The Franchise Tax Board (FTB) recently announced that it will be contacting 1,032 Sacramento County businesses that have not yet filed their 2011 state income tax returns.
News releases such as these are really meant to scare businesses and individuals that have violated tax laws into compliance to reduce the tax gap and increase otherwise lost revenue.
Fear of the government’s tax enforcement powers is an effective tool used by both the FTB and the Internal Revenue Service (IRS) to collect taxes and deter fraud. The FTB’s announcement alone will likely have the effect of causing some delinquent taxpayers, who are not even contacted, to hopefully file their delinquent tax returns.
Businesses who are actually contacted by the FTB in this compliance sweep will have 30 days to file a tax return or show why they don’t have a filing requirement for tax year 2011.
Taxpayers who do not file tax returns or otherwise prove that they are not required to file a tax return for tax year 2011 will receive a tax assessment based on income and other information that was reported to the FTB.
These types of assessments are called force filing assessments or substitute for returns. Once forced assessed liabilities are actually assessed, the tax is legally owed to the government and the taxing entity may move forward with collecting the tax debt.
The FTB is infamous for being more creative than the IRS when calculating a liability for a tax return that has not been filed and is usually quicker to do so. However, the IRS will normally follow suit if the required tax return is not eventually filed, given enough time.
According to the FTB, each year it reviews more than 5 million income records received from the IRS, the State Employment Development Department, the State Board of Equalization, financial institutions, and other businesses.
The FTB then matches this information against its tax records to identify possible noncompliance cases. Last year, FTB collected approximately $23 million from businesses that failed to file tax returns.
Many of these businesses may have been able to save money had they filed their tax returns, even if late. Hopefully, the businesses identified by this compliance sweep will not wait until the liabilities are forced upon them to deal with their tax problems as they will need tax relief for both a compliance case and a collections matter.
This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.