# State of CA Franchise Tax Board is asking me to PROVE I didn't have income.



## b2bailey (Jan 7, 2015)

Warning -- this is going to be a venting ramble against the State of California Franchise Tax Board.

I received a letter saying we owe nearly $4,000 in taxes, penalties and interest for the year 2011. Because that was our most terrible year in terms of finances (and lack thereof) -- we were under the $ amount required to file a tax return. So, it turns out they did an estimate of what they felt we may have earned --based on prior years and the fact that we paid interest on our mortgage. (Oh, and the most damning evidence -- a 1099 from Marriott Vacation Club, proving we must have money if we belong to a vacation club.)

So now I must begin a process to 'prove' how we existed during that year. Talk about rubbing salt into a wound.

I asked where in the tax code it says I must do this and here is the reference:

19087. (a) If any taxpayer fails to file a return, or files a false
or fraudulent return with intent to evade the tax, for any taxable
year, the Franchise Tax Board, at any time, may require a return or
an amended return under penalties of perjury or may make an estimate
of the net income, from any available information, and may propose to
assess the amount of tax, interest, and penalties due. All the
provisions of this part relative to delinquent taxes shall be
applicable to the tax, interest, and penalties computed hereunder.
(b) When any assessment is proposed under subdivision (a), the
taxpayer shall have the right to protest the same and to have an oral
hearing thereon if requested, and also to appeal to the board from
the Franchise Tax Board's action on the protest; the taxpayer must
proceed in the manner and within the time prescribed by Sections
19041 to 19048, inclusive.

= =
I'm thinking I should do as explained in (b) and request the right to appeal.
===
Thoughts?


----------



## DeniseM (Jan 7, 2015)

I would see an experienced Tax Attorney, or CPA, who will know exactly what you need in the way of documentation.  I don't think this is a DIY project.

I suspect that NOT filing a tax return triggered a red flag - it probably would have been better to file a tax return showing your income.


----------



## b2bailey (Jan 7, 2015)

Thankfully my daughter is a CPA.


----------



## DeniseM (Jan 7, 2015)

Did you consult with her before you made the decision not to file a tax return?


----------



## b2bailey (Jan 7, 2015)

Fortunately the solution is somewhat simple. One son lived with us and paid most of the mortgage payment --  we need to have him do a notarized statement to that effect. Son #2 was working a high paying job in Kuwait and provided monthly 'subsidy' checks to us. (Just ordered copies of bank statements.) And lest I forget, our best friends randomly sent us money with firm instructions to use it 'to have fun' . What could have been a disastrous year was ok due to all of the above. WE Thank God for all of the love shown to us.


----------



## b2bailey (Jan 7, 2015)

My primary reason for posting this was it felt like in this instance we are GUILTY until proven innocent. Never had that situation before.


----------



## DeniseM (Jan 7, 2015)

Isn't that how the IRS works?


----------



## Fern Modena (Jan 7, 2015)

You are forgetting that you *did* have some income, just not the required amount to have to file, didn't you? I am guessing you put your Marriott timeshare into their rental pool and that is why you got a form 1099 from them. I guess you didn't realize that if you got a 1099, then the IRS got a copy, and the state FTB too, and eventually matched that up with your SSN and your lack of filing. Any time you get any form showing income where the government gets a copy too, it is wise to file, whether you really need to or not.

Fern


----------



## SueDonJ (Jan 7, 2015)

Count me in with those who don't understand why you didn't file a return for the year.  Filing doesn't automatically mean that you'll have to pay ...

Also, to them the 1099 only means that you got reportable income from something that year.  Did the IRS say something to the effect that it means you, "must have money if we belong to a vacation club," or is that what you're inferring?  They don't care if you can or can't afford whatever you own (not limited to timeshares,) only that you file a return every year that substantiates the reports (1099, etc) that have been made to them.

Note if things were as bad as you say they were (and I'm not doubting this, just qualifying the thought process with it) you may have been eligible for a refund that year.  It's another good reason to check with a qualified tax professional because they may be able to get you that refund now.


----------



## DeniseM (Jan 7, 2015)

Algreed - if you filed, you may have gotten a little back.  I know when my kids had entry level part time jobs, they didn't make enough to have to file, but they did, and they got a little back.


----------



## b2bailey (Jan 7, 2015)

If I had ever imagined I would be mixed up in this mess I most certainly would have filed a return. I guess I was just naive. I looked somewhere where it said what the income level was to not require a return, both IRS and CA. Also, we actually did not have ANY withholding done that year, I would have filed to get $5 back.

When I spoke with the rep he really did remark that 'somebody' made the decision that if we were a part of a vacation club then we had money. Also, when I asked how they came up with this particular tax liability amount -- he replied it really was random.

The final blow was the second letter from them -- stating that our existing installment agreement with them (from a mistake I made in 2007) -- would be nullified because we  incurred an additional penalty with them -- no matter that it was an erroneous entry on their part.

Like I stated at the beginning, this really was a rant about being an average, law-abiding, tax-paying citizen who is innocently tangled up in a mess that was created by the Franchise Tax Board.


----------



## DeniseM (Jan 7, 2015)

Look at it this way - you have filed taxes for years and years, and then you didn't file.  Something like that is going to be an red flag to the IRS.  

Also, that's the nature of taxes - you have to PROVE what your income and deductions are, not the other way around.  You are considered to owe taxes, unless you prove otherwise.

***Did your daughter advise you not to file?


----------



## b2bailey (Jan 7, 2015)

Denise -- my daughter is in the clear on this one. Did not even discuss with her at the time.


----------



## DeniseM (Jan 7, 2015)

I was just wondering if she would have advised you to file.


----------



## Wonka (Jan 7, 2015)

SueDonJ said:


> Count me in with those who don't understand why you didn't file a return for the year.  Filing doesn't automatically mean that you'll have to pay ...
> 
> Also, to them the 1099 only means that you got reportable income from something that year.  Did the IRS say something to the effect that it means you, "must have money if we belong to a vacation club," or is that what you're inferring?  They don't care if you can or can't afford whatever you own (not limited to timeshares,) only that you file a return every year that substantiates the reports (1099, etc) that have been made to them.
> 
> Note if things were as bad as you say they were (and I'm not doubting this, just qualifying the thought process with it) you may have been eligible for a refund that year.  It's another good reason to check with a qualified tax professional because they may be able to get you that refund now.



Here's a link to the CA Franchise Tax filing requirements:

https://www.ftb.ca.gov/forms/2014_California_Tax_Rates_and_Exemptions.shtml#ifr

I assume the poster may not have met the threshold requiring filing and is just venting a little about such a letter.  I'd also be upset, they indicated it was a "bad year" and I assume they would like to forget about it.  Most of us have had years that weren't the best.  It appears CA is overly-aggressive and a bit lazy, but if the poster didn't meet the filing threshold it shouldn't be all that difficult to show they didn't meet the income requirement and a simple letter should correct the situation.


----------



## isisdave (Jan 7, 2015)

Some random ideas on this:

Unless DD has experience in dealing with FTB, I'd go with a professional who regularly handles this kind of problem.

First, you can still file a return for 2011, and if you have any refund due, you can claim it. The deadline for refunds is 4 years after the due date ... April 15, 2016 for a 2011 tax year. It's 3 years for Federal returns. In fact, filing a return maybe all you're required to do. Ask your tax professional.

I am assuming you didn't file a federal return either. I'd do that at the same time. California will share (or may have already shared) the information with the IRS, and you'll probably hear from them.

BTW, while our son had only income from sweeping our office and there was no need to file, I did file returns for him to document that the money we put into his IRA was earned income. Sometimes you have to do this for reasons that aren't apparent at the time.

Finally, section 19087 may not apply. "Fails to file" probably refers to a return that must be filed, and would not apply if your income is below the filing limits. Ask the professional. (I'm a CA registered tax preparer, but that one's a little too arcane to shoot from the hip.)


----------



## SmithOp (Jan 7, 2015)

I worked on this program at FTB, its called INC, it notifies non-filers that may owe based on various sources of possible income or obligations.  Simplest way to clear it is to file a return.

If you received a proposed assessment of $4,000 it means you ignored the first letter to file, now the information has been used to impute your income.  Its probably 10-98 since you indicated family was paying the mortgage, but its reported against your ssn to IRS and passed on to FTB.

I also volunteer with aarp as a tax preparer, we have been advising everyone to file even if they have no filing requirement, this is due to the amount of fraudulent returns filed.


Sent from my iPad using the strange new version of Tapatalk


----------



## VegasBella (Jan 7, 2015)

Nearly 20 years ago I was in almost the exact same situation. I was exempt from filing because I earned too little in the year AND in fact I was claimed as a dependent by my mom. So I didn't file and a few months later the California state tax board put a lien on my bank account and literally ruined my credit for  years. They eventually removed the lien, apologized, and they never got a dime. But credit reporting agencies don't care. They just care that it happened, not that it got resolved in my favor.

 Anyway... the way I fixed it was by contacting the California Tax Payers Advocate: https://www.ftb.ca.gov/aboutFTB/taxpayer_advocate/ 
And then I learned to always always always file a tax return no matter how much I earn and no matter what my rights are.

For the record, I never had any trouble with the IRS. California Tax Board is extremely aggressive about this stuff, ridiculously so. I'm going to admit, I absolutely LOVE the fact that Nevada has no state income tax. Makes my life easier


----------



## b2bailey (Jan 8, 2015)

*Wonka -- you were right on.*



Wonka said:


> Here's a link to the CA Franchise Tax filing requirements:
> 
> https://www.ftb.ca.gov/forms/2014_California_Tax_Rates_and_Exemptions.shtml#ifr
> 
> I assume the poster may not have met the threshold requiring filing and is just venting a little about such a letter.  I'd also be upset, they indicated it was a "bad year" and I assume they would like to forget about it.  Most of us have had years that weren't the best.  It appears CA is overly-aggressive and a bit lazy, but if the poster didn't meet the filing threshold it shouldn't be all that difficult to show they didn't meet the income requirement and a simple letter should correct the situation.



In the moment of 2011 problems I was probably thinking is was a consolation prize to NOT have to file a return. They should have a footnote that says -- "If you have filed a return for the past 50 years be prepared to defend yourself if you don't file."

Personally, I was surprised by the number of people who wrote that I "should have known better".

I think there are many hard working Americans who either (1) fall off a cliff financially, (2) have health issues to prevent working or (3) retire -- and find themselves out of the stated income requirements for filing both Federal and State returns.

Perhaps there are not many on this Board -- since, as the Tax Man told me -- we MUST have money if we are part of a vacation club.


----------



## Sandy VDH (Jan 8, 2015)

Just assume if you are alive you have to file your taxes.  In fact you even have to file taxes in death. 

IRS is also "assume Guilty until you prove otherwise".  So be prepared for that as well.


----------



## Tia (Jan 8, 2015)

b2bailey said:


> .........
> 
> Perhaps there are not many on this Board -- since, as the Tax Man told me -- we MUST have money if we are part of a vacation club.




Isn't it funny they consider a liability as a probably asset....


----------



## DeniseM (Jan 8, 2015)

b2bailey said:


> Personally, I was surprised by the number of people who wrote that I "should have known better".



I was kind of surprised that you didn't ask your daughter, since she's a CPA.


----------



## VegasBella (Jan 8, 2015)

b2bailey said:


> IPersonally, I was surprised by the number of people who wrote that I "should have known better".



I agree. That's not helpful. It's actually kind of mean-spirited.
Bailey is in a bind and needs help. Bailey didn't actually do anything wrong. So saying "you should have filed" or "you should have known better" isn't kind.


I'm surprised how many people are conflating the California State Tax Board with the IRS. They are separate. The IRS literally never does this stuff. But the CA Tax Board does it all the time. It's specific to California. 


I've been in your shoes - almost exactly. You can get out of it. You just might have some credit problems as a result. They are temporary. See my post above.


----------



## DeniseM (Jan 8, 2015)

I disagree - there was nothing that was mean-spirited at all - the OP got a lot of helpful advice, and good, logical explanations of why it happened.

To me, that is a lot more helpful, than just offering platitudes.

*TUG is a great place to get support and advice, but sometimes that advice is going to be:  "This is where you went wrong."


----------



## csxjohn (Jan 8, 2015)

b2bailey said:


> ...I'm thinking I should do as explained in (b) and request the right to appeal.
> ===
> Thoughts?



My thoughts are that this isn't as bad as you're making it out to be.

You didn't file and because you filed in the past and in years later, they think you may have committed fraud by not filing.

How ever you have to appeal it, by letter or in person, it seems easy enough to show your total income for that year.

The mistake you made in 2007 probably has them looking at your returns every year now with a little more scrutiny.

Relax, get your paperwork to them and all will be well.


----------



## wilma (Jan 8, 2015)

csxjohn said:


> My thoughts are that this isn't as bad as you're making it out to be.
> 
> Relax, get your paperwork to them and all will be well.



I agree and perhaps in the future try not to take these things so personally. I have received several nastygrams from the FTB over the years, just respond quickly and move on.


----------



## VegasBella (Jan 8, 2015)

csxjohn said:


> You didn't file and because you filed in the past and in years later, they think you may have committed fraud by not filing.


I'm not sure that's accurate. 

When it happened to me it wasn't after years of having filed taxes. It happened to me as a young adult (I was 20) and although I had worked since I was 14, I was still almost always exempt and I was always claimed as a dependent (because I was). The reasoning of the California State Tax Board was the fact that I had some certifications and licenses that could produce income. There was no proof of income, just the insinuation.

I think what happens is that CA has certain red flags for documents. Any 1099 is a red flag (as in the case of the OP) and certain licenses have red flags. I don't think it has to do with your history.


----------



## b2bailey (Jan 8, 2015)

csxjohn said:


> How ever you have to appeal it, by letter or in person, it seems easy enough to show your total income for that year.



= = =
csxjohn, the irony here is that I don't have to prove my income. I have to prove to them how we existed with very little reportable income. I'm sure they have received a 1099 from PERS and a small one from a Bank of America retirement payment. But those amounts put me under the reportable limits per their website.  It is interesting to me that the agent I spoke with on the phone did not even suggest that Filing a return would solve this problem and I hadn't thought of that. Maybe that is the best way to go. 

Perhaps my address was a red flag -- there is quite of bit of marijuana being grown in these parts.

As for why I didn't consult my CPA daughter -- I figured I had done the research myself and had a satisfactory answer. I am sharing this story with her in case she ever has a client in the future who 'thinks' they don't need to file for whatever reason. She can use the 'here is what happened to my mother' as an example.


----------



## Fern Modena (Jan 8, 2015)

Your address wasn't a flag. Your ownership of a timeshare wasn't a flag. YOUR inaction was a flag. You got statements from PERS, Bank of America, and Marriott which showed you had income. You should have filed a Federal 1040 including whatever forms were necessary for your income  and the corresponding California forms. The reason for the Federal forms is that California matches income forms, and found that you didn't file any of them, either.

You can keep asking people here, but it seems to me you should be spending your time doing a late filing instead, even if you had no income.

Fern


----------



## funtime (Jan 8, 2015)

*The FTB is persistent, even when wrong*

We went round and round with the California FTB for 7 years.  They imputed income to my sister who lived out of state (hence she did not file in California) because she was a co-signer on a family mortgage for a property based in California.  After sending in a lot of documentation that showed everything was on the up and up for 2006, they started all over again in 2007.  Then 2008,9,10,11 and 12.  Even though if they had checked they would have seen the item had already been addressed.  They just spit those inquiries out automatically, and let the taxpayer prove themselves.  It has been more than aggravating.  Moral of this story is next year go ahead and file even if you get everything cleared up for this year.  They run on auto pilot.


----------



## VegasBella (Jan 8, 2015)

b2bailey said:


> = = =
> csxjohn, the irony here is that I don't have to prove my income. I have to prove to them how we existed with very little reportable income. I'm sure they have received a 1099 from PERS and a small one from a Bank of America retirement payment. But those amounts put me under the reportable limits per their website.  It is interesting to me that the agent I spoke with on the phone did not even suggest that Filing a return would solve this problem and I hadn't thought of that. Maybe that is the best way to go.



Filing late will NOT fix things. It just won't. (It probably won't hurt but it won't fix the situation.)

And yes, it's infuriating the conversations you will have with these agents. You will go round and round and round trying to prove something that can't be proven. They treat you like you're guilty and you have to find evidence that you don't have more income than you say you have - there is not evidence because it doesn't exist. It's maddening. That's why you will need the help of the Tax Payer's Advocate. They deal with this all the time and they know how to help you. Call them.


----------



## cgeidl (Jan 9, 2015)

*My wages were garnished.*

Many years ago we went to Europe traveling for a year and mail was often very splotchy getting to us.Along the way the State of CA had determined we were a bit short on our tax payment. They must have sent a letter asking for payment which we did not receive but I did receive a letter stating they were garnishing my wages in the amount of $6.


----------



## Brett (Jan 10, 2015)

Fern Modena said:


> Your address wasn't a flag. Your ownership of a timeshare wasn't a flag. YOUR inaction was a flag. You got statements from PERS, Bank of America, and Marriott which showed you had income. You should have filed a Federal 1040 including whatever forms were necessary for your income  and the corresponding California forms. The reason for the Federal forms is that California matches income forms, and found that you didn't file any of them, either.



I agree, getting multiple 1099's and not filing is definitely 'inaction'


----------



## bogey21 (Jan 10, 2015)

DeniseM said:


> I would see an experienced Tax Attorney, or CPA, who will know exactly what you need in the way of documentation.  I don't think this is a DIY project.



I don't agree with advising someone with limited resources to pay for professional advice.  I'm sure they can work it out if they just take the time to understand the situation, dig in and are persistent.  

George


----------



## DeniseM (Jan 10, 2015)

The OP  said their daughter is a CPA.

Sent from my BNTV400 using Tapatalk


----------



## VegasBella (Jan 10, 2015)

Their daughter may not be well versed in CA tax issues. She may live and work out of state.

Anyhoo, the taxpayers advocate service I mentioned earlier is free. They know what they're doing and have specific experience in this area.in my situation they fixed the problem in days.


----------



## short (Jan 11, 2015)

*Not unusual.*

This is not all that unusual.  I have had some clients who have gotten these sorts of letters before.  A letter explaining the situation is probably all that is needed.  We have never had to provide proof.

In fact, one client got a letter like this.  He has a business and lives in Seattle WA but has a 2nd home in Northern CA.  He as a million dollar mortgage on the CA property.

He wrote a letter explaining that this was a 2nd home and he never heard anything back.  This was about 4 years ago.

FTB goes on a lot of fishing expeditions.  They must catch a few fish this way.



Short


----------



## persia (Jan 13, 2015)

California is one of the nasty tax states. Not filing when you don't legally have to file can land you exactly where you are. There should be a warning for California residents that their state tax board is like this.


----------



## SMHarman (Jan 14, 2015)

DeniseM said:


> I was kind of surprised that you didn't ask your daughter, since she's a CPA.


But a CPA is not a CA tax expert by default. 

For all we know her specialty may be international transfer pricing and double taxation treaties.

I had a problem that Mrs SMH and I overlooked a part time part year job she had and the 1099 also never showed up. And due to a processing error my IRA canceled the 2010 contribution and redated it to 2011 in May after we had filed. 

Took until this year to resolve that mess. Just when the IRS fixed it the state's came along and started the same investigation.


----------



## b2bailey (Jan 17, 2015)

*The Plot Thickens...*

While looking for some tax information I came across a letter from the IRS dated 05/13/13.

CONFIRMATION LETTER
Thank you for responding to our request to file a *2011 California tax return.
*
Based on the information you provided, we will take no further action at this time. However, if you made any estimated tax payments or had any state income tax withheld, you must file a return to claim these credits.

= = =

How did we get from this letter to the Notice of Tax Due of $3,961.13?

= = =

I faxed this to the person who I talked to at the FTB -- is there any chance this will be the end of my harassment?


----------

