Sam Brotman, JD, LLM, MBA August 24, 2014 5 min read

Franchise Tax Board Assessments – Part Two

Assumer Assessments

An assumer is an individual or business entity that accepts legal responsibility for another business entity (takes owe its tax obligation) when requesting a tax clearance. Usually it occurs when taxpayer entity changes its form, gets merged or seizes to exist. Franchise Tax Board form FTB 3555 Request for Tax Clearance initiates this process. Once this form is accepted and the entity has completed the dissolution, surrender, cancellation, or merger process, the assumer becomes responsible for the entity’s taxes and/or unfiled tax returns. All returns remain subject to audit until expiration of the normal statute of limitations.


An assumer differs from a transferee because an assumer voluntarily assumes any subsequent liabilities or responsibilities for a business entity, where a transferee has the liabilities transferred to them without their consent. FTB indicates certain limitations in this respect:

• An assumer cannot be a general or limited partnership.

• The surviving entity of a conversion assumes the converted entities liability without a tax clearance unless they are a domestic or qualified corporations that are converting to another type of entity.


FTB will include assumer in its automated system and will check with Secretary of State whether the original business entity taxpayer truly merged, dissolved, canceled, etc. Please note that the statute of limitation for assumer assessments is one year beyond the statute for assessment of the original liability regardless of any extension.

Transferee Assessments

Transferee assessments are issued when assets are inappropriately taken from a business entity, leaving the business insolvent and unable to meet its tax obligations. This process makes the transferee (the one who receives assets) responsible for the amount taken or the tax liability due (whichever is less). A transferee can be any of the following:

• A company officer

• Stockholder

• A business entity

Examples of transfers are:

• Corporate officers who receive improper compensation, such as excessively high salaries or expenses

• Stockholders who borrow from the corporation without repaying the loans

• Other corporations, partnerships or sole proprietorships that receive assets from the corporation without adequate compensation


FTB will identify transfers and transferees, and will make assessment. Such assessments are divided into two major categories: transferee assessments based upon law, or based upon equity. For transferee assessments based upon “law,” a contract must exist in which the transferee agrees to pay the transferor’s tax. Transferor is one who gives away its assets to transferee. For transferee assessments based upon “equity,” all of the following requirements must be met:

• Transfer of assets

• Tax liability accrued before or in the taxable year the transfer was made

• Transfer made without full and adequate compensation

• Transferor left without assets sufficient to pay tax liability due to the transfer

• Transfer must have been to actual beneficial owners

• Creditor may be held as transferee only to the extent of the overpayment


FTB staff must have exhausted all means available to collect from the business entity before proceeding with a transferee assessment. FTB will have to prove transferee before imposing assessment. Proof of transferee is determined by the following:

• Identification of the asset transferred

• Evidence that the transfer left the transferor insolvent or defrauded creditors

• The value of the asset transferred

• Asset transferred after tax accrued or during tax year in which liability arose

After that FTB sends to transferee of the asset form 5900 and waits 45 days from mailing date before taking any action, for example, imposition a lien on the asset. Please note that the statute of limitations for setting up a transferee assessment is five years past the original due date of the tax return. For subsequent transferees, the statute of limitations is within one year of the expiration of the previous transferee assessments’ statute of limitations (up to a maximum of three years).


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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law



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