Our last few posts have been about how the various California state tax agencies handle tax liens.
A brief review:
- The Board of Equalization (BOE) administers the sales and use tax.
- The Franchise Tax Board (FTB) administers and enforces the individual and corporate state income tax laws and property taxes.
- The Employee Development Department (EDD) administers payroll tax and unemployment and disability insurance for the state.
All three agencies can issue a lien against personal property, real or personal, tangible or intangible. There are differences between the agencies regarding how they handle payment of tax in arrears, what type of payment they accept, and how they handle various repayment programs.
The impact of the lien on your financial life is the same, regardless of the agency involved; you are stressed, and your property and assets are being held until you pay up.
How a Tax Attorney Can Help
Typically, the amount of tax, penalties, and interest is lower with a state tax lien than with the Internal Revenue Service; however, California does not have the same system of taxpayer’s rights in place that the federal system does.
The tax law is not only more complex in California, but the state tax representatives are generally more difficult to deal with. The state uses more aggressive collection tactics, uses them much more frequently, and demands more stringent payment terms from taxpayers than the federal government.
All of this makes it extremely difficult to not only deal with the state government but to work out a resolution that allows people to maintain a reasonable standard of living (especially given the high cost living in California) while continuing to fund their businesses.
Here is where a tax attorney can be of most benefit to you.
Tax Attorneys Help Navigate the Systems
A tax attorney helps to level the playing field when dealing with the state of California and their representatives. A qualified tax attorney understands not only the tax law but understands the procedural framework under which that law is administered.
A tax attorney understands the motivations of the state government and proposes solutions to tax problems that the state is willing to accept while being a steadfast advocate for the needs of their clients.
Our office never forgets that our job is to:
- Advocate for our client’s interests
- Protect the livelihood of those we represent
State tax liens present a particular challenge to resolving tax issues because of their far-reaching implications and the immediate, harmful impact of the lien itself. Although we are a big proponent of "self-help" for tax issues, we understand that state tax liens present unique challenges for those who are unfamiliar with tax controversies.
Whether or not you chose to retain a tax attorney to deal with a state tax lien or with some other state tax issue, we encourage you to speak with a tax attorney to at least get a second opinion on the resolution that you are proposing. Let the attorney give you some input about the potential pitfalls that may arise from that approach.
A Bit About Releases and Withdrawals of Liens
You may be wondering what happens once your taxes, penalties, and interest are paid in full.
Once issued, a lien remains in place until a release of lien is filed to establish that it has been satisfied and is no longer valid. If a release of lien is not filed, the lien will continue to encumber your property.
In California, when everything is paid up, any liens are released. However, there are certain situations where a state lien may be released without the debt being paid in full.
For example, if the amount of taxes due the state is sufficiently secured by a state lien on other property, then a lien on a different asset or property is not deemed necessary. The state considers that the first lien sufficient and releasing additional liens will not impact collection activity.
Sometimes this is called a partial release of lien. The original lien is still in force against property that comes into your hands at a later date.
Occasionally, a state tax agency will subordinate a lien in favor of a lien from another state tax agency. This means one lien takes precedence and priority over another and, in some ways, takes its place.
Liens may be released if the liability underlying the state tax lien has been deemed unenforceable through bankruptcy, statute expiration, or other reason under state or federal law.
Finally, if a lien has been recorded in error by tax agency staff, the agency must send a copy of the release to all three major credit reporting bureaus. A short list of reasons a lien can be considered to be filed in error include:
- The liability was satisfied, in full, before the lien recording date.
- An audit report is in litigation.
- A lien was filed with an incorrect name, social security number, entity name, EIN, corporation number, or limited liability number.
- The taxpayer provides documentation that there was no additional tax due.
It is also possible to request a partial release of lien. In this case, the lien is fully removed from a piece of property designated in the partial release of lien. All other property remains encumbered.
Partial releases must be approved by a collections supervisor and the Collections Division Chief if it can be shown that the remaining property under lien is sufficient to enforce collection of the liability. A partial lien may be granted in cases of hardship or if the property released is being sold to satisfy the tax debt, among other things.
Taxes are complex beasts that can be difficult to tame for most ordinary taxpayers and business owners, particularly when an action such as a tax lien has been put in place by a state tax agency.
An experienced and knowledgeable tax attorney who is familiar with California tax code, as well as the IRS, can become the mediator between you and the taxing authority, taking a little of the load off your shoulders and making sure everyone is playing fair.