The FTB has been known to “strong-arm” former state residents. But people do fight back and win. Take the case of Gilbert Hyatt, an inventor who earned a fortune as thepatent holder of the microcomputer. Fortwenty-five years, the FTB harassed Hyatt, whose case went all the way to the Supreme Court.
The repercussions of an unpaid balance due to theCalifornia Franchise Tax Board(FTB) can be severe, especially for a small business owner. The law allows the FTB to pursue payment of tax debts aggressively through a number ofinvoluntary collection actions.
All of these actions are deeply unpleasant, and some can be devastating. If you have received a notice from the FTB requesting payment in full on a past-due balance or informing you that a collection process has begun, you are probably under considerable stress.
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The first thing that you should do is make sure that you fully understand the situation, and if necessary, findqualified legal representation for the next steps. Tax liens can appear complicated and intimidating the first time you approach them, but the basic principles are not difficult to understand.
First off, a lien is not a levy. A lien is a notice that your personal property and bank accounts may not be sold or cashed out until the lien is removed. A levy is the actual seizure of bank accounts and sale of property up to the full amount of your tax liability and any related fees, penalties, and interest.
A tax lien is filed in an effort to force you to pay your outstanding tax obligations. You might think of it as your property and bank accounts as a box you want to pick up, and a lien as something on top of it preventing you from doing so. The lien isn’t permanent as once you remove it, you can then lift up your “box” of assets. Liens exist to protect the government’s right to claim your personal property in the event you do not pay your taxes.
Tax liens can occur at the local, state, or federal level, and they may be applied to some or all of your assets. A lien makes it extremely difficult to sell property or obtain financing, and if it goes unpaid for too long, it can leave you vulnerable to more drastic collection actions.
The FTB records liens after a payment demand has gone unanswered. Typically, you are sent a notice of collection action 30 days before recording a lien. The notice contains the amount of tax debt, your rights in contesting the debt, and a deadline for avoiding collection action.
There are limited exceptions to the ban for transfer of property encumbered by state lien. The taxpayer may still transfer interest in real property via a Quit Claim. It is possible to have multiple statutory lien dates for a single tax year.
For example, a self-assessed no-pay return is filed (lien date is posting date of return), and subsequently, a Notice of Proposed Harassmentis issued for the tax year.
The lien is valid for 10 years but may be extended by the FTB in accordance with the internalLien Extension Guidelinesand by taking into consideration factors listed in the Guidelines.
If the FTB fails to extend the lien for any reason after 10 years from the date of its creation, the lien expires.
