Municipal Bond Interest, California, and the Supreme Court

As I mentioned previously, the Supreme Court will hear Department of Revenue v. Davis this Fall. If the Supreme Court rules for the Kentucky Department of Revenue (overturning the Kentucky Court of Appeals), then nothing will change, and states will be able to continue discriminate in favor of their own municipal bond interest for tax deductions. However, if the Court upholds the decision, then states will have to choose between taxing no municipal bond interest and taxing all municipal bond interest.

California allows taxpayers to file protective claims on issues that have not been decided. This is one such issue. I hadn’t advised clients to file such claims yet because the Franchise Tax Board wasn’t ready. Indeed, the FTB denied such claims. If you filed such a claim, and it was denied and the status is final, you must appeal to the State Board of Equalization or you will lose your claim.

The FTB is no longer denying such claims, and is now accepting protective claims. If you are impacted by this issue, and wish to file such a protective claim, you can do so by mailing such claims to:

PO BOX 942867
SACRAMENTO CA 94267-2222

Make sure you note that you are filing a protective claim on the “Department of Revenue v. Davis” decision. Any client who feels that they are impacted by this should contact our office so we can advise them on this issue.

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