The CDTFA is allowed to remove (cancel) mandatory penalties when taxpayers fails to pay taxes or file a return for a good reason and because of circumstances beyond his or her control. However, the taxpayer must still be able to prove that he or she exercised diligence and did not simply neglect tax obligations. Taxpayers who wish to request a relief from penalties must do it after they receive a determination letter form the CDTFA. A taxpayer must present a request for relief in a written statement, under penalty of perjury, explaining the facts on which the request is based.
The use of CDTFA Form CDTFA–735, Request for Relief from Penalty (available at www.CDTFA.ca.gov), is recommended but not required. After submission of the written statement by taxpayer, CDTFA will review and approve or deny the request. Recommendation to approve or deny a request for relief above $50,000 is usually forwarded to the CDTFA Deputy Director for additional review and then submitted to the CDTFA for consideration. Even if taxpayer’s request for relief from penalty is denied, taxpayers can apply to CDTFA for reconsideration of the negative decision. For penalties of $50,000 or less, CDTFA sends taxpayer a denial letter, in which it usually explains that the decision to recommend denying relief from penalty can be reconsidered by CDTFA if the taxpayer provides new information within 15 days of the denial letter. The letter also explains that if the taxpayer provides additional information and the CDTFA staff still recommends to deny taxpayer’s request, the request for relief will then be reviewed by the Deputy Director. If the Deputy Director agrees with the recommendation to deny the request, the Deputy Director will send a letter to the taxpayer saying that he or she agrees with the CDTFA staff recommendation. Despite established 15-day deadline, CDTFA may still consider information received from taxpayer after 15-day period has expired.
CDTFA can impose penalty for failure to file a tax return. Every taxpayer with active CDTFA account is required to file returns at regular intervals as required by the law and CDTFA. RTC section 6591 imposes a 10 percent penalty for failure to file a return on the amount of taxes due, with respect to the time period for which that return was required. For example, if the taxpayer is on a monthly reporting basis and failed to file a return for only one month during a period under audit, a penalty would apply only to tax due for that month.