ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – CAN THE FTB ABATE INTEREST ON INCOME TAX ASSESSMENTS?
By Robert S. Schriebman
Interest abatement procedures are no stranger to the IRS. The Internal Revenue Code has had a law on its books since 1996, IRC § 6404(e). In 1999 the FTB enacted similar legislation as Revenue and Taxation Code § 19104. This article will discuss how one obtains interest abatement with the FTB. We will compare the IRS version with the FTB version and discuss real-world chances of success in this endeavor.
IRC § 6404(e)
IRC § 6404(e) is a fairly short and succinct statute. In order to have interest abated one must prove either an unreasonable error or delay by an officer or employee of the IRS in performing his/her ministerial or managerial act. In reality this is very difficult to prove, and courts are reluctant to fault the IRS to the point where it is forced to remove all or a part of accruing interest. The cases are few and far between, and very few attempts meet with success.
Revenue and Taxation Code § 19104
Compared to the IRS version, the FTB statute is very long and contains many subparts. The language is different than the text set forth in IRC § 6404(e). The taxpayer seeking to abate FTB interest must prove that any delay is caused by an FTB employee being “dilatory” in performing a ministerial or managerial act. The FTB may abate interest for the same period that the IRS abated interest on a final federal determination. In other words, the FTB will honor IRS interest abatement under Section 6404(e).
To date there have not been any FTB cases of abatement reported by any California Court.
In earlier articles on this website, I have discussed the requirement of notifying the FTB when the IRS completes an audit or the IRS matter has been finally adjudicated in the US Tax Court or other federal courts. These laws are found in Revenue and Taxation Code § 18622(a). This law requires that the FTB be notified within six months of the final federal determination. If properly notified, the FTB must issue its “Me Too” assessment based upon this determination within two years from the date of notice. If the FTB is notified after this six- month period, it has four years to issue its “Me Too” assessment. One might speculate that if the FTB waits until the 11th hour to issue its assessment, does the taxpayer have a claim for interest abatement under Section 19104?
Let’s assume that you followed Revenue and Taxation Code § 18622(a) and timely notified the FTB of the results of your IRS audit. When is it considered a reasonable time for the FTB to issue its assessment? Legally the FTB has two years to issue its corresponding assessment. So if the FTB issues the assessment late in the 24th month after notice, was the FTB dilatory in waiting so long? I have seen FTB assessments within one year of the date of notice. I don’t think this argument will hit a home run.
There are also issues involving what is and what is not a ministerial or managerial act under both statutes. Notice that the operative word is “act.” If the IRS or FTB is passive and does nothing while time goes by, they have not committed any act. Therefore, time delays alone do not get you interest abatement.
Interest Abatement vs Penalty Abatement
Comparing the rules here is like comparing apples to oranges. Interest abatement rules have many criteria, guidelines, and court cases. There is a whole body of law and established procedures for penalty abatements. There is almost nothing for penalty abatement other than the almost certainty of a dead end.
Federal Government Shutdown Does Not Count for Abatement
The current federal government shutdown, as it affects the IRS, will not, in my opinion, score any points in arguing unreasonable IRS delays for interest abatement purposes.
There is not much difference in principle between the FTB and IRS versions of the interest abatement rules other than the FTB establishing statutory time limits for making interest abatement claims. To me interest abatement is like playing the lottery. Someone once said that the odds for winning the lottery are greater than having the space shuttle land in your front yard. In other words, it’s comforting to have abatement laws on the books, but rarely does anyone succeed.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the Federal and State governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written 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.
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.
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 in addition to 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.
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