The California Franchise Tax Board (FTB) has authority to settle administrative civil tax disputes. The civil tax disputes include those that arise out of protests, appeals or refund claims filed by taxpayers.
The FTB’s Settlement Bureau is the body responsible for the negotiation of settlements. The Settlement Bureau is not allowed to settle court litigation cases – such cases must be settled outside of Bureau.
If a taxpayer is not disputing that they owe tax (tax liability), and is merely seeking relief from an obligation to pay a tax liability because they are not able to pay, the taxpayer must instead contact a program called Offer in Compromise program at (916) 845-4787.
I advise my clients who are in hot water with the FTB to negotiate a settlement, which I will assist them with. This can put a halt to aggressive collections and keep the dispute out of court. Litigating tax cases can be an intrusive and drawn-out process which can take its toll on the business and individual taxpayer.
Understanding the FTB Process
The FTB Settlement process is fairly complicated. The Executive Officer may recommend to the FTB a settlement of dispute. The Executive Officer can also authorize the FTB’s Chief Counsel to make such a recommendation. The recommendation is then submitted to the Attorney General.
Within 30 days, the Attorney General must review the recommendation and advise the FTB in writing whether such recommendation is reasonable. The FTB then submits the recommendation to members who must approve or disapprove it within 45 days after submission.
Disapproval can be made only if the majority of members voted to disapprove. If FTB members do not approve or disapprove within the 45-day time period, then such recommendation is automatically approved. In cases involving reduction in tax or penalties in the amount of $8,500 or less, the Executive Officer and the Chief Counsel can jointly approve or disapprove without submitting to the Attorney General.
A statement is placed in the office of the Executive Officer of FTB if approved reduction in tax or penalties is more than $500. Such statement is a public record and contains following information:
- The name or names of the taxpayers who are parties to the settlement
- The total amount in dispute
- The amount agreed to pursuant to the settlement
- A summary of the reasons why the settlement is in the best interests of the State of California
- For any settlement approved by the Franchise Tax Board, itself, the Attorney General’s conclusion as to whether the recommendation of settlement was reasonable from an overall perspective.
Except for the public record statement above, all other settlement information is considered confidential. To ensure confidentiality, the FTB and taxpayer sign a non-disclosure agreement prior to negotiations and all information other than what is in the public record statement generally cannot be used in subsequent legal proceedings in any administrative agency or court, and cannot be disclosed to third persons unless law requires to disclose it in limited circumstances.
All settlement agreements between the FTB and a taxpayer are final and cannot be appealed, unless it can be shown that one side defrauded the other regarding facts material (important) to settlement.
How to Apply for a Settlement
A taxpayer who wants to settle must submit a written request, which must include the following information:
- Taxpayer’s name and current address
- Taxpayer representative’s name, current address, fax and telephone number
- Taxpayer’s Social Security number or taxpayer identification number
- Taxable year(s) involved
- Tax amount involved
- Present status of dispute (i.e., is it a protest, appeal, or claim for refund)
- Copy of representative’s power of attorney (FTB form 3520), unless a valid form is already on file with the FTB
- Good faith settlement offer (amount offered to settle), including the grounds in support of the offer
- Identification and discussion of all issues in contention, including legal and factual grounds for positions taken by the taxpayer
- A listing of all Notice(s) of Proposed Assessment (NPA) and Claim(s) for refund for the taxable years involved that are not part of the taxpayer's settlement request. The taxpayer must also provide the present status of each NPA(s) and Claim(s) for Refund and the amount(s) involved.
All settlement requests by taxpayers are reviewed by FTB Settlement Bureau staff who determine if the case is a good candidate for the settlement program. Then staff notifies the taxpayer of their decision – to begin settlement negotiations or not.
The FTB usually negotiates if the dispute is real, but the FTB is not required to accept it into the settlement program. Usually the FTB is more willing to negotiate if there is a higher risk of litigation or the taxpayer presents well-developed facts.
The settlement program provides an expedited method of resolving civil tax disputes. Usually a tentative settlement is reached within nine months after a taxpayer's settlement request and when settlement is reached, the taxpayer must sign a written agreement with terms of settlement.
Settlements become final after approval by the FTB for larger settlements and by the Executive Officer for small settlements. If settlement is not reached within nine months, then the case is removed back into original pre-settlement status (protest, appeal or claim for refund).
CONTACTS: Taxpayers seeking additional information or desiring to initiate settlement of their civil tax matters in dispute should call or write (providing the required information set forth above) to:
Franchise Tax Board
Legal Division MS A-260
P.O. Box 1720
Rancho Cordova, CA 95741-3070
Phone: (916) 845-4066
General Settlement Message Line: 916-845-5034
Plan to Act Quickly
Negotiating a settlement with the FTB can put a halt to aggressive collections. If accepted it will also keep the dispute out of litigation and public notices will be minimal.
Whether it’s a payment plan or an offer in compromise you’re after, all of your outstanding income tax returns must be filed prior to any deal.
Whatever you decide to do, do it quickly! Once California sends you a notice of collection action, in most cases you have only 30 days before a lien gets recorded.
If you do not make arrangements for settling your debt, the lien will take effect. This is done through the California Secretary of State and the county in which you reside.
I have extensive experience dealing with the FTB both in and out of court. Contact me before your credit is damaged, your income garnished and your bank account is seized. Together, we can clear up your state tax liability.