Brotman Law Presents
The Ultimate Guide to California Franchise Tax Board (FTB) Collections
The FTB has been known to “strong-arm” former state residents. But people do fight back and win. Take the case of Gilbert Hyatt, an inventor who earned a fortune as the patent holder of the microcomputer. For twenty five years, the FTB harassed Hyatt, whose case went all the way to the Supreme Court.
The repercussions of an unpaid balance due to the California Franchise Tax Board (FTB) can be severe, especially for a small business owner. The law allows the FTB to pursue payment of tax debts aggressively through a number of involuntary collection actions.
All of these actions are deeply unpleasant, and some can be devastating. If you have received a notice from the FTB requesting payment in full on a past-due balance or informing you that a collection process has begun, you are probably under considerable stress.
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The first thing that you should do is make sure that you fully understand the situation, and if necessary, find qualified legal representation for the next steps. Tax liens can appear complicated and intimidating the first time you approach it, but the basic principles are not difficult to understand.
First off, a lien is not a levy. A lien is a notice that your personal property and bank accounts may not be sold or cashed out until the lien is removed. A levy is the actual seizure of bank accounts and sale of property up to the full amount of your tax liability and any related fees, penalties and interest.
A tax lien is filed in an effort to force you to pay your outstanding tax obligations. You might think of it as your property and bank accounts as a box you want to pick up, and a lien as something on top of it preventing you from doing so. The lien isn’t permanent as once you remove it, you can then lift up your “box” of assets. Liens exist to protect the government’s right to claim your personal property in the event you do not pay your taxes.
Tax liens can occur at the local, state or federal level, and they may be applied to some or all of your assets. A lien makes it extremely difficult to sell property or obtain financing, and if it goes unpaid for too long, it can leave you vulnerable to more drastic collection actions.
The FTB records liens after a payment demand has gone unanswered. Typically, you are sent a notice of collection action 30 days before recording a lien. The notice contains the amount of tax debt, your rights in contesting the debt, and a deadline for avoiding collection action.
There are limited exceptions to ban for transfer of property encumbered by state lien. The taxpayer may still transfer interest in real property via a Quit Claim. 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.
The lien is valid for 10 years but may be extended by the FTB in accordance with the internal Lien Extension Guidelines and by taking into consideration factors listed in the Guidelines.
If the FTB fails to extend the lien for any reason after 10 years from the date of its creation, the lien expires.
FTB Tax Liens
Did you know that the FTB can file a lien against you even if you have an installment agreement?
In this chapter, we will outline the different types of tax liens and the impact they can have on your business.
Risks of Tax Liens
This chapter is packed with information about all of the risks associated with tax liens. We will talk about all of the negative consequences of having a lien attached to your property, including loss of liquor license, garnishment of wages, seizure of property, damaged credit rating and more.
Chapter 3 discusses the different types of FTB collections activities. We will then move on to ways the taxpayer can attempt to pay off the debt, such as an Offer in Compromise, payment plan or installment agreement.
We will also discuss the option of bankruptcy and its recourse. We end the chapter with strategies for avoiding liens.
FTB Lien and Levy Release
If you have a lien or levy stated against you, you probably want to know how to get rid of it — quick. In this chapter, you can find out to have a levy released, including a partial release, followed by a quick summary.
We will also talk about levies and the types of accounts that can be seized. Lastly, we will discuss what a taxpayer can do to have a levy released.
Withholding Orders (EWOT/CWOT)
If you are an employer, you may have experienced dealing with an EWOT (employee payment withholding order). This chapter will discuss the process, the priorities of repayment of an employee’s debt and includes some FAQs that employers have about EWOTs.
We will then move into CWOTs and explain the difference as a CWOT seizes payments to the taxpayer that come from rent, payments, etc., and are not attached to a paycheck.
FTB Penalty Abatements
Chapter 6 outlines the circumstances where a taxpayer may qualify for an abatement, such as military service, disaster loss, financial hardship, IRS/FTB error and more.
If you qualify, this could be your “get out of jail free” card. We will also talk about what to do if your request for abatement is declined and how to file a penalty dispute.
FTB Business Collections
This chapter kicks off with a discussion of the ways a business can voluntarily pay off its tax liability, known as the Voluntary Case Resolution Procedure.
We will also talk about field collections where a sheriff will literally show up on your property and demand payment of taxes due. If the money is not on hand, then the sheriff can seize your property on the spot.
Hyatt sued the Franchise Tax Board for fraud and harassment. The jury in his new home state of Nevada awarded him a $388 million judgment. But, because of a statutory cap on the amount state agencies can be held liable for, this was later reduced to $50,000. Hyatt was reported to have said “As the cliché goes, the power to tax is the power to destroy.”
There have been some big changes in California’s taxing agencies since this case closed, but what has not changed, in my opinion, is state collections agencies have stayed inflexible and have a longer reach.
Before you tackle the FTB on your own, call my office. I am very familiar with the threats of liens and levies. If you owe a state tax debt, we can work together to keep your property, assets and finances firmly in your hands.