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CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Old Jan 30th 2024, 7:56 pm
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Default CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Hi All,

I hope this message finds you all well.

This is a California state tax filing related question, and I would appreciate thoughts related to it as my accountant has gone AWOL.

I relocated to the USA (California) in the middle of 2022 and as part of my filing for that year I was instructed by my accountant to submit both a form 540 (married filing jointly) and a 540NR (married filing separately). Although I questioned the premise at the time, I was advised that this was the correct route and as my knowledge on the matter is close to zero, I proceeded as instructed.

The CA FTB are now requesting that I pay back a portion of the refunded amount that they have stated was paid in error as I should not have submitted a 540NR.

Does anybody have any experience in this matter and able to provide any possible rationale as to why the accountant directed me to submit both forms?

Thank you in advance for your input.
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Old Jan 30th 2024, 8:15 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Rainmaker
Does anybody have any experience in this matter and able to provide any possible rationale as to why the accountant directed me to submit both forms?
Seems wrong to me - you're either resident (540) or non-resident (540NR). You can't be both.
And why the different married filing status? Was your spouse a CA resident for the year, but you were not? In that case if you both file separately I could understand one having a 540 and the other a 540NR. But if you file jointly and either was a resident, it has to be a 540.

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Old Jan 30th 2024, 8:20 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Pierre_Tete
Seems wrong to me - you're either resident (540) or non-resident (540NR). You can't be both.
And why the different married filing status? Was your spouse a CA resident for the year, but you were not? In that case if you both file separately I could understand one having a 540 and the other a 540NR. But if you file jointly and either was a resident, it has to be a 540.
Thank you, Pierre_Tete, for your prompt input. I greatly appreciate your time.

Unfortunately, I do not have an answer to your question. As a novice in this regard, I blindly went with the accountant's direction. I relocated towards the end of July 2022, and both my wife and I became CA residents together on the same day. On my visa, my wife is ineligible to work and therefore had no income. In light of your response, and the more thought I give to it, I suspect that you are likely accurate in your assessment, but am lost as to why the accountant would state that this was the right course of action :s
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Old Jan 31st 2024, 12:11 am
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Rainmaker
I relocated towards the end of July 2022, and both my wife and I became CA residents together on the same day.
So based on that, neither of you are resident for 2022, so married filing jointly on a 540NR would be appropriate (which is what I did when I moved here part way through the year). But that wasn't one of the two options your accountant used!

But then you also state:

'The CA FTB are now requesting that I pay back a portion of the refunded amount that they have stated was paid in error as I should not have submitted a 540NR.'

Is that correct? The FTB was ok with the 540 and rejected the 540NR even though you were not resident? Or did they just get confused because it was married filing separate, after you already did married filing jointly? I've never had to file a correction with the FTB but you might want to call them to get it squared away. I did have to call them once to correct a mistake my employer had made and they were surprisingly quick and helpful. The 540NR allows you apportion only part of your income that year to CA so it should result in a lower tax bill than the full 540.


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Old Jan 31st 2024, 3:33 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Pierre_Tete
But if you file jointly and either was a resident, it has to be a 540.
Actually, if you file jointly and either was a part-year resident or nonresident, you have to file on 540NR.
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Old Jan 31st 2024, 6:46 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Rainmaker
Hi All,

I hope this message finds you all well.

This is a California state tax filing related question, and I would appreciate thoughts related to it as my accountant has gone AWOL.

I relocated to the USA (California) in the middle of 2022 and as part of my filing for that year I was instructed by my accountant to submit both a form 540 (married filing jointly) and a 540NR (married filing separately). Although I questioned the premise at the time, I was advised that this was the correct route and as my knowledge on the matter is close to zero, I proceeded as instructed.

The CA FTB are now requesting that I pay back a portion of the refunded amount that they have stated was paid in error as I should not have submitted a 540NR.

Does anybody have any experience in this matter and able to provide any possible rationale as to why the accountant directed me to submit both forms?

Thank you in advance for your input.
It sounds like this "accountant" might have been confused by how dual-status aliens file federal tax returns. A dual-status alien who is resident at the end of the year would file 1040 and include an attachment indicating their income for the part of the year they were nonresident, and this can be in the form of a 1040NR. (Though that wouldn't be your case since you arrived in the second half of the year, so you probably wouldn't pass the Substantial Presence Test, and you would thus be a nonresident alien for the whole year, unless you choose to use First-Year Choice.)

However, this is not the way it is done for California state taxes. A California part-year resident would just file 540NR and not 540.
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Old Jan 31st 2024, 7:11 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Not that this affects the OP any more since his 540NR period has passed but....

I have been using TurboTax for 20 years. Until I moved to CA 3 years ago I lived in states without an income tax so it was only previously a federal 1040, so my first state tax return was a 540NR through TurboTax. Since I'm very particular with the math, I checked the result and TurboTax was *wrong* on its 540NR calculation. I tried to get help from TurboTax and that was the most useless fruitless 10+ hours of frustration I ever had with tax returns. You can't actually talk to anyone at TT who does the programming (I could see exactly where the error was). You have to go into their community forums and hope someone at TT either recognizes the problem and has a solution, or if not you have to describe it in detail and even then the community moderators have no direct contact method to the programmers. They never did solve it. Their suggestion was 'we stand behind our product and will support you in your defense if the FTB audits you'. WTF. I was not going to submit a return with an known error in it, so I ended up doing it all manually and mailing in a paper return, but I could not get TT to refund the state filing fee.

The following year I did a 540 via TT and double checked everything and that one was correct.

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Old Jan 31st 2024, 10:33 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by newacct
It sounds like this "accountant" might have been confused by how dual-status aliens file federal tax returns. A dual-status alien who is resident at the end of the year would file 1040 and include an attachment indicating their income for the part of the year they were nonresident, and this can be in the form of a 1040NR. (Though that wouldn't be your case since you arrived in the second half of the year, so you probably wouldn't pass the Substantial Presence Test, and you would thus be a nonresident alien for the whole year, unless you choose to use First-Year Choice.)

However, this is not the way it is done for California state taxes. A California part-year resident would just file 540NR and not 540.
Thank you, newacct, very much appreciate your input. The point you raise regarding submission of both the 1040 and the 1040NR, which is how she completed my filing, makes me wonder whether that is what guided her thinking in similarly putting forward both the 540 and the 540NR too. Judging from how both your good self and Pierre_Tete have positioned it, it is evident that only one form is required for California, and I am kicking myself that I opted for an accountant who was not based here to handle my affairs.

You have both been hugely insightful. Thank you dearly.
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Old Jan 31st 2024, 10:38 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Pierre_Tete
Not that this affects the OP any more since his 540NR period has passed but....

I have been using TurboTax for 20 years. Until I moved to CA 3 years ago I lived in states without an income tax so it was only previously a federal 1040, so my first state tax return was a 540NR through TurboTax. Since I'm very particular with the math, I checked the result and TurboTax was *wrong* on its 540NR calculation. I tried to get help from TurboTax and that was the most useless fruitless 10+ hours of frustration I ever had with tax returns. You can't actually talk to anyone at TT who does the programming (I could see exactly where the error was). You have to go into their community forums and hope someone at TT either recognizes the problem and has a solution, or if not you have to describe it in detail and even then the community moderators have no direct contact method to the programmers. They never did solve it. Their suggestion was 'we stand behind our product and will support you in your defense if the FTB audits you'. WTF. I was not going to submit a return with an known error in it, so I ended up doing it all manually and mailing in a paper return, but I could not get TT to refund the state filing fee.

The following year I did a 540 via TT and double checked everything and that one was correct.
Thank you, Pierre_Tete. Always good to hear such stories to safeguard against it in the future. I attempted TT last year, and similar to you, faced issue after issue due to the dual filing status, and a futile process of following up to try to resolve those issues, which is what led to me turning to the accountant.... who eventually filed incorrectly :s

With my dual status behind me and having spent the full year here, would you recommend TT?
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Old Feb 1st 2024, 12:30 am
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Originally Posted by Rainmaker
With my dual status behind me and having spent the full year here, would you recommend TT?
Well the only issue I've ever had going back 20 years was one time with the 540NR and I was surprised at the difficulty of getting support. Otherwise I like it. I started using it many years ago when my tax affairs were quite simple just so I could file a 1040 electronically. These days I have more complex income sources and it handles those easily and of course now I have state taxes too and you can do that all in the one package rather than doing it separately via the IRS and FTB electronic filing systems. It gets more expensive each year but the competitors like H&R Block are about the same price. I think the IRS is doing more and more direct electronic filing options (I saw some news item about this year's expanded IRS electronic filing options but it's still only for simple 1040 situations). I think there's a vested interest in the tax prep industry to make the IRS drag its feet so as not to take all their business away!
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Old Feb 1st 2024, 5:48 pm
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

I used TurboTax for the first few years I was here but switched to FreeTaxUSA in 2020 and haven't looked back - Federal is totally free and state returns are $15 which is good if you have to file in multiple states every year.

The cost of TurboTax was over $100 even when purchased on sale because of the cost of buying an extra state and paying even more for the privilege of e-filing my NJ return.
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Old Feb 2nd 2024, 1:49 am
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Default Re: CA State Tax Filing Question - 540 and 540NR Submitted... But Why?

Definitely agree that you should have filed 540NR as a part year resident and not both. My recommendation is to call the CA FTB and have someone review your situation and recommend how to resolve it. Based on experience the FTB reps are generally very helpful and have the flexibility to make a lot of changes/correction. It is very different to calling the IRS where they strictly follow their guidelines and in many cases the answer is that your tax return is with the xyz department and you will be contacted in due course.
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