Aside from handling and administering the state income tax obligation, California’s Franchise Tax Board is also responsible for serving as a collection agency. The FTB serves as a collection agency for a vast array of bills and other monetary obligations owed to the state government and local town and city governments. Taxpayers who fail to file and pay their taxes and other obligations can face a collection action in the form of a government lien or levy. For other debts, the FTB may engage in a practice known as income tax refund intercept.
However, there are reports that the FTB has been engaging in potentially improper collections and capture actions. A report from CBS News alleges that the tax agency and its partners have failed to send required notices before engaging in capture actions. Affected taxpayers have likened the FTB’s approach to requiring taxpayers to prove their innocence to obtain the refund they are entitled to receive. For some taxpayers, a captured refund could mean the loss of thousands of dollars that they were counting on.
Taxpayers Who Fail to Pay Taxes and Other Government Debts Can Face FTB Collection Attempts or Refund Capture
Some taxpayers in California are surprised to learn that the court systems in many towns, cities, and municipalities have contracted with the FTB for its debt collection services. This means that if you were ordered to pay a fine or penalty and fail to do so, you may eventually hear from the FTB about it. Likewise, if you have old unpaid parking tickets, these obligations may too come under the collection purview of the California FTB.
Taxpayers who failed to pay a court fine or other penalty collected by the FTB may find their tax refund check significantly short of the full amount or may find that the entire refund has been captured. The official name for this program is The Interagency Intercept Collection (IIC). The types of debts that can be collected in this manner include:
- Any type of debt owed to a California state agency.
- Counties and cities may submit debts for property taxes, delinquent fines, bails, vehicle parking penalties, court-ordered payments, or other permitted debts.
- Colleges in California may use the FTB’s program to collect tuition, fees, fines, and other debts.
- “Special districts” may collect certain debts in accord with California law.
As one can probably surmise, the FTB can collect a broad array of debts. Unfortunately, it seems that certain program rules and guidelines are not being followed. This is depriving California taxpayers of the opportunity to challenge or appeal an improper refund intercept.
Investigation Indicates Problems with Intercept Program Were Understated in Past Years
California taxpayers have complained about glitches in the FTB’s intercept and collection processes for years. In fact, in 2015, CBS Sacramento looked into this very problem. At the time, the reporter was told that mistaken intercepts were rare and had only occurred four times in the previous two years. Unfortunately, this information was incorrect.
Upon reopening its investigation into the issues, the FTB told the CBS News reporter that the figure provided in 2015 related to intercept incidents that had triggered media inquiries. An agency spokesperson corrected the record stating that the:
…total number of reversals [sic] in 2015 was 370 (.04%) out of nearly 900,000 offsets. In 2016, there were 199 (.02%) reversals out of more than 960,000 offsets.
According to taxpayers who spoke with the local CBS affiliate in Sacramento, the intercepts ranged from hundreds of dollars to thousands of dollars. According to the report, “ John Kalinowski told the news station that in 2013, the state took more than $1,200 from his tax return and his bank account right before a vacation.” Other taxpayers noted that their intercept concerned several hundred dollars. Most taxpayers disputed the underlying basis for the intercept.
Another common thread among reports regarding improper captures of tax refunds is the fact that required notices were not sent to taxpayers. In at least some cases, it appears that an out-of-date database is nevertheless being utilized for these purposes. One taxpayer who works for the state of California and was affected by the issue reported that the notice was sent to an address she had not used in at least 15 years. While this accounts for one process failure, it cannot explain the other hundreds of incidents. Furthermore, because the originating agency is supposed to send the notice, the FTB could not confirm whether all of its partners were actually complying with the law.
Work with Tax Lawyers When Facing California Tax Debts
Perhaps the most troubling aspect of this situation is the fact that no taxpayer could resolve this mistake until media inquiries began. If the bureaucratic nightmare that taxpayers described can exist when the agency acknowledges that a problem exists, one can only imagine the difficulties one will face when attempting to prove that a mistake was made.
However, taxpayers who rely on the services of a tax lawyer have an advocate who understands the tax system. He or she can engage in strategic communications with the FTB, the agency the debt originate from, or any other third parties. To schedule a confidential reduced rate tax refund intercept or tax debt lien or garnishment consultation, call the Tax Law Offices of David W. Klasing at 800-681-1295 or schedule online today.
