2022-26: Passthrough Entity Elective Tax Credit Notices

Taxpayers claiming Passthrough Entity Elective Tax Credits on their 2021 personal tax returns are required to include credit code 242 on their Form 540 and (if applicable) Schedule P, Alternative Minimum Tax and Credit Limitations. Unfortunately, due to a programming oversight, the FTB has identified 168 accounts in which the Passthrough Entity Elective Tax Credit was claimed on Schedule P but the credit code 242 was not entered. As a result, the credit was disallowed, and a Notice of Tax Return Change (FTB 5818B) was issued stating that the credit could not be claimed when the taxpayer is subject to AMT.

These credits are applicable for taxpayers subject to AMT, but will only be properly applied if the credit code is listed on the Schedule P. The FTB is manually adjusting the affected accounts, and there is no action required by taxpayers. Practitioners and taxpayers may verify these account corrections on MyFTB.

For more information on these and other FTB notices, see the July issue of Spidell’s California TaxletterClick here to subscribe.

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