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March 18, 2004 - Phil Hodgen

California tax amnesty coming? Change the FTB’s collection patterns, too!

California is stony broke. The first noises about a tax amnesty are starting to emerge from the normal background din of politics. Here’s Dan Weintraub’s post at his Sacramento Bee blog.

My guess? We’ll see something like this. But there’s a systemic change that could improve collections from tax deadbeats. OOPS! Bad selection of words! Tax deadbeats are my clients! 🙂

The Franchise Tax Board tends to be (let’s be polite) intractable in its dealings with taxpayers. Offers in compromise, collections, etc. are all a giant pain in the neck. Only the EDD is worse, in my experience. Taxpayers are frequently better off filing bankruptcy and eliminating the California tax liability altogether, simply because the FTB is unreasonable.

My suggestion is that the FTB might think differently about the whole process of dealing with non-filers and people who owe taxes. Think like a normal business. Think “maximize revenue.” Don’t think like a junior Elliott Ness. It isn’t all a moral issue, a question of right and wrong. Yes. Tax rules are tax rules. But debts are debts and sometimes debtor and creditor compromise on debts. And sometimes (hear this, dear FTB) the compromise means giant concessions on the side of the creditor.

I personally have seen situations where the taxpayer has filed bankruptcy (California’s collection = $0) rather than deal further with the Franchise Tax Board (collection would have been greater than zero). A systemic change at the FTB Collections Unit to more pragmatic policies would achieve two things: increased revenue from the non-compliant class of taxpayer, and conversion of out-of-the-system taxpayers into people who file on time, pay on time, and stay current.

Tax and Trusts