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, the penalty for paying late, and the California tax underpayment penalty. 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.
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