FTB-COT Liaison on their part . The goal of this campaign is to provide a cost-effective means to educate taxpayers regarding potential compliance issues and allow them to make adjustments without having to undergo an audit .
FTB-COT Liaison on their part . The goal of this campaign is to provide a cost-effective means to educate taxpayers regarding potential compliance issues and allow them to make adjustments without having to undergo an audit .
The letter campaign is still in its pilot stage . However , based on the number of amended returns received and amounts self-assessed , we feel the program is promising to be effective . The effort has brought in over $ 24 million in selfassessed additional taxes from over 3,600 amended returns , with minimal costs incurred by FTB .
We do plan to continue to send the letters and will look to address other areas of potential non-compliance in the future .
IRC Section 1031 Exchanges
In the case where a taxpayer sells California property and replaces it with out of state property in a 1031 exchange non-California property under Internal Revenue Code Sec . 1031 must file a Form 3840 until the deferred gain has been recognized in full . ( Rev . & Tax . Code Sec . 18032 .) If the taxpayer dies before the deferred gain is recognized in full , the taxpayer ’ s estate should file a final Form 3840 along with an explanation that the taxpayer is deceased . When a taxpayer exchanges California property for property located outside of California in a 1031 transaction , and subsequently dies , the basis of the property would generally be stepped-up to fair market value at the time of the owner ’ s death . After this step-up , any subsequent appreciation of the property located outside of California would be considered non- California sourced gain .
Like-kind Exchanges
CA Form 3840 – California Like-Kind Exchanges , is supposed to be filed
Disaster-Related Filings
Is there anything taxpayers and practitioners should be aware of due to recent legislative changes made by SB 167 , which made the Department of Finance responsible for determining whether and to what extent California will conform to federal disaster postponements ?
FTB Response
The FTB is working closely with Department of Finance and other stakeholders to establish a process to determine and announce emergency tax relief for California . We worked collaboratively since the bill was signed to announce the relief granted for California purposes . When disaster relief is granted , FTB Emergency Tax Relief website will be updated and will explain what relief is included .
If California were to provide a disaster relief period different than
Taxpayers that defer California gain on the exchange of California property for non-California property under Internal Revenue Code Sec . 1031 must file a Form 3840 until the deferred gain has been recognized in full .
and then subsequently passes away , the person who inherits that property gets a stepped-up basis equal to fair market value on date of death . I understand there are proposed regulations addressing Californiasourced gains in deferred exchanges ( Proposed Regulation 17951-7 ), but it does not address the situation where the owner dies before the replacement property is sold .
Does the step-up in basis eliminate the California deferred gain upon death ? Would appreciation after the replacement property has been inherited and after the stepped-up basis had eliminated any gain on the property still be subject to California taxation when it is ultimately sold ? Also , what does the death of the owner mean in terms of the Form 3840 reporting obligation , both to the owner and the beneficiary ?
FTB Response
Taxpayers that defer California gain on the exchange of California property for when real property in California is exchanged for property outside of California ; schedule A Part II requires identification of the property received , including the property address & state or assessor ’ s parcel number and county ; many investors are currently selling real estate and exchanging into DSTs , which own portfolios of many properties both inside and outside of California , with the reinvestment being in the higher-level DST .
What information should be used for address or assessor ’ s number when the single DST owns a portfolio of multiple properties ?
FTB Response
The taxpayer may simply include the name of the Delaware Statutory Trust ( DST ) in the description of the like-kind property received on Schedule A - Part II – line 9 . The taxpayer must report the deferred gain on Schedule A – Part I – line 8 and file the return annually until the gain is recognized for federal income tax purposes . the period announced by the IRS , FTB will have a process to ensure impacted taxpayers affected by the disaster are assisted . A taxpayer will be required to retain documentary evidence of how they were affected by a disaster to receive additional disaster relief through the end of the relief period announced by the IRS once the California announced relief period ends . The FTB will have a new form available in early 2025 , FTB Form 3872 - California Disaster Relief Request for Postponement of Tax Deadlines . Disaster-impacted taxpayers will use this form to claim disaster-relief postponed deadlines through the end of the relief period announced by the IRS when the California relief period is shorter than the federal relief period .
Technology
Is it possible for the FTB to use both California SOS and FEIN numbers to associate tax returns and payments in their system ? We understand that these items are primarily track with the www . calcpa . org JANUARY / FEBRUARY 2025 CALIFORNIA CPA 17