Tax Analysts Blog

Tax Analysts Files Suit to Demand Transparency in California

Posted on Jun 12, 2014

Two little-known California Franchise Tax Board forms could be among the deciding factors when auditors determine whether a company will be subject to a unitary audit, yet taxpayers and practitioners have heard only rumors about the forms' existence, and the FTB isn't forthcoming with information about them. Tax Analysts found references to the forms in an FTB multistate audit technique manual. The board makes the audit manual available on its website.

One of the forms, Form 6861, "Relativity Sheet," is used to determine the amount of income or factor adjustments necessary to generate a specific tax change. The other, Form 6685, "Test Check for Combination," is used to make a test check of the tax effect of requiring affiliated companies to file a combined return. Given their descriptions, the forms probably are worksheets used by auditors to determine whether the revenue benefit of requiring companies to file a combined return is worth the effort of a unitary audit.

Tax Analysts requested the documents via a California Public Records Act request, but the FTB has, to date, declined to disclose the forms, saying they contain proprietary information, are obsolete, or that disclosure would invade the board's deliberative process. On June 11, Tax Analysts filed suit against the FTB to demand disclosure of the records (which are blank and contain no taxpayer information).

If the FTB can withhold those types of forms from disclosure, what's next? Assuming that forms 6861 and 6685 are worksheets used by auditors, it wouldn't be a stretch for the FTB to argue that other worksheets should be withheld from taxpayers. Taken to an extreme, it could be argued that Form 100, "California Corporation Franchise or Income Tax Return," is a worksheet that contains proprietary calculations.

While the FTB won't withhold Form 100 or any form that is voluntarily filled out by taxpayers, the calculations in forms 6861 and 6685 are no more proprietary than the calculations in Form 100. The FTB simply doesn't want taxpayers to know the result of the calculations in the forms, yet those calculations should represent its legal positions and established policies. Disclosure of all forms should be required by law. Doing so will not inhibit the functioning of the FTB -- and might even improve it by providing meaningful guidance to taxpayers.

Read Comments (3)

William D. LEWISJun 12, 2014

Agreed. And good for you guys. In addition to these forms, the FTB maintains
opaque policies on a host of other analyses that directly affect taxpayers'
rights. I don't get it. As a tax practitioner I feel like sometimes I can't
effectively work with their revenue officers or propose reasonable positions
for my clients because I'm not informed how or why they are going to decide a
case a certain way. This really needs to change.

edmund dantesJun 16, 2014

Bravo. I wish you much success.

But I'm not holding my breath. The reason that taxing agencies are misbehaving
at all levels of government? Because they can. There is no punishment
whatever for abusing the taxpayers.

Katie JaquesSep 2, 2014

I don't see this case in the FTB's litigation roster for July 31, 2014. Any
idea why?

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