2023-9: FTB says ERC refunds may be taxable income

In response to questions raised by CalCPA’s state tax committee directly to the FTB, the FTB stated that Employee Retention Credit refunds “may” be taxable income. According to the FTB, “the realization event occurs when the taxpayer claims the refundable portion of the ERC on a federal return.” The FTB also states that the “recognition event may vary depending upon cash versus accrual method.”

The FTB is citing Maines v. Comm. (2015) 144 T.C. 123 to support its position. This case involves the federal tax treatment of refundable state tax credits.

We are presenting additional questions to the FTB and are asking for additional clarification, such as why the has FTB never taken such a position in relation to other refundable federal tax credits.

We will update you once we receive additional clarification on this issue.

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