The best way to solve a tax problem with the California Franchise Tax Board (FTB) is to file an Offer in Compromise. An Offer in Compromise lets you settle a tax debt for less than you owe. However, several other ways exist to resolve a tax problem with the California FTB, including paying off the entire amount you owe.
It can be frustrating and distressing when the California FTB sends you a Notice of Proposed Assessment or an Order to Withhold. These notices inform you that the FTB intends to assess additional taxes and penalties, garnish wages, or levy your bank account. Here is a look at how you can dispute an NPA so you do not have to pay extra taxes, penalties, or a lesser amount to resolve the issue.
Problems You Can Experience with the California FTB
Several tax problems can occur every year when dealing with the California FTB. It is important to resolve these tax issues as soon as possible so that you do not accumulate penalties and interest that you must pay. The California FTB will work with you, but you can challenge their decision. Here are some of the problems you may encounter with the California FTB.
Problems with Unpaid Taxes in California
There are several consequences for having unpaid taxes, including tax penalties, liens, levies, wage garnishments, or suspension of professional licenses.
Problems with Delinquent Tax Returns in California
The CA FTB can suspend your driver’s license, seize your home, or levy your bank account if you have a delinquent tax return and do not resolve this issue immediately.
Problems with Your Tax Return Can Lead to an Audit
The CA FTB will audit your tax return to verify the accuracy of your income and deductions. Inaccurate information or filing your tax return late can trigger an audit.
Problems with an Incorrect Property Tax Assessment
In California, local governments handle property assessments for tax purposes. The revenue generated by property taxes benefits the state and local governments. You can dispute a property assessment if you feel it is incorrect by going to your county’s appeal board.
Types of Tax Collection Actions in California
The California FTB can start collection actions once you owe taxes. The FTB can collect money from you, including garnishing wages, levying a bank account, putting a lien on your property, or intercepting funds that a state or federal government agency owes you.
Tax Penalties and Interest in California
The California FTB can charge penalties and interest if you do not file and pay taxes on time. Penalties and interest accumulate from the original due date until you pay the full balance of the tax debt.
Disputing and Appealing the California FTB
You can dispute or appeal penalties, levies, and other actions by the California FTB in many ways. You can dispute and appeal decisions through the State Board of Equalization. However, you must provide verifiable documentation to back up your dispute or appeal.
Issues with an Installment Agreement
You can set up a payment plan with the California FTB to pay off a tax debt. You can change or cancel the payment plan if you have any issues by calling 800-689-4776 from 8 am to 5 pm every weekday except holidays to set up another arrangement to pay off your tax debt.
Handling Taxpayer Rights Violations with the California FTB
The California FTB must protect your rights, privacy, and property as a taxpayer. You can contact the Taxpayers’ Rights Advocate Office at 800-883-5910 if the California FTB violated your rights.
Wage Garnishments by the California FTB
The California FTB can garnish your wages if you owe or fail to file your tax return. The agency will take some of your disposable income until you pay your debt obligation.
How much can the California FTB garnish from my income?
The California FTB can garnish up to 25% of your disposable income. Disposable income is gross income minus state and federal tax deductions.
How many years can an FTB garnishment last?
A California FTB wage garnishment can last up to 20 years.
How can I stop a wage garnishment?
You can stop a garnishment by paying your full tax debt, setting up a monthly payment plan, or negotiating a settlement.
Tax Liens by the California FTB
The California FTB can put a lien on your property so they can claim any funds when you sell the property if you do not pay your tax obligation.
Filing Late Taxes Returns with the California FTB
Here are some issues you will face if you file your tax return late with the California FTB.
Audit from the California FTB
The FTB will start an audit to verify your identity, income, and deductions if there are any inaccuracies on your tax return.
Getting Penalty Relief from the California FTB
You can get a one-time penalty relief from the California FTB by paying the full amount you owe and by filing form FTB 2918 or calling 800-689-4776 to get a refund for the penalty payment.
Why do I still owe taxes?
You would still owe taxes to the California FTB because you must pay the full tax bill.
Situations Where Non-Californians Need to Pay California Taxes
The main thing every non-Californian needs to know about California taxes is that you do not need to be a resident for the state to send you a tax bill. You will need to pay California taxes if you live in another state and receive an income from a source in California. For example, you must pay taxes on the rental income you receive if you live in Nevada and own rental property in California. Other situations where you will pay California taxes as a non-resident include:
• Performing a service
• Selling or transferring real estate
• Receiving income from a business
California has nine tax brackets ranging from 1% to 12.3%. If you make over $1 million, the state will charge an additional 1% tax to make the top tax bracket 13.3%.
The Difference Between the IRS and California FTB
The federal government and individual state governments like California have separate tax systems. The Internal Revenue Service (IRS) administers and enforces the federal tax system, and the California FTB administers the tax system for the state. However, there are similarities between these two agencies. For example, if you fail to meet your tax obligations, these agencies will take collection actions, such as wage garnishments or bank levies.
How long can the IRS and CA FTB audit tax returns?
Once you file a tax return, the IRS has three years to audit the tax return, and the CA FTB has four years.
Extensions to File Taxes
You can request an extension with the IRS and CA FTB if you cannot file your tax returns on time. However, you must pay your tax obligation to the IRS and CA FTB on or before the regular tax deadline in April. You can get an automatic extension for up to six months with the IRS or an automatic two-month extension if you live and work overseas. The CA FTB will give you a six-month extension for personal taxes and a seven-month extension for business taxes.
Do California audits precede IRS audits?
The IRS and California FTB can share information. Inaccurate information on your federal tax return can lead to an audit on your California tax return or vice versa. However, there is equal importance between state and federal tax returns when there is an audit.
Tax Controversies in California
The CA FTB is a huge government bureaucracy. Resolving a tax dispute, negotiating a settlement, or establishing a payment plan to pay off a tax debt can be difficult. It can be even more challenging when you have an administrative protest or an appeal. Plus, California has some of the highest tax rates in the country, and high-income earners must pay an additional surcharge on their taxes.
Polling on CA Taxes
There is growing opposition to the high tax rate in California, and voters do not see high taxes as a solution to the state’s budget problem. As a result of the high taxes, many Californians in recent years are fleeing to low- or no-tax states like Nevada, Arizona, Texas, and Florida.
Taxpayer Protection Through a One-Way Appeal
California taxpayers have the luxury of a one-way appeal if their tax issue goes to court. The one-way appeal prevents the CA FTB from using the state’s ample resources to pursue a case against you in court continuously. For example, if the CA FTB loses its case against you, it cannot go to a different court and appeal the case. However, you can appeal to another court, such as the California Superior Court, if your case against the CA FTB is unsuccessful.
When should I contact a professional to handle my taxes?
You should always hire a tax professional if you need someone to prepare and accurately file your tax return. Timeliness and accuracy will help you to avoid tax penalties and fees. Contacting a tax professional if you are a business owner or have a complicated investment portfolio is essential. A tax professional can be anyone with a professional credential, such as an enrolled agent, Certified Public Accountant, attorney, or bookkeeper.
Frequently Asked Questions
How do I fight the California Franchise Tax Board?
You can dispute a Notice of Proposed Assessment. An NPA informs you the California FTB will assess more taxes and penalties you must pay. You can protest the NPA by sending the agency a letter. You must demonstrate financial difficulty, and the California FTB made a mistake. The funds must also be exempt from garnishment or another reason why you believe the California FTB made a wrong decision. You can also send the California FTB Form 3531 PROTEST to explain your reason for disagreeing with the agency’s decision and request a hearing at one of California FTB’s offices. You can send your letter or Form 3531 PROTEST to:
Protest Section MS F340
Franchise Tax Board
PO Box 1286
Rancho Cordova, CA 95741-1286
How do I avoid California’s $800 LLC tax?
You must pay the $800 California LLC tax beginning on January 1 each year, even if your LLC is not operating. You can avoid this $800 LLC tax by dissolving your LLC or canceling its registration before January 1. However, as of January 1, 2021, you do not need to pay the $800 LLC tax if you are in the first year of having an LLC. This first-year exception will save you $1,600.
Can you negotiate with the California Franchise Tax Board?
You can negotiate a settlement with the California FTB to pay your tax obligation. You can negotiate a payment plan where you can make monthly payments to eliminate your tax debt. You can also make an offer in a compromise where the California FTB can accept a payment that is less than you owe. The California FTB will consider your income, age, ability to pay, and earning potential when negotiating a payment plan or offer in compromise.
What happens if you do not pay California franchise tax?
You will receive penalties and fines if you do not pay the California franchise tax. These penalties include a 5% for the first month and a 1% each month for 12 months for unpaid taxes. Also, a 7% interest charge accumulates from the tax payment due date.
Why would I get a letter from the franchise tax board?
You would receive a letter from the franchise tax board for many reasons. These reasons include the following:
• You owe more taxes
• The FTB filed a lien on your assets, including real estate, bank accounts, and vehicles
• The FTB wants to verify your income to see if you are fulfilling your tax obligations
• To verify your identity