Franchise Tax Board Settlement Agreements Will be Voided if Taxpayer Does Not Comply

A recent issue of California Taxletter reminds taxpayers that Franchise Tax Board (FTB) Settlement agreements will be voided if the taxpayer fails to pay as agreed.

The FTB is responsible for the administration and collection of California franchise and income taxes. In 1992, the FTB received the authority to settle civil tax disputes on a short term test basis expiring in June of 1993. This authority was subsequently extended indefinitely. California Revenue and Taxation Code (CRTC) section 19442 authorizes the FTB to settle civil tax matters in disputes that are the subject of protests, appeals, or refund claims. A settlement may also include matters that may otherwise be included in a closing agreement under CRTC section 19441.

The program was created to balance the hazards of litigation associated with any disputed franchise or income tax issues. The Bureau resolves civil tax disputes, which in turn accelerate the flow of California income and franchise tax revenue. The FTB Settlement Bureau tries to coordinate a resolution of the disputed franchise or income tax issues that is reasonable and acceptable to both the taxpayer and the State of California.

Admission into the settlement program, however, does not guarantee that the FTB will make an acceptable settlement offer. Most cases resolved in the settlement program had previously been protested or appealed. The FTB expects that cases will be settled within nine months of being accepted into the FTB Settlement Bureau and those that are not settled will be returned to their pre-settlement status.

When a tentative settlement has been reached between the taxpayer and the FTB, the taxpayer must execute a written settlement agreement setting forth the terms of the proposed settlement. At this point, the settlement agreement becomes effective upon approval of the settlement by the FTB or for small case settlements, when approved by the Executive Officer. If the settlement agreement requires payment up front, the taxpayer will be required to pay the full settlement amount prior to such approval being obtained. If the agreement calls for subsequent payments then the taxpayer must later meet those requirements or risk voiding the entire settlement agreement.

To learn more, contact Ulises Pizano-Diaz at (916) 488-8501.

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