The FTB has recently contacted some taxpayers who exchanged property in California for out-of-state property but either failed to file Form 3840 or filed an incomplete form. The FTB is asking for an updated form with the corrected data.
Although tax software should be including a copy of the form with the return, in many cases the software companies (including Intuit products) only sent a copy of Page 1 of Form 3840, not Page 2 (or page 2 was attached but was blank or missing requested information).
These notices are arriving during tax season in order for taxpayers to verify that complete data is included in their current filing. The FTB has agreed to follow up after June 1, 2019. They have also been speaking with tax software companies to ensure that the programs accurately include the entire form when filing 2018 returns.
We are continuing to follow up on this issue, including whether the FTB will accelerate the gain into the year in which the form wasn’t filed. We will have more information in upcoming issues of Spidell’s California Taxletter®.