How much time does the CA Franchise Tax Board have to collect on an outstanding tax debt?
Prior to 2006, the Franchise Tax Board (FTB) did not have a statute of limitations and could collect on an outstanding debt until the end of time. However, in 2006, a bill passed to prohibit the FTB from collecting on a tax debt for more than 20 years from the date the tax liability becomes “due and payable.” Essentially, the FTB has twice the amount of time to collect on a tax debt compared to the IRS.
Although, 20 years sounds like more than enough time to collect on a tax debt, the FTB’s interpretation of the 2006 law (Section 19255 of the California Revenue and Taxation Code) allows them to unilaterally extend the collection period indefinitely. “Tax liability” is defined to include “any additions to tax, interest, penalties, fees, and any other amounts relating to the imposed liability.” The FTB believes that the law allows them to extend the collection statute when the FTB assesses administrative and collection fees to collect on the outstanding debt. So, for example, if the FTB issues a notice of state a tax lien, the FTB will assess a fee to the taxpayer to cover their costs. When the fee is assessed, which could be 10 years after the tax became due and payable, the FTB will extend the collection statute 20 years from the date of assessing the fee, which is now 30 years from the date the tax became due and payable.
If a taxpayer calls the FTB, it is unlikely that the FTB would provide the taxpayer with the collection statute date, especially since the collection date can be continuously extended. If possible, it is to the taxpayer’s benefit to pay off the tax debt to the State of California. Otherwise, the taxpayer may never have finality over a tax debt that may have been incurred decades earlier.