2022 Passthrough Entity Tax Payments

Our office has recently learned that due to errors with the State of California Franchise Tax Board’s (FTB) processing of passthrough entity tax payment vouchers, the FTB is erroneously issuing refunds of the 2022 prepayments of the passthrough entity elective tax that were paid with the FTB Form 3893 (PTE) vouchers.

The FTB’s refunds of these passthrough entity elective tax payment prepayments for 2022 are problematic because they are returning payments that you were required to make by June 15, 2022, in order to preserve your right to elect to make a passthrough entity tax election on your 2022 tax return.

As we previously discussed, the election is designed to reduce each eligible owner’s federal tax liability by shifting the federal deduction of state income tax payments to your business because the state tax payments may not be deductible on the owner’s personal income tax return.

The FTB has acknowledged this problem and is in the process of setting up procedures for taxpayers to send these refunds back to the FTB, so that you can still preserve your right to make the election for the 2022 tax year.

It’s imperative that you return this refund if you still want to make the election for 2022. If you mailed your passthrough entity tax payment to the FTB with a payment voucher, please check to see if a refund was mailed to you or deposited directly into your bank account.

If you have received a refund of the passthrough entity elective tax 2022 prepayment, contact our office immediately so we can work with you to return the refund properly and preserve your right to make this valuable tax election.