
are accepted by an e-file e-filed return.
return for the first time. During the 1998
system. filing season, FTB offered direct deposit In addition to filing electronically,
To register for a seminar, of refunds to taxpayers who filed their taxpayers must also meet the following
send a fax to (916) 845-5340 return electronically (e-file) and already criteria in order to use direct deposit:
or you can register on-line by had a return on file for the previous tax • The return must not contain any
contacting FTB at its year. Beginning in 1999, FTB will also errors that would change the refund
www.ftb.ca.gov Internet site. offer direct deposit to first-time filers who amount or generate a Return
use e-file. Information Notice from FTB.
The seminar schedule for the
remainder of 1998 is: Taxpayers were also limited to only one • The refund cannot be offset for state
FTB-issued direct deposit request to their taxes, federal taxes or other
Los Angeles bank account per each tax year. That will obligations.
November 12 – Lawndale change in 1999.
For more information about how to join
November 19 – Van Nuys If two taxpayers share a bank account, the e-file program and take advantage of
Northern California both will be able to receive their refunds direct deposit, contact the e-file Help
by direct deposit. Desk at (916) 845-0353. Help Desk
November 18 – North
Highlands “During the1998 filing season we hours are 8 a.m. until 5 p.m., Monday
processed nearly 187,000 direct deposit through Friday.
November 19 – Hayward
November 30 – Redding
December 4 – Oakland
December 10 – North
Change of Address? Use New Form
for their children who filed separate
December 17 – North
Form FTB 3533 returns, they must complete a separate
form FTB 3533 for each child.
Central California Similar to Federal If you are a representative filing for the
November 17 – Bakersfield
December 1 – San Jose
Address Change Form taxpayer, attach a copy of your power of
attorney to form FTB 3533.
Form FTB 3533 will be included in the
Taxpayers who have changed their home 1998 California Package X, Tax Forms
or business mailing addresses or their Catalogue (paper and CD-ROM format).
business locations, may now use form It also will be available at FTB’s
FTB 3533, “Change of Address.” This www.ftb.ca.gov Internet address, or you
form is very similar to federal Form 8822, can write to
“Change of Address.”
Tax Forms Request
Generally, taxpayers need only complete P.O. Box 307
one form FTB 3533 to change their home Rancho Cordova, CA 95741-0307.
and business addresses. However, if the
change also affects the mailing address

November 1998
Page 5

FTB Gives e-filers Break From

Head of Household Review
In the 1999 filing season, tax practitioners
will have a chance to make the head of
of household questionnaire does not
guarantee that taxpayers will not be
FTB Calendar
household examination process less contacted by FTB about their head of
annoying for their clients. household filing status. If there is missing November
As part of a pilot effort, FTB will offer or incomplete information, FTB will issue • Package X order forms
taxpayers who file their returns a routine follow-up letter. mailed with Tax News.
electronically (e-file) the option of For more information about e-file’s head 11-13 California Tax Policy
voluntarily completing a head of of household pilot program, contact the e- Conference.
household questionnaire along with their file Help Desk at (916) 845-0353. Help 20 Previous month
California tax return. The tax returns and Desk hours are 8 a.m. until 5 p.m., nonresident withholding
refunds of taxpayers who choose to Monday through Friday. payments are due if total
complete the questionnaire will be withholding exceeded
processed just as quickly as those $2,500.
taxpayers who choose not to.
The pilot is designed to determine
Interest Rates December
• Personal income tax
whether taxpayers can provide accurate For the period of January 1, 1999 through booklets mailed.
and complete substantiation of their head June 30, 1999, the interest rate on • 300,000 demands to file
of household status at the time they file underpayments and overpayments of are mailed to individuals
their returns. California income taxes will be eight who failed to file 1997
percent. The following table lists interest returns.
The current head of household
examination process begins with rates since 1988. 20 Previous month
taxpayers claiming the head of household Effective Date Rate nonresident withholding
payments are due if total
status on their current year returns. Later, 1 Jan. 1988 - 31 Mar. 1988 11% withholding exceeded
FTB examines the returns to determine $2,500.
their eligibility. FTB then mails a letter 1 Apr. 1988 - 30 Sept. 1988 10%
to taxpayers, requesting that they provide 1 Oct. 1988 - 30 June 1989 11%
additional information to help verify their • 200,000 demands to file
1 July 1989 - 31 Dec. 1989 12% are mailed to individuals
1 Jan. 1990 - 30 June 1990 11% who failed to file 1997
Taxpayers found to be ineligible, who fail returns.
1 July 1990 - 31 Dec. 1990 11%
to provide enough information or fail to • Package X is published
respond at all receive a Notice of 1 Jan. 1991 - 30 June 1991 11% and distributed
Proposed Assessment. That assessment • E-file return transmissions
could result in a change in their filing 1 July 1991 - 31 Dec. 1991 10%
status and additional tax. 1 Jan. 1992 - 30 June 1992 10%
15 Personal income tax
Taxpayers qualifying for the status 1 July 1992 - 31 Dec. 1992 9% estimate payments are
receive a letter from FTB stating that their 1 Jan. 1993 - 30 June 1993 8% due.
filing status for the current tax year will 20 Previous month
not be changed. 1 July 1993 - 31 Dec. 1993 7% nonresident withholding
The pilot project will simplify the 1 Jan. 1994 - 30 June 1994 7% payments are due if total
eligibility verification process for withholding exceeded
1 July 1994 - 31 Dec. 1994 7% $2,500.
taxpayers who use e-file and claim head 1 Jan. 1995 - 30 June 1995 8%
of household on their tax returns. Once February
FTB receives the tax return and 1 July 1995 - 31 Dec. 1995 9% 20 Previous month
questionnaire, e-file staff will process the 1 Jan. 1996 - 30 June 1996 9% nonresident withholding
tax return and the refund will be issued. payments are due if total
1 July 1996 - 31 Dec. 1996 9% withholding exceeded
FTB audit staff will examine the head of $2,500.
household information. If the answers 1 Jan. 1997 - 30 June 1997 9%
satisfy the head of household audit 1 July 1997 - 31 Dec. 1997 9%
criteria, FTB will forego sending the 1 Jan. 1998 - 30 June 1998 9%
taxpayer the head of household letter and
the head of household status will be 1 July 1998 - 31 Dec. 1998 9%
allowed at that time. Submitting the head 1 Jan. 1999 - 30 June 1999 8%
Page 6

FTB Identifies 1997 Nonfilers

Starting in December, Individuals to Receive Notices
Avoid Penalties, “Did you forget something?” FTB’s notice, a proposed assessment may
be issued based on the available
Respond The Franchise Tax Board will be asking
that question to nearly 700,000 information. The assessment will include
to Corporate individuals who have yet to file their 1997 tax, penalties and interest, as well as fees
personal income tax return. The extended to cover the cost of enforcing the
Filing Notices due date for filing a 1997 income tax individual’s filing requirements.
return was October 15, 1998. Approximately 49 percent of the
Recently, FTB issued So, if it has not been filed yet, it is late. individuals contacted are self-employed.
approximately 25,000 notices Another 37 percent contacted are wage
to corporations requesting FTB will be sending notices to identified earners. Individuals who filed a federal
that they file their 1996 nonfilers beginning in December. The tax return from a California address but
California corporation tax notice advises individuals that did not file a California return comprise
return. If your client received information reported to FTB suggests that 10 percent of the total. People with
one, it is not too late to they may be required to file a tax return, partnership or S Corporation income
respond to the notice and but FTB has been unable to locate one make up two percent of the individuals
avoid the issuance of a Notice under the name and social security contacted, and another two percent are
of Proposed Assessment number listed on the notice. contacted because they sold real property
(NPA) and its related If a return is not filed in response to located in California.
penalties and interest.
If your client received a
notice and has already filed a
California corporation tax
return, send a signed copy of
Forms Producers Need FTB Approval
the complete return to the Make Sure Your Scannable/Substitute Forms Comply
address provided on the
notice. If you are unsure whether all your forms
If you are planning to use scannable or
If the corporation has filed substitute 1998 California tax forms, have been approved for the 1998 tax year,
the return and it is a make sure your forms meet the Franchise ask your tax software company to show
combined report return, be Tax Board’s requirements. you the letter of approval for each form
sure to include a copy of the before you use it. Do not accept a general
If they do not, delays may occur during
Schedule R-7, “Election to statement that the forms have been
processing. In some cases, FTB may not
File a Unitary Taxpayers’ approved. Instead, give the company a
be able to process your clients’ forms and
Group Return and List of list of the forms you plan to use and
will have to contact them directly.
Affiliated Corporations,” with request a copy of the letter of approval for
the return. All companies that produce or sell each one.
substitute or scannable California tax
If you think your client may To date, the following companies have
forms must file an agreement to comply
not have a filing requirement, filed forms FTB 1096 with FTB:
with FTB requirements for the 1998 tax
complete the questionnaire Able-Wagner Inc.
year. Form FTB 1096, “Agreement to
included with the notice and
Comply with FTB Publication 1098,” (714) 572-8585
send it to FTB. The
states that the company agrees to follow
questionnaire is designed to Accountant Stationers & Printers
certain rules for developing scannable and
identify the business activity
substitute forms. Merely filing form FTB (800) 423-9717
the corporation conducted in
1096, however, does not mean the Accountware, Inc.
California. The sooner FTB
company’s forms have been approved by
receives your response, the (800) 772-0920
sooner it can review the
information and advise you Each year, companies must also submit Alex Brown Realty, Inc.
about your client’s filing their forms to FTB for approval. (410) 727-4083
requirements. Companies that either sell or provide
photocopies of official FTB forms do not Alpine Data, Inc.
need to submit them for approval. (800) 825-1040

November 1998
Page 7

Creative Solutions, Inc.

Forms Producers (734) 426-5860
Curtis Publications Inc.
(Telephone number not available)
D.A. Bailey and Sons Publishers, Inc.
AM Software
(CPA Buddy)
(816) 741-7848
(540) 672-2000
American Financial and Tax
Data Technology Group Satisfy
(714) 669-1172
Arthur Andersen LLP
(617) 661-1118 Educational
Dean Witter Realty, Inc.
(941) 365-9469
(212) 392-4601
Needs With
Atilla M. Taluy
(805) 984-0248
Deloitte & Touche Technologies LLC Video Courses
(800) 960-1639
ATX Forms, Inc. Need continuing education
DRAKE Enterprises LTD
(800) 944-8883 credits? Prefer to study in
(828) 524-8020 your home or office?
Block Financial Corporation (TaxCut)
Ernst & Young LLP The Center for Tax Education
(913) 599-2885 (CTE) offers three, three-
(425) 990-6910
Brass Tax Presentations credit video courses that can
EXACTAX, Inc. help satisfy your education
(619) 487-2553
(800) 352-3638 requirements.
Bryan Cave LLP
Gear Up Tax Seminars Course titles include “Office-
(Telephone number not available) In-Home Deductions,”
(916) 979-1222
CCH Incorporated (Torrance) “California’s Employment
Gemisys Corporation Factors” and “California Tax
(310) 543-6200 Rules for Nonresidents.”
(303) 705-6000
CCH Incorporated (Wichita) The programs are presented
Golden State Tax Training Institute, Inc.
(316) 685-8100 by CTE, a partnership of the
(Telephone number not available)
CCH Incorporated Federal School of Business
H & R Block Administration, California
and State Tax Unit
(816) 932-8495 State University, Sacramento;
(847) 267-2472 the Internal Revenue Service;
Hambrecht & Quist the Employment
CFS Income Tax
(415) 439-3000 Development Department; the
(805) 522-1157 State Board of Equalization
Hayden R. Wisdom, EA
Check Printers, Inc. and the Franchise Tax Board.
(530) 888-1040
(904) 733-6221 Each course contains a one-
Hogan & Hartson LLP hour videotape, textbook,
(202) 637-8566 workbook and a brief, open
(800) 327-8829 book examination for three
HowardSoft credits. Each course costs
(619) 454-0121 $60.
(OMEGA Group)
Independent Preparer Services, Inc. To order any of the courses,
(972) 250-8000
(818) 701-3090 call (916) 845-7070, or visit
Compucraft Tax Services FTB’s CTE Web site at
Inland Society of Tax Consultants www.ftb.ca.gov/education/
(800) 435-7829
(Telephone number not available) Taxtalk.htm.
Consolidated Business Systems
Intuit, Inc.
(800) 262-4461
(619) 784-4274
Content Creators LLC
IRIS Systems
(415) 893-9915
(800) 852-4747
(800) 272-7123
Page 8

Partnerships STF Services Corporation

Must File Forms Producers (800) 541-7197
Tax And Accounting Software
ITS, Inc. Corporation
(800) 998-9990
1065 First (800) 487-8291
Tax Form Library
Jackson Hewitt Tax Service
The Taxpayers’ Relief and (757) 473-3300 (800) 466-9110
Protection Act of 1997 added Tax Link, Inc.
Sections 771 through 777 to JCF Systems
the Internal Revenue Code (Telephone number not available) (614) 457-1949
(IRC), creating a simplified KPMG Peat Marwick, LLP Tax Systems, Inc.
reporting method for large (713) 682-1791
partnerships. California, (Telephone number not available)
however, did not conform to Lacerte Software TAXBYTE, Inc.
this provision. (800) 245-8299
(972) 490-8500
As a result, large partnerships Taxtor Educators
that elect to file federal Form Les Blend Co.
(650) 917-0558 (909) 885-5017
1065-B, “U.S. Return of
Income for Electing Large Mavricc Management Systems Taxware Systems, Inc.
Partnerships,” must first (248) 614-4500 (800) 877-1065
complete a federal Form
1065, “U.S. Return of Income Micro Vision Software Taxworks by Laser Systems
for Partnerships,” in order to (800) 829-7354 (801) 552-8800
complete California Form Microsoft Corporation Technology Funding, Inc.
565, ‘Partnership Return of
Income.” (Telephone number not available) (650) 345-2200
The IRC also requires Nelco TFP Data Systems
partnerships with 100 or more (920) 337-2774 (Telephone number not available)
partners to electronically file
ORRTAX Software Inc. TK Publishing, Inc.
their federal Forms 1065 and
Schedule K-1s (1065). (800) 377-3337 (407) 351-0966
Although California does not Owens Mortgage Investment Fund TMI Tax Services, Inc.
have a similar provision, FTB
encourages partnerships to (925) 935-3840 (Telephone number not available)
file their Schedule K-1s (565) Petz Enterprises, Inc. Top Bookkeeping Service
via diskette, magnetic tape or (800) 345-4337 (818) 996-5677
CD-ROM. Technical
information is available in Probate Software Universal Tax Systems
FTB Publication 1062, (970) 330-3260 (800) 755-9473
“Guide for K-1 (565) Filing
Professional Stationers Inc. Visible Computer Supply
by Diskette and Magnetic
Tape.” (800) 244-2159 (630) 377-2586
The 1998 version of Rock Creek Technologies Wallace Computer Service
Publication 1062 will be (703) 528-5400 (630) 377-2586
available on FTB’s Web site
in January. However, if you Rosemberg Escobar Services Weaver Tax Service
have questions or would like (213) 563-0497 (408) 258-0912
a copy of the 1997 Tax Year Short Form Software William H. Downs, CPA
Publication 1062, visit the
FTB Electronic Services (914) 353-7719 (818) 981-4313
Internet site at Spidell Publishing, Inc. WorldCom Advanced Networks Inc.
www.ftb.ca.gov or call FTB’s
(714) 776-7850 (Telephone number not available)
e-file Help Desk at
(916) 845-0353. Xpress Software, Inc.
(800) 285-1065

November 1998
Page 9

It’s the Law:

A Summary of Legislation Affecting FTB
Several legislative measures dealing with The Budget Trailer Act also waives the
taxes or affecting the Franchise Tax estimated tax penalty for the 1997 or
Board were recently signed into law. Here 1998 taxable or income year to the extent
is a summary of those measures: the underpayment was created or
Budget Trailer Act/Conformity increased by any provision of this bill.
Unless otherwise specified, this act
AB 2797 Cardoza (Ch. 98-322) made
several changes to the income tax laws:
applies to taxable and income years
beginning on or after January 1, 1998.
Vague K-1
Renter’s Credit. This provision amends Omnibus Tax Measure Entries Delay
the existing renter’s credit to allow a
credit amount of $120 for married filing AB 2798 Machado (Ch. 98-323),
operative only if Proposition 7 is not
Form 565
joint returns, heads of household and
surviving spouses if adjusted gross approved by the voters, made the
following changes to income tax laws:
income is $50,000 or less, and $60 for
other individuals (single or married filing Economic Development Areas. Under
Whether you are filing your
separate) if adjusted gross income is the Government Code, this provision
California Schedule K-1s by
$25,000 or less. This provision makes the modifies the designation period and size
paper or via magnetic media,
renter’s credit nonrefundable. This of enterprise zones that meet specific
make sure the number of
provision also requires the FTB to criteria and provides that Trade and
partners you enter on Form
recompute the adjusted gross income Commerce Agency (TCA) may audit
565, Side 2, Item “J” equals
amounts annually for inflation. enterprise zone programs and determine a
the number of Schedule K-1s
Homeowners and Renters Assistance result of superior, pass, or fail and may
you submit.
Program. This provision adjusts for “dedesignate,” as defined, failing
programs. Under the Revenue and The Franchise Tax Board
inflation, from 1977 to present and then
Taxation Code, this provision (A) often receives the Form 565,
annually from 1998, the household
modifies income apportionment for most “Partnership Return of
income amounts used to determine
economic development area tax Income,” with a single digit
eligibility and the amount of assistance
incentives, (B) changes the criteria in the number such as 3, entered on
for claimants of the Homeowners and
targeted tax area hiring credit definition Item “J,” but the number of
Renters Assistance program.
of “qualified employee," and (C) expands Schedule K-1s actually
Dependent Exemption Changes. This the definition of qualified property for the associated with the return are
provision increases the dependent enterprise zone sales or use tax credit. anywhere from 30, 300 or
exemption credit from $120 to $253 in 30,000.
1998 and from $222 to $227 in 1999,and Research Expenses Credit. This
provision revises the state alternative Another common error entry
indexes this amount for inflation
incremental credit by modifying the on Item “J” is the term
formula to 80 percent of the federal “various.” It causes
Joint Strike Fighter Program Credits. alternative incremental credit rate. Also, problems during return
This provision creates a wage credit and this provision technically corrects a processing and could result in
property credit for the Joint Strike Fighter reference in the state research expenses FTB contacting the
(JSF) program. These credits apply to credit to a federal code section. partnership for more
taxpayers under initial contract or information.
subcontract to manufacture property for Employer Child Care Credits. This
ultimate use in a JSF. provision extends the sunset date of the
Employer Child Care Program and the
Federal Conformity. Generally, these Employer Child Care Contribution credits
provisions conform California tax law to from taxable or income years beginning
the Internal Revenue Code (IRC) as of before January 1, 1998, to years
January 1, 1998, unless a specific beginning before January 1, 2003.
provision provides otherwise. Among
other things, AB 2797 increases the Manufacturers’ Investment Credit. This
deduction percentage of self-employed provision extends the Manufacturers’
health insurance costs from 25 percent to Investment Credit (MIC) to manufacturers
40 percent for tax year 1998 only. of custom or prepackaged

Page 10

Legislation Permit the abatement of interest on
underpayments by taxpayers in
presidentially declared disaster areas
computer software (involved in activities in 1997.
Program to described in Standard Industrial • Permit an extension of 90 days for
Classification (SIC) codes 7371 to 7373). filing returns, making claims, filing
Find Nonfilers Self-Employed Health Insurance. This suit, etc. as described in Internal
Revenue Code Section 7508 for
provision increases the deduction
If you have clients who pay a percentage of self-employed health taxpayers in presidentially declared
mortgage of over $10,000 per insurance costs from 25 percent to 40 disaster areas.
year, but are not filing a tax percent, operative for tax years beginning • Simplify the taxation of earnings of
return, starting in December, on or after January 1, 1999. AB 2797 Pre-Need Funeral Trusts by
they may receive a notice increased the percentage to 40 percent for permitting a single annual trust
from the Franchise Tax Board 1998 only. return.
requesting them to file. Minimum Franchise Tax. For income • Allow individuals to rollover gain
The notice will ask that they: years beginning on or after January 1, from the sale of California small
1) file the required tax return, 1999, this provision reduces the minimum business stock.
2) send FTB a copy of the franchise tax for qualified new
return if it has already been corporations, as defined, from $600 to • Make modifications to the rules for
filed or 3) explain why they $300 for the first income year and to $500 Real Estate Investment Trusts
feel they are not required to for the second income year. (REIT), including the repeal of the
file a return. 30 percent gross income test.
This act became effective immediately as
FTB’s Nonfiler Program has an urgency statute and generally applies • Repeal the 30 percent gross income
had success using information to taxable or income years beginning on test or the “short-short rule” for
from the federal Form 1098, or after January 1, 1998. The self- Regulated Investment Companies
“Mortgage Interest employed health insurance and minimum (RICs).
Statement,” to identify franchise tax provisions apply as of • Clarify that the qualified Subchapter
taxpayers with filing January 1, 1999. However, this act S subsidiary (QSSS) tax is subject to
requirements. Some of the specifies that if Proposition 7 of the estimated tax payments.
nonfilers that have been November 3, 1998, general election is • Clean up numerous 1997 provisions.
identified include wage approved by the voters, this act will be
earners, self-employed deemed to have been inoperative from the • Waive the estimated tax penalty for
individuals and owners of effective date of the act. the 1997 or 1998 taxable or income
multiple rental properties. year to the extent the underpayment
Conformity to TRA/1997 Tax Law was created or increased by any
There are cases where Clean-Up provision of this bill.
individuals pay their SB 519 Alpert (Ch. 98-07) conforms to
mortgage payments from Finally, this act contains several different
several provisions of the Federal operative dates, as it generally conforms
funds that are either Taxpayer Relief Act (TRA) and makes
nontaxable or that have each provision to the federal operative
technical “clean-up” corrections to date.
already been taxed. Although various legislation passed in 1997. The
FTB takes steps to identify changes made by this act are: Partnerships in Taxpayer Definition
these cases, some go AB 510 Ashburn (Chapt. 98-49) amends
undetected. If this is the case • Repeal the alternative minimum tax
installment method adjustment for various sections of the Personal Income
with your client, respond to Tax Law (PITL), Administration of
the notice immediately and farmers.
Franchise and Income Tax Laws (AFITL)
explain the situation. Failing • Terminate suspense accounts for and Bank and Corporation Tax Laws
to respond to the notice could family farming corporations. (B&CTL) to remove or alter language
result in FTB issuing your
• Exclude survivor benefits of public referring to taxpayers or partnerships so it
client a Notice of Proposed is clear that a partnership is included
safety officers killed in the line of
Assessment, and that could within the term “taxpayer.” This act is
duty from gross income.
lead to possible collection effective for taxable and income years
action. • Permit the use of appraisals prepared
for federal disaster loss relief to beginning on or after January 1, 1999.
establish the amount of disaster loss.
Expand the special treatment for the
sale of livestock to livestock sold on
account of weather-related

November 1998
Page 11

• Recapture: Provides that the

Legislation recapture rules apply to credits taken
for wages paid to any seasonal
CONTINUED FROM PAGE 10 employee who is not rehired in the Tax
Partnerships & LLCs Return Due Date applicable subsequent seasons. Also,
AB 1694 Ackerman (Chapt. 98-80) defines “seasonal employment.” Practitioners’
clarifies the due date of the returns for
partnerships and limited liability
The act provides recapture rules for
credits taken for wages paid to any
companies (LLCs) as on or before the
fifteenth day of the fourth month
seasonal employee that is not rehired in
the applicable subsequent seasons applies
following the close of their taxable or
income year. This act also clarifies that
to taxable or income years beginning on
or after January 1, 1998.
the department may suspend any LLC not
classified as a corporation for California FTB Tax Return Information In November and December,
tax purposes. This act also makes SB 1383 Leslie (Chapt. 98-623) amended the 1998 Tax Practitioners’
nonsubstantive technical changes. This the AFITL regarding unwarranted Institute will offer tax
act is effective January 1, 1999. disclosure or use of tax information to practitioners the opportunity
Economic Development Area include willful unauthorized inspection as to obtain up to 24 hours of
an act punishable as a misdemeanor. The continuing professional
FTB would be required to notify the education credits.
AB 2809 Assembly Rev &Tax
Committee (Chapt. 98-1039) corrects a taxpayer of any known act described You can obtain the Institute’s
chaptering error by reinstating the above, but only if certain criminal charges education credits from a
December 1, 1998, sunset date of the Los have been filed. This act is effective three-day program and use
Angeles Revitalization Zone (LARZ) net January 1, 1999, and applies to any action them to satisfy the
operating loss (NOL) as enacted by AB after that date. requirements of the California
18 (Stats. 1993, Ch. 18). Additionally, to Web Site Information Gathering State Board of Accountancy,
prevent future chaptering problems with the California Tax Education
SB 1386 Leslie (Chapt. 98-623) requires
the various economic development area Council and, for enrolled
that every state agency that maintains or
NOL provisions, this act places each agents, the Internal Revenue
operates an Internet website that uses any
economic development area NOL Service.
method or device to collect personal
provision into a separate code section, information, as defined, to prominently The Institute will offer its
rather than in a subdivision of the same display the existence and purpose of such programs at the following
code section. a device on an initial point of times and places. For
The LARZ net operating loss provision communication with the potential user. enrollment, registration fee
applies to taxable or income years ending This act also makes changes regarding and other information, call the
after December 31, 1997, to ensure that public libraries, which do not impact the telephone number listed
the change applies to all 1997 fiscal year FTB. This act is effective January 1, below for the site nearest you:
taxpayers. Dividing the NOL provisions 1999. • November 12 - 14,
into separate code sections applies to Low-Income Housing Cupertino
taxable or income years beginning on or (408) 342-0233
after January 1, 1998. AB 168 Torlakson (Chapt. 98-09)
increases the maximum aggregate housing • November 16 - 18, Chico
This act also makes the following changes credit dollar amount allocated annually by (530) 898-6105
to the economic development area hiring
the California Tax Credit Allocation • November 19 - 21, San
Committee from $35 million to $50 Luis Obispo
• Credit Percentage: Clarifies that the million for 1998 and 1999 calendar years. (408) 342-0233
reemployment of seasonal employees As a tax levy, this act became effective
shall not constitute commencement of upon enactment and is operative for the • November 30,
employment. Instead, these 1998 and 1999 taxable and incomes December 1 - 2, Oakland
employees would be considered years. (510) 885-3605
continuously employed for purposes Farmworker Housing • December 3 - 5,
of the credit computation. This Monterey
clarification is declarative of existing SB 302 Costa (Chapt. 98-371) redefines (408) 342-0233
the basis for the Farmworker Housing
law and, thus, would apply to all
Credits as “eligible costs.” Eligible costs • December 10 - 12,
taxable or income years from the Arcata
effective date of the hiring credits. include, but are not limited to,
improvements to ensure compliance with (707) 826-3731
laws governing access for persons with
Page 12

California Public School Library

News From the SB 1389 Craven (Chapt. 98-504)
extended the operation of the California
State Board of Public School Library Protection Fund to
January 1, 2004. This act is effective
disabilities and costs related to reducing
Equalization utility expenses. Eligible costs do not January 1, 1999, and first applies to the
1998 tax returns.
include land and those costs financed by
grants and below market financing. This Incentive Zones
act is effective January 1, 1999. AB 3 Baca (Chapt. 98-1012) allows
BOE Offers New Substandard Housing Trade and Commerce Agency (TCA) to
designate three additional Local Agency
Way to Pay Sales AB 80 Ducheny (Chapt. 98-646) added
unoccupied or abandoned dwellings to the Military Base Recovery Areas
(LAMBRAs) anywhere in this state. This
and Use Taxes definition of "substandard housing" for
act also deletes the requirement that TCA
which related deductions may be
disallowed. This act became effective designate the LAMBRAs no later than
The State Board of upon enactment and applies to taxable or one year from the effective date of its
Equalization (BOE) is income years beginning on or after LAMBRA regulations and would provide
offering a new service that January 1, 1998. for specified loan priorities and contract
allows taxpayers to pay their preference points to businesses located, or
sales and use tax payments Disaster Losses contracts performed, in a LAMBRA. The
with credit cards. AB 2456 Sweeney, et al. (Chapt. 98-749) last two provisions mentioned above do
allows special disaster treatment of losses not impact the FTB.
The program uses credit cards
issued by NOVUS. Here is sustained as a result of storms or flooding Under the Revenue and Taxation Code,
how it works: or any other related casualty that occurred this act deleted the January 1, 2003,
during February 1998 in any county in sunset date from the LAMBRA tax
Taxpayers must first this state that was declared a disaster. incentives and, instead, tie the qualified
complete their returns or This act also amends provisions of the use of the incentives to the designation
prepayment forms to Revenue and Taxation Code relating to period of the LAMBRA, thereby making
determine how much tax is property taxation, which do not impact the LAMBRA tax incentives more like
due. the FTB. This special disaster treatment the enterprise zone tax incentives and
Next, using a touch-tone of losses applies to the taxable or income ensuring that the incentives do not expire
telephone, the taxpayer calls year of the loss, which may be 1997 or before the designation; changed the hiring
1-800-477-4141 and follows 1998, depending on whether the taxpayer credit definition of “qualified
the recorded instructions. is a fiscal or calendar year filer. disadvantaged individual” and increased
The taxpayer should have the California D.A.R.E. Fund the amount of the allowable business
return or prepayment form expense deduction to the same amount as
and their sellers’ permit AB 1733 Machado (Chapt. 98-654)
that allowed for the enterprise zone
number available when they extended the operation of the California
business expense deduction. This act
make the call. At the end of Drug Abuse Resistance Education Fund
applies to taxable or income years
the call the taxpayer is asked (D.A.R.E.) to January 1, 2004. This act
beginning on or after January 1, 1999.
to either authorize or cancel applies to taxable years beginning on or
after January 1, 1999. Definition of LLP
the payment transaction.
New Funds AB 469 Cardoza (Chapt. 98-504) added
After authorizing the limited liability partnership (LLP) to the
payment, the taxpayer will AB 2366 Cedillo (Chapt. 98-818) allows
definition of “person” in the Business and
receive a confirmation taxpayers to make a voluntary
Professions Code pertaining to architects.
number. Once the taxpayer contribution on their personal income tax
This act included, but only until
receives a confirmation returns to the Emergency Food Assistance
January 1, 2002, “the practice of
number, the taxpayer checks Program Fund. This act also allows
architecture” in the definition of
the box on the return or taxpayers to make a voluntary
“professional limited liability partnership
prepayment form indicating contribution on their 1998 personal
services” in the Corporations Code. This
that they paid by credit income tax returns, filed in 1999, to the
act also required registered or foreign
card.The process is complete California Mexican American Veterans'
LLPs to provide security for certain
once the taxpayer signs and Memorial Beautification and
claims against them. This act is effective
mails the completed return or Enhancement Account. This act applies
January 1, 1999.
prepayment form to BOE. to taxable years beginning on or after
January 1, 1998, and will be repealed on
January 1, 2004.

November 1998
Page 13

Electronic Recordation Task Force
CONTINUED FROM PAGE 12 AB 1906 Brewer (Chapt. 98-463) News From the
BOE Taxpayers’ Bill of Rights provided that the California Attorney
AB 821 Takasugi (Chapt. 98-612) General shall appoint an Electronic State Board of
provides, under the Government Code,
that payments, applications, tax returns or
Recordation Task Force consisting of
voluntary representatives from
claims for credit or refund sent governmental agencies and industry
through a “bona fide commercial delivery groups. Also, this act provided that
service” would be deemed as timely made notices of federal tax liens may be filed, Credit Cards
or filed if sent before the specified due recorded and indexed by electronic or CONTINUED FROM PAGE 12
date. This act also expanded taxpayers’ magnetic means. This act also contains
rights with respect to state taxes provisions regarding the recording of To take advantage of the new
administered by the BOE. information in San Bernardino County service, taxpayers must meet
Child Support and Orange County. These provisions do the following conditions:
not impact the FTB. This act is effective
AB 1396 Alquist (Chapt. 98-899) January 1, 1999. • Taxpayers may use only
specifies all written contracts in excess of credit cards issued by
$100,000 entered into by state agencies, Suspended Corporations NOVUS.
including the FTB, would be required to AB 1950 Torlakson (Chapt. 98-856), • Taxpayers may use only
contain an acknowledgment by the among other things, precludes an insurer their credit card to pay
contractor (vendor) that to the best of its of a suspended corporation from being taxes that are due with
knowledge, it is complying with the prosecuted by the FTB in a misdemeanor their sales and use tax
earnings assignment orders of all action if it defends an insured suspended return, including
employees and is providing the names of corporation client in a civil action relating prepayment forms.
all new employees to the New Hire to the insurer’s responsibilities to defend
Registry maintained by the Employment and indemnify the insured. This act is • Taxpayers may not use
Development Department (EDD). This effective January 1, 1999. their credit cards for
act is effective and operative on liabilities for which they
Ethics Training have been billed by the
January 1, 1999.
AB 2179 Legislative Ethics Committee BOE.
Education Loans (Chapt. 98-364) requires that each state In addition, taxpayers may
AB 1613 Scott, et al. (Chapt. 98-792) agency offer an orientation course on the not use their credit cards to
conforms California law to the federal relevant ethics statutes and regulations make payment if they are
deduction for interest on certain education that govern the official conduct of state required to pay by electronic
loans and to the modifications and officials. This act also requires that fund transfer.
clarifications of the rules relating to certain agency members, officers and
qualified state tuition programs contained employees attend the orientation course as NOVUS will charge card
in the federal 1997 Taxpayer Relief Act specified. This act is effective January users a fee of $4 to $18 per
(Public Law 105-34). This act as a tax 1, 1999. transaction, depending on the
levy is immediately effective and amount charged.
Scholarshare Trust
operative for taxable years beginning on For more information about
or after January 1, 1998. AB 2812 Higher Ed Committee (Chapt. BOE's new credit card
98-954) made numerous technical program, call the BOE
Internet Taxation changes to the Golden State Scholarshare Information Center at 1-800-
AB 1614 Lempert (Chapt. 98-351) Trust Act. This bill provides for an 400-7115. Representatives
enacted the “California Internet Tax appropriation and, therefore, would be are available Monday through
Freedom Act,” prohibiting, with specified effective upon enactment. Friday, 8 a.m. to 5 p.m.,
exceptions, any city, county or city and Public Records except on state holidays. Or
county from imposing, assessing or
SB 143 Kopp (Chapt. 98-620) made visit the BOE Web site at
attempting to collect taxes relating to
changes to the California Public Records www.boe.ca.gov.
Internet access and Online Computer
Services. This act also makes changes to Act including providing for public The Franchise Tax Board
the Sales and Use Tax Law, which is not inspection and copying of public records anticipates the start-up of a
administered by the FTB. This act is within specified time periods. This act credit card pilot program for
effective January 1, 1999. This act provides that an agency withholding individuals who receive bills
specifies that the California Internet Tax disclosure of a record shall provide the from FTB. Visit the FTB
Freedom Act would become inoperative reason in writing. This act is effective website at www.ftb.ca.gov
three years from the effective date January 1, 1999. after Nov. 15 for more
of this act. information.
Page 14

• Mail the order form and your check

Package X or money order to:
Tax News/Package X
P.O. Box 2708,
references to special words or terms in
Add Sales Tax both the tax forms and instructions. And
Rancho Cordova, CA
in March, you will receive a second disk
When with updated forms. You should be able Tax News is also available by e-mail at no
to use the CD-ROM if you have: charge and it can be viewed on FTB’s
Purchasing • A 486DX or Pentium computer with
Web site at www.ftb.ca.gov. For more
information about Package X or Tax
Package X a processor speed of 33 megahertz or
News, call (916) 845-7070.

• Microsoft Windows 3.1 or later with

California residents ordering
a mouse.
Package X must add sales tax
to their total based on their • Four megabytes of RAM (main Legislation
county of residence. memory).
Remember: Do not add sales • Double speed or greater CD-ROM
tax to your Tax News amount. drive capable of reading ISO 9660
Here are the sales tax rates for format. Holocaust Victims. SB 1397 Brulte/
California’s counties: Lockyer (Chapt. 98-962) excludes from
• VGA, SVGA or higher resolution gross income any amounts received by a
Nevada, Solano, Stanislaus color video display/adapter. Holocaust victim or the heir or beneficiary
• PostScript Windows-compatible of a Holocaust victim from a settlement of
7.375% printer or Hewlett-Packard LaserJet claims against any entity or individual for
Sonoma III and above with one megabyte of any recovered asset held at the close of
user RAM. World War II. Under the Welfare and
7.5% Institutions Code, this act, for purposes of
Fresno, Imperial, Inyo, To place your order for a Package X, use determining eligibility for public benefits
Madera, Napa, Orange, the 1998 Tax News/Package X order and Medi-Cal benefits, exempts certain
Riverside, Sacramento, San form on the back page of this issue. (You amounts received by Holocaust victims.
Benito, San Bernardino, San can also use the form to renew your The Welfare and Institutions Code
Diego, San Joaquin, Santa subscription to Tax News.) provisions would not affect the FTB.
Barbara Here are some tips for completing the This act takes effect and is operative
order form: January 1, 1999.
Santa Cruz • Use the 1998 order form provided. Limited Partnerships. SB 1741 Alpert
Do not use a form from a previous (Chapt. 98-417) requires the FTB to
8.0% year. Even if you cross out the year notify limited partnerships (LPs) when
Alameda, Contra Costa, Los and write in “1998,” you are using an they file a final return that the LP tax is
Angeles, Santa Clara, San out-of-date order form and your order due annually until a certificate of
Mateo may be delayed. cancellation is filed with the Secretary of
8.25% • Make any necessary corrections to State. This act is effective
the name and mailing address that are January 1, 1999.
San Francisco printed on the form. Service Contracts. SB 2075 Polanco
8.5% • Provide your telephone number. (Chapt. 98-1075) provides that beginning
All Other Counties on or after January 1, 2000, the Insurance
• Add the amounts for the Package X Code does not apply to service contracts
7.25% and the Tax News orders, and apply offered by regulated utility companies,
the appropriate amount of sales tax to thus making taxpayers offering these
the Package X order based on the contracts liable for income or franchise
county of your residence. (Refer to tax, rather than the gross premiums tax.
the sales tax table provided on this This act makes various changes to the
page.) Remember: Do not apply Business and Professions Code and the
sales tax to the Tax News order Insurance Code. Those provisions would
amount. not affect the FTB. As an appropriation
• Be sure to enclose your check or measure, this act is effective when signed
money order, payable to the by the Governor, but specifies that the
Franchise Tax Board. Orders provisions are operative on January 1,
without payments are not processed. 2000, and are repealed on
Do not send cash. January 1, 2004.

November 1998