09 Sep California Voluntary Compliance Initiative 2
The Franchise Tax Board of California has announced the Voluntary Compliance Initiative 2 (VCI 2) as an opportunity for taxpayers with underreported California tax liabilities relating to either (i) abusive tax avoidance transactions (ATATs) or (ii) offshore financial arrangements (OFAs), to amend their tax returns for 2010 and prior years and obtain a waiver of most penalties. If you are concerned that you may have underreported your California tax liabilities, please continue reading for more information regarding the VCI 2.
As mentioned above, VCI 2 only relates to taxpayers with underreported California tax liabilities relating to either ATATs or OFAs.
An ATAT includes: (i) any tax shelter as defined under Internal Revenue Code (IRC) Section 6662(d)(2)(C); (ii) any reportable transaction as defined under IRC Section 6707A(c)(1) that is not adequately disclosed in accordance with IRC Section 6664(d)(2)(A); (iii) any listed transaction as defined under IRC Section 6707A(c)(2), (iv) any transaction resulting in a gross misstatement within the meaning of IRC Section 6404(g)(2)(D), or (v) any transaction to which the noneconomic substance transaction (NEST) penalty applies under Revenue and Taxation Code (RTC) section 19774.
An OFA includes: “any transaction designed to avoid or evade California income or franchise tax through the use of: (a) offshore payment cards, including credit, debit, or charge cards issued by banks in foreign jurisdictions, or (b) foreign banks, financial institutions, corporations, partnerships, trusts, or other entities.”
If you believe you may have underreported California tax liabilities relating to either an ATAT or an OFA, you should consider participation in VCI 2. To participate in VCI 2, you will be required to (i) complete a Participation Agreement with the Franchise Tax Board on or before October 31, 2011; (ii) attach the Participation Agreement to your amended tax return to report all income from all sources, without regard to the ATAT and including all income from the OFA; and (iii) pay all tax and interest by October 31, 2011.
The Franchise Tax Board provides that participants in VCI 2 can avoid the following penalties through participation as described above: (i) Noneconomic Substance Transaction Understatement Penalty; (ii) Accuracy Related Penalty; (iii) Interest Based Penalty; and (iv) Fraud Penalty.
Additional information regarding VCI 2 can be found on the Franchise Tax Board website at: http://www.ftb.ca.gov/voluntary_compliance_initiative_2/Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.