How the Franchise Tax Board Uses Tax Liens

We previously discussed how the Board of Equalization handles tax liens. For this post in our series, we would like to talk about how the California Franchise Tax Board addresses the use of liens. There are differences between the way the various California tax agencies and the IRS use tax liens about which you need to take note to stay out of hot water.

Franchise Tax Board

The Franchise Tax Board (FTB) administers and enforces the individual and corporate income tax laws in California, including residents as well as non-residents who have an income from the State of California. The state income tax and property taxes are the purviews of the FTB, and it has the authority to record a notice of state lien for non-payment of state income tax in a county recorder's office.

Difference Between BOE Lien and FTB Lien

Besides the difference in the area of tax responsibility, the FTB can garnish wages, while the BOE cannot.  As mentioned, the FTB records liens for non-payment of state income tax or property tax, while the BOE records liens for non-payment of sales and use tax. Unlike the BOE, the FTB may record the lien with the office of the Secretary of State of California.

The Process

If you do not pay your entire state income tax liability by the time it becomes due and payable, the unpaid amount is subject to a state tax lien.

• Taxpayer is notified 30 days before recording a lien.
• Lien is recorded in the appropriate county recorder's office and with the California Secretary of State.
• The FTB records a certificate of release of lien no later than 40 days after payment in full of all taxes, interest, fees, and penalties.

The Franchise Tax Board tends to dig a little deeper into a taxpayer’s business and life, requiring more disclosures and information than the IRS.

What To Do

Create a Plan

• Review IRS transcripts for penalties and interest that can be removed; send the FTB an Abatement Request.
• Request an installment payment agreement.
• File your delinquent returns and pay the one-time fee to set up the agreement.
• Make all payments in full and on time.

The FTB will record a lien against your property to secure the debt until it is completely paid off.

You can pay by:

• Web Pay from your checking or saving accounts
• Credit card
• Western Union
• Check or money order by mail or in person at the FTB field office
• Electronic funds transfer if your business is the payer

Cash is not accepted.

What if the Lien Seems Questionable?

If you think the FTB has filed a notice of state tax lien in error, you can dispute the lien by calling or writing the FTB. Additionally, if the FTB improperly seized your property, you have a right to a hearing and to file a reimbursement claim for charges and fees within 90 days of the erroneous action.

The Franchise Tax Board will use any and all legal authorized means to collect on an account. It can be more aggressive in its deadlines and collection methods than the IRS. The FTB also requires more information and other disclosures on your financial statement yet is slower to resolve issues because there are more levels of administrative review.

Consequences of Non-Payment

• Wage garnishment
• Liens against real property
• Asset seizure
• Levy on bank accounts
• Interception of funds you may receive from the federal government, other states, and state agencies
• Damaged credit rating

Release of Lien

You can get the lien removed by one of three actions:

• Pay the Debt In Full: pay all of the total tax liability plus any penalties, accrued interest, and fees for the tax years represented by the lien.
• Partial Release: if the amount due is secured by other property that would remain under the lien, you can get the lien against some portion of the property currently under lien.
• Requesting Relief: file an Offer in Compromise if you do not have the means, assets, or income to pay your full liability now or in the foreseeable future. You may be required to enter into a collateral agreement for a term of five years.

As with other tax agencies, the best way to get the lien released is by paying all taxes, penalties, and interest in full. You can do so through an installment plan, or if you have the cash, pay the debt outright.

If you simply cannot pay, you can request relief or an Offer in Compromise. To get you through the situation, a knowledgeable tax attorney can help you through the process.

Our next post will take up how the Employment Development Department, also known as the EDD, uses tax liens to enforce compliance with the tax laws.