The California Franchise Tax Board (FTB) is the taxing authority in the State of California used to collect state income taxes and corporate taxes. So, when your California form 540 state income tax return shows you have a balance due, you pay it to the FTB.
A question we often receive from prospective clients is why they still owe or are receiving notices from the FTB after they have paid the balance due on their tax return. There are several different reasons why this might be the case and in this blog we will discuss what those reasons are.
Why You May Still Owe
Receiving a demand for payment notice from the FTB after having paid the amount due on your tax return is not uncommon. The following are a few reasons you may be receiving this notice from the California Franchise Tax Board.
Your Tax Return Was Filed Late
The most common reason a taxpayer may still owe the FTB after paying the amount due on their tax return is that their return was filed late. Even if the return is filed late by one day the FTB will assess a late filing penalty. According to California Revenue and Taxation Code (“RTC”) § 19131 the penalty equates to 5% of the total tax owed for each month that the tax return is late but will not exceed 25% of the total tax owed. The minimum penalty for taxpayers
You Did Not Pay The Entire Amount Owed By The Due Datewho owe $540 or less is either $135 or 100% percent of the tax owed, whichever amount is less.
Another common reason a taxpayer may still owe the FTB after paying the amount due on their tax return is that they did not pay the full amount by the payment deadline. This often happens when taxpayers file for an extension to file their return but do not realize this extension does not extend the payment deadline. Therefore, if the taxpayer does not pay the full amount owed by the April 15th deadline they will be assessed a late payment penalty.
RTC § 19132 states that the late filing penalty will equal 5% of the total amount due and .5% of the total amount due for each month it goes unpaid. However, this penalty will generally cap at 40 months.
You Failed to Make Estimated Tax Payments During The Year
When a tax return shows there is a significant amount owed the FTB will determine whether there should have been estimated tax payments (ETPs) made during the year. If they find the taxpayer should have been making ETPs but did not pay, paid late, or underpaid, they will assess an estimated tax penalty. To calculate the penalty they will first determine when the ETP should have been made by looking at the number of days between the due date of the estimated tax payment to the date the payment was received or the due date of the tax return, whichever is earlier.
The estimated tax penalty is calculated by multiplying the number of days the payment was late by the effective interest rate for the installment period, which is currently 5%.
You May Be Personally Assessed For Taxes Your Business Owes
Taxpayers that own a business may become liable for taxes assessed to their business. This typically occurs when the taxpayer receives excessive funds or assets from their business, which prevents their business from paying the taxes it owes. If this occurs, the officers of the business may be held personally responsible for the tax debt.
What If You Filed and Paid On Time?
The California Franchise Tax Board not only collects income taxes, it also collects fees and fines for other state agencies. If you owe any of the following, you may receive a notice from the FTB even though you don’t owe taxes. If the notice is not addressed and the amount paid, the FTB can issue bank levies or wage garnishments to collect the amount due.
Auto Registration Fees
If an auto registration goes unpaid or is paid late, a penalty is added to the registration amount. If the penalty goes unpaid for 90 days, it can be collected by the FTB.
Back Child Support
Court ordered child support payments that go unpaid are a big part of the FTB’s collection department. If the Franchise Tax Board must begin collecting the back child support, they will use the same collection action they use to collect tax debt. This will include liens, bank levies, wage garnishments, and in more severe cases seizure of personal and real property.
The FTB may collect unpaid tickets, fines, or court fees along with any late fees and delinquencies.
What Are Your Options?
Receiving a collection notice from the California Franchise Tax Board is not something to ignore. In fact, ignoring the issue will only cause larger issues. If a bank levy or wage garnishment has been received from the FTB, immediate action should be taken.
Every tax situation is different but, we have the experience and knowledge to prevent collection action and negotiate a resolution. Common options for resolving the issue are negotiating an installment agreement, settling the tax debt through an Offer in Compromise, or proving a financial hardship and setting up a Currently Non-Collectible Status. We’ve handle all different types of scenarios and though there are no guarantees, we know we are able to resolve your tax issue in the best and least costly way possible.
If you need help with resolving a California Franchise Tax Board or IRS tax issue, please call us for a free phone consultation at 760-932-0042 or contact us through our website Spaulding Legal, APC.