Franchise Tax Board Settlements - Part One

Franchise Tax Board Settlements

The California Franchise Tax Board (FTB) has authority to settle administrative civil tax disputes. Such authority allows FTB to settle civil tax disputes 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. 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 he or she owes tax (tax liability), and is merely seeking a relief from an obligation to pay a tax liability because he or she is not able to pay, the taxpayer must instead contact a program called Offer in Compromise program at (916) 845-4787.

The settlement process is fairly complicated. The Executive Officer of the Franchise Tax Board may recommend to the Franchise Tax Board a settlement of dispute. Executive Officer can also authorize FTB's Chief Counsel to make such recommendation. Recommendation is then submitted to Attorney General. Within 30 days, the Attorney General must review recommendation and advise FTB is writing whether such recommendation is reasonable. FTB then submits recommendation to members who must approve or disapprove it within 45 days after submission. Disapproval can be made only if 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 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:

1) The name or names of the taxpayers who are parties to the settlement;

2) The total amount in dispute;

3) The amount agreed to pursuant to the settlement;

4) A summary of the reasons why the settlement is in the best interests of the

State of California; and

5) 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 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 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.