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ASK THE EDD LAWYER- What Are The New Collection Procedures Instituted By The Franchise Tax Board?

by Robert S. Schriebman

Periodically the California Franchise Tax Board (FTB) publishes "Tax News" dealing with recent developments within the FTB. The July 2013 issue of Tax News includes two important recent developments concerning the FTB collection process. This news comes at a very important and interesting time for all of us as the FTB as well as the EDD are now putting pressure on taxpayers to collect very old tax debts going back as far as the early 1990s. The first development discusses when the FTB will file a tax lien against a taxpayer for unpaid deficiencies. The second development discusses the expansion of the FTB's individual income tax refund-offset authority.

Filing of FTB Tax Liens

The FTB now has a statute of limitations for the collection of past due accounts. That statute is twenty years. The IRS has a ten-year statute of limitations while both the SBE and EDD do not have any collection statutes at all.

Beginning in July 2013, the FTB is increasing the general guideline amount at which an income tax lien will be filed from $1,000 to $2,000. This change will apply only to new liens filed. In addition, the change is only to the guidelines for filing liens. It will not affect lien releases. If a taxpayer has a valid lien in place on a tax liability between $1,000 and $1,999, the lien will not be released due to this new change. Also, the $2,000 amount is a guideline only, and the FTB reserves the right to file a lien for a balance less than this amount based on individual facts and circumstances.

Interstate Refund Offset Program

We get many calls from people all over the country who owe the FTB tax debts from years past. They worry about whether the FTB can levy and seize their property in Washington, Florida, or Maine. The traditional way the FTB collects taxes from out-of-state debtors is to obtain a judgment in California for back taxes and try to have that judgment enforced in another state. Since the FTB rarely reduces a tax debt to a court judgment, the probability of enforced collection out of California has been remote and problematic for the FTB.

A few years ago the IRS entered into agreements with all the states that they could seize a state income refund if the taxpayer owed the IRS. The IRS was always able to "offset" an IRS refund in the current year for taxes owed the IRS in a prior year. California, on the other hand, could not take or "offset" a tax refund from a sister state for California taxes. However, things are about to change.

Section 19377.5 of the California Revenue and Taxation Code became effective January 1, 2012. This new law allows the FTB to enter into agreements with other states to offset refunds to pay personal (individual) income tax debts owed to partner states. The first attempt occurred in New York. In May 2013, the FTB sent out 11,000 Multistate Refund Offset Notices to taxpayers with delinquent California personal income tax liabilities and a New York address. To avoid offset, the letters instructed the New York residents to either pay their California balances in full or provide evidence that the debts were not past due or were not legally enforceable. The letters also stated that if the taxpayers did not respond within 30 days, the FTB would submit the balances die to the New York Department of Taxation and Finance to offset eligible income tax refunds due to them.

If you reside outside of California but owe the FTB for back taxes you may want to do some tax planning with your tax advisor to minimize your exposure to an FTB refund offset from your state of residence.

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An EDD attorney, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.

As a trusted EDD lawyer, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, "IRS Tax Collection Procedures – A Manual for Practitioners" published by Commerce Clearing House and the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See "California Tax Collection Practice and Procedures" and "California Taxation Practice and Procedure", both published by Commerce Clearing House.