CA’s 20% LCUP Penalty Shouldn’t Apply to Compact Elections Under Gillette

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Friday, Reed Smith partner and former FTB Chief Counsel Brian Toman submitted a written request for consideration at the FTB's meeting yesterday for the FTB to interpret the 20 percent Large Corporate Understatement Penalty (LCUP) to not apply to taxpayers that elect to use the Multistate Tax Compact method on their 2011 tax returns. The language of the letter is included in this alert. Regardless of the FTB's reaction to Reed Smith's request, we believe that the LCUP should not apply and that, if the Compact election is sustained, California's attempt to withdraw from the Compact under SB 1015 should be determined to be invalid. Thus, taxpayers who benefit from the election should seriously consider making the election on their upcoming 2011 returns.

Please see full Alert below for further information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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