FTB Penalties at Every Turn

Can anyone keep track of all the different California Franchise Tax Board (FTB) fees and penalties? If you owe taxes, you’ve got to keep an eye on them, or your tax liability can quickly get out of hand. At a minimum, you should know that they exist.

The most obvious penalties are the “late filing penalty” and the “late payment penalty.” The late filing penalty is imposed for filing after April 15th, or after the extended due date, as the case may be. The amount of this penalty is 25 percent of the amount due. The late payment penalty is assessed if the full tax on the return is not paid by the original due date. The penalty is 5 percent of the amount that was not paid, plus .5 percent monthly, until it is paid (subject to a 25 percent maximum).

Other common penalties include the “estimated tax penalty” and the “demand to file penalty.” Obviously if you are required to make estimated tax payments and you either don’t pay in full or pay late, you’ll be subject to the estimated tax penalty. The demand to file penalty is almost what you’d think. If FTB sends you a letter demanding that you file a certain tax return, or provide certain information, and you disregard it, they will impose a 25 percent penalty. The catch is that they figure the penalty based on the FTB’s assessment before applying any payments or credits (not your own return), which sometimes has seemingly unfair results. Where else might you owe penalties and interest even if your tax return shows that a refund is due? Not with the IRS, that’s for sure.  The IRS does not typically care if you file a return if that return is going to result in a refund.

I do understand the rationale of requiring a return, even if reported income and withholding information suggests that no tax would be due. The reasoning is that the FTB simply wants the taxpayer to certify (by filing a return) that there is no additional income or taxable events that may have not been reported by third parties.

There are also a number of “cost recovery fees” that could be imposed by FTB that drive up the balance of a tax bill. FTB charges a fee if your account is assigned to filing enforcement or to collections. There are also fees associated with filing a tax lien or seizing and selling property. You can read all about FTB collection procedures in publication 1140.

FTB Dishes out Penalties in Droves

If you’re familiar with the way the California Franchise Tax Board (FTB) operates in the process of collecting delinquent taxes, then you know that they impose a bunch of different penalties.  There are some common sense penalties, like the penalty for filing late and the penalty for paying late. But there are some other more obscure FTB penalties that may surprise you:

1. Cost Recovery Fees

If the FTB has to do anything to collect the tax due (besides sending you a bill), then they are likely going to charge some sort of collection fee.  And when I say “anything,” I mean anything, such as filing a tax lien, seizing and selling property, intercepting a federal tax refund, filing enforcement, and even simply assigning your case to the collections department.  The fee is supposed to cover the theoretical costs of these revenue collection efforts and I’m sure are rarely commensurate with the actual collection costs.

2. Dishonored Payment Penalty

If your check bounces, or your FTB payment is otherwise rejected due to insufficient funds, then FTB will impose a $25 penalty.  If your payment is $1,250 or more, then the penalty is 2 percent of the payment amount.

3. Mandatory e-Pay Penalty

Certain large payments over $20,000, or payments made where the total tax liability exceeds $80,000, must be made electronically according to California law.  The California tax underpayment penalty imposed by the FTB is 1 percent penalty for failure to comply.

4. Demand to File Penalty

If you don’t file your tax return by the filing deadline, then FTB charges a 25 percent late filing penalty.  If you still do not file after FTB demands that you file, then they will impose a 25 percent penalty on top of the initial failure to file penalty.  This is particularly brutal because they can actually impose penalties and interest even if your tax return shows that a refund is due!

5. Estimated Tax Penalty

This is the penalty imposed  for failure to pay an estimated tax installment.  It also applies when you pay late or underpay.

6. Post-Amnesty Penalty

Taxpayers who have been granted amnesty for any particular tax year must not subsequently owe any new or additional tax, otherwise… you guessed it, another penalty.

More than half of Stanislaus’ FTB non-filers live in Modesto

The Franchise Tax Board is beginning its annual force filing season. Haven’t heard of force filing season? If you are one of the million plus people that the FTB is currently investigating, you will soon.

Force filing season is where a taxing government seeks to file an estimated tax return for you, when the government did not receive a tax return from you. The procedure is a profitable one. Last year the FTB collected more than $715 million through its force filing investigation and assessment efforts.

Since we’re now in tax season, the FTB knows that you should be thinking about your taxes. So, this is the time of year that the Franchise Tax Board notifies taxpayers that it didn’t receive a tax return from a particular tax payer and that it believes that a tax return should have been filed.

If you live in Stanislaus County, in Modesto particularly, you may need to contact a Modesto tax attorney in short time. Of the 6,696 Stanislaus taxpayers that the FTB is investigating, 3,570 of them live in Modesto. That’s more than half of the Stanislaus taxpayers that will likely need a Modesto tax attorney.

The first step in the force filing investigation is for the Franchise Tax Board to identify social security numbers where a tax return was not received by the tax return deadline. The FTB then compares those social security numbers to information provided by banks, employers, local governments, the IRS, and other third parties. If the Franchise Tax Board believes that you were required to file a California tax return, but did not do so, you will receive a tax return demand letter.

So if you are one of the 3,570 Modesto residents that recently received one of these tax demand letters, or one of the remaining 3,126 who live elsewhere in Stanislaus County, you have a potential tax debt looming. Our Modesto tax law firm may be able to help you. Speak directly to one of our Modesto tax attorneys by calling us at (209) 248-7157.

California FTB frustrated the poop out of someone this week

Are you frustrated with California’s Franchise Tax Board? The Sacramento tax collectors at the Franchise Tax Board must have frustrated, or possibly scared the poop out of someone recently with their collection efforts. For obvious reasons, in a story not widely publicized this week, someone recently took FTB tax relief to a lower level.

Earlier this week a package sent to the Sacramento FTB office containing a brown liquid with a strong odor required the Sacramento Metro Fire Department to be summoned. Franchise Tax Board personnel, possibly working to assess and collect taxes against the sender of the anonymous package, had to emerge from the bowels of their Sacramento taxing office as a level two hazmat emergency caused an evacuation. The cause … dog poop!

Based on the stress and sleepless nights caused by FTB tax audits and Franchise Tax Board tax collections, I’m surprised it was only dog poop that was sent. Apparently, you can order a variety of crap through the internet. Literally, ranging from elephant crap to cow dung.

Obviously, these types of tax relief tactics are not tax relief at all. They’re a useless waste of time and dangerous. The sender will also likely be in more trouble now than they would have been had they used actual tax law strategy to resolve a tax problem and build a collection defense. Using legitimate legal means to resolve a tax debt will often relieve the stress caused by the taxing agency whether it’s the FTB or the Internal Revenue Service.