rs-california-state-tax-debt-resolution

Bankruptcy and Automatic Stay

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According to United States bankruptcy law, an automatic stay is defined as an automatic injunction, the purpose of which halts the actions of creditors to collect debts from a debtor who has filed for bankruptcy relief.

Provisions for automatic stay fall under section 362 of the U.S. Bankruptcy Code, which suggests that the stay begins automatically when the debtor files a petition with the bankruptcy court.

Although a stay is automatic, secured creditors may file a petition with the bankruptcy court for relief against the automatic stay if they can show cause.

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The Differences Between the Federal System and the State of California

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As a small business owner, you are used to dealing with the IRS and the state. You file income taxes with the IRS every year and file returns with the state when they are due. Paying tax is paying tax, right? So, why is there such a difference between the way the IRS plays versus the state?

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Can Currently Non-Collectible (CNC) Status Stop the FTB?

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Sometimes your financial fortunes take a turn for the worse, and you find yourself owing back taxes to the Franchise Tax Board. You don’t even have two coins to rub together, much less make installment payments, yet you are looking for an alternative to filing for bankruptcy. An Offer in Compromise is also off the table; you just don’t have the money.

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Taxes and Bankruptcy

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Taxes and bankruptcy. Bankruptcy is what we consider a nuclear option. It is a very extreme measure. It can be a very effective tool if the taxpayer has other debts. But it has a lasting impact on the taxpayer and on their credit and on the perception of their general financial competency. We generally recommend bankruptcy as a last resort particularly if the taxpayer only has tax liability which is perhaps best settled in the Offer in Compromise program versus going and filing a Chapter Seven. However, bankruptcy can be an effective tool where there are other debts or where an Offer in Compromise might not be the most feasible route to go for a variety of circumstances. Obviously this is based on the individual and the variety of circumstances that surround most people which were all different. But in terms of bankruptcy, we are dealing with liabilities that are income taxes. There cannot be any indicator of fraud or tax evasion. We are dealing with tax that are at least three years old.

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Differences Between the Federal Tax System and the California State Tax System

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Briefly I want to talk to you about differences between the federal tax system and the state tax system. As I mentioned, due to limited resources state are usually more aggressive in their collection tactics and their examination tactics than the federal government and the principal reason for this is because taxation for the states is the principal source of revenue racing. A lot of times when there is a budget shortfall the state will lean on their self tax and the federal tax bureau will lean on the income tax to help mandate collections priorities and help raise revenues either through collecting past due liabilities or examining returns and finding new ones. In general, the states because of their limited resources will rely more on in voluntary collections actions than field representatives so there’s much greater reliance at the state level for collections processes that are instituted from a remote location so for example in California the main center of operation for the FTV which is the Franchise Tax for the State of California income tax bureau is in Sacramento. Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions. The states have limited resources at the local level.

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California State Specific Tax Issues

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So now I’d like to talk to you about some issues with regarding that the states have specifically. In California, we have a number of challenges in dealing with the state taxis that are either less of an issue or non-existent at federal level. The first as I’ve kind of touched down earlier is overside. There is usually less overside on cases than there is at the federal level. And I mean by that, is the auditor or the collection agent is given a lot more latitude in most cases to handle the cases as they see fit as long as it falls within the administrative guidelines. This particularly has an impact on the examinations process so a lot of the times the auditors are kind of given free rein to define the scope of what the audit is in sales tax or in particular they can do a really detail investigation and go through a number steps that you may not find in the federal process. As a result of this and as a result of the states having fewer resources, there is often times administrative delay when dealing with the state cases. For example, the time frame in California right now is if I were to represent a client in a sales tax audit and me and the auditor just agreed on the result and I filed and appeal, it would take anywhere from 8 to 12 months under the current structure to hear that appeal.

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