FTB Call-Back Service

There are many things that the California Franchise Tax Board (FTB) does that I would hope the IRS never adopts.  But some might appreciate it if the IRS would follow the example of the FTB when it comes to their customer service phone lines.

Clearly the IRS could never deliver the same level of customer service as a state taxing entity, due to the insanely large number of calls that IRS gets each day.  I don’t think anybody really expects them to compete on that level.  Likewise, it is naive to think that the state should be able to answer every call as it comes in without leaving taxpayers on hold.  However, FTB has figured out a way to make it much more convenient for the caller.  The FTB phone system has a feature that allows the taxpayer to request a call-back during times of heavy call volume.  The system estimates about how long you’ll have to wait on hold if you choose to hold, and then gives you the option of leaving your name and number and having a customer service rep call you back during that same time frame.

This call-back feature is handy for tax attorneys and tax practitioners, but it is especially useful for unrepresented taxpayers.  I have used the call-back feature a few times, but I typically do not mind holding either.  I often have a handful of cases that are queued up and ready to go once they pick up, and while I wait there’s always Instagram and TIGTA reports, but mostly Instagram.  But taxpayers calling in on their own case can be really discouraged by a 30+ minute wait, and it is nice to have the option of saving your place in line without actually waiting on the line.

I understand the administrative burden this feature would cause though.  It’s not a huge amount of extra work, but even a little extra work on such a large scale can be reason enough to just maintain the status quo.  IRS customer service has really gone down the toilet in the last few years, so really status quo wouldn’t seem too awful right about now compared to any additional slippage in service.

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.

Lavish Spending is Not Tax Evasion

A recent court decision took up the question of whether lavish spending alone, in the face of a tax debt, should be considered willful tax evasion.  Trip Hawkins, founder of Electronic Arts, is one of those super wealthy, elite class Americans who fell on hard times — a different sort of “hard times” than most people are familiar with, but hard times nonetheless.  He has IRS and FTB (California Franchise Tax Board) tax debts up to his eyeballs, something like $25 million, which he sought to have discharged in bankruptcy.

The government asked the bankruptcy court to exempt his tax debts from being discharged because he acted in a willful, tax evasive manner.  After acknowledging the tax debt, it was shown that he was spending up to $78,000 more each month than he was earning.  He was maintaining a $3.5 million home and a $2.6 million ocean-view condo.  He was buying $70,000 cars and cruising around in a private jet.  However, the court concluded that this sort of spending behavior, extravagant as it seems to regular folks, was not enough to prove willfulness.

I don’t imagine there are too many people living this lifestyle in valley towns like Modesto, Tracy, Turlock, or Oakdale, and its not simply for lack of ocean-view condos.  However, this issue does tend to crop up here in other contexts and on a much smaller scale.  For example, I have seen the California Board of Equalization (BOE) and FTB draw adverse conclusions on the grounds that a taxpayer was living too lavishly.  In the process of resolving a tax debt, these taxing entities look closely at bank statements to see how taxpayers are spending their money.  I have seen them raise an eyebrow at things like going out to much on weekends, eating out too much, taking too many trips, etc.  While this lifestyle is not going to land somebody in prison for tax evasion, it can sometimes make it more difficult to obtain an accepted installment agreement, or offer in compromise.

I’m not sure I really have to spell it out, but their thinking is “why should this taxpayer be allowed to live like this when he owes taxes; he needs to curb his spending so he can pay off his tax debt.”  This is just something to keep in mind when dealing with California taxing entities.  In my experience, the IRS is concerned with this kind of thing too, but to a lesser degree.

IA Eligibility Requirements

Who is eligible to pay back taxes to the California Franchise Tax Board via an installment agreement?  It can be a little complicated.

It’s difficult not to compare FTB and IRS collection tactics.  Both almost always first demand/request payment in full.  The collection notices are worded in a way that if you don’t read beyond the first sentence, it will appear that full payment is your only option.  And when you call them up, that’s the first thing out of their mouth.  IRS will usually say “Do you have the ability to pay your tax bill in full?” If you cannot write them a check, then the discussion typically shifts to what is required for an installment agreement.  However, the FTB will often (at least at first) demand full payment without regard for your ability to pay and then very reluctantly tiptoe around the option of paying back your taxes in installments.

The eligibility requirements for an FTB installment agreement are more stringent than the IRS requirements.  First and foremost, it is very difficult to obtain an installment agreement with FTB if you have an active earnings withholding order (EWO).  An EWO is just another word for “wage garnishment” or “wage levy.”  Once the FTB has brandished this collection tool, and they have a steady stream of payments coming in, it is very difficult to convince them that they should trade these “guaranteed” payments for a promise to pay from the taxpayer.

Like the IRS, the FTB does require that all back tax returns have been filed so there is no question as to how much is owed.  Also, like the IRS, FTB requires that the entire tax debt be paid off within a specified time frame.  They give as much as 60 months for some tax debts, but only 36 months for others.  The IRS will allow a full 72 months for tax debts under $50,000.

Both FTB and IRS recognize certain events that will cause an installment agreement to default.  Some of these events include (a) failure to make timely payments, (b) failure to timely file a future tax return, and (c) incurring a new tax debt.

Whether you owe FTB or IRS (or both) it would be a mistake to think that you can always just request an installment agreement to avoid enforced collection action.  It’s not always that simple.

First-time Penalty Abatement in California

What kills people when they have an IRS tax debt is the interest and penalties.  If you don’t file and pay your taxes when they become due, you can eventually find yourself owing much more than the original tax assessment.  It is possible to negotiate an abatement of penalties, but it isn’t always easy, especially for “repeat offenders.”

By “repeat offender” I mean those who have a history of non-compliance, (i.e., failure to file on time and/or failure to pay on time).  The IRS treats repeat offenders differently.  If you have no missing returns and no prior penalties for the preceding three (3) years, then you may qualify for “first-time abatement penalty relief.”  First-time abatement may be granted without consideration of individual circumstances and excuses.  However, if you do not meet the criteria for first-time abatement, then your only recourse would “reasonable cause penalty relief,” which can be very difficult to prove.  Chances are, what you consider a reasonable excuse for not filing on time or not paying on time will not be considered reasonable by the IRS.

The California Legislature is currently considering adoption of a bill that would provide a first-time abatement option for California taxpayers.  Under AB 1777, the Franchise Tax Board would give preference to non-repeat offenders like the IRS.  The requirements would be as follows:

  1. No prior timeliness penalties imposed for current year and four (4) prior years;
  2. The taxpayer has paid all current tax due, or is in a valid installment agreement;
  3. The taxpayer is otherwise compliant with FTB filing requirements

As you can see, the first-time California late-filing penalty abatement, as proposed, would be more restrictive than the Federal version, as it requires a slightly longer history of compliance.  It seems like California looks to the IRS for guidance in administration of its tax laws, and then tries to figure out how it can make things just a little bit tougher for California taxpayer.

FTB Holding $16 Million in Returned Tax Refunds

When you move to a different residence, do you immediately contact your creditors to let them know where you are?  Suuuure you do.  When you get around to it…

It’s no secret that some people spend their lives moving from place, just one step ahead of the IRS or other taxing agencies.  Although certainly not advisable, some people have good reasons for keeping their location a secret.  And then there are the others.  The brilliant 45,000 or so people in California who haven’t claimed their prior year state refund(s) yet.  The refund amounts range from $1.00 to $54,000.00 (total more than $16 million), and a majority of these people simply moved and didn’t update their address with FTB.  In other words, it isn’t so much that they haven’t claimed the refunds, but they were returned by the Postal Service due to the FTB having a bad address.

There is an easy fix to this problem.  Keeping your address up-to-date would be one way, but there is an even better fix.  DIRECT DEPOSIT.  If you use direct deposit for your tax refund, you get your payment so much quicker, and if you move you still get paid right on schedule (assuming you didn’t change banks).

Some IRS News & Some FTB News

Internal Revenue Service

The IRS expects the 2014 tax season to be delayed by one to two weeks.  That would mean the new tax season would begin somewhere between January 28th and February 4th.  The reason for the delay?  None other than the historic Fall 2013 government shutdown.

The IRS normally begins tuning and tweaking their complicated tax return processing systems in the fall, even before the start of the 4th quarter.  This year’s system testing period was delayed when the IRS closed its doors during the first half of October.  You should also be aware that the February 4th start date is only an estimate.  The IRS will re-evaluate and confirm the 2014 Tax Season start date in December.

California Franchise Tax Board

We often hear about federal tax scams, but the FTB recently sent out a warning to California residents to keep their eyes and ears open for phishing schemes and identity theft.  There is apparently a scheme which targets elderly taxpayers in Beverly Hills.  The caller, posing as a FTB employee, tells the victim that they were ticketed for a red light violation and their case has been forwarded to the FTB for collection purposes.  As ridiculous as this may sound, the IRS has been given so many additional responsibilities over the years that it’s hard to say what they may have a hand in.  So, why not the FTB too?

The moral of the story is the same as it always is for the IRS: they won’t contact you by email, and they will rarely call you without sending a series of notices first.  You need to be suspicious if either of these things happen to you.