Katie Jaques wrote:
- quote -

True, but a finding that the "taxpayer" is a non-resident
and thus may have NO liability whatsoever (assuming
no-CA-sourced items - and that FTB's sole claim was that he
were a resident), that pretty much short-circuits the whole
process, just like in the federal system when a taxpayer
fully prevails in Tax Court.

By having no recourse to the courts, and thus having to file
a claim, it makes the taxpayer have the burden of proof in
ALL situations, and in the general sense, I have a problem
with that, especially considering the U.S. Constitution's
First and Fourth amendments ("redress of grievance" and "no
seizure of property without due process") because the State
doesn't have to prove its right to take before it has taken,
unlike the use of The U.S. Tax Court option at the federal
level, where a taxpayer at least has an opportunity to make
the government prove its case, even if the taxpayer CHOOSES
not to file.

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

As far as I know, the only thing a nonresident can go to
Superior Court for without paying the tax is a determination
of residence status. Obviously that wouldn't be an issue
for a resident.

Katie in San Diego

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Katie Jaques wrote:
- quote -

That may be true, but for residents, the only way they can
proceed is to pay the tax then file a claim for refund.
Only denied refund claims from residents before the BoE are
appealable to the Superior Court system. Why they allow
non-residents to go directly yet don't allow residents to
petition, even if a cash bond were to be posted, is a
mystery.

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Seth's response to this reminded me to remind you <G> that
"in general," this is actually not the case. Check out Cal.
Rev. & Tax. Code Sec. 17024.5(e).

In general, whenever an election is allowed by federal and
state law, a proper federal election will be recognized by
the state. If the taxpayer wants to make a different
election for state purposes, however, it is done by making a
timely, separate state election, following procedures
established by the FTB (which are generally the same as the
federal procedures).

So, for example, you could elect to expense research and
development costs under IRC Sec. 174 for federal purposes,
but elect to capitalize and amortize them for California.
Or you could elect out of installment sale treatment of a
transaction for California purposes even though you did not
elect out for federal. There are many examples.

The FTB legal staff would really like to get rid of this
code section entirely, and over the years they have
succeeded in getting a number of specific limitations on the
right to make inconsistent elections into the law. For
example, if you elect for federal purposes to amortize
purchased intangibles under IRC Sec. 197, you MUST make the
same election for California. Under the "check-the-box"
rules, if you elect corporate tax treatment for an
unincorporated business, you are deemed to have made the
same election for California.

Last year Sec. 17024.5(e) was further limited in connection
with the technical corrections to the changes in the
calculation of tax for nonresident and part-year resident
individuals that were enacted a couple of years ago.
Beginning 1/1/04, if the taxpayer made a valid federal
election before becoming a California resident or subject to
California tax, that election is binding and there is no
opportunity to make a separate California election. If no
federal election was timely made prior to becoming a
California taxpayer, you still can't make an inconsistent
California election, but are stuck with whatever the federal
default happens to be.

The same general rule applies on the corporate side (CRTC
Sec. 23051.5(e)). The FTB issued a notice last fall (FTB
Notice 03-9) explaining how the opportunity to make an
inconsistent election under IRC Sec. 338 works in
conjunction with the 1-year federal extension of time to
make the election.

So ... in California the GENERAL rule still is that wherever
an election is allowed under both state and federal law, you
can make an inconsistent election for California. However,
that opportunity has been closed off in a number of
particular instances, and the FTB legal staff would love to
get rid of it altogether.

And when California COMPLETELY conforms to the federal NOL
rules, with the same carryback and carryforward periods and
no haircuts and no suspensions, we probably won't care if
they do repeal 17024.5(e) and 23051.5(e).

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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D. Stussy <kd6lvw[at]kd6lvw.ampr.org> wrote:

- quote -

Why? Is there a specific section of law that says that?

And why wouldn't AMT count as a "difference between the two
systems"?

Seth

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:

snip

- quote -

Well, that opens a whole new can of worms, LOL! I think
we've all been there and seen that, especially since term
limits gave us some rookies on the Board.

But remember that the Board is not the final authority,
except when it decides in favor of the taxpayer.

Katie

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katiej_1958[at]yahoo.com (Katie Jaques) wrote:
- quote -

Katie:
I just checked the status of my posting about claiming a
deduction on the state t/r only. Thank you very much for
your comments and analysis. It is very helpful to me.

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Seth Breidbart wrote:
- quote -

The above (and another response) appears to remove my
statement from its original context - the COMPARISON of the
two systems, federal and state (California).

Of course one has options. However, in general, one must
choose the SAME options at the state level as was chosen at
the federal in the absence of an interaction with a
difference between the two systems (e.g. residency,
different standard deduction amounts, income taxed by only
one of the systems, etc.).

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Arthur L. Rubin wrote:
- quote -

True, but that's based on one of the differences - the lower
standard deduction permitted for state income tax purposes,
but the underlying rules remain the same for both systems
(other differences temporarily ignored).

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- quote -

I agree with that. However, the state statute still isn't
starting from scratch. If it were, it would not make ANY
reference to a body of law outside of itself in defining
income, deductions, credits, etc. Simply put, it DOES make
reference, and therefore, it's not independently based -
i.e. "it doesn't start from scratch."

- quote -

I agree. The relationship is backwards. The forms are
reflective of the law. The law doesn't start from scratch,
so neither do the forms.

- quote -

I never said that the forms made law. I did say that the
forms reflect the law.

- quote -

I have seen a situation where the BoE (hearing an FTB
appeal) has disregarded the federal statutes where the law
is the same under both systems.

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- quote -

Well, then you aren't reading the statute, because the
statute doesn't say a thing about what is reported on the
federal return. It refers only to what is defined by or
allowed by federal law.

- quote -

The law is not defined by the forms. As I said, the forms
are designed as they are for simplification. As I said,
before 1982 (or maybe it was 1987, who remembers?), the
California form DID ask for everything anew. The law did
not change when the forms were changed.

Please remember, also, that there have been a number of
occasions over the years when the California forms or form
instructions have contained errors which led taxpayers to
report income or deductions incorrectly. In every such case
that I can recall, the FTB's action was to disallow or
require the item in accordance with the statute, while not
imposing any penalty due to the incorrect form or
instruction. The forms do not make the law.

In some states (Illinois is an example), form instructions
have the same legal standing as a regulation. That is not
the case in California, however.

- quote -

Well, in the OP's case there certainly will be a difference.
And although the taxpayer in that situation may very well
be asked some questions, the fact remains that IF he can
substantiate the deduction and show that it is allowed by
the federal law, California can't disallow it. There is
simply no statutory authority for it. California can't
require a taxpayer to file a "properly completed" federal
return.

I still say, the OP's risk is with the IRS, not the FTB.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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D. Stussy <kd6lvw[at]kd6lvw.ampr.org> wrote:

- quote -

"Allowed" means "permission" not "requirement".

If I'm allowed to do something, I don't have to.

Federal law might allow me a deduction that I choose not to
take, and my return would still be "properly completed".
(For instance, nobody would claim that my form is wrong
because I neglect to enter any medical expenses even though
I had some. If they were over the threshhold I'd enter
them, of course; but as far as I can tell, just leaving them
off is fine, and would remain so even if they _would_ be
worth something.)

Seth

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:

- quote -

There's a difference between "allowed" and "allowable."
When the tax code refers to a deduction being allowable, it
means it must be considered. By implication, when it's
merely allowed, it need not be taken into consideration.

That's the legal analysis, anyway.

Stu

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D. Stussy wrote:

- quote -

Well, if you itemize for CA purposes, but not for Federal
purposes, then the Federal schedule A attached to the CA
return isn't filed with the Federal return....

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- quote -

I'm not missing that. However, I read that as: Start with
the federal amount amd make "these" adjustments. In fact,
that's exactly what the CA 540 does: It starts with Federal
AGI on line 12 and then combines additions and subtractions
for the differences between California and Federal law to
arrive at a CA-AGI that is on line 16. On Schedule CA, the
same is done for itemized deductions. One is not "starting
from scratch."

If the forms had asked for everything anew, like that of
some other states, then it would be "from the ground up."
California doesn't.

- quote -

I don't see a significant difference between "amounts
reported on a federal return" vs. "amounts allowed in
accordance with federal law" - because for a properly
completed federal return, these should result in the same
thing.

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"D. Stussy" <kd6lvw[at]bde-arc.ampr.org> wrote:
- quote -

Go back and read Ira's (the OP's) post No. 6 in this thread.
I don't pretend to understand the mechanics of it, but it
appears the net result of reducing itemized deductions in
his particular fact situation is to reduce the total tax
liability by 10% of the deduction not claimed.

It was sloppy of me to refer to it as "moving income into a
higher bracket," which as I understand it isn't exactly what
is happening, but the effect is the same. In effect that
amount of income is taxed at 15% rather than 5% if the
deduction is claimed.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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- quote -

What you are missing is the fact that taxable income is
"defined by" IRC Sec. 63 (CRTC Sec. 17073), except as
otherwise provided. That is NOT necessarily the same thing
as taxable income *reported on* the federal income tax
return.

A deduction that is allowed in computing taxable income for
federal income tax purposes, under the federal law as it was
in effect as of the California conformity date (CRTC Sec.
17024.5) applicable to the taxable year in question, is
allowed for California purposes. The statute makes no
reference to amounts reported on the taxpayer's federal
income tax return; it refers only to amounts computed in
accordance with the federal statutes.

CRTC Sec. 17201 provides that "deductions shall be allowed
in computing taxable income ... and shall be determined in
accordance with [certain provisions of] the Internal Revenue
Code, except as otherwise provided in this article." Again,
no reference to amounts reported on the federal return.
Deductions are allowed in accordance with the federal law.

- quote -

Actually, you can't go by the state tax return forms to
figure out whether a state's statutes calculate taxable
income by starting with numbers reported on the federal
return, or builds taxable income from the ground up. If you
go by the form, almost EVERY state starts with federal
numbers, AGI if not TI. But that's not necessarily the way
the statute is written, it's just a way of making the form
easier to prepare.

Before about 1982, the California individual income tax form
had a line for every item of income and deduction,
corresponding to the lines on the 1040, with a few lines
added or modified to reflect California differences. The
FTB went to the "start with federal numbers and adjust"
format as a means of simplification at about that time. (It
was fine in the early years when the Schedule CA only had
two lines for adjustments, one positive and one negative.
Now that the Schedule CA has a line for every 1040 line,
just like the old 540, my view is that we might just as well
throw away 540 Page 1 and start with the CA <G> .) However,
the underlying statutory provisions did not change.

Massachusetts is actually an interesting example, because it
has such a weird "basket" system. Mass. Gen. L. Sec. 2(a)
says "Massachusetts gross income shall mean the federal
gross income, modified as required by section six F, with
the following further modifications:" "Federal gross
income" is defined by Sec. 1(d) as "gross income as defined
under the Code." "Code" is the Internal Revenue Code as in
effect for the year in question, with some exceptions (Sec.
1(b). So it's not gross income as reported on the federal
return; it's gross income as computed in accordance with the
federal law.

Massachusetts divides gross income into Part A, Part B and
Part C income and from there goes its own way with only
passing references to the federal law. So Massachusetts is
definitely a "ground up" statute.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Stuart O. Bronstein wrote:
- quote -

That's why the IRC is "fixed" at as it existed on a certain
date and why the state legislature needs to pass those
"conforming bills" every so often after a federal change.

- quote -

Is anyone game to create an example? The only way I can
think of for a tax increase due to claiming a deduction is
through the AMT system where there's a credit for prior year
AMT and the deduction is a preference item (and even with
that, I haven't thought it through to the mathematics of it
yet to prove that it can). Tax goes down and so does the
form 8801 credit (because the AMT floor for it, less than
the regular tax, approaches and lessens the credit).

Need we think of such things in April? We need "recovery
time!" :-)

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Katie Jaques wrote:

- quote -

How could the claiming of a deduction not claimed move
someone to a HIGHER bracket (especially on Schedule A)?

I could see it moving someone to a lower bracket, or having
an effect on a credit where net tax increases as some sort
of nasty side-effect to something that Congress didn't
envision, but I can't see it increasing the bracket, even
considering AMT.

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Katie Jaques wrote:
- quote -

I disagree with that view: CA R&TC 17071-17073. These
statutes basically start with FEDERAL GI, AGI, and allowed
itemized deductions by directly referencing IRC Sections 61,
62, and 63 and makes (or may make) modifications to each.
That to me is NOT "from the ground up."

In comparison, other states, like the Commonwealth of
Massachusetts do have a "ground up" approach (at least from
the organization of their Form 1; the last time I saw it was
for TY 1994) where it asks for types of income by type, not
federal AGI with additions and subtractions. I haven't
reviewed MA law to see if it's that way in their revenue
code.

- quote -

Since the OP's question related to miscellaneous itemized
deductions, there IS one difference that does address the
issue: Since the CA standard deduction is less than the
federal one, one MAY itemize for CA purposes where total
itemized deductions lay inbetween the two standard deduction
amounts (state and federal) even when the federal return
claims its standard deduction amount.

That is the only way where I see claiming an expense for
state purposes and not for federal purposes is "legitimate."
When one does this, I seem to remember that one takes a
federal Schedule A, marks it across the top "for state
income tax purposes only," and then attaches it to the 540
behind Form 540-CA.

- quote -

I would agree that if one is outside of the window between
the two standard deduction amounts, any other mismatch of
claiming or not claiming a transaction not addressed by the
differences in federal vs. state law will cause a problem.

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