California - Handling Large Underpayments for Group Returns

FTB Notice 91-5 (issued December 11, 1991) states that in calculating interest on underpayments for a group of corporations that have filed a single return, the $100,000 threshold and the applicable date is determined with reference to the combined underpayment of all corporations included in that return for the income year.  Based on notes from the May 11, 1998 issue of State and Local Taxes Weekly, the following considerations apply to computing the additional 2% interest on large corporate underpayments when a single return for a corporate group is involved:

"The added 2% interest is due only after a proposed deficiency has become final and is applied on each taxpayer member's underpayment, based on intrastate apportionment.  If the taxpayers participating in an R-7 filing do not supply their intrastate liabilities in the 'total self-assessed tax' column, the interest is computed on the entire group's underpayment, subject to recomputation once the required data is supplied.

"If a single Notice of Proposed Assessment or other S. 19521(c)(1) notice is issued jointly proposing additional tax for the group members, an applicable date will be set for all members, and the notice's remained unpaid amount for the specified period, an applicable date will be set for all members whose liabilities compose the unpaid amount due.  An earlier applicable date may be set for a particular corporation that individually received a separate notice that remained unpaid for the specified period.

"If a partial payment is received as to a notice, the FTB will allocate it, using Legal Ruling 95-2 to determine if the notice was 'fully paid' as to a specific taxpayer. (California FTB Notice 98-6, 4-15-98.)"