State Notices - Sch CA doesn't add correctly due to DPAD Adjustment - Spidell

State Notices – Sch CA doesn't add correctly due to DPAD Adjustment

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Message Board State Notices – Sch CA doesn't add correctly due to DPAD Adjustment

This topic contains 6 replies, has 3 voices, and was last updated by Lynn Freer 2 months, 1 week ago.

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  • #165349
    Susan Woods
    Participant

    We received several notices for clients today related to the Sch CA adjustment for DPAD which is still coming from coops for a number of our farmers.  Has FTB been contacted and told their computer isn’t handling this correctly??  Because Lacerte is doing this right.

  • #165368
    Mark Bole
    Participant

    Please provide line and column that do not “add correctly”.  Where did you report the adjustment?  Maybe someone else can check a different software package using your approximate numbers and see if the same result obtains.

    Somehow, I don’t think that just telling the FTB they are wrong without any evidence isn’t going to get very far.

  • #165372
    Susan Woods
    Participant

    Mark I’m confident that the return as filed is correct and yes, I probably have sufficient evidence.  But that’s not the point of my post.  Sch CA no longer has a line to add back the DPAD shown on the federal return.  So Lacerte adds it back based on a separate schedule attached to the return.  FTB isn’t seeing that adjustment and is adding back the DPAD deduction from the Federal return a second time.  It’s clearly an error on FTB’s part.  I’m just trying to find out if any other preparers have already contacted the FTB and gotten a response on this issue.

  • #165528
    Mark Bole
    Participant

    Now that you’ve taken the time to provide a better explanation, I think I see the problem.  The DPAD for 2018 is not part of federal AGI, therefore it should not be on Schedule 1 of Form 1040 nor Form 8903, nor should any adjustment show up on CA Schedule CA(540) since that form only deals with adds/subtracts to federal AGI and optionally, itemized deductions.

    This makes sense, since the 199A(g) DPAD needs to be factored into the QBI calculation, which also comes after AGI is determined and similarly does not show up on Schedule CA(540).

    Per IRS instructions, “If you have a domestic production activities deduction passed through from an agricultural or horticultural cooperative under section 199A(g), attach a statement to your return titled “DPAD 199A(g).” Reduce the amount of taxable income you enter on line 10 by the amount of your deduction. See Pub. 535 for more information.”

    So, since the DPAD for 2018 is supposed to go on page 2 Line 10 of Form 1040, it should not be part of Schedule CA at all. My software shows the DPAD on Line 10 with the notation “DPAD 199A(g)” and does not try to make any CA adjustment, because it would not make sense to do so.

    If you are entering 1099-PATR Box 6 in your software the same way as in the past, that is probably what’s wrong.  My software specifically cautions that DPAD under 199A(g) needs to be entered elsewhere for 2018 tax year.  The only time you would have old DPAD (sec 199) would be for “Fiscal-year pass-through entities that have a domestic production activities deduction generated in a tax year beginning before December 31, 2017 (see Form 8903).

     

     

     

  • #165546
    Mark Bole
    Participant

    Just for fun, I did also enter old DPAD (sec 199), as if reported from a fiscal year entity. (Hoping you would have bothered to mention fiscal year if it applied to your clients).   It shows up on federal Schedule 1 line 36, as expected, and on CA Schedule CA(540), it shows up as a subtraction on Line 36, just as expected, and everything “adds up” as it should.

    You said Schedule CA no longer has a line to add back the DPAD from Form 8903, but it does — line 36.

  • #165923
    Mark Bole
    Participant

    “Has FTB been contacted and told their computer isn’t handling this correctly?? ”  “It’s clearly an error on FTB’s part. “

    Far from clear…

  • #166093
    Lynn Freer
    Participant

    So, it is appearing on the 540 correctly. If not I’ll contact the FTB but it seems like there should be no adjustment because it is made after AGI and itemized deductions.