Recently, the California Franchise Tax Board (FTB) made errors in its processing of pass-through entity tax payment vouchers. The FTB is erroneously issuing refunds of the 2022 prepayments of the pass-through entity elective tax that were paid with the FTB Form 3893 (PTE) vouchers.

The refunds of these pass-through entity elective tax prepayments for 2022 are causing tax planning problems because they are returning payments that were required to made by June 15, 2022, in order to preserve the right to elect to make a pass-through entity tax election on the 2022 tax return.

As previously discussed, the election is designed to reduce each eligible owner’s federal tax liability by shifting the federal deduction of state income tax payments to your business because the state tax payments may not be deductible on the owner’s personal income tax return. See article here:

The FTB has acknowledged this problem and is in the process of setting up procedures for taxpayers to send these refunds back to the FTB to preserve the right to make the election for the 2022 tax year.

It is imperative that the refund be returned to make the election for 2022. If your pass-through entity tax payment was mailed to the FTB with a payment voucher, please check to see if a refund was mailed or deposited directly into the bank account.

If you have received a refund of the pass-through entity elective tax 2022 prepayment, contact our office immediately so we can work with you to return the refund properly and preserve your right to make this valuable tax election.