2022-12: FTB working on California tax basis reporting reprieve - Spidell

2022-12: FTB working on California tax basis reporting reprieve


The FTB has informed us that they hope to release formal guidance in the next two weeks allowing taxpayers who file Form 565 or Form 568 to report their partners’ or members’ capital accounts on Schedule K-1 (565) or Schedule K-1 (568), using either the tax basis method as determined under either federal law (as reported on Schedule K-1 (Form 1065)) or California law for the 2021 taxable year.

As we previously reported, the FTB had changed their forms and instructions this year to require tax basis capital reporting, and after inquiry clarified that taxpayers were required to report these amounts using California figures. In light of the difficulty many taxpayers are having in recreating these amounts in the middle of tax season, the FTB is working on guidance to grant a one-year reprieve, which will allow taxpayers to report their partners’ or members’ capital accounts using the amounts reported on Schedule K-1 (Form 1065) or by using the tax basis method as determined under California law.

However, please note that this guidance will be limited solely to the capital account analysis on Schedule K-1 (565) and Schedule K-1 (568) for taxable year 2021 and will not allow taxpayers to use their federal tax basis in lieu of their California tax basis for any other purpose, including reporting or determining their California tax liability.

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