Reliance – Advice IRS – FTB – CDTFA
Reliance – Advice IRS – FTB – CDTFA provides the authoritative references for the situations where a taxpayer may or may not rely on advice from the IRS, California FTB or CDTFA
The Internal Revenue Service [“IRS”] says [in SBSE-04-0517-0030]
The purpose of this memorandum is to issue guidance to remind examiners that frequently asked questions (FAQs) and other items posted on IRS.gov that have not been published in the Internal Revenue Bulletin are not legal authority. The FAQs and other items should not be used to sustain a position unless the items (e.g., FAQs) explicitly indicate otherwise or the IRS indicates otherwise by press release or by notice or announcement published in the Bulletin
Reliance – Advice IRS – FTB – CDTFA
On October 12, 2009, we issued two FTB Notices, 2009-08, Franchise Tax Board Ruling Guidelines, and 2009-09, Reliance upon Written Advice – Relief under Taxpayers’ Bill of Rights. These notices were issued to update communications on guidelines relating to the issuance of written advice by us and reliance upon that written advice under the
Taxpayers’ Bill of Rights.
We provide the following types of guidance:
- Chief Counsel Rulings – Taxpayer specific and must be requested by the taxpayer in writing using the required procedures set forth in FTB Notice 2009-08.
- Legal Ruling – A Legal Ruling is issued by our Legal Division and interprets California law and is the equivalent to an IRS Revenue Ruling.
- FTB Notices – An FTB Notice is issued by the Legal Division and may be a written statement regarding procedures that affect taxpayers, it may provide information regarding statutes or court decisions, or it may provide information about other matters that should be brought to the attention of the public. Notices are equivalent to an IRS Revenue Procedure or IRS Notice or Announcement.
- Other Guidance – News releases, Tax News, responses to media inquires, and similar matters published by us involving an explanation of California tax laws, decisions, or other events. These are not issued by the Legal Division or the Chief Counsel and cannot be relied upon as substantive guidance.
- Oral Advice – Our personnel are available to discuss verbally a variety of issues. Such discussion, however, will not be binding on us in general or on the Legal Division and cannot be relied upon as a basis to obtain relief where that verbal advice was relied upon.
In general, if you relied on erroneous written advice from us, we may, in some cases, relieve you of tax, interest, penalties, or additions to tax. For tax, interest, penalties, or additions to tax to be waived, certain conditions must be satisfied, including, but not limited to:
- You or your client made a written request for advice from us as to whether a particular activity or transaction is subject to tax.
- We responded in writing with our advice.
- You reasonably relied on that advice.
- You did not remit the tax due.
If such abatement is requested, then you must provide all of the following:
- A copy of the original written request and a copy of our written advice.
- A statement made under penalty of perjury that outlines the facts on which the claim for abatement is based.
- Any other information we may require.
We will not, however, abate tax, interest, penalties, or additions to tax where there was a misrepresentation or omission of material facts.
Reliance – Advice IRS – FTB – CDTFA
The California Board of Equalization [“BOE”] and California Dept. of Tax and Fee Administration [“CDTFA”] says [In Article 18, Section 1705]
(a) IN GENERAL. A person may be relieved from the liability for the payment of sales and use taxes, including any penalties and interest added to those taxes, when that liability resulted from the failure to make a timely return or a payment and such failure was found by the Board to be due to reasonable reliance on:
(1) The written advice was given by the Board under the conditions set forth in subdivision (b) below, or
(2) The written advice in the form of an annotation or legal ruling of counsel under the conditions set forth in subdivision (d) below; or
(3) The written advice was given by the Board in a prior audit under the conditions set forth in subdivision (c) below. As used in this regulation, the term “prior audit” means any audit conducted prior to the current examination where the issue in question was examined.
Written advice from the Board may only be relied upon by the person to whom it was originally issued or a legal or statutory successor to that person. Written advice from the Board which was received during a prior audit of the person under the conditions set forth in subdivision (c) below, may be relied upon by the person audited or a person with shared accounting and common ownership with the audited person or by a legal or statutory successor to those persons.
(b) ADVICE PROVIDED IN A WRITTEN COMMUNICATION.
(1) Advice from the Board provided to the person in a written communication must have been in response to a specific written inquiry from the person seeking relief from liability, or from his or her representative. To be considered a specific written inquiry for purposes of this regulation, representatives must identify the specific person for whom the advice is requested. Such inquiry must have set forth and fully described the facts and circumstances of the activity or transactions for which the advice was requested.
(2) A person may write to the Board and propose a use tax reporting methodology for qualified purchases subject to use tax. If the Board concludes that the reporting method reflects the person’s use tax liability for the defined population, then the Board may write to the person approving the use of the reporting method. The approval shall be subject to certain conditions. The following conditions shall be included in the approval:
(A) The defined population of the purchases that will be included in the reporting method;
(B) The percentage of purchases of the defined population that is subject to tax;
(C) The length of time the writing shall remain in effect;
(D) The definition of a significant or material change that will require rescinding the approved reporting method; and
(E) Other conditions as required.
The written approval of the use tax reporting methodology is void and shall not be relied upon for the purposes of Revenue and Taxation Code section 6596 if the taxpayer files a claim for refund for tax that had been reported based upon this reporting method.
(c) WRITTEN ADVICE PROVIDED IN A PRIOR AUDIT. Presentation of the person’s books and records for examination by an auditor shall be deemed to be a written request for the audit report by the audited person and any person with shared accounting and common ownership with the audited person. If a prior audit report of the person requesting relief contains written evidence which demonstrates that the issue in question was examined, either in a sample or census (actual) review, such evidence will be considered “written advice from the Board” for purposes of this regulation. A census (actual) review, as opposed to a sample review, involves examination of 100% of the person’s transactions pertaining to the issue in question. For written advice contained in a prior audit of the person to apply to the person’s activity or transaction in question, the facts and conditions relating to the activity or transaction must not have changed from those which occurred during the period of operation in the prior audit. Audit comments, schedules, and other writings prepared by the Board that become part of the audit work papers which reflect that the activity or transaction in question was properly reported and no amount was due are sufficient for a finding for relief from liability, unless it can be shown that the person seeking relief knew such advice was erroneous.
For the purposes of this section a person is considered to have shared accounting and common ownership if the person:
(1) Is engaged in the same line of business as the audited person,
(2) Has common verifiable controlling ownership of 50% or greater ownership or has a common majority shareholder with the audited person, and
(3) Shares centralized accounting functions with the audited person. The audited person routinely follows the same business practices that are followed by each entity involved. Evidence that may indicate sharing of centralized accounting functions includes, but is not limited to, the following:
(A) Quantifiable control of the accounting practices of each business by the common ownership or management that dictates office policies for accounting and tax return preparation.
(B) Shared accounting staff or an outside firm who maintains books and records and prepares sales and use tax returns.
(C) Shared accounting policies and procedures.
These requirements must be established as existing during the periods for which relief is sought. A subsequent written notification stating that the advice was not valid at the time it was issued or was subsequently rendered invalid to any party with shared accounting and common ownership, including the audited party, serves as notification to all parties with shared accounting and common ownership, including the audited party, that the prior written advice may not be relied upon as of the notification date.
(d) ANNOTATIONS AND LEGAL RULINGS OF COUNSEL. Advice from the Board provided to the person in the form of an annotation or legal ruling of counsel shall constitute written advice only if:
(1) The underlying legal ruling of counsel involving the fact pattern at issue is addressed to the person or to his or her representative under the conditions set forth in subdivision (b) above; or
(2) The annotation or legal ruling of counsel is provided to the person or his or her representative by the Board within the body of a written communication and involves the same fact pattern as that presented in the subject annotation or legal ruling of counsel.
(e) TRADE OR INDUSTRY ASSOCIATIONS OR FRANCHISORS. A trade or industry association requesting advice on behalf of its member(s) must identify and include the specific member name(s) for whom the advice is requested for relief from liability under this regulation. A franchisor requesting advice on behalf of its franchisee(s) must identify and include the specific franchisee name(s) for whom the advice is requested for relief from liability under this regulation.
For an identified trade or industry member or franchisee to receive relief based on advice provided in the written communication to the trade or industry association or franchisor, the activity or transactions in question must involve the same facts and circumstances as those presented in the written inquiry by the association or franchisor.
Reliance – Advice IRS – FTB – CDTFA