According to a recent conversation with the FTB, the FTB stated that they have erroneously assessed underpayment penalties for some taxpayers with AGI of at least $1 million who did not pay 90% of their tax during 2009, a new requirement effective for years beginning on or after January 1, 2009.

Although these taxpayers may not use the prior-year safe harbor, they are not subject to the underpayment penalty if, in the prior year, the taxpayer:

• Had a liability of $500 or less ($250 for married filing separately); and
• Made all payments in the prior year through withholding. (R&TC §19136(c)(2))

According to the FTB, if the penalty should not have been assessed because your client meets these two tests, call the FTB Tax Practitioners’ Hotline at (916) 845-7057 to request abatement.