How California Collects Taxes & Options Offering Tax Help if Needed
The State of California has three different taxing authorities: The Board of Equalization (BOE), the Franchise Tax Board (FTB) and the Employment Development Department (EDD). In this article we are only going to discuss the BOE and the FTB because these agencies have the most impact on individual taxpayers and businesses.
California Board of Equalization (BOE)
In California the Board of Equalization is in charge of administering property taxes, sales and use taxes and special taxes. It is also in charge of the tax appellate program. In doing its job the Board’s main responsibility is collecting taxes and if any of these remains unpaid, it can become quite aggressive. If you are getting nowhere with the Board of Equalization it may be time to consult with an experienced tax professional or CPA for the tax help, advice and direction they can offer.
If you are behind in your taxes and do not make payment arrangements with the BOE or start missing your Installment payments, do not provide the requested financial information or do not reply after receiving a Final Demand Notice, you are at risk of having a tax lien and levy placed against you.
BOE Tax Liens
If you are delinquent in paying your taxes, the Board of Equalization has the legal right to place a lien against any California real estate you own or personal property of value to secure the debt. In order to avoid this, you may want to consult with a reputable tax professional or CPA for their tax help and advice.
The lien would act as an encumbrance on the property, which would keep you from selling, refinancing or transferring ownership. Furthermore, the lien would be recorded so it would be public record and available to credit bureaus and thus would likely affect your credit rating. Once the Board of Equalization places a lien against you, they are legally entitled to enforce the collection of your tax debt by way of levying your bank account(s) and seizing your assets.
BOE Warrants & Bank Levies
The Board of Equalization has the right to issue warrants to enforce liens in an attempt to collect unpaid taxes. Rather than issuing a warrant, a Notice of Levy is issued to place a levy on money or any rights to money that may be controlled or held by the indebted taxpayer or even a third party.
County Sheriffs, Constables, Marshals or the California Highway Patrol would deliver a levy pursuant to a warrant, except when it is a wage levy. When the officer receives the warrant, he/she is required to serve the levy as soon as possible and immediately take possession of the assets as spelled out in the instructions accompanying the warrant.
If the asset is money, the taxpayer being served must give the money to the officer who then must give the money to the Board of Equalization as payment on the tax debt. Commissions, fees and expenses used to collect the debt will be deducted from the money turned over. If the asset is not money, but something else, the officer must take immediate possession and have it auctioned off and sold to the highest bidder.
Help with BOE Bank Levies
When you receive a Notice of Levy from the Board of Equalization, it’s imperative that you get tax help right away since the bank will hold the funds in trust before they are required to send it to the Board of Equalization. This gives you time to consult with a tax professional or CPA who can help you dispute the levy. With the right tactics you may be able to get your bank levy lifted and prevent your money from being transferred to the Board and instead, returned to your bank account.
Stopping the bank levy and having your money returned is only the initial step in resolving this matter. Next, you want to prevent the Board of Equalization from ever placing a levy on your bank account(s) again. To accomplish this you will likely need tax help from a qualified professional or CPA with experience working with the Board of Equalization on such matters. What you need is a permanent solution, which can be achieved by having your tax professional do the following:
Go through your books to make sure that the amount the Board of Equalization is claiming you owe is accurate. Very often they claim that taxpayers owe more than they actually do.
Recalculate the interest and penalty charges you are being assessed. These added charges are often why tax bills are much higher than you would expect.
Negotiate with the Board until a formal arrangement is agreed to that will resolve your outstanding taxes once and for all. If the Board of Equalization has contacted you about an outstanding tax liability, you would be wise to consult with a reputable tax professional or CPA and accept the tax help and advice offered. The Board has the right to levy, lien, seize the funds in your bank account and garnish your wages in order to satisfy your tax debt. With the help of your tax professional you can avoid all that.
Board of Equalization Programs Offering Taxpayers Tax Help & Tax Relief
Nearly every business runs into financial trouble from time to time. When this happens it may become difficult to keep up with tax obligations. The Board of Equalization understands this and
therefore has programs in place to help taxpayers resolve their tax issues so they can remain in good standing with the taxing authority and continue running their business.
BOE Power of Attorney
You are entitled to designate a qualified tax professional to represent you with regard to tax matters before the State. You would need to complete and sign a Power of Attorney Form BOE-392 and submit it before any issues could be discussed with him/her. Make sure you choose a reputable representative who has experience providing the kind of tax help you need.
BOE Installment Payment Plans
Short-Term Payment Proposals
The Board of Equalization may consider a proposal for a short-term payment plan not to exceed twelve months. If a taxpayer has an unsatisfactory payment history, the BOE may grant an exception at its discretion. Installment payments are usually made weekly. In order to be approved for an Installment Payment Plan the taxpayer must stay up-to-date on filing and paying current taxes on time, including making prepayments on time.
If a proposal from an active account for a short-term installment payment plan to last beyond two months, the taxpayer may have to agree to make payments, either weekly or monthly, on what the upcoming return is anticipated to be.
Terminating an Installment Payment Agreement with the BOE
The BOE has the right to terminate an Installment Payment Agreements if the payments are arriving late, the taxpayer is making partial payments or they are generally delinquent. The agreement may also be terminated if the taxpayer does not disclose income or financial assets on his/her financial statement. Other causes for termination could be failing to raise payment levels when requested due to higher income or new assets, or failing to cooperate in a review of his/her finances.
Long-Term Installment Payment Plans with BOE
An Installment Payment Plan lasting twelve or more months would be considered Long-Term. Before being considered for a Long-Term Payment Plan the taxpayer would have to agree to have his/her finances thoroughly looked into. He/she would be required to submit a complete up-to-date financial statement while formally requesting such an Installment Agreement.
If the taxpayer has enough cash on hand to pay his/her tax debt, a demand will be made for immediate payment in full. If the taxpayer has valuable assets and refuses to raise money using those assets, the State has the right to proceed with enforced collection activities. Allowable Expenses on Long-Term Installment Payment Plans – Two types of expenses allowed: “necessary” and “conditional.”
These expenses must provide for the taxpayer’s and his/her family’s health, welfare and/or ability to earn an income. In other words they must meet what’s called the “necessary expense test.”
In certain situations, representatives of the Board of Equalization will use his/her judgment when deciding if an expense is necessary or not. All allowed expenses must be reasonable in terms of amount and the total amount for necessary expenses is the minimum amount the delinquent taxpayer (and family) actually needs to exist.
Types of Expenses Deemed Necessary
The Internal Revenue Service developed the standards based on a Consumer Expenditure Survey done by the Federal Bureau of Labor Statistics from 1994-1995, which was adjusted to the year 1996 due to inflation. The standards included expenses for food, household supplies, products and services for personal care along with clothing and associated services.
The standards were stratified according to level of income. As incomes increase, the percentage of income allowed to be spent o these expenses would decrease. The Board of Equalization came up with the standard allowed for miscellaneous expenses.
Other types of expenses might be allowed as long as the necessary expense test is met and are reasonable in terms of amount. It is up to the Board of Equalization to determine whether a particular expense is necessary and if the amount being spent is reasonable. An example of another common type of expense would be the cost of childcare.
Expenses that are considered unnecessary are called “conditional expenses.” However, they may be allowed if the taxpayer can pay his/her tax debt in full, including penalties and interest, within three years.
Rules Governing Expenses
Making payments on unsecured liabilities are not permitted of omitting these payments would allow the taxpayer to fully pay their tax debt within 90 days. However, minimum credit card payments are allowed in order to protect the taxpayer’s credit rating.
Gives a time limit of up to one year for the taxpayer to modify or get rid of extreme necessary or non-allowable conditional expenses if the tax debt, along with accrued interest and penalties, cannot be paid off in full within three years. This time limit may be adjusted from one month to one year, based on the particular expense.
Gives a time limit for allowing conditional and extreme necessary expenses and states that the entire tax debt, including accrued interest and penalties, must be paid in full within three years.
Reasonable Amount Rule
For certain expenses that have been specified, statewide and local standards determine what’s “reasonable.” Otherwise, if the expense is classified as “other necessary” or is considered a conditional expense, the Board of Equalization employee assigned to the case will decide what is reasonable from available information. For example, whatever the going rate for childcare is in the area. If the tax debt, along with interest and penalties, can be paid off in full within three years, the Board will allow the taxpayer’s claimed expenses if they are within the limits for statewide standards, or if the taxpayer can substantiate each expense.
Disposable Income Rule
This is how much money remains after deducting the allowable expenses from gross income. These deductions include those required by law to be withheld from the taxpayer’s paycheck, or any court ordered or enforceable agreement for alimony or child support payments. Money that is required to be withheld per the tax code include, but are not limited to, wage garnishments, federal and state taxes, and contributions to FICA and Medicare. The balance is disposable income, which is available to pay down the tax debt.
BOE Offer in Compromise
In an Offer in Compromise the taxpayer will make an offer to the Board of Equalization of an amount less than what he/she owes in an attempt to settle their entire tax liability. To be eligible to apply for the Offer in Compromise tax relief program, these conditions must exist:
The tax liability at hand must be final and not a matter of dispute.
This tax account has to be closed once and for all and the taxpayer cannot operate the same business or even the same type of business that originally accrued the tax or fee debt that the proposed offer seeks to settle in the Offer in Compromise.
The taxpayer has no way of paying his/her tax debt in full within five to seven years, which would be considered a reasonable period of time.
Offers Involving a Fraud Penalty
Proposed offers for a tax debt with a fraud penalty attached require an offer of at least the amount owed in taxes plus the fraud penalty. This minimum may be waived if the taxpayer proposing the offer can show that he/she was not the individual committing the fraud. This would apply to partnerships in which the intent to perpetrate the fraud is definitely attributed to some other partner.
The Board of Equalization will not consider offers being made by taxpayers who were criminally convicted of fraud while he/she was being audited.
Franchise Tax Board (FTB) – Another California Taxing Authority
The Franchise Tax Board is responsible for administering a number of different programs for the State of California, as follows:
- Corporation taxes
- Personal income taxes
The Franchise Tax Board is also responsible for the administration of certain programs that have nothing to do with taxes, such as:
- The Homeowner & Renter Assistance Program (HRA)
- Debt collection for the Department of Motor Vehicles concerning delinquent vehicle registrations
- The collection of delinquent child support payments
For the most part, the tax laws of California have conformed to those of the Internal Revenue Service since January 1, 2005, although there are some differences that may mean taxpayers must adjust the figures taken from their federal tax returns. Certain areas do not conform and these are specified in the instructions on the relevant tax forms.
A major part of the Franchise Tax Board’s responsibilities is the collection of taxes and this does involves going after individual taxpayers and businesses to collect an outstanding tax debt. When necessary the FTB has must aggressive measures in order to collect unpaid taxes:
- FTB Penalties & Interest
- Underpayment Penalty
When a taxpayer does not pay his/her taxes in full when due, he/she will be charged with an underpayment penalty. This penalty is 5% of the unpaid portion as of the date it was due, plus 0.5% each month or portion of a month the tax continues to be unpaid, not to extend beyond 40 months with the maximum penalty being 25% of the amount of total outstanding tax.
When someone files their tax return late they will be charged a delinquent penalty of 5% of the unpaid tax for every month the return is still late. The maximum penalty for filing late is 25% of the outstanding tax. The minimum delinquent penalty is $100 or 100% of the unpaid tax amount (whichever is less).
Other types of penalties can be imposed as well: returned check for non-sufficient funds, fraud, negligence and substantially understating the tax due.
When taxes are not paid in full on time the Franchise Tax Board will charge interest on the outstanding balance. If the interest ends up being cancelled, it’s a form of tax relief referred to as “abatement.” However, interest can only be abated if the tax code allows for the exception.
Taxpayers are charged interest on any delinquent or late tax payment from when the return was originally due to the date the payment was received. Furthermore, if the taxpayer does not pay the other penalties being charged within 15 days of the date on their Notice, the taxpayer will be charged interest from the Notice date until the tax bill is paid. Interest will be compounded daily and twice a year the rate of interest is adjusted.
Circumstances in Which the Franchise Tax Board Allows Interest Abatement
- Individuals suffering financial hardship
- Erroneous refunds for businesses and individuals
- A delay or error by the FTB/IRS for businesses and individuals
- Businesses and individuals who relied on formal written advice
FTB Notification of Collection Activities
Before the Franchise Tax Board commences collection activities like levying a delinquent taxpayer’s bank account(s) and placing tax liens, it will notify the taxpayer by mail of the pending action. The Notice will explain the tax debt, the taxpayer’s right to dispute the debt, the consequences if they don’t comply and the deadline for resolving the matter to avoid collection activities.
If you’ve changed addresses and have not contacted the Board with your new mailing address, your Collection Notice will obviously be sent to your last known address. However, this still fulfills the legal requirements for due process even if the Notice was not forwarded on to you. You must update your address with the Franchise Tax Board even if you did update it with the U.S. Postal Service.
FTB Tax Liens
If you are delinquent in paying your taxes, the Franchise Tax Board has the legal right to place a lien against any California real estate you own or personal property of value to secure the debt. Rather than allowing this to happen it would make sense to consult with a tax professional or CPA for their tax help and advice in resolving the matter. A lien would act as an encumbrance on the property, which would keep you from selling, refinancing or transferring ownership.
Furthermore, the lien would be recorded so it would be public record and available to credit bureaus and thus would likely affect your credit rating. This would likely keep you from being involved in financial transactions that would add to your debt load, such as purchasing real estate or being approved for additional credit.
A lien filed by the Franchise Tax Board would expire ten years after the Notice is recorded, unless it is extended. If the FTB allows the lien to expire, no Notice is sent regarding its release because legally it no longer exists.
Personal Liability for FTB Business Taxes
Business owners and corporate officers may be held personally liable for the business’ unpaid taxes. When an owner or the officers receive excessive compensation, bonuses and/or other assets from the business that prevents it from having the money to pay its taxes, the owner or officers may be held personally and financially responsible for paying the tax debt. Every business should have a tax professional who monitors the finances, offering tax help and advice on a regular basis so that these situations do not occur.
FTB Tax Warrants & Bank Levies
The Franchise Tax Board has the right to issue warrants in order to enforce tax liens in an attempt to collect overdue taxes. A Notice of Levy, not a warrant, is used to place a levy on money or a taxpayer’s right to money that is being controlled or held by the delinquent taxpayer or even by a third party.
County Sheriffs, Constables, Marshals or the California Highway Patrol would deliver a tax levy pursuant to a warrant, except when it is a wage levy. When the officer receives the warrant, he/she is required to serve the levy as soon as possible and immediately take possession of the assets as spelled out in the instructions accompanying the warrant.
If the asset is money, the taxpayer being served must give the money to the officer who then must give the money to the Franchise Tax Board as payment on the tax debt. Commissions, fees and expenses used to collect the debt will be deducted from the money turned over. If the asset is not money, but something else, the officer must take immediate possession and have it auctioned off and sold to the highest bidder.
Help for FTB Bank Levies
When you receive a Notice of Levy from the Franchise Tax Board, it’s imperative that you get tax help right away since the bank will hold the funds in trust before they are required to send it to the Franchise Tax Board. This gives you time to consult with a tax professional or CPA who can help you dispute the levy. With the right tactics you may be able to get your bank levy lifted and prevent your money from being transferred to the FTB and instead, returned to your bank account.
Stopping the bank levy and having your money returned is only the initial step in resolving this matter. Next, you want to prevent the Franchise Tax Board from ever placing a levy on your bank account(s). To accomplish this you will likely need tax help from a qualified professional or CPA with experience working with the Franchise Tax Board on such matters. What you need is a permanent solution, which can be achieved by having your tax professional do the following:
- Go through your books to make sure that the amount the Franchise Tax Board is claiming you owe is accurate. Very often they claim that taxpayers owe more than they actually do.
- Recalculate the interest and penalty charges you are being assessed. These added charges are often why tax bills are much higher than you would expect.
- Negotiate with the FTB until a formal arrangement is agreed to that will resolve your outstanding taxes once and for all.
Franchise Tax Board Offers Tax Help & Tax Relief to Those in Need
If you are unable to pay your taxes when due, you should definitely file your tax return on time, paying as much money as you possibly can. Yes, you will be penalized by paying late, however that penalty is usually not as much as the penalty for filing your return late. Once the Franchise Tax Board processes your return you will be sent a tax bill that includes interest and penalties.
FTB Power of Attorney
A Power of Attorney is an executed legal document allowing someone you designate to represent you in the matters specified in the document. If you would like a qualified individual you trust to provide tax help on your behalf before the Franchise Tax Board you would need to complete, sign and submit Power of Attorney Form FTB-392 to the agency.
Tax Filing Extensions
California taxpayers do not need to file for an extension on their taxes because they automatically get an extension until October 15th. This does not mean that you get an extension to pay your taxes, just to file your taxes. As long as you file by October 15th you are okay, but you need to figure out how much you owe and send in your payment by April 15th if you want to avoid paying interest and penalties.
Installment Payment Plans
If you do not have the funds to pay your State taxes in full, you have the option of paying off your tax liability over time by entering into an Installment Payment Plan with the Franchise Tax Board. However, interest and penalties will be charged on the unpaid portion until your taxes are paid in full.
FTB Eligibility Requirements for an Installment Payment Plan
You may qualify for tax help through an Installment Payment Plan with the Franchise Tax Board if you meet the following eligibility requirements:
- Your State tax debt does not exceed $25,000
- You are able to pay your tax debt off in full within 5 years
- You are up-to-date on filing all required personal income tax returns
- You are not presently paying off taxes under another Installment Payment Plan
- You do not presently have an Earnings Withholding Order for Taxes, an Order to Withhold or a Continuous Order to Withhold against you
- In addition, if you owe more than $10,000 in taxes, or if it will take you more than 3 years to pay off your taxes in installments, you are obligated to certify to the Franchise Tax Board that you are dealing with a financial hardship and you simply do not have the money or assets to fully pay what you owe in taxes.
Three ways you can apply for an Installment Agreement with the FTB:
Phone (800) 689-4776 during regular business hours and utilize the Interactive Voice Response system.
Complete Installment Agreement Request Form FTB 3567, sign on page 3 and mail it to the California Franchise Tax Board, P.O. Box 2952, Sacramento, CA 95812-2952.
You can also do this online on the Franchise Tax Board’s website if you meet the following qualifications:
- You owe a balance of $10,000 or less
- You agree to pay the full balance within 36 months
- All your personal tax returns have been filed
- You agree to make your payments via electronic fund transfers
- Your monthly installment payments will be at least $25
- All future income tax returns will be filed on time
- You agree to pay all future taxes on time
Once the FTB receives your application they will reach out to you for certification that you are undergoing financial hardship.
If you apply over the phone or send your application through the mail, you can expect to be notified within 30 days that the FTB has received your application. If you don’t hear back, phone (800) 689-4776. You can also use this same phone number if you have questions you would like answers to.
Furthermore, the State needs to protect its interest so you may have a lien filed against you, which will remain until you have paid off your tax debt in full.
If the Franchise Tax Board rejects your application, you may request that your application be reviewed, but you must do this within 30 days of the date of your denial letter.
Your request for a review should be sent to:
Franchise Tax Board
P.O. Box 2952
Sacramento, CA 95812-2952
FTB Offer in Compromise
There are cases in which the taxpayer cannot pay their State tax debt in full because they are suffering financial hardship and do not have the income or assets to raise the money and do not expect their financial situation to change anytime soon. In these cases the taxpayer may qualify apply to the Franchise Tax Board for tax relief through an Offer in Compromise. In doing so they would make an offer to pay a lump sum to settle the entire tax debt.
If you are in this situation and are thinking about requesting an Offer in Compromise, you might want to consult with an experienced tax professional or CPA for their tax help and expertise. You would want to choose someone who has helped other clients settle their tax debt through an Offer in Compromise.
Generally, the Franchise Tax Board would accept your offer if the amount you are offering to settle your tax debt is the most you can pay and what they could reasonably expect from you under the circumstances within a reasonable time period.
Each case is judged on its own merits based on the following factors:
- Taxpayer’s ability to pay
- Value of the taxpayer’s assets
- Present income and expected future income
- Present expenses and expected future expenses
- Potential for financial situation changing in the future
The Offer in Compromise application can be found inside the Form FTB 4905 PIT Booklet, which also provides a detailed checklist of all the documentation you are required to submit along with your application. You can get this booklet by phoning (800) 338-0505, choosing “personal income tax form requests,” and then entering the Code 971.
To be eligible for tax relief through an Offer in Compromise you must meet the following qualifications:
- You are up-to-date in filing all necessary income tax returns
- Your application for an Offer in Compromise is complete including all required supporting documentation
- You are in agreement as to the amount you owe in taxes
- You have given permission for the FTB to procure your credit report so they can verify that the information you provided on your application is correct.
You should know that the Franchise Tax Board would only accept a lump sum payment. Also, if you offer zero dollars, your application will be denied.
The following documents will need to be submitted with your Offer in Compromise application:
- Offer in Compromise for Individuals Form FTB 4905PIT
- Documents verifying your income and expenses as well as any other documents asked for on the form
If you are designating someone else to represent you before the Franchise Tax Board, you must complete and submit Power of Attorney Form FTB 3520.
Most applicants are notified within 90 days of the FTB’s decision. If your offer is accepted, you may be asked to sign a separate collateral agreement that states that you will pay a certain percentage of your income over the agreed upon threshold. This collateral agreement is usually in effect for 5 years. Note: You should only submit funds when requested by the FTB and only via a cashier’s check or money order.
If you have any further questions or concerns, please call the Offer in Compromise office at (916) 845-4787.
Office of Taxpayers’ Rights Advocate
If you have tax problems that you haven’t been able to resolve, there is a Taxpayers’ Rights Advocate’s Office that offers tax help by independently reviewing each situation. This is also where you would turn for answers to general tax questions and for information on California’s tax system.Contact Us