Government Code Section 7171 authorizes both the recording of a Notice of State Tax Lien (NSTL) in the office of a county recorder and the filing of a NSTL with the Secretary of State (SOS) at any time after the state tax lien is created and before it is extinguished. Any recording with county recorder becomes a public record and is used mostly for real property. A Secretary of State lien will be filed to attach consumer goods, fixtures, and bulk sales, as well as when personal property like accounts receivable, chattel paper, equipment, farm product or equipment, inventory, negotiable documents of time or interest in a partnership or LLP. The state tax lien attaches personal property and, consequently, a taxpayer or entity’s interest in a partnership may not be sold, assigned or otherwise conveyed free of a state tax lien. Notice to Taxpayer and Notice to Partnership are used to notify the taxpayer and partners of the force and effect of the state tax lien. Although the state tax lien attaches to a taxpayer’s interest in a partnership, it does not attach to specific partnership distributions of profits and surplus.
California State Tax
Franchise Tax Board Liens – Part One
The FTB is authorized to impose liens on taxpayer’s property to recover tax debts. A lien is a charge on taxpayer’s personal or real property to satisfy tax debt or duty. Once lien encumbers the property, taxpayer generally can not sell it or or transfer through escrow as long as lien exists. FTB files liens if a non-compliant taxpayer or business entity has a delinquent liability. California Revenue and Taxation Code Section 19221 provides that if a tax liability is not paid at the time that it becomes “due and payable” and due process is served; an enforceable state tax lien is created for the amount of the tax liability. Since the lien arises by operation of law, it is called a “statutory lien.” Revenue and Taxation Code Section 19221 also defines when a tax liability becomes “due and payable” for purposes of creating a state tax lien also known as the statutory lien date. The conditions vary for different types of FTB assessments. The general rule is that state tax lien arises on the date the amount is established on the records of FTB (or other department, like EDD for the amount of any liability disclosed on a return filed before the date payment is due and after payment is due). The state lien can also arise on the date a Jeopardy Assessment notice is mailed to taxpayer for issued amounts determined by the Jeopardy Assessment.
FTB Lien Release – Part Two
One way for a taxpayer to satisfy a lien is through the sale or re-financing of real property. Liens discovered during title searches must be resolved before clear title can be conveyed and a FTB Lien Release should be requested. This is usually done by an escrow company, title company, financial institution or attorney.
Franchise Tax Board Assessment
A Franchise Tax Board assessment are usually made on a tax year basis (i.e. per tax year). A missing Franchise Tax Board assessment is usually defined by which type of entity they are. For non-qualified in California corporation, missing years are created when a business entity does business or derives income during a tax year but doesn’t file a tax return. For California qualified corporations – any time a qualified franchise tax filer doesn’t file a return. Business activity and income do not determine the filing requirement for a corporation who has qualified through the California Secretary of State. Missing year assessments enable the Franchise Tax Board to assess taxes due in the absence of a tax return. Missing year assessments can be set up by Franchise Tax Board’s automated system or manually by its staff. Franchise Tax Board staff must evaluate the cost effectiveness of setting up a missing year assessment if there is no indication of company’s business activity, income, or transferee assessments.
Franchise Tax Board Protest and Appeals – Part Two
Franchise Tax Board Protest Process
Taxpayers must file a Franchise Tax Board protest with the Franchise Tax Board, Protest Section, Sacramento, CA 95867. The protest can be filed either on FTB’s Form 3531 PROTEST or in the form of a detailed letter.
Franchise Tax Board Protests – Part One
Franchise Tax Board Protests – Requirements of a Valid Protest
The California Revenue and Taxation Code provides that a taxpayer who disagrees with additional tax assessment can file with the Franchise Tax Board a written protest against the proposed additional tax. Protest letter must be filed with FTB within 60 days after notice of additional tax was mailed by FTB to taxpayer. Please note that clock starts ticking from the date of the notice mailing, not when taxpayer receives it. This letter notice is called the Notice of Proposed Assessment (NPA), and it contains a description of procedures to file a protest.
Employment Development Department Offer in Compromise – Part One
California Employment Development Department (EDD), like FTB, offers its own Offer in Compromise Program. Article 8, Sections 1870-1875 of the California Unemployment Insurance Code (CUIC) governs the EDD’s Offer in Compromise program. This law permits the EDD to receive applications for Offers in Compromise that may enable a qualified tax debtor to eliminate an employment tax liability at less than full value.
Employment Development Department Offer in Compromise Part Two
To fill out the form applicant will need social security number and EDD number. Applicant will need to provide reasonable offer and explain why offer should be accepted by EDD. Additionally, the form requires full financial disclosure, including information about community property. The application must be accompanied by cash, cashiers check or money order equal to amount offered. If applicant cannot pay the full amount at the time of offer, EDD may permit to pay the agreed amount in installments within no more than five-year period. When applicant submits payment with application, in the event an offer is not accepted, the amount will either be applied to the liability or refunded, at the discretion of the applicant submitting the offer. A determination by the EDD that it would not be in the best interest of the State to accept partial payment in satisfaction of a tax liability will not be subject to administrative appeal or judicial review. A separate application must be submitted for each EDD account to be compromised.
California Payroll Tax Settlements
California EDD offers taxpayers tax settlement program, where EDD and taxpayer can settle a claim for less than the amount owed. EDD can settle if it evaluates costs and risks associated with the litigation of the case and determines that it is better and less expensive for EDD to settle for lower amount than to litigate in court. The Settlements Program allows an employer the opportunity to enter into a settlement agreement to also avoid the cost of prolonged litigation associated with resolving a disputed employment tax matter.
California Employment Development Department Notice of Levy
The California Employment Development Department can issue a Notice of Levy to attach the credits or personal property of any delinquent account, either active or inactive.
- The Notice of Levy may be made upon financial institutions, including banks, credit unions, trust companies, savings and loan institutions. For these institutions, the Notice requires that any funds held at the time of receipt of the Notice be remitted to the Employment Development Department.
- Notice can be imposed on the third party accounts receivable. In such cases a third party is served with the Notice and must surrender assets within five days after the assets are payable to taxpayer.
- Notice can be served on Credit card Processors and it will remain in force for one year, and can be renewed.