What happens if, after a taxpayer files a VCI election, FTB adjusts an item unrelated to the abusive tax avoidance transaction?
The answer depends on the circumstances, so we’ve put together additional questions and answers to cover possible scenarios. We’ve also included an example of a post-VCI audit adjustment to help demonstrate the possibilities. Example: A taxpayer files a VCI election, reports additional income of $100, applies a 30% apportionment factor and pays tax on $30 of additional income. Upon an audit of items unrelated to an abusive tax avoidance transaction, the apportionment factor is revised to 50%. Therefore, the tax attributable to the VCI of $100 is based on $50 of additional income, rather than $30.
