For those that prefer video, here is a 12-minute speech that I made to State Controller Betty Yee via webinar in December 2020, which sums up the info below. We’re also working on a documentary series exposing the corruption.
The over-simplified explanation of the schemes that I got ensnared in is that the Franchise Tax Board does not apply the money that you send them to your account right away. Then they charge you penalties for “paying late.” Then they over-charge interest on these penalties.
But you have to understand that the reason that they’ve been getting away with their criminal activities is because tax law is complicated, and they work the complex nature of the laws to deceive the public on what the laws actually say.
They do this by omitting pertinent portions of the laws they are citing, by cherry-picking words out of context to make it seem like the laws say something different than they actually do, by claiming FTB policy and procedure is different than it really is, and by omitting the laws that work hand in hand with the laws cited.
We’ll start with the Notice of Proposed Assessment, which is one of the lynch pins of the schemes.
When a Notice of Proposed Assessment is sent, the FTB says that if you don’t file a tax return within 60 days of the date of the letter, they will impose a fee for FILING LATE. They cite a portion of Revenue and Tax Code 19133, which says that a late filing fee can be imposed.
FTB conveniently omits the portion of Revenue and Tax Code 19133 that clearly states that a Notice of Proposed Assessment can only be issued in accordance with Revenue and Tax Code 19087.
And they certainly do not voluntarily disclose that Revenue and Tax Code 19087 says that Notices of Proposed Assessments can only be issued on UNDERFUNDED ACCOUNTS as determined based on a status of single, filing zero. If you have underpaid based on this calculation, then they can legally issue you a Notice of Proposed Assessment. However, if you have paid your tax liability in full, FTB CANNOT impose a LATE FILING FEE.
Schemes 1, 2 and 3: Embezzlement and Racketeering
To evade the R&TC 19807 law, the FTB falsely makes it appear that your account is underfunded. They do this by not crediting your account with all the money that you have paid to them. So far, FTB has confirmed that they don’t credit the following payments until after you file that year’s tax return:
- Payments made via credit elect (line item 92 on the 540 CA tax return, where you indicate that you want your refund to be applied as an estimated tax payment for the next year instead of taking it as a cash refund). This practice violates Revenue and Tax Code 19363.
- Estimated tax payments that are made by married couples. The laws/precedents that FTB cites are either irrelevant or say the exact opposite of what FTB claims, which confirms that the withholding practices are indeed unlawful. I also believe that this practice is a violation of the 14th Amendment of the US Constitution, which states that the government has to treat all classes of people the same. Married and single are classes, and withholding payments from married people but not single people is treating the two classes differently.
- Interestingly enough, while the Taxpayer Advocate’s office confirms year in and year out that these two withholding practices do exist, FTB’s own Disclosure Department denies that FTB has any withholding practices.
- FTB has yet to confirm this, but my own tax records indicate that they also don’t credit taxes collected from secondary employers. So they will credit the wages collected from your second job against you for your tax liability, but not credit the tax money collected from that same job towards the taxes you’ve already paid.
FTB’s Taxpayer Advocate has told me that FTB puts these monies into “suspense,” which in accounting terminology means the general slush fund. Based on information that has come out in my court case, it appears that this slush fund account is called “No Payment.” Not crediting your money timely is the federal crime of embezzlement.
If you file your tax return timely, the money gets credited before the late filing deadline and you never had any idea that your money had been temporarily embezzled. It is when you file late that the problems arise. Hence, the carefully controlled and convoluted language that FTB uses to hide that the penalty really and truly is a late PAYING penalty, not a late FILING penalty as they portray it to be. Imposing penalties that would not be imposed had the payments been applied in accordance to the law is the federal crime of racketeering.
Scheme 4: Racketeering
In addition to not crediting some payments, FTB has another scheme going, which is to “misapply” payments to bills that never existed on previous tax years that have already been closed and zeroed out. A few months later, they send you a refund check. The check comes from the State of California and has no information with it, so you have no idea what the check is for. Sometimes, FTB splits the payment up over multiple years and sends multiple checks, and sometimes they add interest, so the check amounts are not necessarily the same amount as the estimated tax payment, so it’s hard to figure out what the check(s) could be for.
When you file your tax return, you list all the payments made for that year. Two to three years later, FTB will send you a letter in the mail saying they did not receive as much as you claimed to have paid and you owe them money, along with penalties and all those years worth of interest, for underpaying that year’s liability.
When you call in to follow up, you find out that the mystery check(s) you got in the mail from the State of California were actually a refund of the “misapplied” payment, and you need to re-make that payment along with the penalties and interest. It doesn’t matter that your account would not have been underfunded had they had not breached their duty to accurately apply payments; you are still on the hook for the penalties. In this racketeering scheme, you are penalized even if you did file your return timely.
This happened to me three times, once for tax year 2008 and twice for tax year 2010. I demanded that two of the three payments be backdated and the fees reversed (one payment for each year). In both cases, the re-paid monies vanished from FTB’s records. The 2010 payment went missing for 7 months. Instead of locating the “lost” money, a wage garnishment was filed against my husband. The 2008 payment vanished for 7 YEARS. It took personal intervention from State Controller Yee’s office to locate that payment. And of course, with the payments missing, we were still on the hook for the penalties and interest.
Schemes 5 – 8: Overcharging Interest
On my account, I have caught FTB overcharging us interest nine times via four different mechanisms. They are:
- FTB’s accounting system seems to systematically add small amounts of excess interest, roughly $1 per year. It’s not much money per person, but if they do it to thousands of people, that is a substantial amount of revenue.
- FTB staff can apparently manually override the system to artificially inflate interest due. Twice I had FTB representatives order me to send in more money than the bill said was due. Instead of refunding the overpayment to me, FTB altered the interest amount to make it look like that was the amount always due. First time, second time.
- FTB entirely withholds some of the payments collected to make it appear that the taxpayer has a higher outstanding balance than he does, and thus charges him more interest than they should. This is in line with the above mentioned Embezzlement and Racketeering Schemes 1 – 3.
- On payments that have been applied, portions of the payment vanish from the interest calculation screen, despite the fact the full payment amount seems to appear in the rest of FTB’s records.
Circling Back to the Notices of Proposed Assessments:
You have 60-days from the date the letter is mailed to file a protest (meaning to dispute the penalty). If you do not file the protest by the deadline, the liability becomes payable in full. By the time the letter gets to you via USPS, you have about 6-weeks left.
NPAs are often mailed to an old address, even though FTB has your current address on file. This means that the taxpayer never gets the notice, or is delayed in getting their notice, and is thus denied their opportunity to protest.
FTB has a 90 day turn time on processing their USPS mail and a 30-day turn-time for documents uploaded on the MyFTB website. This means that any protest submitted via USPS or myFTB will not be processed before the deadline, and thus the penalty is imposed even though FTB received the Protest (AKA dispute) before the deadline.
FTB has a one-week processing time on faxes, and they have a big problem with “losing faxes.” So lets say you get your notice and it takes you a week to find your documentation and get to a fax place. FTB “loses” your first fax. You call and follow up a couple weeks later and are told to send the fax again. Then FTB “loses” your second fax. And now the deadline has expired.
Even if you do get your Protest processed on time, it doesn’t matter. In my case, FTB misclassified all of my Protests as responses to different notices, thus denying me my legal right to Protest and unlawfully imposing the demand penalties on me.
I’ve heard from several people who have had their Protest properly identified. In every one of their cases, FTB sent them a letter saying that if they didn’t waive their right to Protest, FTB would impose a $5,000 fine as punishment for exercising their right. This is extortion and coercion. In one case, the gentleman waived his right and FTB imposed the $5,000 fee anyway, so he was double charged penalties (the originally assessed penalty that he was trying to Protest + the extra $5,000 penalty).