CSEA Advocacy Efforts Paying Off

Posted on March 10, 2016 · Posted in CSEA Society News, Industry News, Latest Updates

3/4/16 – CSEA has made progress on a number of regulatory and legislative priorities in the past few months. It’s important to note that these significant issues are being discussed and addressed as a direct result of CSEA’s ongoing advocacy efforts to promote fair and effective tax administration. This progress is made possible by your support as a Member of your professional society.

Streamlining business entity Statement of Information (SOI) filing

CSEA Members have long expressed concern that business entities often forget to file an updated Statement of Information (SOI) with the California Secretary of State (SOS) because the due date is obscurely tied to the entity’s anniversary date and the reminder issued by the SOS is a small postcard that easily gets lost in the mail shuffle. If an entity fails to file timely, a significant penalty is assessed and eventually the entity is suspended, which interferes with its ability to receive properly due tax refunds.

CSEA began working with Assembly Member Cheryl Brown (D-San Bernardino) on a solution to this issue early last year, sponsoring Assembly Bill 871, which sought to simplify filing due dates to ease taxpayer burden and increase compliance. As the bill moved through the legislative process, the SOS expressed concern that the approach proposed would present significant costs and may have other unintended consequences. In mid-January, Assembly Member Brown and Secretary of State Alex Padilla agreed to work on an administrative solution to the problem rather than the solution proposed in AB 871.

CSEA has been in conversation with lead staff at SOS to better understand the issue from the agency’s perspective and explore possible solutions. Staff has already made changes to the SOS website aimed at increasing awareness and compliance and has shared plans to revamp the reminder mailing to garner more serious attention. CSEA was also invited to be a part of the SOS Stakeholder Group that meets regularly to provide external feedback and assist the SOS in solving challenging issues.

CSEA is pleased that there is a desire by not only the Secretary of State, but also the Governor’s Office of Business and Economic Development (GO-Biz), which holds summits designed for small business owners, during which they could discuss the SOI filing requirement.

CSEA has received inquiries and interest from numerous legislators on both sides of the aisle in reaching some reasonable resolution on this issue on behalf of taxpayers.

Dissolution for never-launched businesses

CSEA has also been advocating to both the Legislature and Franchise Tax Board (FTB) for a legislative or regulatory way to administratively dissolve business entities that form but never actually conduct business. This becomes increasingly problematic as taxpayers who form entities often don’t realize that they have a filing obligation and incur an $800 annual minimum tax even if they conduct no business.

FTB recently announced that it assembled a team to study why entities continue to have challenges with dissolving and cancelling. The team will formalize a planned approach with anticipated deliverables by July 2016, including a complete analysis of the dissolution and cancellation process, identification of opportunities for improved education and outreach, and a review of administrative, regulatory, and/or legislative changes that might present opportunities to address this continuing issue. This effort will include seeking input and feedback from partner state agencies and stakeholders such as CSEA.

Inadvertent failure to file Form 568 by Single-Member LLCs

CSEA Members report encountering clients with individually-owned Single-Member Limited Liability Corporations (SMLLCs) that fail to recognize their disregarded entity has an entity state return filing requirement. Failure to recognize this filing requirement can be quite expensive, especially when penalties and possible suspensions are factored in. CSEA requested that the FTB increase efforts to assure filers recognize the need to file three tax returns: a federal Form 1040, a California Form 540 (individual) and a California Form 568 (LLC).

As a result, the FTB is conducting a feasibility study regarding the SMLLC filing requirements for personal income tax filers, including the filing requirements for corporations that have SMLLCs. The feasibility study will address potential form changes suggested by CSEA and Spidell Publishing as well as impacts to the FTB’s business processes. The FTB expects the study and recommendation to be completed soon.

Disaster treatment

CSEA’s efforts to obtain automatic disaster treatment were rewarded when SB 35 (CH 2015-230) became law on September 1, 2015. The bill allows victims of a Gubernatorial declared disaster to automatically claim a loss in either the year the disaster occurred or in the prior year (a “throwback” election), without waiting for legislation which can occur months after the event.

However, in the aftermath of the 2015 Valley and Butte Fires, CSEA noted discrepancies between IRS and FTB websites – the state guidance only recognized the Butte Fire as Presidentially-declared, although both eventually were declared. CSEA asked the FTB for clarification, noting that conflicting information could be a problem in the upcoming filing season for fire victims and their tax practitioners to understand whether they have disaster tax relief throwback elections available for both their federal and California returns or their California returns only.

The FTB responded by updating its Publication 1034, Disaster Loss, How to Claim a State Tax Deduction to include both fires as Presidentially-declared disasters. In addition, FTB is updating its procedures so that it is aware of federal amendments to Presidentially-declared disasters.

Legislators Support CSEA’s Tax Help Day

While intended to support CSEA’s public information and awareness goals to promote Enrolled Agents as America’s Tax Experts, there was widespread interest across the California State Legislature in tapping into CSEA’s annual Tax Help Day this year. After hearing from Members during CSEA’s Jim Stern Legislative Day on January 11, legislators scrambled to co-sponsor and/or help the Society get the word out about the February 6 Tax Help Day, seeing the event as a community service where their constituents could get answers to their questions on a wide variety of tax topics. This year’s event truly transcended its original purpose of public awareness, becoming a valuable opportunity to partner with legislators in serving their constituents.