Sam Brotman, JD, LLM, MBA August 24, 2014 6 min read

Franchise Tax Board Business Collections

Voluntary Case Resolution Procedure

FTB has established special procedures for business tax collections. FTB issues notices to business entities with tax issues. These notices provide business entities repeated opportunities to voluntarily meet their tax obligations. FTB notices educate business entities of their legal rights and responsibilities, and provides them with FTB contact information. Notices are used as a method to gain compliance, minimize enforcement costs, and ensure due process. FTB must notify business entities in writing about outstanding tax issues, and allow reasonable time for the business entity to comply.

The most common notices are:

• Request for Past Due Tax Return

• Official Demand for Past Due Tax Return

• Single Period Return Information Notice

• Consolidated Return Information Notice

• Notice of Balance Due

• Past Due Notice

• Formal Demand Notice

• Final Notice Before Levy

• Notice to File Tax Returns

• Final Notice Before Suspension or Forfeiture

• Final Notice Before Contract Voidability

• Demand for Tax Return

• Notice of Proposed Assessment

The names of the notices may vary for different entity types.

 

The FTB must issue a notice prior to action to ensure due process. FTB's failure to provide notice before taking action may rise constitutional issues. Notices are generally issued for unpaid tax, unpaid penalty or unpaid interest. Beginning February 2001, new tax year liabilities are entered at FTB the Business Entities Accounts Receivable Collection System (BE ARCS) from the Business Entities Tax System (BETS). The purpose of the BE ARCS billings is to advise business entities of their legal rights and responsibilities, and provide them a way to contact FTB for additional information. FTB staff must review an account’s billing history and verify that a BE ARCS notice has been issued.

 

To resolve some tax accounts FTB's desk collectors transfer the accounts to field collectors. This occurs because some business entities evade tax collection, while others ignore it. FTB field collectors visit business entities, encourage compliance, verify income activity, document asset information, and identify assets for possible seizure (this includes identifying when warrants are needed). Following types of cases will be referred to field collectors:

 

1) Active businesses with valid addresses.

2) Accounts with viable assets, including multiple real estate properties.

3) Verified non-compliance cases.

4) Businesses that repeatedly pay filing enforcement assessments without filing tax

returns.

5) Businesses that repeatedly refuse to file their tax returns or pay their tax balances.

6) Businesses that routinely abandon one business and start a new one to avoid tax liabilities.

 

Before referring cases to field collections FTB staff must exhaust other collection actions, mainly notices. The exception is when an account is at risk, such as a business entity liquidating assets to avoid collections, or the business entity has a significant non-compliant history. Internal FTB manual requires that there must be a viable asset in existence to justify field collection, such as a likelihood of income or a known physical asset. An internal field transfer request must demonstrate that field action has a realistic potential to resolve an account.

When an account is determined to be uncollectible, it is removed from the FTB's automated billing cycle and is considered discharged. Basically, it happens when FTB determines that it is not cost effective to pursue collection of this particular liability. Upon discharge, the liability still remains due but collection action ceases. Once a year, accounts in collections will receive an annual notice, to advise taxpayer entities of missing returns and unpaid liabilities.

 

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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