FTB Statute of Limitations
The California Franchise Tax Board, or FTB, is the agency tasked with determining and collecting the correct amount of tax from California taxpayers and from taxpayers with certain connections to California. Statute of limitations (SOL) tax laws define a period of time in which actions may be taken. For income tax purposes, this limitation is the time allowed for the FTB to collect, and take enforced collection activities toward collecting, an FTB tax liability. The FTB statute of limitations for collections is found in the Revenue and Taxation Code.
California Revenue and Taxation Code section 19255 requires the FTB to permanently abate unpaid debts after 20 years. It also established specific circumstances under which debts will remain due and payable beyond the 20-year period.
Revenue and Taxation Code section 19255(a) states:
Except as otherwise provided in subdivisions (b) and (e), after 20 years have lapsed from the date the latest tax liability for a taxable year or the date any other liability that is not associated with a taxable year becomes “due and payable” within the meaning of Section 19221, the Franchise Tax Board may not collect that amount and the taxpayer’s liability to the state for that liability is abated by reason of lapse of time. Any actions taken by the Franchise Tax Board to collect an uncollectible liability shall be released, withdrawn, or otherwise terminated by the Franchise Tax Board, and no subsequent administrative or civil action shall be taken or brought to collect all or part of that uncollectible amount. Any amounts received in contravention of this section shall be considered an overpayment that may be credited and refunded in accordance with Article 1 (commencing with Section 19301) of Chapter 6.
This means that the FTB tax liability should be abated after the 20-year statute of limitations expires.
When does the 20-year SOL start?
It is important to note that the code states that “If more than one liability is “due and payable” for a particular taxable year, with the exception of a liability resulting from a penalty imposed under Section 19777.5, the “due and payable” date that is later in time shall be the date upon which the 20-year limitation of subdivision (a) commences.” The FTB has interpreted this along with the phrase “the latest tax liability for a taxable year” to mean that the 20-year statute of limitations begins at the later date if a subsequent liability is assessed. The FTB may take broad definition of the types of liabilities that could restart the 20-year statute of limitations for a particular tax period.
The time period begins to run on the assessment date, commonly called the statutory lien date (SLD). However, certain collection stays suspend or extend the 20-year SOL. For example, a bankruptcy, an approved installment agreement, or during any other period during which collection of a tax is suspended, postponed, or extended by operation of law will serve to extend the SOL period.
It is important to note that an approved installment agreement extends the statute of limitations, which is an important distinction with the IRS collection statute of limitations. If you are close to the expiration of the statute of limitations for a particular tax year, it may be advisable not to enter into an approved installment agreement, as that will extend the statute of limitations.
What is the Statutory Lien Date?
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;” a perfected and enforceable state tax lien is created for the amount of the tax liability. This point in time is called the assessment date or the SLD. As discussed above, if more than one liability is “due and payable” for a particular taxable year, the later date is used. For example, a taxpayer files a return with a balance due on April 15, 1999, and we later audit the year and issue a Notice of Proposed Assessment that becomes due and payable on April 15, 2001, the SLD is April 15, 2001.
What are collection stays?
Collection stays are the times when we cannot take involuntary collection action due to one or more of the following reasons:
- The taxpayer/debtor is in bankruptcy plus six months.
- The taxpayer/debtor is in an approved installment payment agreement.
- The taxpayer/debtor is in serving in the military and in a combat zone.
- The taxpayer/debtor is in child support collection plus 60 days.
- We postpone collection because of a presidentially declared disaster or terroristic or military action.
Pay close attention to any events that result in the extension of the FTB statute of limitations for collections.
Contact a Tax Attorney
If you have a tax liability with the FTB, you have options to resolve the outstanding liability to prevent involuntary collection actions such as levies or liens. Contact a tax attorney at Disparte Tax Law today for a free consultation.