Franchise Tax Board has last minute change of heart

April 17, 2012 12:00:00 AM PDT
One tax professional says he never seen anything like it -- a last minute change of heart from the California Franchise Tax Board. It's a decision that could save you thousands of dollars while costing the state millions.

When the state announced late last year that Californians could no longer deduct certain things from their property tax bill it was seen as a way to raise money for the cash-strapped state. But with this reversal, it's the taxpayers who will benefit.

His tax return was finished, but now John Van Slyke is one of many Californians who may file an amended return thanks to a last-minute change in guidelines from the state California Franchise Tax Board.

"I certainly plan to amend my return and take advantage of the additional deductions because it's worth enough for me to do it," Van Slyke said.

Last fall, the state board announced guidelines for taxpayers, warning them they could no longer deduct certain items from their property tax bills such as mosquito abatement, school, library and special district fees. The only items that could be deducted were taxes based on the assessed value of property.

But then, after hearing from the IRS, there was a last-minute change from the tax board.

"The franchise tax board has completely reversed their position," David Drinkwater said.

Drinkwater has been a tax preparer for H&R Block for 14 years.

"I would take the deduction," Drinkwater said. "If you're still preparing your tax return, file it with the tax deduction, if you're entitled to it."

A Franchise Tax Board spokesperson told ABC7 the board is exploring remedies for taxpayers tripped up by the sudden change, saying, "We're looking at the options that might be available to taxpayers who tried to comply with the initial laws that we were communicating."

"I feel like there's certain underhandedness to stating the rule very definitively one way and then on the last day of filing, create this kind of uncertainty and turmoil," Van Slyke said.

Some people may have to pay their preparers additional fees for filing an amended return, but the savings to taxpayers could range from a few hundred to many thousands of dollars.

The state estimates the state it will lose about $200 million in revenue due to the change.

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