We represent clients from all U.S. and International locations regarding Federal Tax and California Issues.
The California Franchise Tax Board (FTB) is a state tax agency whose main function is to administer California tax laws for business entities and individual taxpayers. As such, one of the FTB’s chief responsibilities is to “collect the proper amount of tax revenue” from Californians and their businesses. Unfortunately for taxpayers, the FTB can take aggressive actions to collect unpaid or delinquent tax debts, including the utilization of levies, even after the taxpayer has left California and moved to a different state. Because the FTB is not classified as a creditor under federal law, it does not have the authority to directly levy taxpayer income from social security disability. However, the FTB may utilize other levies to collect an outstanding tax debt, including levies on personal bank accounts. As a result, the FTB may try to collect a taxpayer’s disability benefits by placing a levy on the bank account into which the benefits have been deposited. The critical question is, how long does the FTB have to take such an action? And what should a taxpayer do in this scenario?
If you are concerned about being subject to an FTB bank levy, or to other methods of debt collection, due to delinquent tax debts, one of the most important points to keep in mind is the applicable “statute of limitations.” In short, the statute of limitations creates a legal deadline by which creditors must collect the debt. If the statute expires, or elapses, the creditor’s claim will be barred, and the debt will no longer be subject to collection actions.
Unfortunately for Californians, the FTB is not restricted by statutes of limitations to the same degree as the Internal Revenue Service (IRS). While the IRS generally must abide by a 10-year statute of limitations, the FTB is not subject to this requirement. As a result, the FTB can continue pursuing tax debts long after the IRS would be forced to relent.
How long, specifically? Up to 20 years: twice as long as the timeframe given the IRS. While that may sound gratuitous, keep in mind that there was no time limit on FTB collections until 2006, when the enactment of California Revenue and Taxation Code (RTC) § 19255 established the 20-year statute of limitations. Specifically, RTC § 19255(a) provides the following, italics our emphasis:
“Except as otherwise provided… after 20 years have elapsed from the date the latest tax liability for a taxable year… becomes ‘due and payable’ [as defined under state law], the Franchise Tax Board may not collect that amount and the taxpayer’s liability to the state for that liability is abated by reason of lapse of time. Any actions taken by the Franchise Tax Board to collect an uncollectible liability shall be released, withdrawn, or otherwise terminated by the Franchise Tax Board, and no subsequent administrative or civil action shall be taken or brought to collect all or part of that uncollectible amount.”
Unfortunately, the 20-year deadline is not always as cut-and-dried as the statute, which sets forth several exceptions, initially seems to suggest. For example, as noted under RTC § 19255(b), italics again our emphasis, “If a timely civil action… is commenced, or a claim is filed in a probate action, the period for which the liability is collectable shall be extended and shall not expire until that liability, probate claim, or judgment against the taxpayer arising from that liability is satisfied or becomes unenforceable under the laws applicable to the enforcement of civil judgments.”
For more information about this subject, taxpayers may wish to refer to the FTB’s archived, but still pertinent, overview of the statute of limitations on collection actions in California.
It is in your best interests to pay your FTB tax debts in full and on time, or as soon as financially possible, as failure to do so may result in ongoing bank levies and/or other collection actions, even if you no longer reside in California. Because the California Revenue and Taxation Code creates numerous opportunities to extend or restart the 20-year statute of limitations, it is simply not a viable strategy to wait for the FTB to miss a legal deadline. In short, attempting to “run out the clock” is a serious gamble when that “clock” can be reset at any moment by the FTB.
Do not count on the statute of limitations to expire or protect you if you are worried about the FTB placing a levy against your bank account – an action which could cause your disability benefits (and other sources of income) to be frozen and withdrawn without your consent, regardless of which state you now reside in. Instead, consult with a skilled and knowledgeable California tax attorney about your options for paying the debt and avoiding a bank levy. With guidance from an experienced tax lawyer, it may be possible to negotiate a manageable installment plan with the FTB, alleviating your debt burden while affording you protection from levies and other financial consequences. To discuss your options for tax relief with an experienced California tax levy attorney in a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call today at (800) 681-1295.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
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