This article is reproduced with permission from Spidell Publishing, Inc.
This new conformity item will start for 2016 returns.
For taxable years beginning on or after January 1, 2016, California conforms to the Foreign Account Tax Compliance Act (FATCA) information reporting requirements for individuals with foreign financial assets, including the minimum $10,000 penalty for failure to file Form 8938, Statement of Specified Foreign Financial Assets, without reasonable cause. This requirement applies to all individuals required to file California income tax returns (not just California residents).
California previously conformed to the following foreign information reporting requirements and associated penalties for failure to report:
- Controlling ownership in foreign business entities (Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships), with a reduced penalty of $1,000 (from $10,000);
- Foreign-owned U.S. corporations (Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business), including the minimum $10,000 penalty;
- Transfers to foreign persons (Form 8865), including the minimum $10,000 penalty; and
- Foreign corporations involved in U.S. business (Form 5472), including the minimum $10,000 penalty.
Again, these penalties apply to all taxpayers required to file California returns, including individual residents, nonresidents, and part-year residents.
In all cases, the information required to be filed with the California Franchise Tax Board (FTB) is a copy of the information filed with the IRS. This means taxpayers who are required to file California returns may be subject to penalties of $20,000 ($10,000 federal and $10,000 California) for failure to comply with these information reporting requirements. California does not offer a reasonable cause exception, but that is a difficult test to meet.
How do you file?
Taxpayers subject to this new filing requirement are generally those who file the federal forms listed above. For individuals, in most cases, the FTB requires a copy of the federal tax return to be attached to the California return. If the federal return is attached, that will include Form 8938, which will meet the requirement. If not, you must attach the form. For entity returns, you must attach the appropriate form if a complete federal return is not being filed.
For more information about this article, please contact our tax professionals at firstname.lastname@example.org or toll free at 844.4WINDES (844.494.6337).