California’s Franchise Tax Board (“FTB”) is responsible for administering two of California’s major tax programs: Personal Income Tax and the Corporation Tax. With the administration of these programs, the FTB is responsible for collecting taxes accrued under these programs. When an individual or business fails to pay its taxes to the FTB as they became due, the FTB is tasked with instituting collection proceedings.
One method that the FTB uses to collect back taxes is through a lien. A lien is a “legal claim against real or personal property to satisfy a debt.” A lien attaches to any property or assets that an individual or business owns related to a tax debt.
What is the effect of a tax lien?
Tax liens can have serious consequences for an individual or a business, and tax liens stay in place until all back taxes are paid. FTB tax liens may affect you in a variety of ways. These effects include:
● You can be prevented from securing any future lines of credit;
● A tax lien may affect your employment by preventing you from obtaining employment or keeping your current position;
● A California Notice of State Tax Lien becomes public record with the California Secretary of State;
● Notice of a state tax lien can be reported to credit bureau agencies and can negatively impact your credit score. This can impact your future ability to obtain credit cards or secure loans;
● Under California law, a tax lien remains effective for 10 years and can be extended for an additional 10 years; and
● Tax liens can attach to your property and can impact your ability to sell, purchase, or refinance your home.
How to prevent state tax liens?
The simplest and most obvious way to avoid a tax lien is to timely file your tax returns and pay any tax liabilities when they become due. If you are unable to pay your personal or business taxes when they become due, you may be able to enter into an installment agreement to make monthly payments toward tax debt. It should be noted, however, that a tax lien may still be filed to secure any tax debt.
In certain situations, a tax lien may have been filed in error. In this situation, you should contact the State of California Franchise Tax Board to resolve the situation. If it is determined the lien was filed in error then a release of lien will be filed with the county’s reorder office or the California Secretary of State. To avoid any negative impact on your credit score, you should contact the credit bureau agencies to report that the tax lien has been released. The credit bureau agencies should then remove the lien from your credit report.
Contact an Experienced California Tax Attorney
For one reason or another, however, you still may be facing a tax lien. Given the serious consequences of tax liens, it is crucial that you act quickly to pay off any past tax debt and to remove any tax liens. An experienced California tax attorney can help guide you through this process and protect your rights.
Janathan L. Allen, APC’s tax attorneys have significant experience helping individuals and businesses handling and removing tax liens. Contact our attorneys today for a free consultation. We have several locations throughout Southern California.