Current California law provides that if the Franchise Tax Board issues a levy or files a lien in error, the FTB must correct it. The FTB is in error if it issues the levy or files the lien prematurely and does not follow its own administrative procedures. The FTB is also in error if you have an installment agreement in good standing with it to satisfy the tax liability for which it is issuing the levy or filing the lien, unless the levy is allowed by agreement.
Under these circumstances, the Franchise Tax Board will return your property if they took it. If they filed a lien, they will send a copy of the notice of withdrawal to you. You may request that the FTB send a notice of release to specified third parties
A new bill pending in the California capital – Sacramento – would authorize the Franchise Tax Board (FTB) to withdraw a Notice of State Tax Lien upon payment of the underlying debt in full. According to the author’s office, the purpose of this bill is to allow the department to issue a State Tax Lien Withdrawal upon payment in full to improve the credit history of taxpayers. This bill would become effective January 1, 2012, and would apply to State Tax Lien Withdrawals issued on or after that date, irrespective of the date the State Tax Lien was originally issued.
FTB uses two documents to release a filed State Lien:
1. FTB will issue a “Notice of Release of State Tax Lien” (State Release) when the tax liability is satisfied or has become legally unenforceable. FTB also has the discretion to issue this notice in instances where it determines that releasing a lien would facilitate the collection of the tax liability or the release would be in the best interest of the state and the taxpayer.
2. FTB can issue a “Notice of Release of State Tax Lien Filed in Error” (State FIE) if FTB determines any of the following:
• A State Lien was filed in error,
• A State Lien was filed contrary to administrative procedures,
• A State Lien was filed after a taxpayer enters into an installment payment agreement to satisfy the tax liability for which the State Lien was issued, unless the agreement states otherwise.
Upon request of the taxpayer, FTB is required to mail a copy of the State FIE to the major credit reporting companies in the county where FTB filed the State Lien. See Appendix 1 for a comparison chart of Federal and California authority for lien releases versus withdrawals.
A PENDING BILL
A pending bill would give the FTB the authority to do the following if a liability represented by a State Tax Lien, including penalties and interest has been paid in full:
• Issue a Notice of Withdrawal at the same office in which the Notice of State Tax Lien was filed.
• Provide a copy of the Notice of Withdrawal to the taxpayer.
• Notify credit reporting agencies, financial institutions, and certain other creditors of the Notice of Withdrawal upon written request of the taxpayer. As a result of the Notice of Withdrawal, the State Tax Lien would be removed from the credit report of the taxpayer as though it never existed.
For professional tax help, call Los Angeles attorney Mitchell A. Port at (310) 559-5259.