We have a Missouri C-corp personal holding company, incorporated in 1978, which owns 20 acres in Bakersfield CA. Half of it is leased to a CA grower. The net income (rent less property taxes) has always averaged around $300. Sporadically, an oil company will lease mineral rights from the acreage for a range of $1,400 to $1,800. Following the oil price cycles, it will offer to lease from us for 3 or 4 years, then stop for 3 or 4 years. These last 3 years it has leased from us for around $1,400/yr. But in 2017 we received a check for $1,302 and then in January, for the first time ever, we received a 592-B from the oil company, stating that $98 was withheld for CA tax, and also disclosing that we received $1,400. Now we are faced with filling out a CA 100 income tax form, which we have never done before. It's not a difficult form, but I have one question: It asks for the date of our first income producing activity in CA. I don't know how to respond. We began earning a net rent from the Grower of approx $300/yr, beginning in 1978, and earned oil lease income not long after that. If we record 1978 as the starting date for receiving rental income from land in California, what potential liability would we be facing?
On the other hand, if we simply state that we began our activities in CA on 1/1/2017, how great is the risk of subsequent discovery?
As an aside, this company was earning much greater revenue from Missouri Real Estate. It owned a commercial building with annual rent of almost $100,000. The net income was nil, due to bank loan interest, real estate taxes and depreciation. In the late nineties, that property was sold and a smaller residential house in Missouri was purchased for $80,000 and rented out, with a yearly net loss after depreciation. Because this was a PHC, for any years with earnings, those earnings were fully distributed to the family shareholders. So my attention was absorbed with the Missouri real estate, and I never gave any thought to the potential requirement for reporting to California the tiny amounts of yearly rental and lease income. What would be the best strategy for getting this on a proper yearly reporting basis with the state of California?
On the other hand, if we simply state that we began our activities in CA on 1/1/2017, how great is the risk of subsequent discovery?
As an aside, this company was earning much greater revenue from Missouri Real Estate. It owned a commercial building with annual rent of almost $100,000. The net income was nil, due to bank loan interest, real estate taxes and depreciation. In the late nineties, that property was sold and a smaller residential house in Missouri was purchased for $80,000 and rented out, with a yearly net loss after depreciation. Because this was a PHC, for any years with earnings, those earnings were fully distributed to the family shareholders. So my attention was absorbed with the Missouri real estate, and I never gave any thought to the potential requirement for reporting to California the tiny amounts of yearly rental and lease income. What would be the best strategy for getting this on a proper yearly reporting basis with the state of California?