Saturday, March 19, 2011

Unbelievable but true

This next question, although not of general interest, is so unbelievable that I feel compelled to relay it to you. Amazing!

Q.  Recently I received a Notice of State Income Tax Due from the Franchise Tax Board (FTB).  When I read the fine print, it seems I am being penalized for an Other Liability Code 4, whatever than means. Can you explain?  MJ, California

A.  As luck would have it, I also had a client come in with one of these letters. The short answer is you are being penalized for sending the FTB a check instead of paying online! Here is what happened to a client of mine.

She authorized the FTB to take around $90,000 in estimated tax payments directly from her account. During the course of the year it became apparent to me she would be grossly under-withheld, so I had her send in another $100,000 to the FTB. The infamous Notice of State Income Tax Due letter together with a penalty arrived and she paid the penalty.

This week, the actual notice, rather than the faxed copy previously received, arrived on my desk. When I found the code and turned the letter over, Code 4 is explained as a Mandatory e-pay penalty of 1%. Unable to believe what I was reading, and since my client authorized automatic withdrawals, I called the FTB to find that because my client paid the extra amount by check instead of paying online, she was being penalized.

Absolutely unbelievable! You would think a state as broke as California would be happy to get the money any way they could. Most states are so broke they are nickel and dime-ing us to death. Watch out - this may be coming to a state near to you in the very near future, if it hasn't already happened!

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