One of the wive’s tales about taxes is that you are due a refund you can file anytime you want.
Be careful, that advice might cost you thousands of dollars.
California has a law on its books that says if the Franchise Tax Board sends you a request for a return, and you don’t answer that request, you can be liable for a penalty of up to 25% of the amount the Franchise Tax Board thinks you owe.
Here’s language from a recent case on the subject:
R&TC section 19133 provides, in part, that if any taxpayer fails to furnish any information requested in writing by respondent or fails to file a return upon notice and demand by respondent, a penalty of 25 percent of the amount assessed by respondent concerning the assessment of which the information or return was required shall be imposed unless the failure is due to reasonable cause and not willful neglect. It is well established that, in the case of a delinquent return, the assessed deficiency is the total correct tax liability as of the due date of the return, rather than the tax shown on the delinquent return.
Some of you still might be thinking this is no big deal as the FTB owes you. Your employer withheld all the taxes and so you aren’t liable for the penalty.
Wrong again. Here’s more language from the same case:
Moreover, the tax deficiency exists regardless of whether the taxpayer is entitled to a credit for tax withheld from wages. The credit merely operates to reduce or offset the tax liability established by the delinquent return.
So lets put it all together. Your employer withheld $15,000 in California taxes. You did an estimate of how much you owe and it comes out to $10,000 to the state. No big deal, for some reason you decide to wait to file your return. A little bit later the FTB sends a request for a return. You’re too busy to respond immediately and you’re still not in a rush for your check. A year later you finally get around to requesting your refund.
Bad news. The FTB is going to hit you with a penalty equal to 25% of the amount they think your tax liability was going to be.
Moral to the story. File your tax return on time. There are all sorts of gotchyas out there that could get ya if you don’t.