When it comes to partnership collections, all general partners are jointly and severally liable for all the debts and obligations incurred by the partnership. Partners in a LLP have limited liability except for liabilities arising from their own professional malpractice. In a limited partnership, a limited partner has no liability for debts of the partnership unless the limited partner takes part in the control of the business (Corporations Code section 15507).
If the partnership is no longer operating and all partnership assets have been distributed, collection action may be taken against the individual assets of the former partners without concern as to whether equal amounts are collected from each of them.
Each individual partner, depending on that partner's period of association with the partnership, may be held responsible for all, part or none of the total liability of the partnership. When a partner dissociates from a continuing partnership, that partner is generally not liable for partnership obligations incurred after the date of dissociation.
In the case of a disputed tax liability, the taxpayer has the burden of proof to show the liability is not owed. Accordingly, in cases regarding a partner's claim of dissociation, the burden of proving the date of dissociation is on the dissociating partner. Standard appeal procedures apply.
Dissociating general partners are each 100 percent liable for all the debts and obligations incurred by the partnership before dissociation, for the entire time they were in the partnership.
FTB field collectors visit business entities, encourage compliance, verify income activity, document asset information and identify assets for possible seizure (this includes identifying when warrants are needed).
Following types of cases will be referred to field collectors:
- Active businesses with valid addresses
- Accounts with viable assets, including multiple real estate properties
- Verified non-compliance cases
- Businesses that repeatedly pay filing enforcement assessments without filing tax returns.
- Businesses that repeatedly refuse to file their tax returns or pay their tax balances
- Businesses that routinely abandon one business and start a new one to avoid tax liabilities
Before referring cases to field collections, FTB staff must exhaust other collection actions, mainly notices. The exception is when an account is at risk, such as a business entity liquidating assets to avoid collections or the business entity has a significant non-compliant history.
The internal FTB manual requires that there must be a viable asset in existence to justify field collection, such as a likelihood of income or a known physical asset. An internal field transfer request must demonstrate that the field action has a realistic potential to resolve an account.
When an account is determined to be uncollectible, it is removed from the FTB’s automated billing cycle and is considered discharged. Basically, it happens when the FTB determines that it is not cost-effective to pursue collection of this particular liability.
Upon discharge, the liability still remains due but collection action ceases. Once a year, accounts in collections will receive an annual notice to advise taxpayer entities of missing returns and unpaid liabilities.
If we look at the truth squarely in the eye, we know that the reason we keep compliant with the state and federal tax laws is because we don’t want to be audited. The FTB knows that this is a very unpopular action, but in order to collect state revenues, it’s one of the most important things that they do.
“Knowing that state auditors might show up to examine the books has kept many a taxpayer from giving in to the temptation to cut corners — or large chunks — from their tax bills,” wrote Billy Hamiliton, in a Tax Notes article.
But we’re human, and as such, can be short-sighted, greedy, or just forgetful. If you’ve received a notice (or several) from the FTB and are unsure how to proceed, give my office a call and let’s talk. I’ll steer you in the right direction and will help you make sure that your business continues to do business.