California Franchise Tax Board (FTB) came like a thief in the night!
This is how it was explained to me by a friend that had their business and personal bank accounts levied by the FTB for over $80,000 in unpaid taxes. The only problem is the FTB was not a thief, and was well within their legal rights to seize the funds. This friend had formed a business that gradually became successful over a period of about four years. Concentrating on building and running the business, she had not filed California or Federal income tax returns for the last three years. I asked if she received notices asking her to file tax returns for those years. She said, “yes, but I was busy and just ignored them, I didn't want to deal with it so I just filed the letters and unopened envelopes.”
I had actually received a call from this friend about ten months prior asking me a “hypothetical” question concerning being late filing their California income tax returns. She was also talking about how good business was going, and how she was finally going to buy her dream car. Suspecting the worst, I advised holding off on purchasing that car, until getting current on all tax filings.
Fortunately, she went to a qualified tax practitioner (unfortunately not me) who was able to bring her into compliance with both the IRS and FTB. She was even refunded some of the $80,000 that was seized by FTB, but of course that went towards the IRS back taxes. She is back in good standing and has also purchased that car of her dreams.
I am currently working with a client on the East coast that failed to respond to FTB filing enforcement notices, and who also experienced that “thief in the night” experience. My client did not understand how the FTB could hit their bank account on the East coast, especially when they have not done business in California in years. In this situation the problem with the FTB was not known by the client, and went unattended for over 10 years. They had not received the notices from FTB because the address the notices were mailed to was not current. Although this client is no longer doing business in California, steps need to be taken to formally withdraw from California through the California Secretary of State to avoid the California filing requirement, and payment of the $800 minimum tax.
The FTB has a 20 year collections statute of limitations. If you begin to experience success and owe back taxes to the state of California, they will find you, and they will collect.
I have seen many times when there is no tax due, and in the majority of cases the amount shown due is overstated. Contact me at firstname.lastname@example.org for a consultation on your California income tax issue.