CSEA Helps Californians Claim Their Real Estate Withholdings

This Week's News

February 9, 2018

 CSEA has been partnering with the FTB regarding the forfeiture of unclaimed real estate withholding credits. In an effort to ease the process of claiming these credits for your client, we have worked with FTB’s Taxpayers’ Rights Advocate office, the Filing Compliance Bureau, and their Legal Division, to develop a number of informational points for Members who encounter this problem.

 Several issues can contribute to the failure to claim Real Estate withholding. In some cases escrow companies failed to present taxpayers with Form 593, Real Estate Withholding Tax Statement. In other cases, processing failures at the FTB contributed to the problem. Sometimes, the taxpayer has forgotten that a real estate transaction took place earlier in the year. Any of these issues can result in what CSEA has identified as three different situations:

1. A taxpayer files a return, reports the real estate sale, and claims the withholding but there was an administrative issue that prevents the withholding from being credited to their account..

2. A taxpayer files a return and does not claim the withholding and/or report the real estate sale.

3. A taxpayer does not file a return at all.

For the first scenario, FTB has assured us that most of these are resolved internally by FTB’s Withholding Services and Compliance Section (WSCS). They search for the unmatched withholding and manually match it to the taxpayer so the credit is available without any intervention necessary by practitioners. If they are unable to locate the withholding credit, FTB sends out a Notice of Tax Return Change (NTRC) to inform the taxpayer the credit is not available. If your client falls into this situation, FTB recommends contacting the WSCS call center at 888-792-4900 to resolve the matter. The agent will be able to help identify why the credit is not available and can assist you in resolving the matter.

The second situation is the scenario that CSEA was most concerned about and where we feel the largest amount of people probably fall under. If your client filed a return but did not claim the withholding, you have a couple of options. If the income was reported, but the associated withholding credit was not claimed on the return, you can contact WSCS and request to have the unclaimed credit applied to your original return. However, if the income associated with the withholding credit was not claimed, you must file an amended return reporting both the Real Estate income and associated withholding. It is important to note that real estate withholding has a four-year statute of limitations and an amended return must be filed within that period.

FTB has notified us that they have been sending out FTB 4686 MEO regarding unclaimed credits as a limited pilot for some prior years. However, as a result of CSEA action, FTB has assured us that they will begin sending out notices annually starting for TY 2014 and for the years following. They shared with us that with the new Enterprise Data to Revenue (EDR) system this process will hopefully be automated in the near future.

Finally, for a practitioner who hasn’t filed a return and wants to ensure the credit is available prior to filing, they can check to see if the withholding is reflected online in MyFTB. If a practitioner has not previously registered for MyFTB, this would be a good opportunity to do so. Practitioners with limited access to taxpayer records under a Tax Information Authorization (TIA) should also be able to see the real estate withholding on a client’s account in MyFTB. In addition, they can contact WSCS to verify the credit is available. When calling, they should be sure to have the FTB 593 forms issued by the escrow company and check that the taxpayer name and identification numbers on FTB 593 match the return.

As a general rule, FTB stressed to us that calling their Withholding Services and Compliance Section is the most effective way to get, not only real estate withholding, but any issues resolved regarding non-wage withholding.

CSEA will continue to keep its members apprised of any updates to the FTB handling processes and whether or not there will be any additional notices sent out in the future. CSEA would also like to thank FTB for their attentiveness to this issue after it was raised in October. Further comment from FTB on the real estate withholding topic will also be available in their written response to CSEA testimony at the Taxpayers’ Bill of Rights Hearing on 12/7/17, which will be published by early February on the FTB website.