News From California Regarding QSBS

Two pieces of news out of California regarding the Qualified Small Business Stock situation. For those who aren’t aware, a court last year ruled that California couldn’t discriminate against out-of-state Qualified Small Business Stock (QSB). The Franchise Tax Board interpreted that ruling to mean that for any open tax year, the state would challenge the QSB deductions for anyone who took it. For 2012 on, the California deduction was eliminated, so this is an issue impacting entrepreneurs for tax years 2008 through 2011.

The FTB announced today that they will begin sending Notices of Proposed Assessment (NPAs) in early April. The FTB has also established a simplified procedure to protest the NPAs and it’s clearly noted in their FAQ web page on this issue.

(As much as I think the FTB’s implementation of the Cutter decision is wrong, I want to give the FTB kudos to them for an easily understood webpage and instructions on this issue. I also want to thank them, especially Susan Maples (the FTB’s Tax Practitioner Liaison), for reaching out to the tax professional community in communicating the issues.)

Meanwhile, the tech community remains extremely displeased with the FTB’s actions. Brian Overstreet, the man who began sounding the alarm, has set up a new website on this issue. There’s a very anti-California article on that highlights this issue. Legal action is almost a certainty; many of these entrepreneurs have the deep pockets necessary to fight the FTB.

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