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The California Franchise Tax Board (CA FTB) announced in its January 2021 Tax News that certain business taxpayers must file the new IRS Form 1099-NEC with the CA FTB.

The new requirement applies to (1) taxpayers that paid $600 or more during tax year 2020 to a California full-year or part-year resident or (2) transactions that occurred in California.¹ Additionally, the payments must have been made:

• To someone who was not the taxpayer’s employee
• For services or cash purchases of seafood for resale in the course of the taxpayer’s trade or business (including government agencies and nonprofit organizations)

or

• To an individual, partnership, estate or, in some cases, a corporation

Due to the requirement’s late implementation, taxpayers will be granted a reasonable-cause exception for all late filings for reporting required payments made during tax year 2020.²

Electronic filers must submit IRS Forms 1099-NEC by March 31, 2021. Electronic filers with 250 or more information returns must submit them using the Secure Web Internet File Transfer (SWIFT) system. Before filing through SWIFT, users must call the CA FTB at (916) 845-6304 to set up an account.

Filers submitting fewer than 250 information returns are not required to file electronically. Paper returns are due February 28, but the CA FTB said it will not apply late filing penalties for returns filed for tax year 2020. IRS Forms 1099-NEC filed in paper format must also include an attachment of the related IRS Form 1096 and be mailed to the following address:

            Franchise Tax Board

            PO Box 942840

            Sacramento, CA 94240—6090

EY will continue to monitor developments on this new information reporting requirement and issue updated Alerts if the state releases more guidance.

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ENDNOTES

¹ See CA FTB, Information Returns – Payer (“Filing requirements - You need to file an information return with [the FTB] if either of the following are true: The recipient is a California resident or part-year resident [or] The source of a 1099 transaction [sic] was in California.”).

² Id. (“Filing requirements - … We have determined: A failure to timely file a[n IRS] Form-1099 NEC directly with [the FTB] is deemed to meet the reasonable cause exception in the statute [and] [t]his determination will apply for the 2020 tax year[.]”).