Can My Tax Refund Be Taken by the California Franchise Tax Board (FTB) to Pay Off Debt?

The California Franchise Tax Board (FTB) performs similar functions as the Internal Revenue Service (IRS). One of the FTB’s most important functions is to review state income tax returns and, where appropriate, issue refunds to eligible California taxpayers. Unfortunately for some taxpayers, not only can the FTB issue tax refunds – it can also intercept them. If your California tax refund was short of the expected amount, an outstanding debt could be the cause. However, it may be possible to recover the funds if the FTB acted improperly. If you believe that the California Franchise Tax Board improperly seized part or all of your tax refund for 2017, review your legal options with an experienced California tax attorney as soon as possible.

 

Why Did the Franchise Tax Board (FTB) Take My State Income Tax Refund?

Each year, the FTB issues millions of refunds collectively amounting to billions of dollars. However, that money doesn’t always find its way back into the hands of taxpayers. If your California tax refund was smaller than anticipated, the FTB – and one or more unpaid debts – may be to blame for the discrepancy. What some taxpayers initially fail to realize is that the FTB is not only a tax authority, but also functions as a debt collection agency for the state of California. Along with tax liens, tax levies, and wage garnishment, the interception of tax refunds is another debt collection tool at the FTB’s disposal. The FTB’s practice of intercepting refunds to pay outstanding debts is formally known as the “Interagency Intercept Collection Program,” or IIC.

If you owe one or more fines, fees, penalties, or other payments to a California town, city, or state government entity, the FTB may (1) intercept your tax refund, and (2) use the seized funds to satisfy the unpaid debt through its IIC Program. Depending on the size of the refund and the outstanding balance owed, the FTB may claim anywhere from a small portion to the entirety of the refund.

Because the FTB is a tax agency, one might assume it is therefore authorized only to collect tax-related debts, such as debts incurred through failure to file taxes, failure to pay taxes, or failure to retain records in previous years. In reality, the FTB may collect a wide range of debts, including but not limited to debts arising from:

  • Colleges and universities to which the taxpayer owes fees, tuition, or other unpaid obligations.
  • Superior Court fines and fees.
  • Unpaid payments owed to any state agency.
  • Any of the following owed to a city or county in California:
    • Bail
    • Court-ordered payments
    • Parking tickets/citations
    • Property taxes
    • Unpaid fines

As you can see from this non-exhaustive list, a wide range of debts can trigger the seizure of one’s state income tax refund – including debts which are not directly related to tax obligations. For more information on the subject of FTB debt collections, our readers may wish to review:

Unfortunately for taxpayers, there seem to be instances, as reported by CBS News, of the FTB abusing its broad-ranging debt collection powers to improperly seize income tax refunds from California taxpayers. In light of these apparently inappropriate interceptions, it is prudent for taxpayers to review their rights with an experienced attorney-CPA who is licensed to practice in California.

 

California Tax Lawyers Providing Aggressive FTB and IRS Representation

If you believe the California FTB improperly seized part or all of your state income tax refund, you should discuss your concerns with an experienced tax attorney who is well-versed in FTB tax refund regulations, IRS appeal procedures, and the potential avenues for obtaining tax relief. Depending on your situation, it may be appropriate to aggressively contest the interception, or to negotiate a payment plan that alleviates your financial burden. However, a strategy cannot be designed without first discussing your matter in detail. For a confidential, reduced-rate tax consultation with the Los Angeles tax attorneys of the Tax Law Offices of David W. Klasing, contact us online, or call our tax firm at (800) 681-1295 today.

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles we now have offices in San BernardinoSanta Barbara, Panorama City, OxnardSan Diego, Carlsbad , Bakersfield,

San Jose, San Francisco, Oakland and Sacramento.

 

Helpful Collection Q and A libraries:

Liens, Levys and Garnishments

Non- Filer Assistance

Offer in Compromise

Tax Relief and Resolution

Helpful Collection Videos:

Common Issues with IRS Collection Actions