ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE FRANCHISE TAX BOARD SETTLEMENT PROGRAM – PART 2
By Robert S. Schriebman 2021
The Franchise Tax Board (FTB), like the EDD, has a formal settlement program for administrative dispute resolution. The settlement procedures are set forth in R&TC § 19442. This is a very long code section and takes into account several different matters including a settlement resolution program. When compared to the EDD’s settlement program, the FTB’s version is more structured and attempts to adhere to a 9-month timeframe that will be discussed later in this article.
The FTB’s settlement program is designed to handle administrative civil tax matters that are in dispute, such as audit resolutions, hearings before the Office of Tax Appeals (OTA), and refund claim settlements. The FTB’s settlement program is not designed to handle matters of litigation in any state or federal court. The settlement program is neither designed to offer any concessions based on a taxpayer’s ability to pay, nor does it resolve offers in compromise.
In Part 1, I discussed the timeframe for the FTB’s administrative settlement process, the form and content of the settlement proposal, and where to send the proposal.
In this Part 2, I will discuss what happens after the FTB receives the settlement proposal. I will discuss removing a case from the OTA hearing calendar, the 45-day document rule, what the FTB takes into consideration in the settlement process, the FTB’s “Nondisclosure Agreement,” the acceptance and approval process, and the creation of a public record of the settlement.
Removing the Case from the OTA Hearing Calendar
The FTB usually will not consider a settlement unless and until a petition has been filed with the OTA. When the settlement proposal is initially submitted to the FTB, it notifies the OTA and requests that the pending hearing be taken off the hearing calendar for up to 9 months. This means you do not have to prepare for a judge hearing.
The 45-Day Document Rule
When a settlement proposal is initially filed, all relevant documentation should accompany the proposal. Recognizing that not all proposals are complete when filed. The Settlement Bureau will give the taxpayer 45 additional days to submit all relevant documentation. If this deadline is missed, the proposal may be rejected and the filling process will have to start anew.
The Hazards of Litigation
Settlements come about because both sides are concerned about costs and the hazards of litigation. Upon receipt of the proposal, the Bureau gathers up the files and assigns the matter to a reviewer whose job it is to consider the hazards of litigation to the FTB and the costs involved in taking the case before the OTA and the Courts. After this analysis, the reviewer will contact the taxpayer or the taxpayer’s representative to resolve the matter by way of settlement.
The Non-Disclosure Agreement
In order to protect both parties from any other administrative or judicial proceedings, both the FTB and the taxpayer are required to sign a Non-Disclosure Agreement.
The Acceptance/Approval Process – The Full Pay Rule
If a settlement is reached and agreed to, the taxpayer is required to pay the full settlement amount prior to the process moving forward for final approval. In this respect, FTB settlements differ from EDD settlements. When you settle a case with the EDD, you are required to pay only after the settlement has been approved by the Attorney General and the CUIAB.
Settlements must be approved by the FTB’s Executive Officer or the FTB’s Chief Counsel. Within 30 days after approval, the Attorney General is required to review the recommendation and give its stamp of approval.
Some settlements required formal approval by the entire FTB. If submitted to the entire Board, the settlement must be approved within 45 days of the submission of the recommendation. If not formally approved by the Board within 45 days, the settlement is deemed automatically approved by operation of law.
There is a provision for approval of a “small case matter” in the amount of $11,500 or less. This approval only requires the FTB’s Executive Officer or Chief Counsel.
The Public Record Statement
Any settlement that reduces the initial assessment by more than $500 requires a public record statement. The statement is placed on file with the FTB’s Executive Officer.
The public record statement contains the following formation:
- The name or names of the taxpayers who are parties to the settlement;
- The total amount in dispute;
- The amount agreed to pursuant to the settlement;
- A summary of the reasons why the settlement is in the best interests of the State of California; and
- For any settlement approved by the FTB, itself, the Attorney General’s conclusion as to whether the recommendation of the settlement was reasonable from an overall perspective.
There is a long-standing historical maxim in the practice of law: A good settlement is better than a good lawsuit. This is especially true when it comes to contesting income tax disputes before the FTB. An unresolved audit matter or assessment must be brought before the OTA and litigated before a tribunal of administrative law judges. The OTA is not taxpayer friendly. More cases are decided against the taxpayer than are decided in the taxpayer’s favor. The hazards of litigation before the OTA are significant. Therefore, a good settlement maybe the best way to go.
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 50 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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