Author: Phillip Zagotti

A Roseville founder signs a letter of intent. Her 2020 founder shares will bring about $30 million, and her advisor says federal law excludes $10 million of the gain, with gifts to trusts for her two children adding $10 million each. True enough. What often goes unsaid: California has allowed no such exclusion for any sale after 2012, and the Franchise Tax Board expects tax on all $30 million.

Whether the trusts change that turns on California’s trust residency rules.

How does gifting QSBS multiply the federal exclusion?

Under 26 U.S.C. § 1202(a), a noncorporate taxpayer excludes gain on qualified small business stock, or QSBS: C corporation stock bought directly from the company when issued, while its gross assets sat under a ceiling. S corporation and LLC interests never qualify, so the entity choice at formation matters. Pub. L. 119-21, § 70431, enacted July 4, 2025, gives later-acquired stock a 50 percent exclusion at three years, 75 percent at four and 100 percent at five, and raises the ceiling to $75 million for stock issued after that date. Earlier shares acquired after September 27, 2010 keep the old rule: 100 percent after more than five years.

For a big exit the binding limit is section 1202(b): per issuer, the greater of a dollar limit or ten times the basis of the shares sold that year. The dollar limit is $10 million for stock acquired by July 4, 2025 and $15 million for later stock, indexed after 2026. It belongs to each taxpayer, so a second owner brings a second limit.

Section 1202(h) makes the gift work. A person who receives shares “by gift” is treated as acquiring them the way the donor did and holding them for the donor’s period, so the original-issuance test in section 1202(c)(1)(B) is still met. The donor’s acquisition date carries over too. A child given 2020 shares this year stays under the $10 million limit and the five-year rule.

Which trusts get their own cap, and when will the IRS combine them?

Only a separate taxpayer gets a separate cap. Revocable and other grantor trusts are disregarded for income tax, so their sales use the founder’s limit. A non-grantor trust funded by a completed gift files its own Form 1041 and adds a limit.

The anti-stacking tool is 26 U.S.C. § 643(f): trusts with substantially the same grantor and primary beneficiary are treated as one when a principal purpose is avoiding federal income tax, with spouses counted as one person. The regulation is final, not proposed. Treas. Reg. § 1.643(f)-1 came out in T.D. 9847 (Feb. 8, 2019), minus the 2018 proposal’s definition of “principal purpose” and its examples. I want one trust per child and a written non-tax reason for the design.

One open point: section 643(f) applies “for purposes of this subchapter,” the trust income tax rules, while the cap sits in section 1202. Treating trusts as one trust most naturally means one cap, but I have found no court applying it to QSBS.

Does California allow any QSBS exclusion in 2026?

No. California’s version, Rev. & Tax. Code § 18152.5, required issuers to keep most payroll and assets in the state, and Cutler v. Franchise Tax Board, 208 Cal. App. 4th 1247 (2012), held that this discriminated against interstate commerce. FTB Notice 2012-03 then denied the exclusion for taxable years beginning on or after January 1, 2008. The Legislature’s fix, AB 1412 (Stats. 2013, ch. 546), allowed a 50 percent exclusion for 2008 through 2012 sales without the in-state requirements, waived the related penalties and interest, and let the section expire January 1, 2016.

The FTB’s 2025 Schedule D (540) instructions say California does not conform to section 1202; enter the entire gain. It is ordinary income, taxed up to 12.3 percent plus 1 percent above $1 million under Cal. Rev. & Tax. Code § 17043, now labeled the Behavioral Health Services Tax. Trusts pay the same.

Can a trust outside California avoid California tax on the sale?

Sometimes, but a Nevada trustee alone is not enough. Cal. Rev. & Tax. Code § 17742 taxes all of a non-grantor trust’s income if a fiduciary, or a beneficiary whose interest is not contingent, lives in California, and sections 17743 and 17744 apportion when only some do. In Steuer v. Franchise Tax Board, 51 Cal. App. 5th 417 (2020), the Paula Trust had trustees in California and Maryland. Reading section 17743 with Cal. Code Regs., tit. 18, § 17743, the court held the trust taxable on all of its California-source income regardless of trustee residence. It also held that a beneficiary paid only at the trustee’s sole and absolute discretion is contingent.

Founder stock gets help from section 17952, which treats a nonresident’s stock gain as non-California income unless the stock has a business situs here. A completed-gift trust with out-of-state trustees and purely discretionary terms may owe California nothing at sale. FTB Legal Ruling 2026-01 (July 7, 2026) agrees, with a catch: once the trustee decides to distribute current-year gain to a California beneficiary, the trust is taxable on that amount.

Then the throwback. Section 17745(b) taxes a California beneficiary when income that escaped tax because the interest was contingent is later paid out, as if received ratably over that year and the five before (or a shorter accumulation period). A child who settles in Sacramento and gets the proceeds at 30 pays then. Nobody can promise where a ten-year-old will live.

The incomplete-gift route is closed. Section 17082, added by SB 131 in 2023, taxes the grantor on an incomplete gift nongrantor (ING) trust’s income starting with 2023 tax years. Only a completed gift moves the gain off the founder’s own California return.

What does gifting founder stock cost on the gift and estate side?

The donee takes the donor’s basis under 26 U.S.C. § 1015. Stock held until death instead gets a fair market value basis under section 1014, which California follows, erasing state and federal gain alike. For an older founder with no sale coming, holding can beat any gift.

Section 2010(c)(3) sets the 2026 basic exclusion amount at $15 million, and Rev. Proc. 2025-32 sets the 2026 annual exclusion at $19,000. A gift in trust is usually a future interest outside section 2503(b) unless beneficiaries hold a temporary withdrawal (Crummey) right. I covered the $15 million figure in the A/B trust post.

How would the numbers work for a Roseville founder?

An illustrative case: Dana, single, lives in Roseville. In 2020 she paid $30,000 for founder shares at original issuance. In 2022, with each one-third block appraised near $1.5 million, she gave one block to each of two completed-gift non-grantor trusts, one per child. In December 2026 a buyer pays $30,030,000 for everything, $10 million of gain per block.

Without the gifts, Dana excludes $10 million federally and owes roughly $4.76 million on the other $20 million (20 percent plus the 3.8 percent net investment income tax). With them, Dana and each trust exclude $10 million apiece, wiping out the federal tax if the trusts hold up. On California’s 2025 single and fiduciary schedule, ignoring deductions and credits, Dana alone owes about $3.96 million. If both trusts have a California trustee, each owes about $1.30 million, as does Dana, roughly $3.90 million total. With out-of-state trustees and discretionary terms, Dana owes her $1.30 million and the trusts’ $20 million is reached only on a later California distribution.

Each federal filer uses Form 8949 code Q, entering the exclusion as a negative amount in column (g) per the Form 8949 instructions; Dana’s Schedule D (540), or a California trust’s Schedule D (541), carries the full gain. A seller-financed sale of closely held stock can use 26 U.S.C. § 453; section 453(k)(2) bars only public stock. Keep the stock ledger, issuance papers, gross-assets figures at issuance, gift appraisals, Form 709, and trustee residence and distribution records.

Frequently Asked Questions

Can I give QSBS to my children directly instead of to a trust?

Yes. The federal gift rule covers outright gifts, and each child gets a separate per-issuer cap. A child living in California pays California tax on that share, while a child living elsewhere generally owes California nothing on the stock gain.

Does a grantor trust or a SLAT get its own section 1202 cap?

No. A grantor trust is ignored for income tax, so its sale counts against the founder’s own limit. It can still serve estate planning goals.

What happens if the trustee pays sale proceeds to my child in California?

Distributing current-year gain makes the trust taxable in California on that amount under FTB Legal Ruling 2026-01. Paying out gain accumulated tax-free triggers the throwback, taxing the child as if it arrived over that year and the prior five, or over a shorter accumulation period.

Does the new $15 million cap apply to shares I got in 2020?

No. Stock acquired by July 4, 2025 keeps the $10 million limit and the five-year rule. A donee takes over your acquisition date, so gifting does not convert old shares.

When should I make the gift?

Long before a buyer appears. An early gift is appraised lower and uses less exemption. A gift made mid-negotiation invites the argument that the gain was already fixed when the shares moved.

How North Star Law Firm Can Help

North Star Law Firm models federal and California tax on founder stock sales through its business sale tax structuring practice. When a trust holds the shares, the firm prepares its Form 1041 and Form 541 through its trust and estate tax returns practice, and entity selection planning at the start helps a new company issue stock that can qualify. Phillip Zagotti is a California attorney and a CPA, admitted to the U.S. Tax Court.

If you are thinking about gifting company stock, contact North Star Law Firm or schedule a consultation before the letter of intent is signed.

A balance-due notice arrives at your new house in Temecula. The audit letters and the notice of deficiency went to the Murrieta condo you sold, and the 90 days to go to the U.S. Tax Court ran out while the envelopes sat in a return bin. Some courts now forgive late petitions, but a California address is the worst one to have for that argument. Here is what I would do on day 91.

How does the 90-day clock work if the IRS mailed the notice to an old address?

Under 26 U.S.C. § 6213(a) you have 90 days from mailing to petition the Tax Court, or 150 days if the notice is addressed to a person outside the United States. A weekend or D.C. holiday pushes the last day forward, and a petition filed by the date printed on the notice counts as timely.

Mailing to your “last known address” is enough under section 6212(b). Treas. Reg. § 301.6212-2 uses the address on your latest processed return unless you gave clear notice of a new one, and it can pick up a postal change of address. So I first ask whether the client filed Form 8822 or a forwarding order beforehand. If so, the notice may be invalid, a far better problem than a late petition.

Why is the Ninth Circuit the hardest place to ask for more time?

Equitable tolling excuses a missed deadline for a diligent filer facing extraordinary circumstances, but only if the deadline is not “jurisdictional.” Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022), held the 30-day deadline to petition from a collection due process determination tollable. It did not decide the deficiency deadline.

Since then, Culp v. Commissioner, 75 F.4th 196 (3d Cir. 2023), Buller v. Commissioner, 160 F.4th 266 (2d Cir. 2025), Oquendo v. Commissioner, 148 F.4th 820 (6th Cir. 2025), and Maniktala v. Commissioner, No. 25-1366 (8th Cir. Aug. 11, 2026), allow tolling of § 6213(a). Kyick Holdings, LLC v. Commissioner, No. 25-1429 (1st Cir. Aug. 17, 2026), agreed the deadline is not jurisdictional but held it “mandatory and may not be equitably tolled.”

California is in the Ninth Circuit. Organic Cannabis Foundation, LLC v. Commissioner, 962 F.3d 1082 (9th Cir. 2020), held the deadline jurisdictional against two dispensary businesses whose FedEx petitions arrived one day late. That predates Boechler; the only later Ninth Circuit ruling I found, Atighi v. Commissioner, No. 21-71417 (9th Cir. Nov. 25, 2022), is unpublished and never mentions it. The Tax Court agrees with the Ninth Circuit in Hallmark Research Collective v. Commissioner, 159 T.C. 126 (2022), a California company’s case, and Sanders v. Commissioner, 161 T.C. No. 8 (2023).

Under Golsen v. Commissioner, 54 T.C. 742 (1970), the Tax Court follows on-point law of the circuit hearing the appeal, which 26 U.S.C. § 7482(b) ties to residence. A Michigan taxpayer gets Oquendo; a Temecula taxpayer gets Hallmark. The Supreme Court has not taken up the split.

Is it worth filing a late Tax Court petition anyway?

Often, yes. The filing fee is $60, waivable for hardship. Expect dismissal, but the Ninth Circuit will not revisit Organic Cannabis unless taxpayers keep asking.

That label has an upside. A dismissal fixes the deficiency at the IRS’s number unless it is for lack of jurisdiction (26 U.S.C. § 7459(d)), and section 6512(a) bars a refund suit only after a petition filed “within the time prescribed in section 6213(a).” Organic Cannabis noted that a jurisdictional dismissal keeps the refund route open. In Oquendo the IRS argued that late filers denied tolling lose that route; the Sixth Circuit was unmoved, but the point is unsettled.

What other routes are open to a California taxpayer after day 90?

I reach first for a collection due process hearing. Before levying, the IRS must give you 30 days to request one on Form 12153. Section 6330(c)(2)(B) lets you contest the tax itself if you did not receive the notice, and Treas. Reg. § 301.6330-1(e)(3), Q&A-E2, means “receipt in time to petition the Tax Court.” Losing at Appeals triggers the 30-day petition deadline Boechler made tollable. Later, for the same company, the Tax Court held the lien-hearing request window tollable in Organic Cannabis Foundation, LLC v. Commissioner, 161 T.C. No. 4 (2023).

Audit reconsideration under IRM 4.13.1.2.1 requires a filed return, an unpaid assessment and information the examiner never saw, which fits most people who missed the audit letters (Publication 3598). A doubt-as-to-liability offer on Form 656-L has no fee, but Treas. Reg. § 301.7122-1(b)(1) bars it after a final court decision on the liability.

Or pay and sue. Flora v. United States, 362 U.S. 145 (1960), requires full payment first. Claim within three years of the return or two of payment (26 U.S.C. § 6511(a)), wait six months or for a denial, and sue within two years of the denial (§ 6532(a)(1)) in the Court of Federal Claims or your home district (28 U.S.C. § 1402(a)(1)): the Central District for Riverside County, the Eastern District for Sacramento.

What does Kings Road mean for a California LLC taxed as a partnership?

Partnerships under the Bipartisan Budget Act of 2015 (BBA) audit rules receive a notice of final partnership adjustment (FPA). 26 U.S.C. § 6234(a) allows 90 days to petition. Big Apple Tompkins Realty LLC v. Commissioner, 167 T.C. No. 7 (Aug. 5, 2026), held that deadline nonjurisdictional. Kings Road Property, LLC v. Commissioner, 167 T.C. No. 11 (Sept. 21, 2026), then tolled it for a petition 16 days late.

New counsel pulled a blank transcript, phoned the IRS after the mailing deadline, was told nothing had gone out, and still petitioned protectively; Judge Buch said she “did more than merely watch the mailbox.” Undeliverable packages plus IRS misinformation were the extraordinary circumstance, though returned mail alone might not have been.

One caution: a California partnership’s appeal goes to the Ninth Circuit (§ 7482(b)(1)(E)), which held the old TEFRA deadline jurisdictional in SNJ Ltd. v. Commissioner, 28 F.4th 936 (9th Cir. 2022) and has not ruled on § 6234(a).

The FPA cannot be mailed earlier than 270 days after the IRS’s notice proposing the adjustment (NOPPA) absent a waiver (§ 6231(b)(2)(A)), and it is due by the later of 330 days after the NOPPA or three years after the return (§ 6235(a)). When day 330 controls and nothing was waived or extended, a protective petition filed between days 331 and 360 lands after any timely FPA and before the earliest due date. From day 270, pull transcripts, log calls, fix addresses and revoke stale powers of attorney.

How would the federal and FTB deadlines line up for a Temecula taxpayer?

An illustrative case: Elena filed her 2023 return on April 15, 2024 from Murrieta and moved to Temecula in late 2025 without telling the IRS or the post office. On Monday, March 9, 2026 the IRS mailed a notice of deficiency for $14,200 plus a $2,840 penalty to Murrieta; her 2025 return, filed from Temecula in April, came too late. Day 90 was Sunday, June 7, so the petition was due June 8. An August balance-due notice is her first news.

When the levy notice comes, she has 30 days to request a hearing and contest the tax. Audit reconsideration is open now. If she pays instead, her refund claim is due by April 15, 2027, or two years after payment, with suit in Riverside.

California runs separate clocks. Cal. Rev. & Tax. Code § 18622(a) requires her to report the federal change to the Franchise Tax Board within six months after it becomes final and section 19060(a) lets the FTB assess any time if she never does. A proposed assessment allows 60 days to protest (section 19041), then 30 days after the FTB’s notice of action to appeal to the Office of Tax Appeals (section 19045; Cal. Code Regs., tit. 18, § 30203(a)). I found no OTA decision tolling that window. Partnerships report BBA adjustments under section 18622.5. As with the treaty wins I discussed for foreign nationals, a federal result does not close the FTB file.

Frequently Asked Questions

Can the Tax Court accept a late deficiency petition from a California taxpayer?

Not today. The Tax Court and the Ninth Circuit treat the 90-day deadline as jurisdictional. Filing anyway preserves the argument, but expect a dismissal.

Does the 90-day period start when I receive the notice of deficiency?

No. It runs from mailing to your last known address, usually the one on your latest processed return. A notice addressed outside the United States allows 150 days.

What can I do if I never received the notice of deficiency?

You can usually contest the tax at a collection due process hearing. Audit reconsideration and a doubt-as-to-liability offer are fallbacks, as is paying and suing.

Does Kings Road help my California partnership?

The Tax Court should apply it unless the Ninth Circuit rules otherwise. Tolling still requires proof of diligence and a cause outside the partnership’s control.

If I beat the IRS, do I still have to deal with the FTB?

Yes. California requires reporting federal changes within six months after they become final. The FTB’s 60-day protest and 30-day appeal periods run on their own.

How North Star Law Firm Can Help

North Star Law Firm handles missed-deadline and wrong-address cases for California individuals and partnerships through its Tax Court and Office of Tax Appeals practice, its broader tax defense work and offers in compromise. Phillip Zagotti is a California attorney and a CPA, admitted to the U.S. Tax Court.

If an IRS or FTB deadline has already passed, contact North Star Law Firm or schedule a consultation before the next one does.

California’s automatic extension for 2025 individual returns runs out on October 15, 2026. The question I hear most from ITIN filers this fall is whether a return sent to the IRS puts a home address in front of immigration agents. That deserves an answer built on the statute and the court orders.

This is a tax law post for California ITIN filers, mixed-status families and the employers who hire them. Where a filing choice touches an immigration case, bring in an immigration attorney first.

What did the federal courts decide about IRS address sharing with ICE?

Three cases matter. In Centro de Trabajadores Unidos v. Bessent, No. 25-5181 (D.C. Cir. Feb. 24, 2026), the D.C. Circuit refused to block the April 2025 IRS agreement with the Department of Homeland Security. Its key holding: a mailing address is “taxpayer identity,” which the IRS may release when a request meets every statutory condition.

The second case tested execution. In Center for Taxpayer Rights v. IRS, No. 25-cv-457 (D.D.C.), Judge Colleen Kollar-Kotelly stayed the address-sharing practice on November 21, 2025. Once the IRS admitted its matching routine often checked only for some five- or nine-digit number in the address field, her February 26, 2026 opinion counted roughly 42,695 unlawful disclosures among 47,289 records released on August 7, 2025. On September 8, 2026, the D.C. Circuit affirmed in Center for Taxpayer Rights v. IRS, No. 26-5006, holding that the procedure “indisputably contravenes the requirements of section 6103.”

In Boston, in Community Economic Development Center of Southeastern Massachusetts v. Bessent, No. 1:25-cv-12822-IT (D. Mass. Feb. 5, 2026), Judge Indira Talwani barred ICE from viewing or relying on the data it already had. That order is on appeal (1st Cir. No. 26-1329), with California among the states filing an amicus brief for the plaintiffs.

What does IRC section 6103 protect, and where is the gap?

Under 26 U.S.C. § 6103(a), returns and return information stay confidential unless Title 26 authorizes disclosure. Section 6103(i)(2) lets the IRS release identity information, which section 6103(b)(6) defines to include the mailing address, but not income figures, to a federal agency investigating a non-tax crime. The agency head must ask in writing, giving the taxpayer’s name and address, tax period, criminal statute and a specific reason, and only officers “personally and directly engaged” in that investigation may receive it. ICE cited 8 U.S.C. § 1253(a)(1), which punishes remaining after a final removal order.

So the gap is narrow. A documented, individual criminal request can still produce an address; bulk matching cannot, while these orders stand. Willful violations are felonies under 26 U.S.C. § 7213, and a taxpayer whose information is knowingly or negligently released may recover at least $1,000 per disclosure under 26 U.S.C. § 7431. Still open: these are preliminary rulings, D.C. Circuit rehearing petitions are due October 23, 2026, and Congress can amend subsection (i)(2).

Does skipping a return make a California family any safer?

Rarely, and it creates its own tax problems. The duty to file under 26 U.S.C. § 6012 and Cal. Rev. & Tax. Code § 18501 turns on income, not immigration status. Employers and banks file information returns anyway, so the IRS often has an address regardless.

For someone who owes, the addition under 26 U.S.C. § 6651(a)(1) is 5 percent of unpaid tax per month, up to 25 percent, and R&TC § 19131 mirrors it, with a $135 minimum (or the full tax, if less) after 60 days. And an unfiled year never closes. Section 6501(c)(3) lets the IRS assess “at any time,” and R&TC § 19087 lets the Franchise Tax Board estimate income and bill. A refund family faces little penalty, but refunds expire: section 6511 limits federal refunds to a three-year lookback, and R&TC § 19306 allows four years for California.

What do ITIN filers give up by not filing?

First, the number. Under 26 U.S.C. § 6109(i)(3), an ITIN expires if it is not used on a return for three consecutive years, and renewal means a new Form W-7 with original or certified identity documents.

Second, credits, where federal law changed for 2025. Pub. L. 119-21 rewrote 26 U.S.C. § 24(h)(7) so the Child Tax Credit now requires a work-eligible Social Security number for a parent (at least one spouse on a joint return) as well as the child. Two ITIN parents lose the $2,200 per-child credit even for citizen children, keeping only the $500 credit for other dependents under section 24(h)(4)(C). The federal earned income credit was already closed to them by section 32(m).

California went the other way. R&TC § 17052(p) substitutes an ITIN for the Social Security number, so ITIN filers may claim the CalEITC, up to $3,756 for 2025 on earned income up to $32,900, and the Young Child Tax Credit under section 17052.1, up to $1,189 per return with a child under six. The Foster Youth Tax Credit also accepts ITINs. None of it arrives without a return.

What is at stake for a Moreno Valley family earning $48,000?

An illustration with made-up facts: Ana and Luis of Moreno Valley both use ITINs and have two citizen children, ages 4 and 9. Their 2025 wages total $48,000, with $2,100 federal and $600 California tax withheld. Federally, the $31,500 joint standard deduction leaves $16,500 taxable and $1,650 of tax. Two $500 dependent credits cut that to $650, so they are owed $1,450. With one work-eligible SSN between them, the Child Tax Credit would be $4,400, erasing the tax and adding about $2,750 refundable.

On the 2025 Form 540, the $11,412 standard deduction leaves $36,588 taxable and about $510 of tax, erased by $1,256 of exemption credits, so the full $600 comes back. At $48,000 they exceed the CalEITC limit, and the Young Child Tax Credit requires CalEITC eligibility. Near $30,000 of wages, both would apply in phased-down amounts. Either way, $2,050 is waiting, and the federal share lapses if the return sits past three years.

Can the Franchise Tax Board give California returns to immigration agents?

California’s protection sits in the tax code. R&TC § 19542 makes unauthorized disclosure of return particulars a misdemeanor, and section 19552 confines shared information to tax administration. FTB does exchange data with the IRS under section 19551, but only for tax purposes. A state return is not hidden from the IRS.

What about the California Values Act? Gov. Code § 7284.6 forbids sharing a home or work address for immigration enforcement, but it binds “California law enforcement agencies” as defined in section 7284.4. FTB, a tax agency, is governed by sections 19542 and 19552, and its privacy notice says it honors subpoenas and court orders as the law permits.

What should a California employer of ITIN holders do differently?

Keep Form I-9, the eligibility file, separate from the W-4 and W-2 tax documents. IRS Publication 15 says not to accept an ITIN in place of an SSN; it is not work authorization. If an SSA Employer Correction Request arrives, note its own statement that it does not address immigration status and should not drive adverse action. Lab. Code § 1019.1 penalizes demanding extra I-9 documents (up to $10,000 per violation), section 1019 bars retaliatory threats to call immigration authorities, and section 1171.5 extends state labor protections regardless of status.

Paying cash is the expensive shortcut. Wages still require withholding under Unemp. Ins. Code § 13020, and EDD adds 15 percent penalties for late contributions and unfiled reports (sections 1112 and 1126). Skipping itemized wage statements violates Lab. Code § 226 (section 226.3 penalties run $250, then $1,000, per employee), and sub-minimum pay brings section 1197.1 penalties of $100 or $250 per underpaid employee per pay period. Section 226 accepts an employee number instead of an SSN. Employers already off the books should see our post on the IRS voluntary disclosure redesign and California agencies.

Frequently Asked Questions

Can the IRS still share my address with ICE?

Only in narrow cases. The D.C. Circuit reads IRC section 6103(i)(2) to allow release of an address when a federal agency head makes a written request tied to a specific non-tax criminal investigation. Courts have halted the 2025 bulk matching, but those rulings are preliminary and could change on appeal or through legislation.

Will my ITIN expire if I stop filing?

Yes. Under IRC section 6109(i)(3), an ITIN expires when it has not appeared on a federal return, either as filer, spouse or dependent, for three consecutive tax years. Renewing it requires a new Form W-7 and original or certified identity documents, which can delay a later refund.

Can ITIN parents claim the Child Tax Credit for 2025?

Not unless one spouse has a work-eligible Social Security number. Amended IRC section 24(h)(7) requires an SSN for the parent, or one spouse on a joint return, plus the child. Two ITIN parents can still claim a $500 credit for each child as an other dependent, but it is nonrefundable.

Does the California Values Act stop the Franchise Tax Board from sharing my return?

Not directly. The Values Act restricts California law enforcement agencies. The Franchise Tax Board is a tax agency, and its confidentiality duties come from Revenue and Taxation Code sections 19542 and 19552, which make unauthorized disclosure a misdemeanor and limit shared data to tax administration. FTB does exchange information with the IRS for tax purposes.

Do filed tax returns matter in an immigration case?

They can. The good moral character standard in 8 U.S.C. section 1101(f) has a catch-all, and 8 C.F.R. 316.10(b)(3)(iii) lets officials weigh unlawful acts during the statutory period. Whether a missed return counts depends on the facts, so talk with an immigration attorney before amending old returns or changing how you file.

Can a California employer pay ITIN holders in cash to stay off payroll?

That creates its own liability. California still requires income tax withholding under Unemployment Insurance Code section 13020, and EDD imposes 15 percent penalties for unpaid contributions and missing reports. Missing wage statements violate Labor Code section 226, and minimum wage shortfalls trigger section 1197.1 penalties per pay period.

How North Star Law Firm Can Help

North Star Law Firm helps California households and employers across the Inland Empire, the Sacramento area and the rest of the state bring unfiled returns current, request penalty abatement where the facts support it, and clean up payroll tax and EDD problems before they turn into assessments. Phillip Zagotti is a California attorney and a CPA who represents taxpayers before the IRS, the Franchise Tax Board, the Office of Tax Appeals and the U.S. Tax Court.

If you are weighing whether to file, or you employ workers and want your payroll on solid ground, contact North Star Law Firm or schedule a consultation.