On September 25, 2017, Governor Jerry Brown signed into law Senate Bill (SB) 813, expanding California’s Voluntary Disclosure Program (VDP).
Under the VDP, the California Franchise Tax Board (FTB) has the authority to enter into voluntary disclosure agreements (VDAs) with certain taxpayers. In doing so, the FTB waives its authority to assess the following for any years prior to the six taxable years ending immediately before the VDA’s signing date:
- Taxes
- Additions to taxes
- Fees
The FTB may also, at its discretion, waive penalties for the six taxable years preceding the signing date of the VDA.
What’s Changing
SB 813 expands the VDP by enabling the FTB to enter into VDAs with:
- Out-of-state trusts that have beneficiaries in California
- Nonresident partners of out-of-state partnerships
The new law also gives the FTB the ability to waive partnership and S corporation late filing penalties for specified returns under the VDP.
What It Means
Trust administrators may not be aware of California’s income tax filing requirement for trusts, which arises when a beneficiary resides in the state, leaving them unaware of the filing requirement. And because nonresident partners in partnerships often own passive interests—they don’t materially participate in the business of the partnership, in other words—they may not always be aware of the filing requirement either.
The expansion of the VDP makes it possible for nonresident partners and trust fiduciaries and administrators who discover too late that they have a tax filing obligation to mitigate their exposure to state taxes and late filing penalties and become compliant at a potentially significantly reduced cost.
Effective Date
The new law applies to VDAs entered into by taxpayers on or after January 1, 2018.
We’re Here to Help
If you’re interested in determining whether a VDA makes sense for you or your organization, contact your Moss Adams professional or email statetax@mossadams.com.