Sam Brotman, JD, LLM, MBA August 24, 2014 4 min read

Franchise Tax Board Liens – Part Two

It is possible to have multiple statutory lien dates for a single tax year. For example, a self-assessed no pay return is filed (lien date is posting date of return) and subsequently a Notice of Proposed Harassment is issued for the tax year.

Liens can be general or specific in nature. A general lien is enforceable by the holder (FTB, EDD or other state agency with appropriate authority) for all outstanding obligations that exist against the taxpayer – owner of the property. Specific lien is enforceable for a specific obligation existing against the owner of the property and depends on the possession of a property by taxpayer. For example, when an automobile is taken to a repair shop, the mechanic can hold the automobile until the repair bill is satisfied. The expense of repair is the basis of the lien and the possession of the automobile by the mechanic makes the lien effective.

A state tax lien is a general lien, which arises by operation of law (Revenue and Taxation Code Section 19221) and continues in effect for 10 years from the date of its creation. It attaches to all property and rights to property, whether real or personal, belonging to the taxpayer or entity located in California. The lien attaches to property owned by the taxpayer or entity at the time the lien arises and even to property subsequently acquired by the taxpayer or entity.

There are limited exceptions to ban for transfer of property encumbered by state lien. Taxpayer may still transfer interest in real property via a Quit Claim deed or other reconveyance document despite an FTB lien, as long as no escrow is involved. FTB’s lien will continue to encumber the property, although the liable taxpayer or entity no longer retains ownership. If the new owner sells the property through escrow, the proceeds will be attached to pay the outstanding liability in order to clear the property’s title from the lien. So, lien will be attached to property until it is satisfied.

A nominee lien will be issued if FTB discovers that taxpayer transferred property to a third person but still retains control over it. No matter what, the property will be encumbered by lien. A lien should not be filed by the FTB on unpaid balances older than 10 years from the effective date of the liability and any attachment of a lien is always subject to so-called Taxpayer's Bill of Rights.

FTB can file lien where taxpayer and FTB entered into an installment agreement, but there is still balance to close or history of non-payment by taxpayer. FTB must notify taxpayer of this possibility when entering into installment agreement, and must notify taxpayer prior to filing the lien. Sufficient time should be allowed by the FTB after the issuance of a lien to allow the taxpayer or entity adequate time to respond before another action is taken.

The lien is valid for 10 years but may be extended by FTB in accordance with internal Lien Extension Guidelines and by taking into considerations factors listed in Guidelines. If FTB fails to extend lien for any reason after 10 years from the date of its creation, lien expires.

 

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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