Tax Traps For Businesses’ Failure To File A Return

Do you have an existing business or were issued a 1099 but you decided to ignore it and not report or file any tax returns?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

The Franchise Tax Board (FTB) sent letters to over 41,000 California businesses that have not filed their 2015 CA income tax return. Business non-filers have 30 days to file a tax return or show why they are not required to file.

If you disregard the letter you will be assessed penalties, fees and interest based on income and other information reported to the FTB. The FTB receives information from the IRS, EDD, BOE, financial institutions, cities, and other businesses and matches the information against its own tax record to identify potential non-filer corporations, LLCS & sole proprietors.

The FTB may also estimate your income if you hold a license. They will base it on the average income of someone with that license. For example, if you have a real estate license, the FTB will assess tax based on what they believe a real estate sales person earns. That’s messed up, right?

For first-time non-filers, the FTB will send you a “request to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty and interest but no demand penalty or filing enforcement fee.

For repeat non-filers, the FTB will send you a “demand to file” letter. If you don’t respond within 30 days, the FTB will sent a notice of proposed assessment with tax, a late filing penalty, demand penalty and a filing enforcement fee.

Now let me tell you this, all these penalties and interest, they quickly add up. So what do you need to do? If you received one of these notices, you can request more time to respond to get more information by calling 866-204-7902 or go to FTB’S website at www.ftb.gov.

Normally, most of these penalties are available for reasonable cause exemption so you can waive the penalties. However, reasonable cause exemption is almost impossible to get in California since California does not conform to the IRS first-time penalty abatement program.

Also, the FTB also said that just because you do not understand that you have a California filing requirement is not a ground for reasonable cause exemption.

So here’s my tax tip to you, if ever you receive an FTB letter, please do not ignore the letter. It would not magically disappear or go away. Trust me on this! So make sure you address it ASAP in order to minimize any potential interest and penalties.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.