Recently we’ve heard from tax professionals with clients who mistakenly made an estimated tax payment on behalf of the entity rather than a passthrough entity elective tax payment — the question is whether these payments can be reapplied. Some FTB Tax Practitioner Hotline staff have been informing taxpayers and tax professionals that they can simply apply the estimated tax payments to the passthrough entity elective tax payment when they file the return.
We reached out to the FTB for clarification because they had previously informed us that this was not allowed. According to the FTB’s previous position, the passthrough entity elective tax payment would only be recognized if paid with Form 3893, via Web Pay as a passthrough entity elective tax payment, or by electronic funds withdrawal when using tax software.
We are pleased to report that the FTB is now allowing taxpayers to move these payments, and they stated:
“[W]hen the business representative inadvertently directs the application of a payment to be applied as an estimate payment, FTB can accommodate a request to correct the error in order to apply the payment as intended.
Any request should be submitted in writing and must include the business representative’s acknowledgment that reapplying the erroneous estimate payment to another liability may result in penalties and interest in the tax year where the payment was originally applied.
These requests can be submitted securely through a MyFTB account. Tax professionals may also contact the Tax Practitioner Hotline and speak with a representative to adjust the payment. A written request will still be required.”
The FTB recommends that the written request to reapply the estimated tax payment be done prior to the entity filing its return. The FTB will instruct Tax Practitioner Hotline staff accordingly.
This process is only available if the entity made the estimated tax payment. An individual owner’s estimated tax payment cannot be applied to the passthrough entity elective tax because that involves two different taxpayers.
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