The IRS is receiving incredible amounts of questions concerning victims of tax–related identity theft. What is this??
Here is a true example:
THE IRS NEVER SENDS NOTICES OF REFUNDS OR AUDITS BY E-MAIL. THEY NEVER ASK FOR DATA IN AN E-MAIL.
If you believe you might have been a victim of identity theft, call IRS at 800-908-4490.
Effective July 1, 2014, through June 31, 2022, qualified taxpayers who make qualified purchases may claim an exemption from the state portion of California’s sales tax.
The state tax rate is currently 4.1875%. The purchaser must still pay the local/district tax.
A “qualified taxpayer” is a business primarily engaged (more than 50%) in:
A qualified taxpayer with multiple or single physical locations (or portions thereof), designated as “cost centers” or “economic units,” is eligible for a credit where a qualified activity is performed, as long as the taxpayer maintains separate books and records for the establishment.
Example: ABC Winery, LLC is comprised of three different operations: the vineyards, the winery, and a tasting room. The LLC does not qualify at the entity level because more than 50% of the gross receipts come from grape (agriculture) and wine (retail) sales. However, as long as the LLC keeps separate books and records, the winery establishment would qualify as a manufacturer eligible to claim the exemption for qualified purchases.
The 50% test is measured by gross revenue (including inter-company charges) from, or operating expenditures in, a qualifying line of business in the prior financial year.
Alternative ways to qualify
A taxpayer who does not qualify using the standard 50% test may still qualify if:
• At least half of its employee salaries and wages, value of production, or full-time equivalent employees are in a qualifying line of business;
• A combination of its qualifying lines of business exceeds 50% (e.g., its manufacturing activities combined with its R&D activities); or
• It qualifies using any of the standard or alternative tests for the one-year period following the property’s purchase date rather than for the preceding financial year.
Qualified tangible personal property (TPP) includes, but is not limited to:
Not qualified TPP
Qualified TPP does not include:
The property must be used:
Leases of qualified TPP that are classified as “continuing sales” and “continuing purchases” under 18 Cal. Code Regs. §1660 may qualify for the partial exemption as long as all other conditions are met. Rental payments made after June 30, 2014, qualify for the exemption even if the lease was entered into prior to July 1, 2014.
Sellers must obtain a partial exemption certificate at the time of purchase or lease (or lease period beginning after June 30, 2014, for leases entered prior to July 1, 2014).
A special exemption certificate is available for construction contractors. The exemption certificates, including a blanket exemption certificate, are available on the BOE’s website www.boe.ca.gov/sutax/manufacturing_exemptions.htm#Sellers, but sellers may accept any document as long as the document contains specified information.
Taxpayers who realize they have qualified for the exemption after the purchase may provide the seller with an exemption certificate, and the seller must apply for a refund by filing a refund claim (using Form BOE-101, Claim for Refund or Credit) with the BOE within the limitations period established by RT&C §6902. However, if the purchaser paid use tax on the transaction, the purchaser may apply to the BOE for a refund.
January 1, 2014, taxpayers who complete a like-kind exchange of California property for property located out of state are required to file Form 3840, California Like-Kind Exchanges, an information return, with the FTB.
The form (Form 3840) is not yet available for review, but we do have answers to some of the questions you have been asking.
*UPDATE* The form is now available at www.ftb.ca.gov
The filing requirement
The information return must be filed for the year in which the exchange is completed and each subsequent year that the gain or loss is deferred, regardless of whether the seller/exchanger has any other California franchise tax, income tax, or information return filing requirement.
The FTB may estimate net income — using any available information — and assess tax, interest, and penalties if:
However, the FTB has informed us that for reverse exchanges that began in 2013, where the original property was not transferred until 2014, the information return will be required.
Example: Fred exchanged an apartment building in California for another apartment building in Texas through a reverse IRC §1031 exchange. In December 2013, Fred identified the Texas apartment building he wanted and purchased it. At that time, he had not yet sold his California apartment building. Fred sold his California building in January of 2014 and successfully completed his IRC §1031 exchange. Because Fred did not relinquish his California property until 2014, he is subject to the information reporting requirement.
Answers to your questions
In addition to the form, the FTB is working on FAQs on this topic, and here are some of the answers they have provided to us:
Q: If I continue to be a California resident after exchanging California property for out-of-state property, can this form be filed with my California Form 540?
Q: Will the due date of the new information form be the same as the income tax return due date (generally April 15)?
A: Yes, the due date for the information return will be the due date of the income tax return.
Q: Must I track and identify replacement property if that property is disposed of in a subsequent exchange for property outside of California?
A: Yes. You will be required to continue reporting, although you have acquired a new replacement property.
Q: Will the form have a “final” checkbox to indicate no future forms need to be filed? For example, I have disposed of the property and recognized all deferred gain, or the replacement property is passed to beneficiaries upon the death of the owner.
FTB accepting comments
A public draft of Form 3840 will be posted on the FTB’s website around mid-September 2014 to allow for public comment. We will notify you as soon as the form is available.
*UPDATE* The form is now available at www.ftb.ca.gov
In the meantime, an e-mail address has been established for submitting comments or suggestions for Form 3840. While it is difficult to comment on a form you have not yet seen, the FTB has noted that suggestions or concerns can be e-mailed to 1031AnnualFiling@ftb.ca.gov.
Mortgages: Form 1098 (you receive this from the lender) will be different starting in 2016 ( tax filing year 2017). The 1098 will include the amount of mortgage principal at the start of the year, the mortgage origination date, and the address of the property securing the loan.
Estates and Trusts: Effective for Tax form 706 filed after July 31, 2015, heirs are now required to use the value of an inherited asset as shown on the Form 706 as the basis for the asset or the value as adjusted by IRS or court ruling. If you use a basis higher than reported, you may be hit with a 20% substantial understatement penalty.
FILING DUE DATES ARE CHANGING FOR BUSINESS RETURNS:
Beginning in 2016, partnerships are due 2 ½ months after the year end, March 15 for calendar year partnerships. That represents a month earlier than now. This makes partnerships and S Corporations due at the same time. This gives preparers time to transfer the data from the K1 to the 1040 in time for April 15. C Corporations will be due 3 ½ months after the year end., except for fiscal year corporations (June 30 as example). Partnerships can request a six month extension; Corporations 5 months.
Unmarried filers who jointly buy a home get a tax break on the mortgage interest. The $1 million loan cap on home mortgages applies on a PER-TAXPAYER basis and no longer on a PER-RESIDENCE basis. Also applies to the $100,000 home equity debt.
Firms that legally sell marijuana can now deduct the State excise Tax fees on the marijuana sales. They are still not allowed to deduct business expenses except the cost of the marijuana.
Sal Censoprano is a Certified Public Accountant (CPA) and tax practice owner for over 40 years. He was born and raised in Brooklyn, New York and earned his master’s degree in taxation.