Want some information on the California Federal Tax Board (FTB)? MW Attorneys shares what they know about the FTB’s penalties, customer service, and more.

State of California Holding $14 million in Tax Refunds

In these dismal economic times, so many hard-working citizens have tax debt up to their eyeballs and are desperately seeking tax relief.  It’s hard to believe there are taxpayers out there who let their refund go unclaimed or who don’t notice when it doesn’t come in the mail.  But every year state and federal taxing agencies publish data about the millions and millions of dollars in refund checks that bounce back to them due to a bad address.  Today the California FTB announced in a press release that it is holding over $14 million in refunds.

Granted, some of these refunds are so small that it is hardly worth a taxpayer’s time to call FTB and update his address.  But FTB stated that at the high end of the spectrum we’re talking about refunds in the $35,000 range.  I suppose some of these taxpayers are very wealthy and don’t need the money.  But I wonder how many of them have moved and don’t want the FTB to know their new address.  Or how many of these refunds are not claimed because the taxpayer knows they are the result of questionable tax strategies?

FTB reminds us that the best way to avoid the problem of a returned refund check is to sign up for direct deposit.

Corporations on FTB's Top 500

In a couple weeks the Franchise Tax Board (FTB) will be submitting its “Top 500” list to state licensing agencies, including the DMV.  The FTB Top 500, if you recall, is a list of California taxpayers with the most serious state tax debts.  If you make the list then you could lose your drivers license, occupational license, professional license.  You may also be precluded from entering into contracts with the state.

The Top 500 now lists applicable licensing agencies, license statuses (i.e., active, canceled, disbarred) and license numbers.  A good chunk of these delinquencies are for corporate taxes, and the corporate income tax chart lists officers by name.

The list is meant to increase voluntary compliance in hopes of closing California’s $10 billion tax gap.  This may be an effective deterrent for individuals concerned with their image and their integrity, but how effective is the public shaming of a defunct corporation?  I suspect that many of the corporate tax debts are associated with corporations that are no longer operating, and who knows how much the FTB will be able to collect on a bunch of closed corporations.

Tax Gap Widening in California

I’m posting this video partly for the rare glimpse inside the California Franchise Tax Board.  Can somebody who works at FTB help me to understand what all those aqua colored contraptions are for?  It looks like they may be used to sort mail, but for all I know, they are the machines that actually assist in processing our state returns.

The actual story reported in this video clip is that more and more Californians are not paying their taxes and that this impacts all residents of the state either directly or indirectly.  The tax gap in California has nearly doubled in the past few years, according to the report.  Jerome Horton, spokesperson for FTB, is quoted saying that the state sees people who fail to pay their taxes as criminals.  The report naively lumps honest taxpayers with unpaid tax debt into the same category as tax evaders.  I would like to say that this the reporter’s error, but it definitely appears that Horton shares this view.

California Tax News

Today the California Franchise Tax Board (FTB) announced that it is now accepting 2011 state tax returns.

California is falling in line with the federal government as far as the 2012 filing deadline. You must have your tax return postmarked no later than Tuesday, April 17th for it to be considered timely.  The standard filing deadline is April 15th, but that falls on a Sunday this year. And Monday, April 16th is Emancipation Day, A District of Columbia holiday, which has the same effect as a national holiday when it comes to tax deadlines.  But even though the April filing deadline is the 17th, the extension deadline will still be October 15th for federal tax returns.

  • The top individual tax rate in California decreased from 9.55 percent to 9.3 percent.
  • The standard deduction increased from $3,670 to 3,769 (increase from $7,340 to $7,538 for joint filers)
  • The dependent exemption credit increased from $99 to $315 per dependent (personal exemption increased from $99 to $102 and from $198 to $204 for joint or surviving spouses)
  • Child and dependent care expense credit is worth up to $1,125 for those who qualify

FTB vs. BOE

Franchise Tax Board vs. California State Board of Equalization

Navigating your way around the IRS can be a formidable task, one that many prefer to leave in the hands of their tax attorney or other tax practitioners. However, practitioners agree that the California equivalent — the Franchise Tax Board (FTB) — is even worse. In general, the California rules tend to be tougher than the federal rules and the FTB personnel tends to be more difficult and steadfast in enforcing their rules.

One specific complexity in California has to do with the procedure for appealing a tax case. Some states have a state tax court serving as the proper venue after a case has been appealed to the limits at the administrative level, which mirrors the federal process and Federal Tax Court. But, of course, California does things differently. Once you have exhausted your options administratively, there is nowhere to go except the California State Board of Equalization (BOE). The state of California Board of Equalization consists of five elected members that function like a court but is not a court. This article from Robert W. Wood further describes the “quirkiness” of the California BOE.

Non-FTB Tax Collectors

If you live in California, the tax man who comes pounding unexpectedly on your door to collect overdue state taxes might not be a tax man at all.  The California Franchise Tax Board (FTB) hires private collecting agencies (PCAs) to do some of their dirty work for them.  FTB says they keep a close eye on their PCAs to ensure they are treating taxpayers fairly and safeguarding their private information.

The IRS has tried this in the past too with limited success.  My own personal experience with the PCAs hired by the IRS was that they were given so very little authority to actually resolve cases that it seemed a waste of time and resources.  The IRS initiated PCA contracts in 2006, but discontinued the program in early 2009 due to pressure from advocacy groups who said the collection practices were often abusive.  Also, the PCAs weren’t as effective as expected, meaning they didn’t collect as much revenue as their public counterparts.

California’s New and Improved “Top 250 List”

Normally “first place” is a position that many aspire to.  Unless you occupy the first spot on California’s Top 250 Delinquent Taxpayers list.

California tax collectors (employees of the Franchise Tax Board) have a reputation for being, how shall we say this, . . . very zealous in their duties.  The FTB stops at nothing to collect overdue taxes, even rivaling the efforts and tactics of the IRS.  One of the ways California encourages tax compliance is by publishing its annual “Top 250 Delinquent Taxpayers” list on its website as a type of public shaming exercise.  Right now the winners are Halsey & Shannon Minor of Los Angeles who owe exactly $14,247,341.09 in personal income taxes.  Apparently nobody in the entire state of California owes more state taxes than they do.

But even if you’re at the bottom of the list, the consequences are the same.  And now, with the passage of AB 1421, it’s more than just the tax bill and the shame. Consequences now include having your drivers license, and possibly professional license, suspended.  Also, the list will be doubled so that it includes the top 500 worst offenders.  The author of the bill, Henry Perea, has strong words for California’s top 500:

Everyone on this list has had a chance to work with the state to resolve their tax issues but have chosen instead to bury their heads in the sand and continue to spend lavishly.

But I wonder how accurate that statement is.  According to the FTB website, the only criteria for inclusion on the list is that the taxpayer owes over $100,000 and falls into the top 250 (now 500).  The oldest tax liens were filed in 1996, but many of them were just filed last year.  At any rate, California has sent a clear message to the wealthiest taxpayers in the elite neighborhoods of LA and San Francisco.  Now they should try to get that message to the masses to make it really effective.

Fee Increase for California Installment Agreements

Starting October 26, the Franchise Tax Board will be raising the fees for installment agreements as follows:

Personal Income Tax Installment Agreements: $34 (previously $20)

Business Entity Installment Agreements: $50 (previously $35)

See the Installment Agreement information page for more information, but note that it has not been updated with the new amounts yet.

Fees are still subject to change (again) without notice.

Extension on CA State Taxes Ends October 17th

The California Franchise Tax Board (FTB) issued a news release on Friday reminding Californians of the extended tax return deadline and also siting some interesting statistics.

Like the IRS, the California tax authority does cut some slack for procrastinators. And like the IRS automatic extension, the California version also comes to an end on October 17th. Sometimes the tax relief most needed is just some more time. The FTB tries to make it as convenient as possible to both file and pay your state taxes.

Filing CA Taxes

  • ReadyReturns (partially completed returns just waiting for the taxpayer to complete online)
  • CalFile free e-file program
  • other free or fee-based e-file services listed on FTB’s website
  • view wage & income information online with MyFTB Account

Paying CA Taxes

And now for the statistics. This year over 1.5 million Californians requested an automatic extension and will have to file by the October 17th deadline. This actually eases the burden on the state in April by spreading out the work a little more evenly throughout the year. By now California taxpayers have filed more than 14.7 million personal income tax returns of which 11.7 million were e-filed. Also, the state has issued 9.5 million refunds totaling $8.1 billion.

FTB Live Chat

Starting today the California Franchise Tax Board (FTB) is expanding its Live Chat program to business entity questions. Live Chat is a web-based communication application that was first launched about 6 months ago and is open to both taxpayers and practitioners. It is a quick way to get answers to general state tax questions — quicker, apparently, than waiting on the phone. However, account-specific questions will not be addressed in this manner. If you have questions or issues to address about a specific tax account, you must go through the normal channels.  Live Chat is available 8:00am to 5:00pm Monday – Friday. Check it out here.