California grants one year reprieve on tax basis capital account reporting
On Mar. 8, 2022, the California Franchise Tax Board (FTB) issued FTB Notice 2022-01 giving taxpayers taxed as partnerships the option to continue to use federal capital account tax basis for the 2021 tax year instead of following the 2021 Form 565/568 instructions which state the capital account tax basis is required to use worldwide amounts determined under California law.
Taxpayers will only be allowed to use the federal tax basis for the capital account analysis for the 2021 tax year and are not allowed to use the federal tax basis for any other purposes, including reporting or determining their California tax liability.
For tax years 2022 and thereafter, the FTB will require taxpayers who file Form 565/568 to report their partners' or members' capital accounts on Schedule K-1 using the tax basis method as determined under California law.
This notice was released after the FTB indicated in the 2021 instructions to Form 565/568 Schedules K-1 and M-2 that a separate California tax basis is required rather than using the federal tax basis capital accounts and realized many taxpayers did not have enough time to comply with the new requirement. Therefore, the FTB issued Notice 2022-01 making the California tax basis capital account reporting optional for 2021.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Alerts and Webinars
InsightNew York State’s Annual Form CHAR500: Recent compliance changes to knowZachary Segal, Chaim FridmanCatch up on how to file, what schedules to include, and whether to file an audit or review report. (Updated 9/1/2022 with new effective date)
InsightN.Y. case: Vacation home not a permanent place of abodeLance Rothenberg, Corey L. RosenthalThe recent decision around a taxpayer’s statutory residency may open the door for others to argue the same, under similar facts.
InsightNew California budget offers tax relief: Refunds, credits, and moreTed Tourian, Krista SchippRead about key refunds, credits, grants, and other tax provisions in California’s latest budget, including changes to cannabis taxation.