Contrary to popular belief, IRS isn’t the most ruthless tax collecting agency in this country. In all of my years in this profession, I have seen countless examples of how much more aggressive the California Franchise Tax Board has been in trying to collect taxes than the IRS. For decades, FTB has even trained IRS in aggressive tactics. FTB will levy accounts and put liens on assets much quicker than IRS will. This includes people and companies not even located inside the PRC. This has always been the case. With the once Golden State on the brink of bankruptcy, I’m sure it will get much worse as the rulers in Sacramento become ever more desperate for cash by any means possible, legal or not.
In an example of these new tactics that hits me directly, I just became aware of one of the FTB’s new strategies to investigate people who have California professional licenses, but are located outside of that state to see if they should be paying taxes on Calif. source income. I was reading the latest newsletter that arrived from the Calif. Board of Accountancy in today’s snail mail and found this item on Page 18.
Things to Know… Franchise Tax Board Requests for Out-of-State Licensee Tax Return
Do you presently live and work out of state, but continue to maintain an active California CPA license? The CBA has some important tax-related information for you. Required by law, the CBA must provide the FTB, upon request, specific information including your name, address, social security number, and license status. The FTB may then use its authority under the Revenue and Taxation Code to generate a request for tax return information from any California-licensed CPA who does not file a California tax return, regardless of his/her state of residence, and require you to provide proof that you did not earn income in California. Failure to respond to the FTB request for tax return information for any reason, including non-receipt of the request, can result in FTB filing a lien against you. The CBA does not receive any notification when such a demand letter is generated by the FTB and the CBA does not have access to any information in this regard. If you have any questions regarding this process or want information, please contact the FTB at (916) 845-7057.
How this is enforced we’ll have to wait and see. For CPAs, and anyone else, who do physically work in multiple states, their income does need to be allocated between the different states and income tax returns filed for each one that has an income tax. It’s common practice for professional entertainers and athletes; but also applies to everyone else.
Since I have not been inside California since September 1993, I have not reported any California source income or filed a personal California income tax return since the one for 1993. I would bet money that FTB will use my out of state license info to inquire about my Calif tax obligations. FTB has a mixed record in regard to being fair and cooperative in administering the tax laws; so I can only hope that they are fair with me and other persons in the same boat. As always with tax matters, we have to deal with the fact that they can operate under the beginning presumption that we are guilty of owing taxes and we will have the burden of proving otherwise.
Those of us who listen to Rush Limbaugh know that he has had to go through this same kind of state tax audit every year since he moved from New York to Florida. Because his show is technically broadcast from a New York facility, the State of New York starts out with the presumption that all of his broadcasting income was generated from inside that state and he is forced to provide documentation of every day during the year that he claims to not have been inside New York. Rush has been very open about this and even took a vow not to ever do any more shows from the New York facility. I hope he sticks to that resolution because tax hiking politicians, such as the bozos in Albany, need to know that people will no longer just bend over and accept their higher taxes.
I will report on my experiences with the Calif FTB in regard to this matter and would appreciate any other CPAs in the same situation sharing their experiences with me and my readers.