1. Pay the full amount due
Obviously, if at all possible, this is the best option. You will need to pay the total tax liability (including any penalties, accrued interest and fees) for whatever tax years the lien represents
Once you have paid, the FTB will record a certificate of release in the office of the county recorder where the lien was recorded and will also file the release with the California Secretary of State within 40 days.
If you submit your payment by check, those 40 days will not begin until your bank/financial institution has honored the transaction.
2. Apply for an installment agreement
If you can meet the financial hardship conditions determined by the FTB, it may be possible to arrange to pay your tax liability through a monthly installment plan. You will need to file any delinquent returns and pay a one-time fee to set up the agreement, which will be added to your liability. FTB staff will determine your eligibility after you fill out a request form. The FTB may still record a lien on your property in order to secure the debt until it is paid, but the regular payment of installments will stop further collection actions. If you regularly miss payments, have dishonored payments or incur further liabilities, your agreement may be revoked.
3. Make 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 apply to make an Offer in Compromise, which the FTB says they are likely to accept when “the amount offered represents the most we can expect to collect within a reasonable period of time.”
An application for an Offer in Compromise is a fairly complex undertaking and may not immediately stop collection actions. You may also be required to enter into a collateral agreement for a term of five years.
This means that if your earnings increase substantially, you will be required to make further payments from any future income exceeding an agreed threshold.
4. If the lien is in error, you may file a dispute
We have already touched on this, but it bears repeating. Sometimes, the FTB makes mistakes and records liens against innocent taxpayers. If you believe that a lien has been filed in error, you must call or write to the FTB immediately to explain the error. The FTB will investigate and if they agree, they will send a release to the county where they filed the lien. At your request, they will also mail a copy of the release to the relevant credit bureaus. You generally have 30 days to prove the error.
What is Your Final Resort if You Cannot Pay?
Unfortunately, in some cases an overwhelming tax liability can lead to bankruptcy, and bankruptcy does not always mean that tax problems go away. In some cases, a lien may survive the bankruptcy process.
FTB tax liabilities can be discharged by bankruptcy, but it is important to consult with a professional before taking such a drastic and complex step. There are many steps that must be followed in the correct order, and any business which owes overdue taxes must be dissolved so that it is unable to generate any further sales tax liability.
There are a number of relevant factors which affect whether or not your liability is dischargeable and several prerequisites that must be met before any type of tax debt can be discharged. The conditions, exceptions and events which could prevent the discharge of that debt are many.
A thorough review of all the documentation and conditions surrounding your tax situation by an attorney with experience in tax discharge issues is an absolute must. A qualified bankruptcy expert can lead you safely through the process to the other side, where you can begin to reclaim your life.
Preventing a Lien
The best way to prevent a lien is to file and pay your taxes in full and on time. If that is not possible, you must at least file your income taxes and pay as much as you can toward the tax liability.
The earlier you notify and begin working with the FTB, the better off you will be. In the event that you may not ever be able to pay the entire tax debt, you can provide an Offer in Compromise. It is an agreement with the taxing agency that you will pay a lower amount, and the tax burden will be considered satisfied.
No matter where you may be in the FTB collections process, there is no reason to live in fear. When you can face the situation head on, armed with quality information and supported by a qualified advocate, you will have taken your first steps towards freedom and peace of mind.
FTB Lien and Levy Release
One way for a taxpayer to satisfy a lien is through the sale or refinancing of real property. Liens discovered during title searches must be resolved before clear title can be conveyed and a FTB Lien Release should be requested. This is usually done by an escrow company, title company, financial institution or attorney.
A FTB Lien Release should be requested on an immediate basis based on the following scenarios:
- Liens recorded in error – upon taxpayer or entity demand
- Protested assessments – upon taxpayer or entity demand
- Liens recorded to secure a state tax liability – upon taxpayer or entity demand after payment in full, in cash or certified funds
Government Code Section 7174 authorizes the department to issue a partial FTB lien release when it is determined that the liability is sufficiently secured by a lien on other property or that the partial release will not jeopardize the collection of the liability.
Requests for partial releases are common in cases when the taxpayer or entity no longer owns property that is somehow encumbered by the state tax lien. This can occur as a result of a transfer of title by way of foreclosure or, in some cases, a Grant Deed in Lieu of Foreclosure.
Partial Lien Release
A partial FTB lien release should also be appropriate when the taxpayer is selling property for an amount insufficient to satisfy the liability and it is in the best interest of the department to permit the sale and accept less than the full amount due from the taxpayer.
Under California law, consideration will be given by FTB to a request for a partial FTB lien release, after the taxpayer, entity, or requesting party submits the following information:
- A letter of explanation as to why they are requesting a partial release
- An estimated closing statement prepared by the escrow company or whomever is holding funds
- A current preliminary title report that includes the property description
- An appraisal or documentation that establishes the fair market value of the property
- Documentation to substantiate the payoff of lien holders
If the decision is made to issue a partial release, the taxpayer, entity, or requester will be advised of the conditions under which the release may be recorded.
Through a subordination of lien, the FTB permits another lien on a specific property to take priority over the FTB state tax lien even though the other lien may not otherwise have priority over the FTB state tax lien.
A subordination of lien differs from a partial release of lien. A partial release of lien removes the FTB state tax lien from a specific property. A subordination of lien does not remove the FTB state tax lien, but simply lowers the priority of the FTB state tax lien in favor of some other lien by a third party against the property.
Subordination of lien by FTB is discretionary and not mandatory under any circumstances. A subordination of lien may be advantageous when a taxpayer or entity is attempting to refinance all or part of real property.
A Quick Summary of Some of the Procedures Surrounding Franchise Tax Board Lien Release:
An FTB lien can be released without being satisfied under the following situations:
- FTB staff determines the amount due is sufficiently secured by a state tax lien on other property or the release of lien will not jeopardize collection.
- FTB staff finds the liability underlying the state tax lien is legally unenforceable. For instance, in certain circumstances a liability may become legally unenforceable as a result of a discharge in bankruptcy proceedings under federal law.
- The FTB has determined that the state tax lien has been recorded in error. In those instances, the FTB must send a copy of the lien release to the three major credit reporting companies.
- A partial FTB lien release fully removes a state tax lien from a specific piece of property as described in the partial release. Other property owned by the entity, or subsequently acquired by the entity, remains subject to the state tax lien.
A FTB lien release establishes a public record showing the state tax lien was satisfied and no longer encumbers the taxpayer or entity’s property. If the FTB has recorded a NSTL in a county recorder’s office and the liability secured by the lien is satisfied in full, Government Code Section 7174(c) requires the department to issue a release of lien not later than 40 days after the liability is satisfied.
If the department has filed a NSTL with the Secretary of State (SOS) and the liability secured by the lien is satisfied in full, Government Code Section 7174(e) requires the FTB do one of the following not later than 40 days after the liability is satisfied:
- File a FTB lien release with the SOS
- Deposit in the mail, or otherwise deliver, a FTB lien release to the taxpayer
If the FTB finds that lien is insufficiently secure or is unenforceable (as a result of bankruptcy discharge, for example), the FTB in its own discretion may or may not release the lien. Liens recorded in error must be released.
A NSTL is considered recorded in error if any of the following circumstances exist:
- Notice was recorded after the effective date of payment of the liability
- Notice was recorded using an incorrect name or Social Security Number (SSN) (a typographical error or an SSN used by the taxpayer does not invalidate the lien)
- Liability underlying the state tax lien was established in error
- Notice was recorded using an incorrect entity name, Federal Employer Identification Number (FEIN), or corporation number.
In those instances when a lien is issued in error, Revenue and Taxation Code Section 21019 states that upon request from the taxpayer, the department must send a copy of the lien release to the three major credit reporting companies in the county where the lien was filed.
For married taxpayers, if one spouse is granted relief from liability, the state tax lien should be released with respect to that one spouse only. Please note that there is a difference between a FTB lien release and a withdrawal.
California Bank Levy Release
The Franchise Tax Board can also initiate a California bank levy against the taxpayer, which is a seizure of their assets in their bank account. The only way to prevent this is to obtain a California bank levy release.
One important thing to note is that a levy on the assets in your bank account is one method that the California Franchise Tax Board has as a means of ensuring taxpayer compliance.
However, in cases where the Franchise Tax Board initiates a California bank levy, it is important to be aware of the proper tax procedure that is involved and what steps must be taken before funds are appropriated by the Franchise Tax Board.
Types of Accounts Subject to a California Bank Levy
First, if you owe a California state tax balance to the Franchise Tax Board, they are granted legal authority to collect on your account in the event of non-payment or absent of a payment arrangement under California Revenue and Taxation Code Sections 18817 and 18670.
Typically, there is a 21-day holding period associated with a FTB levy so that the taxpayer has time to enter into a payment arrangement or seek a California bank levy release.
As a word of caution, California bank levy releases are difficult to obtain and after this 21-day holding period, the bank will turn over the levied funds to the Franchise Tax Board.
Also, the Franchise Tax Board can levy up to 100 percent of the balance owed in order to satisfy the liability.
California bank levies can attach themselves to any account listed in the name of the tax debtor. For example, joint accounts or any bank account where the individual in question has the ability to draw funds can be targeted by the FTB in order to satisfy the liability. This includes accounts where funds were deposited by someone else other than the taxpayer.
The main thing to realize is that if the taxpayer has control over the funds in the account, irrespective of whose funds they are, then the Franchise Tax Board can levy them in satisfaction of the tax debt.
What to Do to Obtain a California Bank Levy Release
California bank levy releases are best obtained by calling the Franchise Tax Board and working to immediately resolve the liability.
Economic hardship or substantial cause in favor of why the funds should not be levied should be presented in order to get the FTB to release the levy.
If they are resistant toward releasing the levy, which they are known to be, it may be beneficial to consult with a California tax attorney or a qualified tax professional to examine what your best options are.
However, the one thing that you should not do is ignore the problem. The Franchise Tax Board will continue to press you and take adverse action against you until the problem is solved.
If you cannot afford a tax attorney and are in need of assistance with a state issued lien or levy, reach out to the Tax Appeals Assistance Program or TAAP for franchise and income tax appeals. TAAP offers free legal assistance to low-income and underrepresented taxpayers who have appealed actions of FTB with the Office of Tax Appeals (OTA).