Towards the end of January, as Forms W-2 are issued and taxes are filed, the radio is often littered with ads talking about tax debt owed to the IRS. Many companies will promise to provide tax relief from the IRS – but what about state tax agencies? Does tax relief exist for state taxes?
The short answer is yes, tax relief is available for state taxes.
States that collect income tax have a collection function that collects any unpaid tax liabilities. Just like the IRS, these states also have put programs into place to assist taxpayers who are unable to pay their tax balance due in full.
There are procedural differences between what you can do on state balances owed versus what you can do on IRS balances owed. Additionally, there are subtle (and not so subtle) procedure differences in how each state handles tax issues as opposed to the IRS. Let’s look at a significant audit administrative difference between the IRS and the California Franchise Tax Board.
Generally, when the IRS audits a taxpayer, whether it be by mail, at an IRS office, or in the field where an IRS revenue agent may come to the taxpayer’s home or place of business, taxpayers should have the opportunity to have their case heard by a judge in Tax Court before the tax is assessed and payment is required. This is not always the case when the California Franchise Tax Board (CA FTB) audits a taxpayer’s return. When the CA FTB sends an individual taxpayer a Notice of Proposed Assessment, the taxpayer may dispute that assessment by sending in a timely written response. If the California FTB disagrees with the taxpayer’s response, the taxpayer may file an appeal with the Office of Tax Appeals (OTA) within 30 days from the date on the Notice of Action. If the FTB still disagrees with the taxpayer’s position, the taxpayer may file a Petition for Rehearing with the Office of Tax Appeals within 30 days from the date of the opinion. Provided a hearing is granted, the OTA will issue a new opinion and mail a Notice of Determination to the taxpayer. If the taxpayer continues to disagree with the decision, the taxpayer will need to pay the balance due in full and then file a claim for refund. If the claim for refund is denied, the taxpayer may file suit in Superior Court. As a result, while most individual taxpayers who are audited by the IRS have the option of going to Tax Court before being required to pay the balance due, this is not the case when being audited by the CA FTB. This has the potential of causing financial hardship to a taxpayer who may not have the means to pay the balance due in full and still wants to continue to dispute the FTB’s determination.
Another difference between the IRS and some state tax agencies is the time the tax agency has to collect tax that has been assessed. This time period is known as the statute of limitations on collections. Generally, the IRS has 10 years from the date the tax is assessed to collect the balance due. However, for income tax purposes, California has 20 years from the date the tax is assessed to collect the balance due. Keep in mind that the date the tax is assessed is going to be different than the date the taxpayer receives notifications from the agency.
In general, state tax agencies can be much more aggressive than the IRS when it comes to collecting tax debt.
If you receive a notice from a state taxing agency, it is important to respond timely and get into contact with the state if you do have a state tax balance that is owed. While some states might be challenging to work with, and navigating those waters can be stressful, others can be more straightforward.
Thankfully, at TaxAudit, we work closely with various state tax agencies on a regular basis including New York, Hawaii, New Jersey, the District of Columbia, and California – just to name a few. Whether you have state taxes owed to the states listed above, or one that is not, our tax professionals understand the unique rules and procedures that are required of each state to ensure your best chance at getting your tax debt resolved.
If you are struggling with state tax debt, or tax debt from the IRS, and do not know where to start, TaxAudit Tax Debt Relief is here to help guide you. We offer a free consultation, with one of our licensed tax professionals, to answer your questions and discuss your options. To learn more, or schedule a consultation,
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