WHEN IS THE FTB’s 20 YEAR STATUTE OF LIMITATIONS FOR COLLECTION MORE THAN 20 YEARS?
By Robert S. Schriebman
I recently attended the UCLA Tax Controversy Institute where I was fortunate to hear a presentation by the FTB’s Taxpayer Advocate, Steve Sims. I have known and worked with Mr. Sims for many years. He is very responsive to those situations that do not neatly fit into standard FTB collection resolution. In addition to helping taxpayers and their representatives solve unusual problems, Mr. Sims works within the FTB to develop policies or to raise his voice when he believes the FTB is not interpreting the law properly. One of the areas of concern to him is how the FTB interprets Revenue & Taxation Code §19255 that deals with the 20 year statute of limitations for the collection of delinquent income and franchise taxes from individuals and businesses. Mr. Sims is concerned about the FTB’s interpretation of this statute when it comes to how long the FTB has to collect tax deficiencies. I will discuss Mr. Sims’ concerns later in this article.
Before going into Mr. Sims’ issues with the FTB statute of limitations for collection I want to compare how the IRS interprets their statute of limitations compared to the interpretation given by the FTB.
IRS Statute of Limitations for Collection
The primary IRS code section dealing with the statute of limitations for the collection of taxes is IRC § 6502. The IRS has ten years from the date of assessment to collect delinquent federal taxes. This applies to all federal taxes such as income tax and estate and gift taxes. The ten year period starts from the date of assessment not the date your return is filed. An assessment is nothing more than a bookkeeping entry on the records of the IRS. If you file a tax return and you owe the IRS it may take a couple of weeks for the IRS clerk to record the assessment from the date the return was filed. Again, an assessment is nothing more than the physical act of recording your “account receivable” on the books of the IRS.
Extending the IRS Statute of Limitations for Collection
The ten year collection statute can be extended in one of several ways. First, the statute can be extended if you file an Offer in Compromise. Secondly, the statute can be extended by operation of law if you file for a Collection Due Process proceeding (CDP). The collection statute is extended by the length of time your CDP petition is pending with the IRS or the US Tax Court plus an additional ninety days. Third, the statute can be extended if you file any type of bankruptcy proceeding. Finally, the statute can be extended voluntarily by signing an IRS form giving the IRS additional time to collect the deficiency.
If you do neither of the acts mentioned above the collections statute for the IRS is ten years from the date of assessment.
FTB Statute of Limitations for Collection – A Nightmare for the Tax Debtor
Revenue and Taxation Code §19255 states that after twenty years have lapsed from the date of the latest tax liability the Franchise Tax Board may not collect the deficiency on the tax liability and it will be abated by reason of the lapse of time. This sounds pretty straight forward. However, what concerned the FTB Taxpayer Advocate, Steve Sims, was the FTB’s new spin on the words “latest tax liability for a taxable year. . .” During the pendency of a tax deficiency the FTB may assess an additional $35 administration fee or collection fee and send you a bill. The FTB now interprets the statute as giving them an additional twenty years to collect the entire amount anew from the time they assess this small fee! Often the FTB will file a Notice of State Tax Lien while a deficiency is pending. The FTB’s spin on the statute is that they now have an additional twenty years to collect the tax from the date of the lien notice. For example, you owe the FTB a specific amount of money for the year 2000 (return filed in 2001). Since this is 2014, you are thinking to yourself that the FTB has only seven more years to collect the tax because you filed the return in 2001. However, suppose that in December 2014 the FTB assesses a $35 collection fee and sends you a bill or the FTB files a lien notice with the county recorder. The FTB’s interpretation of its collection statute now gives them until the year 2034 to collect the original 2001 deficiency plus all the accumulating penalties and interest!
Mr. Sims is not alone when he argues within the FTB that their current interpretation of R&T Code § 19255 was not the intention of the State Legislature when the law was enacted. Mr. Sims is fighting very hard to reverse this trend within the FTB. We wish him much success in his efforts on behalf of the tax-owing public.
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 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.
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.
Web Site Article 149