Compliance Policy and Procedures Manual
Chapter 7
Collections
Business Tax and Fee Division
California Department of
Tax and Fee Administration
This is an advisory publication providing direction to staff administering the Sales and Use Tax Law and Regulations. Although
this material is revised periodically, the most current material may be contained in other resources including Operations
Memoranda and Policy Memoranda. Please contact any California Department of Tax and Fee Administration ofce if there are
concerns regarding any section of this publication.
Compliance Policy and Procedures Manual
Table of Contents
Collections 700.000
General Statement on Collections .......................................................................... 702.000
Importance of Collection Activity..............................................................................................702.010
Collection Assignment Control.................................................................................................702.020
Sources of Liability and When to Proceed ............................................................. 703.000
Sources of Liability ..................................................................................................................703.010
When to Proceed on Self-Assessed Liabilities ........................................................................703.020
When to Proceed on CDTFA-Assessed Liabilities ..................................................................703.030
Collections — In the Field ........................................................................................ 705.000
General .................................................................................................................................... 705.001
Field Receipt — CDTFA–602 ..................................................................................................705.005
Preparing a Field Receipt (CDTFA–602) ................................................................................. 705.010
Errors Not Requiring a Replacement Receipt .........................................................................705.020
Voiding Field Receipts .............................................................................................................705.025
Error In Amount Shown on the CDTFA–602............................................................................705.030
Error In Date Shown on the CDTFA–602 ................................................................................705.035
Security of Issued Receipt Books ............................................................................................ 705.040
Lost or Stolen Receipt Books ..................................................................................................705.045
Monthly Receipt Report ..........................................................................................................705.050
Endorsement of Checks ..........................................................................................................705.055
Cash Collections — Overnight Retention of Funds ................................................................705.060
Tax Representative’s Daily Report — CDTFA–609 .................................................................705.065
Counterfeit Bills Identied ........................................................................................................ 705.070
Accounts Receivable — Special Mailing ................................................................ 706.000
General .................................................................................................................................... 706.010
Procedures for Responsible Oce .......................................................................................... 706.020
Payment Application ................................................................................................ 707.000
Payment Application Rules ...................................................................................................... 707.020
Application of Payments — Primary and Secondary Accounts ...............................................707.030
Refunds of Excess or Erroneous Amounts Received .............................................................. 707.040
Cost of Collection Report.........................................................................................................707.050
Delinquencies ........................................................................................................... 708.000
General ................................................................................................................................... 708.010
The Delinquency Process........................................................................................................708.020
Delinquency Cycle Timelines...................................................................................................708.021
Locating Missing Tax Debtors and/or Assets ........................................................ 720.000
General .................................................................................................................................... 720.010
Examination of Account Records and System Information......................................................720.020
Data Warehouse Information ...................................................................................................720.021
Data Warehouse Manager Search ..........................................................................................720.022
External Sources Information ..................................................................................................720.023
Internet Collection Tools ..........................................................................................................720.024
Secretary of State Information ................................................................................................. 720.025
Financing Information — Uniform Commercial Code ..............................................................720.027
Accessing Information from External Agency Databases ........................................................ 720.030
August 2022
Collections
Obtaining and Safeguarding Federal Tax Information (FTI) ....................................................720.031
Department of Motor Vehicles – Pictures/Photographs ........................................................... 720.032
Department of Corrections and Rehabilitation Information......................................................720.033
Taxpayer Funds Held by Other State Agencies (Incoming Intercepts) ....................................720.035
Title Reports ............................................................................................................................720.037
State Controller’s Oce ...........................................................................................................720.038
Post Oce Information ............................................................................................................720.039
Contact and Interview .............................................................................................. 722.000
The Collection Interview ..........................................................................................................722.020
Contact with Taxpayers Represented by Counsel or Other Representative ...........................722.025
Power of Attorney ....................................................................................................................722.026
Disclosure of Condential Information to Taxpayer
Representatives Without Written Authorization .................................................................722.028
Conducting the Interview .........................................................................................................722.030
Uncooperative Tax/Fee Debtors ..............................................................................................722.040
Inability To Pay In Full ..............................................................................................................722.050
Payments To Other Creditors ..................................................................................................722.060
Notication To Attorney General ..............................................................................................722.070
Retention of Legal Documents ................................................................................................722.080
Evaluation of Collection Program ............................................................................................722.090
Reporting Extraordinary Situations or Technical Collection Problems .....................................722.092
CDTFA-Assisted Searches of the Premises of Taxpayers on Judicial Probation ....................722.100
Partnership Collections ........................................................................................... 724.000
General .................................................................................................................................... 724.010
Revised Uniform Partnership Act (RUPA) ...............................................................................724.012
Liability of Partners ..................................................................................................................724.020
Partnership Billings .................................................................................................................. 724.022
Partnership Collections............................................................................................................724.023
Non-Partner Claims .................................................................................................................724.025
Limited Partners ......................................................................................................................724.030
Joint Venture............................................................................................................................724.040
Corporate Collections .............................................................................................. 726.000
General .................................................................................................................................... 726.010
Corporations Subject to Dual Determination ...........................................................................726.015
Requirements As a Corporation ..............................................................................................726.020
Incorporation Without Notication to CDTFA ...........................................................................726.030
Business Conversions, Mergers, and Acquisitions .................................................................. 726.033
Incorrect Corporate Registration .............................................................................................726.035
Unpaid Loans ..........................................................................................................................726.045
Unlawful Distributions ..............................................................................................................726.050
August 2022
Out-of-State Collections ......................................................................................... 731.000
General — Field Operations Division (FOD) ...........................................................................731.010
Out-of-State Oce Action
....................................................................................................... 731.023
Out-of-State Taxpayer — Collection Actions ..........................................................................731.025
Out-of-State Oce — Collection Responsibility ......................................................................731.040
Collections Support Bureau (CSB) — Authority and Responsibility ........................................731.050
Notication of Action
................................................................................................................731.060
Successor’s Liability ................................................................................................ 732.000
Policy Regarding Collection from Successors ......................................................................... 732.010
Liability Secured by Surety Bond.............................................................................................732.020
Surety Bond on Successor’s Account .....................................................................................732.030
Successor’s Liability as a Tax/Fee...........................................................................................732.040
Successor Billings ...................................................................................................................732.050
Amounts Not Due or Delinquent at Time of Sale ..................................................................... 732.060
Successor’s Liability Restricted to Location Purchased ..........................................................732.070
Purchase of Fixtures, Equipment, or Stock of Goods..............................................................732.080
Consideration In a Form Other Than Money ...........................................................................732.090
Penalty and Interest — Successor’s Liability ..........................................................................732.100
Purchase Money Deposited In Escrow Does Not Relieve a Successor .................................. 732.110
Requesting a Successor Billing ............................................................................................... 732.115
Period Within Which to Establish Successor’s Liability ...........................................................732.120
Headquarters’ Responsibility — Successor Billings ................................................................732.130
Responsibility — Successor Billings........................................................................................732.140
Predecessor’s Liability for Successors’ Tax .......................................................... 734.000
General .................................................................................................................................... 734.010
Dual Determinations Against Predecessor - When Applicable ................................................734.012
Dual Determinations Against Predecessor for Successor’s Liability .......................................734.015
Collection from Sureties and Guarantors .............................................................. 735.000
Eective Periods and Liability ..................................................................................................735.010
Notication to Sureties.............................................................................................................735.020
Recommendations for Demands on Sureties .......................................................................... 735.030
Demands on Sureties — Corporate Accounts ......................................................................... 735.035
Application of Payments from Sureties....................................................................................735.050
Limitation Periods for Demands ..............................................................................................735.070
Demands Involving More Than One Surety ............................................................................735.080
Collection from Guarantors......................................................................................................735.090
August 2022
of Creditors, Receiverships, and Probates....................................................... 740.000
Bankruptcy – In General .......................................................................................................... 740.010
Pacer .......................................................................................................................................740.020
Identication of Bankruptcy Status ..........................................................................................740.030
Automatic Stay
........................................................................................................................740.040
Eects of Law Changes
...........................................................................................................740.050
Claim Preparation on Pre-Petition Liability ..............................................................................740.060
Delinquent and Split Returns ................................................................................................... 740.070
Audit on Pre-Petition Liability...................................................................................................740.080
Dual Determinations on Pre-Petition Corporate Liability
.........................................................740.090
Disposition of Security
.............................................................................................................740.100
Pre-Petition Claims (In General).............................................................................................. 740.110
Chapter 7 Bankruptcy .............................................................................................................. 740.120
Chapter 13 Bankruptcy Cases.................................................................................................740.130
Chapter 11 Bankruptcy Cases
................................................................................................. 740.140
Discharge Review....................................................................................................................740.150
Liens on Discharged Debt
.......................................................................................................740.160
Post-Petition Claims ................................................................................................................740.170
Sale of Assets of a Debtor During Bankruptcy ........................................................................740.180
Requests for Prompt Determination of Tax ..............................................................................740.190
Valid Service Upon the CDTFA ................................................................................................740.200
Partners in Bankruptcy ............................................................................................................740.210
Application of Bankruptcy Payments .......................................................................................740.220
Bankruptcy the System............................................................................................................740.230
Glossary of Bankruptcy Terms .................................................................................................740.250
Assignment for the Benet of Creditors ................................................................................... 740.260
Probates ..................................................................................................................................740.270
Receiverships ..........................................................................................................................740.280
Court Ordered Restitution........................................................................................................740.290
Field Calls.................................................................................................................. 749.000
General .................................................................................................................................... 749.010
Conducting Field Calls.............................................................................................................749.020
Request for Another Oce to Perform Field Investigation ......................................................749.023
Reporting Suspected Sales of Counterfeit Goods ................................................................... 749.025
Destruction Requests for Spoiled Beer or Wine ......................................................................749.027
Field Calls — Special Events ..................................................................................................749.030
Catering Trucks and Their Suppliers .......................................................................................749.035
May 2023
Dishonored Payments.............................................................................................. 750.000
Dishonored Payments - General .............................................................................................750.010
Cancellation of Charges Due to Bank Errors...........................................................................750.030
Legal Copies of Dishonored Checks
.......................................................................................750.040
Dishonored Payment Disputed ................................................................................................ 750.045
Revocation ................................................................................................................ 751.000
General .................................................................................................................................... 751.010
Reasons for Revocations
........................................................................................................751.020
Initiation of Revocation Action .................................................................................................751.030
Conducting the Hearing ........................................................................................................... 751.050
Eective Date of Revocations .................................................................................................751.060
Eect of Revocation
................................................................................................................751.070
Revocations — Initial Clearing Process
..................................................................................751.075
Revocations — Field Calls ......................................................................................................751.076
Referral For Field Oce Investigation – Revoked Sales and Use Tax Accounts ....................751.078
Prosecutions, Operating After Revocation...............................................................................751.080
Conditions of Reinstatement ...................................................................................................751.090
Reinstatements After Revocation— Fees ...............................................................................751.100
Reinstatement of Accounts with Payment Plans ..................................................................... 751.115
Payments Received During Revocation ..................................................................................751.120
Inoperative Revocations ..........................................................................................................751.130
Revocation After a Seller’s Permit Has Been Issued When
Taxpayer Has Liability Under Another Seller’s Permit .......................................................751.135
Form Letters to Suppliers of Persons with Revoked Seller’s
Permits and Swap Meet Operators ...................................................................................751.140
Notice to Withhold .................................................................................................... 752.000
General ................................................................................................................................... 752.010
Service of Notice — CDTFA–465 ...........................................................................................752.020
Release of Notices to Withhold and Levy ................................................................................ 752.025
Refusal of Personal Service of the CDTFA–465 ....................................................................752.030
Report of Assets Held ............................................................................................................. 752.040
Assets to be Held by a Person Served A CDTFA–465 ...........................................................752.070
Service of the CDTFA–465 on Joint Bank Accounts ...............................................................752.080
Eective Period of the CDTFA–465 .........................................................................................752.090
Service of the CDTFA–465 on Employers .............................................................................. 752.095
Service of the CDTFA–465 Creates No Lien .......................................................................... 752.100
Service of the CDTFA–465 to Reach Reserve Accounts ....................................................... 752.110
Oce Controls — CDTFA–465 ...............................................................................................752.130
May 2022
Warrants and Levies ................................................................................................ 753.000
General .................................................................................................................................... 753.010
Warrants
..................................................................................................................................753.015
Keeper Warrants .....................................................................................................................753.018
Interest Accruals on Collections by Warrant ............................................................................ 753.020
Warrant Request Authority — Till-Taps and Keepers ..............................................................753.025
Issuance of Warrants and Instructions
....................................................................................753.030
Advance Payment of Fees and Expenses...............................................................................753.050
Statement of Costs Required
..................................................................................................753.052
Costs as an Obligation of the Taxpayer ................................................................................... 753.054
Levying Ocer’s Return of Warrant ........................................................................................753.056
Cancellation of Warrant Service by Levying Ocer
................................................................753.058
Cigarette and Tobacco Products Tax Law Warrants — No Advance Fees
.............................. 753.060
Motor Vehicle Warrant Procedure — Protective Bids .............................................................. 753.070
Fraudulent Conveyances.........................................................................................................753.095
Nominee Liens.........................................................................................................................753.100
Evidence to Support Nominee Liens
....................................................................................... 753.110
Nominee Lien Approval
...........................................................................................................753.120
Checklist for Making a Nominee Lien Request........................................................................753.130
Levy Policy ..............................................................................................................................753.200
Notice of Levy .......................................................................................................................... 753.205
Third-Party Claims ................................................................................................................... 753.210
Service of CDTFA–425–L4 to Reach Community Interest of Taxpayer in Spouse’s Account .753.220
Community Property and Separate Property...........................................................................753.230
Liability of Separate and Community Property for Debt ..........................................................753.240
Failure of Garnishee to Deliver ................................................................................................ 753.245
Notice of Levy to Create a Lien ...............................................................................................753.250
Levy on Property Subject to Federal Liens..............................................................................753.253
Levy on Personal Property Located in a Private Place ...........................................................753.255
Release After Levy ..................................................................................................................753.257
Claims of Financial Hardship ................................................................................................... 753.259
Exemptions Available to Taxpayers .........................................................................................753.260
Claims of Exemption................................................................................................................753.265
General Problems in Connection With Levies .........................................................................753.270
California Right to Privacy Act .................................................................................................753.280
Wage Garnishments ................................................................................................. 755.000
General .................................................................................................................................... 755.010
Earnings Withholding Order for Taxes (EWOT) .......................................................................755.020
Jeopardy Earnings Withholding Order for Taxes .....................................................................755.030
Temporary Earnings Withholding Order for Taxes (TEO) ........................................................755.040
Earnings Withhold Orders Against U.S. Postal Employees ..................................................... 755.050
Earnings Withhold Orders Against Federal Employees...........................................................755.060
Involuntary Allotment of Active Duty Military Pay.....................................................................755.070
August 2022
Notices of State Tax Liens, Abstracts of Judgment and Liens ........................... 757.000
General ................................................................................................................................... 757.010
Limitation Periods for Summary Procedures
..........................................................................757.020
Type of Recordation Allowed by Statute .................................................................................. 757.030
Responsibility for Recording and Filing Liens..........................................................................757.040
Extensions of Liens .................................................................................................................757.050
Policy and Minimum Amounts — Notice of State Tax Lien
..................................................... 757.060
Automated Liens .....................................................................................................................757.062
United States Coast Guards Liens
..........................................................................................757.065
Revocable Trust Liens .............................................................................................................757.066
Priority of Liens ....................................................................................................................... 757.080
Homestead Exemptions
..........................................................................................................757.100
Declared Homestead
............................................................................................................... 757.110
Homestead Exemption (Automatic) ......................................................................................... 757.120
Lien on Cause of Action...........................................................................................................757.130
Lien on Cause of Action — Information Necessary For...........................................................757.140
Collection Action to Continue...................................................................................................757.150
Reports to the Responsible Oce ........................................................................................... 757.160
Action When Full Payment Received ......................................................................................757.170
Responsible Collector Follow-Up ............................................................................................757.180
Releases, Partial Releases and Subordination of Liens ....................................... 761.000
General .................................................................................................................................... 761.010
Routine Releases of Liens.......................................................................................................761.020
Requests for Releases of Liens...............................................................................................761.030
Payments by Personal Check — Release of Lien ................................................................... 761.040
Payments by Credit Card – Release of Lien ...........................................................................761.045
Release of Liens Erroneously Recorded .................................................................................761.050
Subordination of Liens ............................................................................................................. 761.060
Partial Releases of Liens ......................................................................................................... 761.070
Release of Liens When CDTFA Records are Destroyed ......................................................... 761.080
Liens Aecting Persons Other Than Taxpayers.......................................................................761.090
Determinations and Alter Ego ................................................................................. 764.000
Deciency Determinations ....................................................................................................... 764.010
Jeopardy Determinations.........................................................................................................764.020
Dual Determinations — General..............................................................................................764.030
Dual Determinations — Statutory Provisions .........................................................................764.040
Dual Determinations — Penalty ..............................................................................................764.050
Dual Determination Initiated From An Audit.............................................................................764.055
Dual Determination Against Corporate Ocers Suspended Corporation ................................764.060
Procedures to Establish a Corporate Suspension Dual Determination ...................................764.070
When a Corporate Suspension Dual Determination Should be Issued ...................................764.072
Permit of a Suspended Corporation
........................................................................................764.074
Dual Determinations Under RTC Section 6829 Statutory Provisions
...................................... 764.080
RTC Section 6829 Overview of Process .................................................................................764.090
Statute of Limitations for RTC Section 6829 Dual Determinations .......................................... 764.100
Establishing an RTC Section 6829 Dual Determination – General ........................................ 764.110
Establishing the Elements of an RTC Section 6829 Dual Determination - Termination, Dissolution,
or Abandonment ................................................................................................................764.120
Establishing the Elements of an RTC Section 6829 Dual Determination – Sales Tax Reimbursement
and Use Tax Liability .......................................................................................................... 764.130
May 2023
Establishing the Elements of an RTC Section 6829
Dual Determination – Responsible Person ........................................................................764.140
Establishing the elements of an RTC Section 6829 Dual Determination – Willfulness ..........764.150
Guidelines for Preparing a Dual Request
................................................................................764.160
CDTFA-1515 Notice of Proposed Determination ....................................................................764.170
Redaction Guidelines for RTC Section 6829 Dual Determinations
.........................................764.175
Disproving Personal Liability Prior to NOD ............................................................................. 764.180
Representing Field Operations Division (FOD) at Appeals Conference ..................................764.185
Corporation as Alter Ego
.........................................................................................................764.190
Alter Ego and Dual Determinations — Field Procedures ........................................................764.200
Alcoholic Beverage License Suspensions and Transfers .................................... 765.000
Suspension of Alcoholic Beverage
License for Failure to File or Pay Sales & Use Taxes
........................................................765.005
Suspension of Alcoholic Beverage License for Failure to Renew a Surety Bond ...................765.006
Withhold of Transfer — Alcoholic Beverage License ............................................................... 765.010
Types of Liquor Licenses Subject to Withhold ......................................................................... 765.020
Form Letters Used in the Withhold Process ............................................................................765.030
Transfer Withhold Requests ....................................................................................................765.040
Demand and Release Procedure for Alcoholic Beverage License Withholds .........................765.050
Follow up Required on Withholds ............................................................................................ 765.060
Miscellaneous Information — Liquor License Withhold ........................................................... 765.070
Reminder for Sta — Liquor License Withholds ......................................................................765.080
Bankruptcies Involving Liquor Licenses ..................................................................................765.090
Escrows ...................................................................................................................................765.100
Payment Plans — Liquor License Withholds .......................................................................... 765.110
Payment for Release of Withhold - Liquor License .................................................................765.120
Internal Revenue Service Seizure and Sale — Liquor License ...............................................765.130
ABC Daily Transmittals ............................................................................................................ 765.140
Contractor License Suspensions ........................................................................... 766.000
Suspension of Contractor’s License ........................................................................................ 766.005
Seizure and Sale ....................................................................................................... 767.000
General .................................................................................................................................... 767.010
Seizure and Sale of Liquor License ......................................................................................... 767.020
Revocation of General on-Sale and O-Sale Licenses
or O-Sale Beer and Wine — Failure To Pay Renewal Fee .............................................. 767.030
Approval for Seizure and Sale of Liquor License ....................................................................767.040
Renewal Fees — Liquor License.............................................................................................767.050
Notice of Public Sale of Liquor License ...................................................................................767.060
Additional Advertising ..............................................................................................................767.070
Sale of Liquor License .............................................................................................................767.080
Conclusion of Sale and Escrow — Liquor License .................................................................. 767.090
Seizure and Public Drawing of Original Issue Liquor License .................................................767.100
Liquor License Moratorium Cities and Counties ...................................................................... 767.110
Seizure and Sale of Real Property ..........................................................................................767.150
May 2023
Taxes Collected by Other Agencies ........................................................................ 768.000
Vehicle, Vessel, or Mobilehome Use Tax Collections ..............................................................768.020
Department of Housing and Community Development (HCD) .................................................. 768.030
Mobilehome Dealer Report of Sale Books ..............................................................................768.040
Payment Plans .......................................................................................................... 770.000
General .................................................................................................................................... 770.005
Online Payment Plans .............................................................................................................770.010
Review of the Request ............................................................................................................770.012
Requesting Financial Information ............................................................................................770.013
Analyzing Financial Information...............................................................................................770.014
Analyzing Expenses for Individuals .........................................................................................770.015
Accepting a Payment Plan ......................................................................................................770.020
Payment Method
.....................................................................................................................770.022
Rejecting a Payment Plan .......................................................................................................770.023
Reviewing Accounts – In Grace or Broken Promise (ACMS) ..................................................770.024
Terminating a Payment Plan....................................................................................................770.025
Reinstating a Payment Plan ....................................................................................................770.030
Administrative Review Upon Termination ................................................................................770.031
Cancelling a Payment Plan .....................................................................................................770.032
Annual Reviews ....................................................................................................................... 770.033
Successful Completion - Relief from Finality Penalty ..............................................................770.035
Interagency Intercepts ............................................................................................. 771.000
General .................................................................................................................................... 771.010
Franchise Tax Board (FTB) Intercepts .....................................................................................771.015
Criteria for FTB Intercepts .......................................................................................................771.020
Employment Development Department (EDD) Intercept Requests ........................................771.030
Alcoholic Beverage Control (ABC) Intercept Requests ...........................................................771.040
Department Of Health Care Services (DHCS) Intercept Requests .........................................771.050
Funds Due to Taxpayers From Other State Agencies ............................................................771.070
Requests For Intercepts To Collections Support Bureau ........................................................771.080
Collections Support Bureau Intercept Notication to Responsible Unit or Field Oce ...........771.090
............................................................................................. 772.000
General ................................................................................................................................... 772.010
Fraud .......................................................................................................................................772.020
Processing an Oer in Compromise Proposal .......................................................................772.030
Oer In Compromise Section — Processing Applications .......................................................772.040
Securing the Oered Amount ..................................................................................................772.050
Processing Accepted Oers ....................................................................................................772.060
Processing Rejected, Denied, or Withdrawn Oers ................................................................772.070
Appeals....................................................................................................................................772.080
Innocent Spouse and Equitable Relief ................................................................... 773.000
Innocent Spouse and Equitable Relief ....................................................................................773.010
Subpoena Duces Tecum .......................................................................................... 774.000
Authority and Use ....................................................................................................................774.010
Information Needed .................................................................................................................774.020
Preparation and Service of Subpoena and Declaration ..........................................................774.030
April 2023
Collections
March 2022
Discharge from Accountability ............................................................................... 776.000
General .................................................................................................................................... 776.010
Write-O Does Not Relieve the Taxpayer of Liability ...............................................................776.020
Write-o Recommendation ......................................................................................................776.030
Reasons for Recommendation ................................................................................................776.035
Taxpayer Deceased ................................................................................................................. 776.040
Taxpayer Cannot Be Located ..................................................................................................776.050
Taxpayer Outside of State Jurisdiction ....................................................................................776.060
Inactive Corporation/LLC ......................................................................................................... 776.070
No Assets or Income ..............................................................................................................776.090
Balance Outlawed ...................................................................................................................776.100
Small Balance.......................................................................................................................... 776.110
Collections Support Bureau Notication ..................................................................................776.150
Automated Write O of Balances of $500 or Less ..................................................................776.180
Automated Write-o Recommendation for Balances Greater Than $500 ...............................776.190
Write O Checklist .................................................................................................................. Exhibit 1
Other Programs ........................................................................................................ 799.000
Reward Program .....................................................................................................................799.005
Controlled Substances ............................................................................................................799.090
Identity Theft Program .............................................................................................................799.100
Top 500 Program .....................................................................................................................799.200
Compliance Policy and Procedures Manual
COLLECTIONS 700.000
GENERAL STATEMENT ON COLLECTIONS 702.000
IMPORTANCE OF COLLECTION ACTIVITY 702.010
One of the main responsibilities of the California Department of Tax and Fee Administration
(CDTFA) is to collect all amounts due under the tax and fee programs it administers. To
accomplish that task, it is necessary to have an efcient and effective collection program.
The primary objective is to maximize the collection of unpaid tax and fee liabilities while
minimizing effort, cost, and time.
To reach this objective, staff in the collections program must be thoroughly familiar with
the provisions of the laws pertaining to collections under the CDTFA’s various tax and fee
programs, and there must be proper control of collection assignments. This chapter provides
collection staff with basic tools to:
1. Interview tax/fee payers,
2. Locate missing tax/fee payers and assets, and
3. Perform collection actions as necessary.
To advise taxpayers of the CDTFA’s collection policies, publication 54, Tax Collection
Procedures, is available on CDTFA’s web site. Collectors should be prepared to provide
information about publication 54 and advise taxpayers how to obtain it. Although each
taxpayer should be given a chance to pay voluntarily (except in situations where delay
jeopardizes the chance of collection), prompt and effective collection action should be taken
when necessary. When promises are broken, the taxpayer should be contacted promptly
and advised that appropriate remedies will be taken unless payment is made immediately.
Failure to promptly follow up with appropriate collection action when a promise is broken
sends a message to the taxpayer that payments can be easily delayed or avoided and may
encourage some taxpayers to procrastinate when future payments become due.
As used in this manual, “full collection efforts” means and includes the entire range of
activities pertaining to collecting delinquent taxes and fees. “Passive collection efforts”
include contacting the taxpayer by mail and phone, skip tracing and locating assets. “Active
collection actions” are actions imposed upon the taxpayer such as levying bank accounts,
ling liens, etc. In most cases, it is preferable to begin working a collection case by utilizing
passive collection efforts rst. Whenever possible, staff must speak to the taxpayer before
employing active collection procedures.
August 2016
Collections
August 2016
Tax/Fee Payers Facing Financial Difculties
While continuing to follow existing policies and procedures, staff should be exible when
working with taxpayers facing nancial difculties, particularly businesses that, until
recently, were in good standing with the CDTFA. While staff should continue to objectively
evaluate a taxpayer’s request for a payment plan, they should also allow some exibility
and employ reasonableness when determining the terms of the agreement. For example, if
a taxpayer requests to temporarily make reduced payments or post third party collateral to
support those reduced payments, such a request should be reviewed and considered and
not automatically denied.
CDTFA collection policies are designed to deal with all collection situations including those
where taxpayers are experiencing nancial difculties. Several payment or resolution options
are available to taxpayers with a liability, including payment plans, Offer in Compromise,
and Innocent Spouse Relief programs. When a taxpayer is unable to pay their liability in
full immediately, staff should inform the taxpayer of all payment or resolution options that
may apply to their situation. In addition, the taxpayer should be informed of their option
to apply for a payment plan online prior to beginning negotiations with collection staff (see
CPPM section 770.010). Staff should evaluate each taxpayer’s unique circumstances and
payment history while concurrently following existing CDTFA polices and making decisions
that are in the State’s best interest.
COLLECTION ASSIGNMENT CONTROL 702.020
Collection assignments are controlled by an electronic system. It is the responsibility of
compliance supervisors, branch ofce supervisors, and administrators to ensure assignments
are being worked appropriately. However, it is also the responsibility of each collector to
ensure that all assignments are given appropriate attention in a timely manner.
Compliance Policy and Procedures Manual
SOURCES OF LIABILITY AND WHEN TO PROCEED 703.000
SOURCES OF LIABILITY 703.010
Tax and fee liabilities are either self-assessed or CDTFA-assessed.
1. SELF-ASSESSED. A self-assessed liability is an amount that the taxpayer declares
is owed to the CDTFA. This type of liability occurs when the taxpayer les:
a. A tax or fee return without payment (“no remittance” or “NR” return),
b. Return(s) accompanied by a payment that is subsequently dishonored by the
bank or other type of nancial institution,
c. A return without full payment (“partial remittance” or “PR” return), or
d. A return after the due date with payment for the tax or fee but not penalty or
interest.
2. CDTFA-ASSESSED. A CDTFA-assessed liability is an amount that staff determines is
due from the taxpayer. The source of the amount determined to be due may be any
of the following:
a. Audit,
b. Examination of taxpayer records from which estimated returns or a eld billing
order (FBO) is prepared,
c. Computation errors in a return led showing an underpayment of tax due, or
d. Information received from other sources such as county Assessor’s ofces, the
Department of Motor Vehicles, Federal Aviation Administration, United States
Coast Guard, vehicle dealers or Information Use Tax returns disclosing a liability.
WHEN TO PROCEED ON SELF-ASSESSED LIABILITIES 703.020
Full collection efforts may commence immediately for tax/fee liabilities resulting from “no
remittance” or “partial remittance” returns, provided the due date for ling the return has
passed. As indicated in section 702.010, in most cases it is preferable to locate and contact
the taxpayer prior to taking active collection actions. All penalty and interest charges
resulting from the late ling of a return or the late payment of amounts shown to be due
on a return are also subject to collection effort at the time the return becomes delinquent.
When a return is led after the due date, or led but not fully paid, the taxpayer must pay
immediately, otherwise collection action should begin without delay. It is not necessary for
a demand notice to be issued to the taxpayer before initiating collection efforts or actions.
August 2007
Collections
WHEN TO PROCEED ON CDTFA-ASSESSED LIABILITIES 703.030
The CDTFA–1210, Notice of Determination (NOD), formally noties taxpayers of a CDTFA-
assessed liability. RTC section 6486 for sales and use tax, and equivalent statutes for special
tax and fee programs, state that the notice shall be placed in a sealed envelope, with postage
paid, addressed to the taxpayer at his or her address as it appears in the records of the
CDTFA. Service of the notice is complete at the time the notice is deposited in the United
States Post Ofce, or a mailbox, or other facility regularly maintained or provided by the
United States Postal Service. If a notice is served in person, service is complete at the time
of delivery.
The NOD has a “letter date” and a “notice service date.” The notice service date is the date
the NOD is mailed, which is the letter date plus one business day, and is the date used to
determine whether a notice was issued within the statutory timeframes, interest calculations,
and the deadline for the taxpayer to le a petition for redetermination. When the NOD is
manually issued by a collector, the NOD can be issued with the same letter date and notice
service date if it is mailed the same day it is created.
All CDTFA-administered tax and fee program NODs, except for jeopardy NODs and those
made for the payment of cigarette tax stamps, become nal 30 days after the notice service
date on the NOD, unless the taxpayer les a petition for redetermination within that 30-day
period. Under Cigarette and Tobacco Products Tax Law (RTC section 30174), an NOD for
failure to pay for cigarette tax stamps becomes nal 10 days after the notice service date
on the NOD, unless the distributor les a petition for redetermination and posts a security
deposit within the 10-day period. Jeopardy NODs also become nal 10 days after the notice
service date on the NOD unless the taxpayer les a petition for redetermination and posts
a security deposit within the 10-day period. The date on which the NOD becomes nal is
known as the “nality date.”
As in the case of self-assessed liabilities, a demand notice does not need to be issued prior to
taking collection action. Passive collection efforts (e.g., contacting the taxpayer by phone, skip
tracing, locating assets) may commence before the nality date. Regular NODs become due
and payable as of the nality date, and active collection action may be initiated immediately
thereafter. Jeopardy NODs are immediately due and payable, meaning that active collection
efforts may begin on the notice service date of the jeopardy NOD (see subsection Jeopardy
Determinations below). However, if the taxpayer les a timely petition for redetermination
with the requisite deposit, the NOD does not become nal, and active collection activities are
stayed, pending resolution of the petition for redetermination. A “nality penalty” is added
if the tax assessed by the NOD is not fully paid by the nality date, equal to 10 percent of
the unpaid tax.
Retention of NOD Report
The Bulk Mail Unit receives the original NOD Certication List daily via email and veries
each NOD listed in the report. Two verication team members and one supervisor sign the
report certifying the mailing of all NODs listed. The signed reports are scanned by date and
saved in the Notice Certication folder on the Y drive where all team members have read-
only access. Once the scanned copy of the report is veried and readable, the paper version
will be stored in a secure location with the Bulk Mail Unit supervisor. Electronically stored
versions of the report are kept for 10 years.
December 2020
Compliance Policy and Procedures Manual
December 2020
Address Changes and Returned Mail
If the NOD issued to the address of record is returned to the CDTFA after mailing, the only
basis to deem the service of the NOD as “invalid” is if there was an error on the part of the
CDTFA. If the NOD is received as returned mail and the taxpayer had notied the CDTFA
prior to the NOD being issued of a change of address, either in writing or in another manner
documented in CDTFA’s records, but the CDTFA failed to update its records accordingly,
the NOD should be cancelled and, if the statute of limitations period has not expired, a new
NOD issued to the correct address.
IMPORTANT: Team members responsible for issuing the new NOD to the correct address
must rst invalidate the original NOD and investigate the appropriate way to issue a new
NOD. If the bill item is not nal (has not staged to nalized), it should be staged back to
issue NOD by a supervisor so a new NOD may be issued.
However, if the bill item is nal, it must be reversed and all transactions related to
it must be cancelled (e.g., reversing estimated returns, reducing the original audit to $0,
unlinking bill items in a dual collection case). The new NOD must relate to a new bill item
to properly tie to the correct billing timeline (i.e., new nality date). Team members may
need to request assistance with reversing bill items from the Return Analysis Unit, Return
Processing Branch, Collections Support Bureau, Appeals and Data Analysis Branch, or
Petitions Section, depending on the type of billing. Team members must ensure that the
NOD is tied to the appropriate bill item.
Team members must verify and timely update CDTFA records to reect the address change
information received from a taxpayer as soon as they become aware of the new address.
When the NOD contains one or more periods for which the statute of limitations is close to
expiring and the NOD was mailed to an invalid address, the statute for some periods could
expire before a new NOD can be issued and mailed to the correct address. This could mean
the CDTFA is unable to include some periods on the NOD. For example, when the NOD is
cancelled and rebilled, periods falling outside the statute of limitations (and not subject to
a waiver signed by the taxpayer) must be eliminated. Additionally, a note should be entered
regarding the source from which the information was obtained.
Every effort should be made, using any resources available to CDTFA for locating people,
to verify the address of the taxpayer prior to issuing the NOD. If there is reason to believe
that the taxpayer is at an address that has not been conrmed, the NOD should be issued
to both the address of record and to the address where the CDTFA believes that taxpayer
receives mail. Additional addresses may be entered into the system to generate multiple
copies of the NOD to the same taxpayer.
Team members in the ofce responsible for the account should ensure that all reports,
including reaudits and adjusted eld billing orders, include veried, up-to-date addresses
for all partners and corporate ofcers. Registration records should always be updated in the
system prior to the transmission of such reports.
Generally, NODs received as returned mail by the Customer Service Center are sent to the
ofce of account for handling. NODs for estimated returns received as returned mail are
sent to the ofce that issued the NOD.
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December 2020
Team members in the responsible ofce will check the system for a new address. If the
investigation reveals an address change that the CDTFA received prior to mailing the NOD
and the address was not updated in the system, the NOD will be cancelled. If the statute
of limitations has not passed, the NOD will be reissued with the new address and mailed
to the taxpayer at the correct address. Note that in cases where the statute of limitations
for a period is near expiration, the expiring period must be eliminated from the NOD if the
replacement NOD will not be issued prior to that expiration date.
If the investigation discloses an address change that was received after the NOD issue date,
a copy of the original NOD will be re-mailed to the taxpayer at the new address and the new
address should be entered into the system along with appropriate notes.
Petition for Redetermination
For sales and use tax NODs and most special tax and fee NODs, the person against whom
the NOD is made, or any person directly interested, may le a petition for redetermination
within 30 days of the notice service date or, if a jeopardy or failure to pay cigarette stamps
NOD, within 10 days of the notice service date (see publication 17, Appeals Procedures).
The ling of a petition must be in writing and state the specic reasons why the taxpayer
believes the amount determined to be due is incorrect. Additionally, a petition of a jeopardy
or failure to pay cigarette stamps NOD will not be accepted unless the petitioner posts the
required security within 10 days of the notice service date.
If the CDTFA receives a timely petition for redetermination, the liability enters the appeals
process and does not become nal because the system places the bill item into a “locked”
petition for redetermination stage. The petition stage on the bill item prevents users and the
system from staging the bill item forward into a nalized or subsequent collectable stage.
Additionally, an Active Appeal Case indicator will automatically be added to alert users that
the case exists.
When the taxpayer les a timely petition, the original NOD is superseded by a Notice of
Redetermination at the conclusion of the appeal process. Only passive collection efforts may
be taken until the Notice of Redetermination becomes nal. Active collection actions may
not be taken on NODs tied to bill items in a petition for redetermination stage.
Administrative Protest
A petition is timely only if led within 30 days of the notice service date. A petition is invalid
if it is led prior to the issuance of the NOD or more than 30 days following the notice service
date. The Petitions Section or Appeals and Data Analysis Branch (ADAB) may accept an
invalid petition into the appeals process as an administrative protest pursuant to Appeals
Regulation 35019. Exceptions to the 30 days to le a timely petition are jeopardy NODs and
NODs made for the payment of cigarette tax stamps, which become nal in 10 days.
An invalid petition may be accepted as an administrative protest when the Business Tax
and Fee Division Deputy Director or designee, determines that there is a reasonable basis
to believe that there may be an error with the NOD. (See below for discussion regarding
late appeals of jeopardy NODs.) The section assigned to review the appeal is responsible for
notifying the taxpayer when an appeal is accepted as a timely petition, is accepted as an
administrative protest, or is not accepted into the appeals process because it was not led
timely (as explained above).
Compliance Policy and Procedures Manual
The CDTFA generally accepts an invalid petition as an administrative protest when the
taxpayer:
• Has a known representative (power of attorney) on le and a copy of the NOD was not
mailed to the representative,
• Has another pending case with similar areas of contention that is already in the
appeals process,
• Received multiple NODs for different periods on the same account and a timely petition
was previously led for the rst period billed,
• Is a corporate ofcer who received a dual NOD and a timely petition was previously
led for the corporation,
• Can document that they were unavailable to reply during the petition period (e.g.,
out of town, hospitalized, incarcerated) and les an appeal as soon as they are able
to do so (within 30 days of becoming available) with documentation supporting the
reason for the delay, or
• Filed a premature appeal and then led a late petition, but led the late petition
within a reasonable period of time. While reasonable time is meant to be exible to
accommodate the taxpayer’s circumstances, it typically does not exceed 30 days.
The Petitions Section or ADAB must notify the taxpayer who les a premature appeal that
such appeal cannot be accepted as a timely petition since it was received before the date
the NOD was mailed and that the taxpayer should resubmit the petition within the required
timeline(s) once the NOD is mailed. The Petitions Section or ADAB will attempt to call the
taxpayer to advise them to rele the petition within the timeframe required to be accepted
as a timely appeal.
The Petitions Section or ADAB will also upload a copy of the CDTFA’s letter and a copy of the
premature petition into the system. If the ofce that originated the NOD is in contact with
the taxpayer, they shall remind the taxpayer to le a timely appeal and enter notes into the
system about the receipt of, and response to, the premature appeal.
When the taxpayer submits new documentation or information that supports the amounts
listed on the NOD are overstated, the ofce that issued the NOD being disputed should
carefully consider the new information and, if warranted, make the appropriate adjustments
to the nal liability without requiring the taxpayer go through the formal appeals process.
The CDTFA generally will not accept an invalid petition as an administrative protest when
the taxpayer:
• Cannot document that they were unavailable to reply during the petition period (e.g.,
out of town, hospitalized, incarcerated) or can document that they were unavailable
to reply during the petition period but nevertheless there was a signicant delay in
ling an appeal once the taxpayer was able to do so. A signicant delay is typically
more than 30 days after becoming available;
• Claims they did not receive the NOD, but the NOD was mailed to the address of record
and the CDTFA has not received any returned mail; or
• Claims they were not aware of their tax or fee obligation.
December 2020
Collections
The taxpayer may request the section assigned to review the petition to reconsider an invalid
petition previously not accepted as an administrative protest. If upon reconsideration, the
section continues to believe the appeal should not be accepted as an administrative protest,
the taxpayer’s reconsideration request will be submitted to the BTFD Deputy Director for
nal review and decision. When an invalid petition is not accepted as an administrative
protest, the taxpayer may still appeal by paying the tax due and then ling a claim for
refund. One claim for refund may be led to cover all installment payments made towards
the NOD that are still within the applicable statute, and that claim will also cover future
payments towards the NOD. The taxpayer does not need to le separate claims for refund
for each individual payment.
The treatment of an invalid petition for redetermination as an administrative protest does
not stop the accrual of interest, and generally will not stop collection action with regard to
a nal liability unless the Petitions Section or ADAB determines the liability should not be
subject to active collection action. If the Petitions Section or ADAB accepts a late petition as
an administrative protest, an administrative protest case is created. An Active Appeal Case
indicator is automatically added to alert users that the case exists.
If it is determined that active collection activities should be suspended until resolution of
the administrative protest case, Petitions Section will remove the bill item from the collection
case on sales and use tax accounts. For special tax and fee accounts, ADAB will assign the
Stop Collection on Bill Item task to the administrator or designee. The collector will manually
remove the bill item from the collection case pending the resolution of the administrative
protest case. Upon resolution of the administrative protest case, Petitions Section will add the
bill item back to the collection case on sales and use tax accounts when a balance remains
on the disputed bill item. For special tax and fee accounts, ADAB will immediately notify
the administrator or designee that active collection activities may be resumed provided a
balance remains on the disputed bill item.
Regardless of whether the liability is subject to a pending administrative protest, if Petitions
Section does not remove the bill item from the collection case or ADAB does not request that
active collection activities be temporarily suspended, collection activities may be pursued to
obtain payment of the liability. However, the collector should use judgment on a case-by-
case basis in determining whether it is appropriate to pursue collection activities. Therefore,
it is important to do the following:
• Research the status of the liability and the administrative protest to determine
whether active collection action should be suspended while in the appeals process.
This may require obtaining information from the Petitions Section, ADAB, or the Legal
Division regarding the current status of the administrative protest and documentation
requested or received from the taxpayer.
• Discuss the collection approach with a supervisor.
• Contact the taxpayer to discuss payment options and remind the taxpayer that interest
continues to accrue.
• Encourage the taxpayer to make voluntary payment(s) against any agreed upon
amount.
• Consider the use of the auto-payment feature if no collection stay exists. This may
require special handling to ensure payments do not exceed the agreed upon amount.
December 2020
Compliance Policy and Procedures Manual
• Advise the taxpayer to submit a Claim for Refund for payments made on an
administrative protest. Note that this is particularly important because an
administrative protest is moot as to any amount paid since, regardless of the decision
made on the administrative protest, the CDTFA cannot refund any payment in the
absence of a valid and timely claim for refund. As such, if the amounts disputed by
the administrative protest are paid in full, the administrative protest will be dismissed.
However, the same appeal may continue as a claim for refund provided the taxpayer
led a timely claim for refund prior to CDTFA’s dismissal of the administrative protest.
• For involuntary payments, contact the taxpayer to advise of the taxpayer’s right to
le a claim for refund within 3 years of the involuntary payment.
An administrative protest will generally be reviewed in the same manner as a timely petition
for redetermination; however, Appeals Regulations provide that an appeals conference may
be denied. Taxpayers should be advised the appeals process does take time and that, in the
interim, it is in their best interest to continue with voluntary payments and le a claim for
refund.
When a collector assigned to a collection case contacts the taxpayer and the taxpayer
indicates that an administrative protest has been led, the collector should verify whether
the taxpayer’s appeal was actually accepted as an administrative protest in the system. The
collector must also inform the taxpayer to le a claim for refund for payments made on an
administrative protest. The collector must emphasize that, although the appeal was accepted
as an administrative protest, that does not constitute the ling of a valid claim for refund.
If CDTFA publication 17, Appeals Procedures: Sales and Use Taxes and Special Taxes, had
not been previously provided, it should be sent by the collector.
Stop Collection Policy on Claim for Refund When Tax/Fee is Paid
In cases where all of the tax or fee is paid and a claim for refund has been led, nal amounts
remaining for the period are placed in an appeal status and a Refund Claim indicator is
added to the account or period. This prevents active collections until the Refund Claim
indicator is removed.
When a taxpayer les a claim for refund online, a case is automatically created in the
system. If a paper claim for refund is received in a eld ofce, the instructions available on
the CDTFA’s intranet site for processing refunds should be followed.
If a levy was served against a taxpayer and they subsequently inform the collector that they
led a claim for refund for that liability, the collector should review the system to conrm the
claim for refund was received. If the refund claim has been received but there is no Refund
Claim indicator linked to the disputed amount, staff should contact the team member assigned
to the case to determine if a Refund Claim indicator should be added. If the Refund Claim
indicator is added subsequent to issuing a levy, the levy should be released.
The denied claim for refund case on partially paid and otherwise collectable liability will
remain open for 90 days from the date the Notice of Denial is sent or until the litigation is
concluded if the taxpayer les a suit for refund. Once the 90 days has lapsed and the claim
for refund case has closed, the unpaid liability from the denied claim for refund will be added
to a collections case. The collector must rst contact the taxpayer and ask for voluntary
payment of the penalty and interest. If the taxpayer fails to comply, or if the collector’s
attempts to contact the taxpayer are unsuccessful, summary collection action to collect the
penalty and interest should resume, unless the collector has information that the taxpayer
has requested relief of penalty and/or interest.
December 2020
Collections
If the CDTFA receives proper notice of a suit for refund (see CDTFA Manual of Administrative
Policy section 7701), the collector must suspend collection of the affected liability. Any legal
documents received pertaining to the suit should be forwarded to the Collections Support
Bureau (CSB). The CSB will contact the Litigation Bureau to determine if a Stop Collections
indicator (customer level) should be added or if the remaining penalty and interest bill item(s)
should be manually removed from the collection case and a Stop Billing indicator added to
the bill item(s) at issue. No action to collect the penalty and interest will be taken during the
duration of the legal proceedings. Upon resolution of the court case, the Litigation Bureau will
notify the CSB regarding the outcome of the case. If the CDTFA prevails in the lawsuit and
the taxpayer’s legal remedies are exhausted, the CSB will add the bill item(s) at issue back
to the collection case and remove the Stop Billing indicator, or remove the Stop Collections
indicator if appropriate. CSB will enter a note in the system regarding the outcome of the
court case. Collection of the liability will resume if the taxpayer’s suit is unsuccessful, and
the liability remains unpaid.
Jeopardy Determinations
The purpose of a jeopardy determination is to provide a means of protecting the state’s
interest when there is substantial evidence that any further delay in collection activity
would seriously impair or jeopardize the CDTFA’s ability to collect the taxes or fees due.
Therefore, a jeopardy NOD is due and payable upon issuance, even though not nal. Use
of active collection action on a jeopardy NOD prior to the nality date of the NOD or prior
to the ling of a timely petition with security, is limited to cases where immediate action is
necessary to protect the interest of the state. This also applies to an NOD that is converted
to a jeopardy NOD.
In addition to having the right to le a petition for redetermination, along with security,
within 10 days of the notice service date of a jeopardy NOD, the person against whom the
jeopardy NOD is issued may also le an application for an administrative hearing to:
1. Establish that the NOD is excessive,
2. Establish that the sale of property that may be seized after issuance of the jeopardy
NOD or any part thereof should be delayed pending the outcome of the administrative
hearing because the sale would result in irreparable injury to the person,
3. Request release of all or a part of property to the person,
4. Request a stay of collection activities, or
5. Request administrative review of any other issue raised by the jeopardy NOD.
An application for an administrative hearing must be led within 30 days after the notice
service date of the jeopardy NOD. However, an application led after the 30-day period may
be accepted for good cause. A late petition led for a jeopardy NOD, or a timely petition led
for a jeopardy NOD without the required security, may be accepted as an application for an
administrative hearing at the discretion of the CDTFA.
December 2020
Compliance Policy and Procedures Manual
COLLECTIONS — IN THE FIELD 705.000
GENERAL 705.001
Payments Received in Field Ofces – No-Cash Policy
1
The CDTFA does not accept cash payments. However, an exemption may be granted
for taxpayers able to show that cash payments are necessary to avoid undue hardship.
Taxpayers should be encouraged to pay on the CDTFA website using their bank account
or credit card information. Alternatively, team members should provide taxpayers with a
list of nearby businesses that can convert their cash to a money order or cashier’s check.
Note that taxpayers required to pay by Electronic Funds Transfer (EFT) will incur a penalty
if they send their return payment or prepayment using any method other than EFT unless
an exemption is granted.
Hardship Policy
The no-cash policy may cause an undue hardship to taxpayers with cash-based businesses
that are unable to open a bank account. Taxpayers requesting an exemption from the no-
cash policy must complete and submit a CDTFA-245-NC, No Cash Exemption Request, and
explain the nature of their business and the reason they need to pay in cash. The CDTFA-
245-NC must be signed by the owner, partner, member, or corporate ofcer. The request
must be reviewed and signed by the Ofce Administrator or equivalent, or their designee, with
notes entered in the system regarding the approval or denial of the request. Once the ofce
reviews the exemption request, a decision letter will be provided to the taxpayer: CDTFA-
245-NCA, No Cash Approval, or CDTFA-245-NCD, No Cash Denial. If approval is made for
a sales and use tax account and there is a related cannabis account, approval will apply to
both accounts and account numbers for both accounts should be included on the approval
letters provided to the taxpayer.
If an exemption request is approved for a sales and use tax account that is required to pay
by mandatory EFT, team members will mark the EFT box and email the CDTFA-245-NC and
any documentation to the Return Analysis Unit at [email protected] with
the subject line identied as “EFT Account - No- Cash Exemption Request.” If an exemption
request is approved for a cannabis account, team members will email the CDTFA-245-NC
to the Return Processing Branch at [email protected] with the subject
line, “Approved Cash Exemption Request.”
If approved, the exemption is valid for the calendar year in which it is granted. Taxpayers
are required to reapply for the exemption every calendar year. Only select ofces may accept
in-ofce cash payments by appointment only. The ofce responsible for the account must
coordinate with the taxpayer on the date and time for their cash payments. When setting
the date and time, team members should attempt to schedule the payment earlier in the
day to ensure cashiers have adequate time to process the funds. If the exemption request is
denied, the taxpayer may request the case to be referred to the Deputy Director of the Field
Operations Division for further review.
Payments Received During Field Calls
A collector often receives payment from taxpayers during eld calls. A eld receipt must
be issued to the taxpayer to document these transactions. If cash is collected, it must be
converted to a cashier’s check or money order prior to returning to the ofce to be submitted
to the cashier. Collectors may claim reimbursement for fees incurred for cash that is converted
to a cashier’s check or money order (see CPPM sections 705.060 and 705.065).
1 The Motor Carrier Ofce is exempt from the no-cash policy.
September 2021
Collections
FIELD RECEIPT — CDTFA–602 705.005
There are 25 eld receipts in each receipt book. There are three copies to each receipt, the
original and two copies. The original (white) is the taxpayer’s copy. The canary copy is retained
by the Receipts Custodian, after review by the cashier’s supervisor. The person writing the
receipt will keep the goldenrod copy for 90 days in a secure location (e.g., locked desk drawer).
Every collector assigned a receipt book is personally responsible for the book and all its
receipts until they are transferred to the cashier, or the book and any remaining unused
receipts are surrendered to the Receipts Custodian. Each receipt must be used in numerical
sequence.
Collectors must use the CDTFA–602 when collecting money from a taxpayer whether in the
eld or ofce. While collectors normally do not accept remittances or issue receipts when in
the ofce, exceptions to this rule may occur. For example, if the eld ofce cashier is attending
a staff meeting and a collector is acting as a backup cashier, or during rush periods.
Whenever a CDTFA–602 is issued by a collector, the CDTFA–609, Tax Representative’s Daily
Report, serves as the document transferring the payment to the cashier. When a collector
issues receipts in the ofce, a CDTFA–609, must be prepared listing the receipts issued
(including any voided receipts). For monies collected in the eld, all payments, receipt copies
and supporting documents must be submitted to the cashier along with the CDTFA–609,
upon returning to the ofce.
Because receipts are prepared in triplicate, a ballpoint pen or similar writing device should
be used when writing a receipt to ensure that all the receipt copies are legible. The collector
accepting the payment and preparing the receipt must sign the receipt.
Collectors are to use extra care and be certain each CDTFA–602 is prepared properly. CPPM
sections 705.020-705.035 set forth certain types of errors that may be corrected and how
such corrections are to be accomplished.
Payments for more than one account number can be written on one receipt when a payment
for multiple liabilities is included in the same remittance. When a taxpayer pays with multiple
remittances, a separate receipt must be issued for each remittance received, regardless of the
remittance type (e.g., check, cash, money order, cashier’s check, ComCheck or T-Check). For
example, if a taxpayer pays with two separate money orders, two receipts must be prepared
and delivered to the taxpayer.
The CDTFA–602 only allows for the entry of four payment applications. If a taxpayer has
a remittance that covers more than four payment applications, write “A/R” once in the
PERIOD box for that account. In addition, if one remittance is being applied to more than
four accounts, enter the taxpayer’s identication number (TIN) for the person making the
payment in the ACCOUNT box, if available.
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Compliance Policy and Procedures Manual
September 2021
Below are instructions for completing each line of the CDTFA–602:
1. LOCATION — Name of the city or town where the receipt is written. For Motor Carrier
Ofce collectors, the location of the roadside CHP/Agricultural Inspection Station
where the receipt is written should be used.
2. DATE – The date the receipt is written.
3. ACCOUNT NAME – Name of the account holder in the CDTFA’s registration records.
4. RECEIVED FROM – Name of the person making the payment. If payment is made
on behalf of the taxpayer, such as from an employee or delivered by messenger, the
name printed on the check should be used. If payment is made by a third party (e.g., a
payment received in the eld from a levy), the name of the person making the payment
should be used. If cash payment is made, the name of the taxpayer should be used.
5. TYPE OF PAYMENT RECEIVED – Check the box for the type of payment received. If
a postal money order, ComCheck, or T-Check is received, the “Other” box should be
checked.
6. ACCOUNT NUMBER(S) – Multiple account numbers may be entered provided all
payments are from the same remittance.
7. PERIOD – The period code (DD-Mon-YYYY format) and/or appropriate application
type should be entered (Account Payment, Audit Payment, Collection Payment, Escrow
Payment, Prepayment 1, Period Payment, Return Payment, etc.). For security deposits,
enter the account number with Security Deposit in the PERIOD box.
8. AMOUNT – Amounts must be entered with dollars and cents written out numerically.
To indicate zero cents, enter the numbers 00; do not use a dash or leave the eld
blank.
9. TOTAL – The total amount received.
10. BY – Signature of the collector issuing the receipt.
11. INITIALS – The initials of the collector issuing the receipt.
12. INTERACTION ID NUMBER – The Cashier Section or eld ofce cashier will enter the
Interaction ID obtained from the online system onto the le copy of the receipt.
Outdated and/or unused CDTFA-602’s may be returned to the Cashier Section for destruction.
Collectors must follow the procedures as outlined in CDTFA Manual of Administrative Policy
section 7404.
Collections
September 2021
ERRORS NOT REQUIRING A REPLACEMENT RECEIPT 705.020
The following errors may be corrected without issuing a replacement receipt:
1. An error in the date that does not affect penalty and/or interest.
2. A misspelled name.
3. An incorrect period.
4. An invalid account number.
These errors are corrected by lining out the incorrect entry, while still leaving it legible, and
making a correcting entry. These corrections must be reviewed and signed by a supervisor.
If the error is found after delivery of the receipt to the taxpayer, the error may be corrected
on the CDTFA’s receipt copies. When a correction of this type is made, it is not necessary
to recover or correct the taxpayer’s receipt copy.
VOIDING FIELD RECEIPTS 705.025
Field receipts will be voided when any of the following errors are discovered before delivery
of the receipt to the taxpayer:
1. An error in the amount (i.e., the dollar amount entered on the face of the eld receipt).
2. An error in the date that affects the incidence of penalty and/or interest.
3. Extensive errors that make the validity of the eld receipt questionable.
A voided eld receipt will be clearly marked by:
1. Stamping or writing the word “VOID” or “CANCELED” on all copies of the receipt.
2. Showing the reason for voiding the receipt.
3. Signing in ink across the face of all copies.
Every voided eld receipt must be approved with the signature of a supervisor on the voided
receipt. If all three copies of the voided receipt are available, the issuing employee should take
all three copies to their supervisor for signature. Reference to the replacement eld receipt
number (if issued to the taxpayer) should be written on the voided receipt. If a replacement
eld receipt was not issued to the taxpayer, the cashier will provide a receipt using the MICR
reader/printer equipment and the Interaction ID from the MICR receipt should be entered
on the voided receipt. The white and canary copies should be returned to the cashier and
the goldenrod copy should be retained by the issuing employee.
If the taxpayer has the original eld receipt to be voided, the canary copy will be forwarded
to the Receipts Custodian, after review by the cashier’s supervisor. The goldenrod copy will
be held by the issuing employee and a letter will be sent to the taxpayer along with the MICR
receipt with the corrected information.
Compliance Policy and Procedures Manual
September 2021
ERROR IN AMOUNT SHOWN ON THE CDTFA–602 705.030
When the amount of cash collected is more than shown on the CDTFA–602, the error will
be brought to the attention of the supervisor. A supplemental receipt will be prepared for
the difference and a copy mailed to the taxpayer with a letter of explanation. If the original
remittance is a check, the eld receipt must be voided, and a new eld receipt issued for
the correct amount or an accurate MICR receipt replacement with a letter of explanation.
If a MICR replacement receipt is issued, the Interaction ID from the MICR receipt must be
written on the voided receipt. It is not necessary to retrieve the erroneous eld receipt from
the taxpayer.
The supervisor must send a letter to the taxpayer explaining that the incorrect amount was
written on the original eld receipt containing the following information:
1. The original CDTFA–602 receipt number and Interaction ID number if available.
2. Date of original CDTFA-602.
3. Original amount.
4. Revised amount.
5. Brief explanation for revision.
6. Request for the taxpayer to contact the supervisor with any questions about the
revised receipt.
If the taxpayer claims that the cash amount shown on the receipt is correct, no letter will be
sent, but the matter must be brought to the attention of the supervisor and the Administrator.
ERROR IN DATE SHOWN ON THE CDTFA–602 705.035
If an erroneous date affecting penalty and interest is not discovered until after delivery of the
taxpayer’s copy, it must promptly be brought to the attention of the supervisor. The taxpayer
must be informed in writing of the error and the CDTFA’s copies of the eld receipt must
be corrected and approved with the signature of the supervisor placed near the correction.
SECURITY OF ISSUED RECEIPT BOOKS 705.040
When receipt books are issued by the Receipts Custodian, the recipient is responsible for
security of the receipt book. Collectors issued a receipt book must keep the book locked
in their work area, or a compartment in the safe to which only they have access. Receipt
books must never be left on top of desks or counters or placed into unsecured (do not lock)
desks. It is incumbent upon collectors to use the same level of care to protect the receipt
books outside the workplace as within. If a receipt book or an individual receipt is missing,
the supervisor must be notied immediately.
Collections
September 2021
LOST OR STOLEN RECEIPT BOOKS 705.045
If a receipt book is lost or stolen, the collector must notify their supervisor immediately. The
supervisor will follow established procedures relating to lost or stolen receipt books.
MONTHLY RECEIPT REPORT 705.050
On the morning of the rst working day of each month, all persons issued receipt books will
immediately complete a CDTFA–18, Unissued Receipts, and turn it in to their supervisor,
together with receipt books, for the supervisor’s verication of unused receipts and signature.
The original CDTFA–18 is given to the Receipts Custodian for additional verication and
retention.
ENDORSEMENT OF CHECKS 705.055
When a check, money order, cashier’s check, or other non-cash instrument (hereinafter
“check”) is collected in the eld, the collector must immediately endorse the check by writing
on the back “For deposit only to CDTFA” along with the receipt number within the top half-
inch of the endorsement area.
If the maker does not complete the “payee” line on the front of the check, the collector must
enter “CDTFA” in that space immediately upon acceptance of the check. The CDTFA account
number must also be written on the face of the check.
CASH COLLECTIONS — OVERNIGHT RETENTION OF FUNDS 705.060
When a collector deems it necessary to collect cash, all bills in denominations of $20 or
greater must be tested with a counterfeit detector pen in the presence of the taxpayer. The
bills must be segregated in individual envelopes together with the CDTFA copies of the
CDTFA-602, Field Receipt.
All cash collected must be converted to a cashier’s check or money order payable to the
CDTFA before the collector returns to the ofce. The cost of the cashier’s check or money
order will not be deducted from either the cashier’s check or the money order but will be
paid from the collector’s own funds. The collector will then claim reimbursement on their
travel expense claim. Note that in many instances, there will be no charge for a cashier’s
check purchased from a Bank of America branch.
The overnight retention for cash collected is not to exceed $500. All funds should be kept
segregated (by receipt number) until exchanged for a cashier’s check or money order. Separate
cashier’s check(s) or money order(s) must be obtained for each cash remittance.
In any instance not covered by the above items, the collector will take whatever action is
necessary to protect the cash collected. In all circumstances, the collector will exercise good
judgment and use every precaution to prevent loss or theft.
Compliance Policy and Procedures Manual
TAX REPRESENTATIVE’S DAILY REPORT — CDTFA–609 705.065
Collectors are required to write receipts for all eld collections and record the receipt numbers
and their totals on a CDTFA–609, Tax Representative’s Daily Report.
If a cashier is not available and it becomes necessary for a collector to issue a CDTFA–602,
Field Receipt in the ofce, a CDTFA–609 must be prepared listing all the receipts issued
(including any voided receipts). The CDTFA–609 will be used as the transfer document
between the collector and the cashier.
Collectors should turn in remittances, completed receipts, supporting documents, and the
CDTFA–609 to the cashier either the same day, or by 9:00 a.m. the following day for eld
receipts covering the previous day’s eld work.
The following guidelines must be followed when completing the CDTFA–609:
1. Receipts are to be written on the CDTFA–609 in consecutive numerical order. The
receipt number, including voided receipts and the amount of the receipt must be
listed in sequence showing the taxpayer to whom it was written.
2. Any receipts that were written for cash should have the amounts circled on the
CDTFA–609. When cash is converted to certied funds, the receipt numbers
representing those amounts must be shown under “Remarks.” Each exchanged
remittance must have a separate cashier’s check or money order.
3. The collector must pay any charges for the cashier’s check or money order and indicate
the expense incurred on the CDTFA–609. These charges may not be deducted from
the taxpayer’s remittance.
4. At the time the collector submits the funds and related documents to the cashier, the
total collected is to be shown in the space provided on the CDTFA–609. When the
receipts are received, the cashier must count the funds, date and initial the CDTFA–609
in the presence of the collector, make three copies and return one copy and the
original to the collector.
5. All entries for receipt numbers, amounts, cashier’s initials, and date must be written
in ink.
The collector will provide a copy of the CDTFA–609 to their supervisor. The collector retains
the original the CDTFA–609 for a minimum of 90 days when funds have been transferred
to the cashier.
September 2021
Collections
September 2021
COUNTERFEIT BILLS IDENTIFIED 705.070
The following procedures should be followed when a collector identies a counterfeit bill(s):
1. Inform the taxpayer of the counterfeit bill(s).
2. Conscate the counterfeit bill(s).
3. Notify your supervisor of the counterfeit bill(s).
4. Prepare a separate CDTFA-602, Field Receipt for the counterfeit currency as instructed
in CPPM section 705.010. However, specied elds should be completed as follows:
a. Check the box marked “Other” and write in “Counterfeit Currency,”
b. Write the serial numbers of the bills in the Account column next to the account
number,
c. Write the currency amount in the column titled “Amount.”
5. Provide the taxpayer with a copy of the receipt.
6. Segregate the quantity and denomination of the bills received in individual envelopes
with copies of the CDTFA-602.
7. Inform the taxpayer that credit for payment will not be given.
8. Notify the taxpayer that a letter will be forthcoming conrming the conversation,
describing the counterfeit bill(s), indicating that the counterfeit bill(s) will be sent to
U.S. Secret Service, and informing that a copy of the U.S. Secret Service results will
be sent to the taxpayer.
9. Prepare and mail the CDTFA-469, Field Call Counterfeit Bill(s), to the taxpayer after
returning to the ofce.
10. Retain a copy of the CDTFA-469.
11. Transfer the counterfeit bill(s) and a completed CDTFA-602 as instructed in CPPM
section 705.005, to the cashier to verify that the bill(s) are counterfeit.
The collector’s responsibility ends after the suspected counterfeit bills are transferred, with
the proper receipts, to the cashier. The cashier unit will verify with the U.S. Department of
Homeland Security/U.S. Secret Service that the bills are counterfeit.
Compliance Policy and Procedures Manual
ACCOUNTS RECEIVABLE — SPECIAL MAILING 706.000
GENERAL 706.010
Semiannually, the California Department of Tax and Fee Administration (CDTFA) mails a
Statement of Account to consumer use tax accounts, most special taxes and fees accounts and
all sales and use tax accounts (active and closed-out) that owe a “nal” liability. The United
States Postal Service will return incorrectly addressed statements to CDTFA headquarters
who, in turn, will forward them to the ofce responsible for the account to investigate for a
current valid address.
PROCEDURES FOR RESPONSIBLE OFFICE 706.020
The ofce responsible for the account makes online changes to clients/accounts when valid
addresses are located. When making an address change, comments should be entered into
the system.
Upon nding a current valid address, line out the old address on the envelope, write in the
new address and re-issue the statement of account to the taxpayer at the new address. If
the account is active and an investigation does not disclose a better address, a eld call
should be performed to determine if the business has closed or has moved and the case
notes updated with the results of the investigation.
CPPM 635.010 allows a closed out account to be reinstated within 18 months after the
closeout is processed (sublocations may be reinstated up to 6 months after the close out
date). An account cannot be reinstated until the taxpayer les all delinquent tax/fee returns,
pays the tax, penalty, and interest owing along with the appropriate reinstatement fee, and
posts an appropriate security deposit if deemed necessary.
In general, an account closed for more than 18 months (or 6 months for sublocations) may
not be reinstated. The taxpayer must le and pay all delinquent tax/fee returns, pay all
amounts due, and meet any other requirements necessary to complete the close out. The
taxpayer must then register for a new seller’s permit or special taxes account. The start date
of the new permit will be backdated to the closeout date of the previous permit. In addition,
the ofce in control of the account may require the taxpayer to post a security deposit under
the new permit.
January 2017
Collections
PAYMENT APPLICATION 707.000
PAYMENT APPLICATION RULES 707.020
If a payment voucher is submitted with a payment, the payment will be applied according
to the direction information contained in the voucher.
Payments not directed by the customer or any excess amounts from the directed payments,
depending on the voucher type, will be applied rst to any Cost of Collection/Cost of
Investigation amounts due. If there are none, the payment will be applied to the oldest period
rst until that period is paid in full. If there are multiple bill items within the oldest period,
the payment will be applied to the oldest bill item within the period rst, until the bill item
is paid in full. Any remaining payment will be applied to the next oldest bill item within the
period, until the period is paid in full. Any remaining payment will be applied towards the
next oldest period in the same manner.
If the payment is not enough to pay the oldest bill item within the period in full, it will be
applied in the order listed below depending on account type:
All accounts except Motor Vehicle Fuel Tax:
1. Tax
2. Interest
3. Penalty
4. Collection Cost Recovery Fee
For Motor Vehicle Fuel Tax accounts (RTC section 7658.5):
1. Interest
2. Penalty
3. Tax
Customers may direct their payment to a specic payment type (e.g., return payment, audit
payment, period payment) or pay their account balance when making a payment online.
Team members with appropriate security access can also manually redirect a payment to
one or more periods as requested by the customer. However, payments cannot be directed
specically to the tax, interest, penalty, or collection cost recovery fee portion of the liability,
nor to any specic bill item within the period.
The Collections Support Bureau (CSB) may, in accordance with CDTFA policy and Civil Code
section 1479, change the payment application in some situations.
Security payments are rst applied to established liabilities designated as “pending security”
and then any excess is applied in accordance with the standard rules for application of
payments.
Payments received from warrants can only be applied to the specic periods covered by the
warrant.
August 2021
Compliance Policy and Procedures Manual
APPLICATION OF PAYMENTS —
PRIMARY AND SECONDARY ACCOUNTS 707.030
All liabilities originate from a “primary” account. A “secondary” account is based on the
liability of the primary account. There can be multiple secondary accounts linked to a
primary account. For example:
1. A corporate account is a primary account and a dual determination on the
corporate ofcer is a secondary account (the corporate ofcer is the “dualee”). If dual
determinations are issued to multiple corporate ofcers, then each one of the billed
ofcer’s accounts constitutes a secondary account.
2. A predecessor account is the primary account. A billing for successor’s liability is a
secondary account.
3. A partnership account is the primary account. Secondary accounts can be established
for, and a billing notice sent to, any partners, even those not named on the original
partnership application.
When a payment is received for a liability where primary and secondary accounts exist, the
payment should be applied using the payment voucher for payment plan payments and
collection payments (e.g., Collection ID Payment, Levy/EWO ID Payment, Payment Plan ID
Payment). This ensures the payment automatically applies to the linked primary account
and credits the secondary account with the payment by automatically marking the payment
“From Secondary.”
Payments will be applied to the oldest linked bill item until that bill item is paid in full before
being applied to the next oldest linked bill item. If the secondary account is only responsible
for a portion of the primary account’s liability, the dual collection case will automatically
give full credit for the payment towards the debt, even if the payment is applied to a period
in which the debtor no longer has any remaining balance due.
For example:
Beginning balance before a payment of $800:
Period Primary Account Secondary Account
1Q Original Balance $1,000 Dualee Balance $500
2Q Original Balance $2,000 Dualee Balance $1,000
Ending balance after the payment automatically applies:
Period Primary Account Secondary Account
1Q New Balance $200 Dualee Balance $0
2Q New Balance $2,000 Dualee Balance $700
If the dualee makes a payment directly to their secondary account for amounts due, other
than the Collection Recovery Fee (CRF), the payment must be unapplied from the secondary
account and applied to the shared bill item in the dual determination collection case on the
primary account. To locate payments incorrectly applied to the secondary account, team
members will select the Financial tab and Payments subtab on the secondary account and
view all payments. Unless the linked dual determination debt has been paid in full, there
should not be any payments applied to the secondary account. Payments incorrectly applied
to the secondary account must be manually unapplied and moved to the primary account.
Instructions for moving payments are available in the system’s Help Manager.
March 2022
Collections
March 2022
A nal payment intended to pay off the CRF on the secondary account by the dualee should
be applied to the CRF bill item on the secondary account. These accounts incur their own
CRF billing and the nal payment should be applied to that billing only. The dualee is only
liable for the CRF on their secondary account and is not liable for a CRF billing on the
primary account.
Payments made using a Statement of Account from the secondary account will automatically
be applied to the linked primary account and credit the secondary. However, payments made
using a Statement of Account from the primary account may not automatically credit the
secondary account. If a payment is made using the Statement of Account and is applied to
a linked bill item, and that bill item is 100% shared with the dualee, then both primary and
secondary balances will be reduced. If the bill item is not 100% shared, the secondary will
not be given credit until the balances are equal. If the dualee should be given credit, the
payment can be marked “From Secondary” to credit the secondary account.
REFUNDS OF EXCESS OR ERRONEOUS AMOUNTS RECEIVED 707.040
CDTFA may receive funds from an enforced collection action in excess of the liability due and
therefore determined to be remitted in error or otherwise not due. Such instances include,
but are not limited to:
1. Funds from an escrow for an account where the liability was paid, but a release of
lien was not recorded.
2. Amounts billed, such as a successor or predecessor liability, innocent partner or
spouse, which are determined not to be due.
3. Funds not subject to or exempt from levy, such as amounts over the maximum allowed
by law for a wage garnishment.
In such cases, the collector should assist taxpayers in ling a claim for refund using online
services or offer to assist taxpayers in obtaining and completing the necessary forms to le
a written claim for refund. When a taxpayer les a claim for refund with a eld ofce or
headquarters ofce for funds that have been applied to a sales and use tax account, the
taxpayer’s written refund request must be sent to the Audit Determination and Refund
Section in Headquarters. The request must be accompanied by the Compliance Principal’s
recommendation to either approve or deny the refund claim. A claim for refund involving
special taxes and fees programs should be sent to the Appeals and Data Analysis Branch.
Compliance Policy and Procedures Manual
COST OF COLLECTION REPORT 707.050
Collection costs incurred in the collection of outstanding liabilities, such as sheriff’s keeper
fees and liquor license renewal fees, must be reimbursed before any non-voluntary payment
is applied to the taxpayer’s liability. Since the funds for collection costs come from the
Accounting Section, they must be tracked and reconciled when the payment is received. A
cost of collection report is created in the system and provides the Accounting Section with the
necessary information to reimburse the cost of collection amounts to the General Revolving
Fund. In addition, the report provides information about payments that have been moved
or changed. For example, the report will show the change if the payment is subsequently
moved to another liability in the system. This data is necessary since the Accounting Section
is responsible for transferring funds from the retail sales tax account to the general revolving
fund.
March 2022
Collections
June 2021
DELINQUENCIES 708.000
GENERAL 708.010
The California Department of Tax and Fee Administration (CDTFA) relies upon the voluntary
cooperation of taxpayers to le and pay taxes and fees when due. Most taxpayers le their
returns timely and pay in full. Those who do not are “delinquent.” Explaining the proper ling
procedures to a new applicant during the registration process, updating accounts timely when
new information is received, and promptly investigating returned mail helps prevent most
delinquencies. However, when returns and payments are not received timely, establishing
a delinquency allows team members to begin taking appropriate collection action(s).
A delinquency occurs when:
1. A tax or fee return is not led.
2. Taxes or fees are not paid.
3. The taxpayer otherwise fails to comply with the law or CDTFA’s requirements.
There are two types of delinquencies, “periodic” and “cause.” A periodic delinquency is
established automatically when a taxpayer does not le their return. A cause delinquency
is established when a team member determines that a taxpayer has not paid their liability
or has otherwise failed to comply with the law or CDTFA’s requirements. Other programs
may have additional automated delinquency cycles (see CPPM section 708.021, subheading
Cannabis and Alcoholic Beverage Tax Accounts).
THE DELINQUENCY PROCESS 708.020
Periodic Delinquencies
Failure to le a return, even a return representing a partial period, constitutes a “periodic”
delinquency, which begins the automated delinquency cycle. A delinquent prepayment,
however, does not result in a citation or revocation notice being generated. The system
automatically identies taxpayers who have not led returns and controls the preparation
of delinquency notices and various reports pertaining to these accounts.
Cause Delinquencies
When a taxpayer fails to comply with the law or a CDTFA requirement other than a periodic
ling, a cause delinquency may be established (exception for International Fuel Tax Agreement
(IFTA) accounts (see subheading IFTA Accounts below)). Team members must manually
create a cause delinquency in the system. Cause delinquency collection cases follow a set
timeline of automated events leading to either resolution or account revocation, and may be
established for any of the following reasons:
1. Failure to pay a balance due.
2. Failure to le a required schedule.
3. Failure to post a security deposit.
4. Failure to post additional security.
5. Failure to post a replacement security deposit.
6. Failure to comply. (This usually involves the taxpayer not producing requested
documentation. For example, when registration with other agencies differs from
CDTFA’s records, we may require documentation of business ownership.)
7. Failure to comply with the requirements of the Prepayment of Sales Tax on Purchases
of Gasoline (SG) program.
Compliance Policy and Procedures Manual
June 2021
When a cause delinquency is established, a Notice of Delinquency or Notice to Appear
(CDTFA-431 series) is mailed to the taxpayer. If the delinquency is resolved before the Notice
of Revocation is initiated, team members must manually close the Cause Delinquency
case to prevent the account from being revoked. If, at the end of the timeline, the taxpayer
has not complied with CDTFA’s requirements, the taxpayer’s account will be revoked. Tax
Technicians may be assigned to work delinquent accounts. If efforts by the Tax Technicians
to resolve the situation are unsuccessful, the account may be transferred to a Business Taxes
Representative. For information on working revoked accounts, see CPPM section 751.000.
Accounts not Subject to Revocation
The following types of accounts are not subject to revocation:
• Part-time accounts,
• Temporary accounts,
• Some special tax and fee accounts (see below), and
• Closed accounts.
IFTA Accounts
The following information pertains to IFTA accounts only:
• Cause delinquencies for failure to pay are automatically created by the system
(minimum $100 threshold).
• Revocation process is not stopped due to account closure.
Collections
June 2021
DELINQUENCY CYCLE TIMELINES 708.021
Summary of Delinquency Process for Revocable Accounts
Action Approximate Days
Delinquency established in the system 1 day after return due date or date manual
(cause) delinquency established
Notice of Delinquency or Notice to Appear
(CDTFA-431 series) mailed
15 days after delinquency established
Hearing Date Between 49 – 58 days after delinquency
established
Notice of Revocation (CDTFA-433) mailed 76 days after delinquency established
Referral to Inspections Section
1
At least 120 days after revocation
Summary of Delinquency Process for Non-Revocable Accounts (General)
Action Approximate Days
Delinquency established in the system 1 day after return due date or date manual
(cause) delinquency established
Notice of Delinquency (CDTFA-429) mailed 15 days after delinquency established
Delinquency nal 76 days after delinquency established
Guidelines for Working Delinquent Accounts
The following guidelines provide suggested actions for working delinquent accounts. As with
all collection accounts, complete documentation of the collection action(s) taken is essential.
1. Review account history for any previous delinquencies or actions on the account.
Check Online Services, Require Attention sub-tab for return led but not yet processed.
2. Determine if the taxpayer has led a duplicate tax return for another period by checking
account Open Tasks section for suspended return task.
a. Duplicate lings can occur when a taxpayer logs into online services to le a return
and selects a period for which a return was already led, or if the taxpayer uses the
same return form that was led for a prior period. In all instances where it appears
that a duplicate tax return was led, the taxpayer must verify the duplicate ling.
b. Once veried, a CDTFA–523, Tax Return and/or Account Adjustment Notice, is
prepared and emailed to the BTFD-RAU Electronic Maintenance Requests shared
mailbox to transfer the return to the appropriate period. For special tax and fee
accounts, adjustment requests are emailed to the BTFD-RPB Action Requests
shared mailbox.
1 Generally, accounts should remain in revoked status for at least 120 days before being referred
to the Inspections Section. Accounts may be referred earlier depending on the account’s compliance
history, size of liability, or concern for the safety of team members. The 120-day waiting period will
remain in effect to provide the taxpayer an opportunity to clear the account before proceeding toward
criminal prosecution.
Compliance Policy and Procedures Manual
June 2021
3. Determine if a partial return was led. Partial returns occur when a taxpayer les a
tax return designated as only part of the ling period. For example, the taxpayer timely
submits a tax return form and indicates that it represents a return period for April
through May only, instead of the full 2nd quarter. The account is now delinquent for
the partial period of June. To resolve this problem and remove the delinquency for
the partial period, the taxpayer should provide an amended tax return reporting the
total gross receipts for the entire quarter and pay any additional money owed.
4. Review the account for any unapplied credits that may be for the delinquent return
period. This occurs when:
a. A taxpayer has sent in the tax due for the return period but failed to send along
the return, or
b. The taxpayer has sent in both the return and the payment, but the return has
not been posted in the system.
Once the tax return is posted, the payment will match the return and clear the
delinquency.
5. Review the notes. The taxpayer may have recently contacted the CDTFA with changes
to their business, mailing, or email address and did not receive the returns or notices.
6. If the account still has a delinquency after reviewing the guidelines above, contact
the taxpayer by phone (business and personal), email and/or by mail.
7. When the taxpayer is contacted, team members should ask questions such as:
a. Has the tax return been led? If so, when and how was it led?
b. Was any tax due?
c. Did you keep a copy of the return? If no monies were due, the taxpayer can le
online or fax over a copy to be re-submitted.
d. Do you have the conrmation code for the payment or a copy of a cancelled
check? (A trace can be done online for the payment).
e. Did the business open? If not, what is the anticipated start date?
f. Has the business closed? If so, on what date? Was it sold, to whom, and for
how much? Was an escrow involved?
g. If the business is active, have sales been made and in what amount?
h. Do you need assistance in ling the return?
i. If the return has not been led, when will it be led? Explain to the taxpayer
that failure to le the delinquent return after the promised date may initiate
further action by the CDTFA. For example, closing the account or billing the
taxpayer for the estimated amount of tax due.
j. If you are unable to communicate with the taxpayer due to a language barrier,
every effort should be made to provide the taxpayer with a qualied bilingual
employee who can gather accurate information and explain to the taxpayer the
consequences for failing to le.
8. If the taxpayer cannot be reached, contact the taxpayer’s bookkeeper, landlord, etc.
to see if they have updated information.
9. Check the Internet for any additional phone numbers for the taxpayer. Check the
collection tools link on the CDTFA’s intranet site.
10. Check the taxpayer’s website for contact information.
Collections
June 2021
11. If mail has been returned by the post ofce, investigate for a current address by
checking FTB and DMV records.
12. If the taxpayer is selling at a swap meet location, contact the swap meet operator to
conrm the taxpayer is actively selling there. If so, inform the swap meet operator
that the taxpayer must contact the CDTFA or the permit may be closed, and sales
cannot be made without a valid permit. Do not inform the swap meet operator of the
delinquencies.
Cannabis and Alcoholic Beverage Tax
1
Accounts
For Cannabis and Alcoholic Beverage Tax accounts where the CDTFA is not the licensing
agency, the CDTFA cannot suspend or revoke the license when the associated account
becomes non-compliant. However, the system will communicate directly with the Bureau
of Cannabis Control (BCC) and Alcoholic Beverage Control (ABC) to inform them when the
license suspension or revocation may need to take place based on liabilities or delinquencies
with CDTFA. When a Cannabis or Alcoholic Beverage Tax account is referred for suspension
or revocation complies with the requirement, the system automatically communicates this
status back to the licensing agency.
Following is the delinquency process and timeline for these programs.
Cannabis Accounts – Periodic Delinquency
Action Approximate Days
Delinquency established in the system 1 day after return due date
Notice of Delinquency – Failure to File
(CDTFA-429-DEL) issued
15 days after delinquency established
Notice of Possible Disciplinary Action
(CDTFA-430-CD) issued
60 days after Notice of Delinquency issued
Eligible for Referral to BCC for Permit
Revocation
30 days after Notice of Possible Disciplinary
Action issued
Cannabis Accounts – Cause Delinquency
Action Approximate Days
Delinquency established in the system 1 day after initiated in system
Notice of Possible Disciplinary Action
(CDTFA-431-CD) issued
1 day after delinquency established
Eligible for Referral to BCC for Permit
Revocation
30 days after Notice of Possible Disciplinary
Action issued
1 Excludes Alcoholic Beverage Common Carrier and Alcohol Beer Vendor Accounts
Compliance Policy and Procedures Manual
June 2021
Cannabis Accounts – Established Liability
Action Approximate Days
Liability established in the system – return
led or estimated return generated
1 day after led and not paid in full, or
estimated return generated in system
Demand for Immediate Payment
(CDTFA-1210) issued
22 days after liability established (self-
reported) or 32 days after liability
established (estimated return)
Notice of Possible Disciplinary Action
(CDTFA-430-CD) issued
60 days after Demand for Immediate
Payment issued
Eligible for Referral to BCC for Permit
Revocation
30 days after Notice of Possible Disciplinary
Action issued
Alcoholic Beverage Tax – Periodic Delinquency
Action Approximate Days
Delinquency established in the system 1 day after return or report due date
Notice of Delinquency (CDTFA-429-DEL)
issued
15 day after delinquency established
ABC Suspension – Preliminary Notice,
Delinquency (CDTFA-1495) issued
52 days after Notice of Delinquency issued
ABC Suspension - Final Notice, Delinquency
(CDTFA-1497) issued
20 days after Initial ABC Suspension Warning
issued
Notice of Intention to Suspend Alcoholic
Beverage License (CDTFA-433-ABC) issued
(if ABC license is non-retail type)
If the ABC license is a retail type:
The system will create a work item to the
collector, who can then create an activity
work item or forward the initial work item
to CSB.
20 days after Final ABC Suspension Warning
issued
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June 2021
Alcoholic Beverage Tax – Established Liability
Action Approximate Days
Liability established in the system – return
led or estimated return generated
1 day after led and not paid in full, or
estimated return or report generated in
system
Demand for Immediate Payment issued 22 days after liability established (self-
reported), or 32 days after liability established
(estimated return)
ABC Suspension – Preliminary Notice,
Delinquency (CDTFA-1495) issued
52 days after Demand for Immediate Payment
issued
ABC Suspension - Final Notice, Delinquency
(CDTFA-1497) issued
20 days after Initial ABC Suspension Warning
issued
Notice of Intention to Suspend Alcoholic
Beverage License (CDTFA-433-ABC) issued
(if ABC license is non-retail type)
If the ABC license is a retail type:
The system will create a work item to the
collector, who can then create an activity
work item or forward the initial work item
to CSB.
20 days after Final ABC Suspension Warning
issued
Compliance Policy and Procedures Manual
July 2009
LOCATING MISSING TAX DEBTORS AND/OR ASSETS 720.000
GENERAL 720.010
RTC section 7092 and similar provisions for other tax and fee programs prohibit the
CDTFA from conducting an investigation of any person for any purpose other than tax/fee
administration. Any person violating this prohibition will be subject to disciplinary action in
accordance with the State Civil Service Act, including dismissal from ofce or discharge from
employment. For the purposes of this section, “investigation” includes any oral or written
inquiry directed to any person, organization, or governmental agency.
The personal information of the CDTFA’s customers and taxpayers is protected from
unauthorized inspection and disclosure by policy and state and federal laws. To do a
satisfactory job in collecting delinquent taxes and fees, collectors must be able to identify
and locate taxpayers and their assets. This activity requires the review and evaluation of
condential personal information. All requests for this type of information must be made
only for valid CDTFA– related business use.
All CDTFA team members are responsible for protecting the condentiality of the information
to which they have access. Therefore, team members will not request, access, examine, use,
disclose or modify information for any non-business related reason such as out of curiosity or
for personal gain. This includes browsing any information that is not a part of your assigned
workload, e.g., information about the collector’s own personal information, family members
(including spouse or children), friends, neighbors, business associates, co-workers, celebrities
or any other individual(s) or entities not related to the team member’s work assignments.
Condential information is not to be removed from the work site without proper authorization.
Condential information (most tax and fee payer information) must be secured in approved
locations while in the ofce, such as locking le cabinets, etc. If condential information is
required when in the eld, care must be taken not to allow non-authorized parties access to
the information. Once the condential information has served its business-related purpose,
the information must be destroyed in an appropriate and condential manner. (CMAP section
7403, Destruction of Condential Records.)
EXAMINATION OF ACCOUNT RECORDS AND SYSTEM INFORMATION 720.020
Discussing a tax or fee liability with a taxpayer without knowing the basis for the liability or
being familiar with the taxpayer’s ling history creates an unfavorable impression with the
taxpayer. This can have a direct inuence on the success of the collection interview. Before
making contact with the taxpayer, the collector should review the taxpayer’s current liability
and account history in the system. As a preliminary step in organizing a collection case, it
is often helpful to take notes during the review that summarize previous relevant account
activity and then transcribe those ndings into a “Case Summary” in the system in order to
have available all of the details pertinent to the case. This will help the collector to request
all the needed information at one time when requesting asset or skip-tracing information.
Performing a case review before contacting the taxpayer will allow the collector to:
1. Understand the basis for the liability.
2. Determine whether the taxpayer has led and paid all tax/fee returns and prepayments
or posted a security deposit, if one was required.
3. Formulate a plan to overcome any excuses or objections.
4. Anticipate taxpayer questions.
5. Prepare answers to those questions.
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The review might also disclose information on assets, sources of income, nancial status, and
other general information that might otherwise be overlooked. Examining account records,
audit working papers, and system information will often reveal names of references, relatives,
banks, other creditors, debtors, former residence addresses, or other information that will
help to locate a missing taxpayer or their assets.
It is essential to have a complete written record of a taxpayer’s case history. All discussions
with the taxpayer about the current collection case, any promises made by the taxpayer,
and subsequent actions taken by the collector must be documented. Proper documentation
will assist in resolving taxpayer disputes or misunderstandings regarding any actions taken
by the collector and is essential if the collector is served with a subpoena to testify in court.
Prior to contact with the taxpayer, always:
1. Have a thorough understanding of what is necessary to clear the assignment.
2. Review the actions necessary to clear delinquency, revocation, or collection problems.
3. Note and do not repeat previously unproductive actions, unless there is reason to
believe that the action may be successful if carried out, e.g., sending a levy to secure
funds in a bank account.
4. Use closely-spaced follow-up contacts with the taxpayer and limited acceptance of
promises if the taxpayer has a history of broken promises or missed deadlines.
5. Summarize all relevant le and on-line computer information and input summaries
into the case notes.
6. Take actions to complete the entire collection case, not only the particular assignment.
Collectors are responsible for obtaining all delinquent periods for the account, as
well as collecting all nal billed account receivable balances and the applicable
reinstatement fee(s).
7. Review the account to determine whether there is a need to send the taxpayer a letter
requesting a security deposit.
If the taxpayer cannot be located after examining the account records and system information,
the information of other agencies, organizations, and commercial enterprises that gather
and maintain information on large segments of the population is available to staff.
Compliance Policy and Procedures Manual
December 2021
DATA WAREHOUSE INFORMATION 720.021
The Data Warehouse, pursuant to specic agreements, contains information from various
governmental agencies including, but not limited to, the Department of Motor Vehicles
(DMV), Employment Development Department (EDD), Franchise Tax Board (FTB), United
States Coast Guard (USCG), and U.S. Customs and Border Protection. Additionally, some
of the information contained in the Data Warehouse is derived from CDTFA systems and
other informational sources such as auction houses.
The information in the Data Warehouse is condential and all CDTFA disclosure policies
must be followed. Information must not be disclosed unless authorized by law. Additional
information can be found by visiting the Disclosure Ofce page of CDTFA’s intranet site.
Select the Disclosure Policies and Memos link and then select the CROS Data Warehouse
Permitted Uses link. All questions concerning disclosable information should be directed to
the Disclosure Ofce.
Team members must have a business need to conduct a search in the Data Warehouse (e.g.,
to facilitate collection or locate a missing taxpayer). Browsing without a business need is
prohibited. Some agreements with other agencies limit what information may be accessed;
however, if there is a link to data in the Data Warehouse, team members may only access
it when there is a business need to do so.
When there is a conict of interest between the team member and the account (for example,
the business owner is a relative of the collector assigned to the case), the team member must
immediately notify their supervisor of the conict of interest and stop working that account,
and furthermore must not access the information in the Data Warehouse. For additional
information on what is considered a conict of interest, see CDTFA Manual of Administrative
Policy section 1226, Ethics and Rules of Conduct Policy.
A list of the various links and descriptions of the data provided in each link is available on
CDTFA’s intranet site by searching “Data Warehouse Field Descriptions” on CDTFA’s intranet
main page. The information is also available by going to the Technology Services Division’s
webpage and selecting the CROS link. Under the Resources heading, select CROS Cheat
Sheets and Guidance. Under both Collections and Audit cheat sheet links is the heading,
Other Resources, and the information is accessed by selecting the Data Warehouse Field
Descriptions link.
The following information may be automatically populated in the Data Warehouse:
DMV INFORMATION
Information available includes:
1. Taxpayer information
2. Vehicles registered to the taxpayer
3. Occupational licenses held by the taxpayer (dealers, dismantlers, etc.)
4. Licensed dealer’s vehicle sales data
EDD INFORMATION
Information available includes:
1. Wage information
2. Unemployment claims information
3. Employer information
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December 2021
FTB INFORMATION
Information available includes:
1. Personal Income Tax (PIT) taxpayer information
a. Address for current and previous years, spouse information, income tax return
for current and previous years
2. 1099 K information
a. Income and payment information for California retailers that accept a payment
card as payment or payment made by a third-party settlement organization on
behalf of the purchaser
3. 1099 Misc information
a. Matches payee’s tax ID or name and address with CDTFA permit holder database
4. Financial Institution Record Match (FIRM)
a. Matches tax debtors’ social security numbers (SSNs) and federal employer
identication numbers (FEINs) against accounts held at participating nancial
institutions (banks, credit unions, insurance, and brokerage companies).
b. It is important to note that some nancial information received through FIRM
may be inaccurate or contain information that does not match our taxpayer.
For example, there may be instances where FIRM information on corporations
includes corporate ofcers’ personal nancial information. Additionally, you may
nd information on individuals not related to our taxpayer’s account because of
wrong SSNs, FEINs and/or names entered by the nancial institutions. Therefore,
it is imperative to verify FIRM information against our taxpayer’s records before
taking any action, such as sending a bank levy.
5. Income tax return information
a. Name, address, FEIN, gross receipts reported, cost of goods sold, NAICS code.
6. Corporation information
a. Corporation name and address, FTB status and status date (active, suspended, etc.)
7. Use tax reported to FTB
Compliance Policy and Procedures Manual
December 2021
MISCELLANEOUS SOURCES
Sources that provide information for review include:
1. Alcoholic Beverage Control (ABC) - license and licensee information
2. Attorney General Ofce – cigarette Internet purchaser information
3. Auto Auctions – sales data of vehicles sold
4. California County Assessor – vessels and aircraft information
5. CalRecycle – CalRecycle Tire Fee information
6. Cities/Counties/Consultants – business license information, and Local Tax Petition
Log information
7. Department of Homeland Security – U.S. Customs Import information
8. Federal Aviation Administration (FAA) – aircraft information and aircraft dealer
information
9. Internal Revenue Service (IRS) – Federal Tax Information (see CPPM section 720.031)
10. Secretary of State (SOS) – license information (corporations, LLC, etc.) and voter
registration information (see CPPM section 720.025)
11. Social Security Administration (SSA) – popular names per year registered
12. U.S. Coast Guard (USCG) – vessel registration information
13. U.S. Census – most common surnames from the U.S. Census
DATA WAREHOUSE MANAGER SEARCH 720.022
Collectors may search the Data Warehouse Manager for taxpayer or third-party information
when there is a business need to do so. The Data Warehouse Manager search may be accessed
from the New Manager screen. A search of this kind occurs when investigating a related or
responsible person who is not registered with an account in CDTFA’s registration system.
For example, collectors may search for wages of a taxpayer’s spouse who is not on the permit
before issuing a spousal earnings withholding order. Searches can be conducted by name,
SSN, or California Driver License number. For additional information on how to search see
“Search in the Data Warehouse Manager” in the system’s Help Manager.
EXTERNAL SOURCES INFORMATION 720.023
Through investigation and skip tracing, collectors gather information to locate taxpayers
and their assets. In addition to information available in the Data Warehouse, there are other
sources listed on the Collection Tools page on CDTFA’s intranet site. Any information received
from external sources, including information received from an External Agency Tracking
(EAT) request, shall be entered in the External Sources Findings.
Taxpayer information and assets from external sources may be added by team members
by accessing the Collection springboard, External Sources tab, and selecting the Findings
subtab. For additional information on entering the data in the External Sources Findings
subtab, see “External Sources” in the system’s Help Manager and other cheat sheets available
on CDTFA’s intranet site.
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December 2021
INTERNET COLLECTION TOOLS 720.024
The Internet is a very useful tool that can be helpful in locating:
1. Business website addresses.
2. Physical address(es) for the business or the business owners.
3. Phone numbers.
4. Neighbors.
5. Business ownership.
6. Business licensing information.
7. Property information.
8. Suppliers.
9. Assets.
10. Financial Information.
11. Other information about the taxpayer, the business, its competition, etc.
Many collection tools are available using the Internet. The following list highlights some
commonly accessed collection tool websites; however, this list is not intended to be
comprehensive. Hyperlinks to these websites, and others, are available at CDTFA’s intranet
site under “Collection Tools.”
Some available sections include:
Search Engines and Directories
Government Resources
Legal Search Sites
Phone Directories/People Finders
Maps/Vehicle Pricing/Real Property Information/Misc.
Compliance Policy and Procedures Manual
SECRETARY OF STATE INFORMATION 720.025
The California Secretary of State (SOS) maintains the business filings required of
corporations, limited liability companies (LLC) and limited partnerships (LP). The Articles of
Incorporation, Statement of Information, Certicate of Dissolution, etc. are accessible on the
SOS website, www.sos.ca.gov, by selecting the Bizle link from the home page. The California
Business Search link, located directly underneath the Search Online button, provides the
search function.
First, select the type of search (corporation name, LP/LLC name, or entity number), and
enter the search criteria. After getting the search results, much of the entity’s information
is available by clicking on the Entity Name hyperlink. Many of the documents are available
as PDF les.
Information available online includes:
• Entity number.
• Date of incorporation or registration.
• Status of the entity.
• Date of last complete statement by the ofcers/members/partners.
• Type of stock.
• Entity name and address.
• Entity name change (if applicable).
• Name and address of agent for service of process.
• Merger date and name of surviving corporation (if applicable).
• Attorney for entity.
Additional information available through the SOS includes voter registration information
and list of notaries public licensed to do business in California.
To request copies of documents that are not available online, send a CDTFA–877, Request for
Corporate/Limited Liability Company/Partnership Information, to the Use Tax Administration
Section (UTAS). UTAS will then forward the request to the Secretary of State’s Ofce.
July 2018
Collections
October 2020
FINANCING INFORMATION — UNIFORM COMMERCIAL CODE 720.027
The Uniform Commercial Code (UCC) allows creditors to perfect liens on specied personal
property in all California counties by ling, at a single location, a Financing Statement
describing the property. Transactions involving UCC lings may be conducted online at the
Secretary of State’s UCC Online website at https://bizleonline.sos.ca.gov/. An ofce that
levies personal property and receives an allegation of priority from a third party pursuant
to the UCC can verify the alleged information through the Secretary of State’s ofce. In
addition, state tax liens recorded with the Secretary of State’s ofce are also accessible from
the UCC Online website.
The UCC includes provisions to assist lenders or secured parties in dealing with borrowers
who move their chattels and inventories across county and state lines. The UCC deals with
chattel mortgages, consignments, conditional sales, trust receipts, inventory liens and
assignments of accounts receivable and provides for centralized ling of nancing security
information with the Secretary of State’s ofce. For example, when a bank nances a business,
the bank will le a Financing Statement with the Secretary of State’s ofce instead of ling
a chattel mortgage in the county recorder’s ofce.
The lender or secured party les the Financing Statement on a UCC–1 and generally keeps
the security agreement in its possession. The term “security agreement” replaces the terms
“chattel mortgage, trust receipt, consignment, assignment, pledges,” etc. The UCC–1 is a brief
statement, or abstract, containing the descriptive essentials of the security agreement. When
there is a continuation, release, assignment, termination, or other change to the Financing
Statement, a UCC–3, Financing Statement Change, is led.
As a general rule, Financing Statements will be led in the Secretary of State’s ofce in
Sacramento. The following transactions are exceptions:
1. Collateral such as timber, farm products, farm crops, or contracts relating to farming,
are led in the county recorder’s ofce.
2. Conditional sales contracts on consumer’s goods do not need ling.
3. The DMV records changes to the legal title for motor vehicles and equipment used
on the highway.
4. Under certain conditions, the legal title to a mobile home is led with the Department
of Housing and Community Development.
Requesting Information or Copies
To determine whether a taxpayer has loans or encumbrances on personal property, collectors
can use the Free Searches & Copies link on the UCC Online website. The website also has
a link for Help which provides instructions on using the site.
If the information on the Secretary of State’s website does not provide sufcient information,
a CDTFA–426–U, Request for Secretary of State Information or Copies, may be completed and
sent to UTAS to request the information from the Secretary of State’s ofce.
UTAS will forward the information response or copies of statements to the requesting ofce as
soon as they are received from the ling ofcer at the Secretary of State’s ofce. If no record
is available, the request form will be so noted and a copy will be returned to the requester.
Compliance Policy and Procedures Manual
ACCESSING INFORMATION FROM EXTERNAL AGENCY DATABASES 720.030
CDTFA has agreements with the Department of Motor Vehicles (DMV), Franchise Tax Board
(FTB), and Employment Development Department (EDD) for the exchange of information.
Most of the available information is stored in the system’s Data Warehouse. Additional
information may be available through the External Access Tracking (EAT) system. Authorized
team members (Resource Persons) may electronically request and track information from the
databases of those agencies. The EAT request page is found on CDTFA’s intranet site under
the “On the Job” tab under the heading “Tax Tools.” For information security purposes,
the EAT program specics are condential. Therefore, the following information is only an
overview of the program.
Field ofces and specied headquarters units designate a team member who is authorized to
access the external agencies’ databases via the EAT system. External agency information
available through the EAT system may only be requested through the appropriate Resource
Person(s) in their ofce, section, or unit.
Resource Person Guidelines
1. Resource Persons are authorized to obtain information only from a specied agency.
For example, if authorized to access FTB information, the Resource Person must not
attempt to access other government agency databases.
2. Resource Persons are responsible to ensure to the best of their knowledge that requests
for condential information are for valid CDTFA business use only. Requests are
tracked through the EAT system.
3. Resource Persons may not access other agencies’ information for their own assignments.
Resource Persons must route the request(s) for information to one of the ofce’s other
resource persons (with limited exception for Consumer Use Tax Section (CUTS)).
4. Resource Persons may print a copy of the original request for their records; however,
when there is no longer a “business need” to maintain the printout, it must be
destroyed using the destruction methods for condential information (See CDTFA
Manual of Administrative Policy section 7403, Destruction of Condential Records).
The destruction date of the material must be documented in the EAT system by the
Resource Person.
5. Unless there is an extenuating circumstance, such as litigation of a case, all requested
FTB, EDD, and DMV documents must be returned to the Resource Person upon
completion of the case for which the documents were requested, or when retention is
no longer necessary. Resource Persons will promptly destroy the returned documents
in a condential manner and enter the destruction date in the EAT system.
6. The EAT system must be updated with the destruction date of all printouts. This
includes situations where database information is printed in one month but is not
destroyed until the following month (or later). A list of all undestroyed documents older
than three years is generated through the EAT system. Supervisors are responsible for
periodically reviewing the list to determine if a need still exists to retain the material.
The Internal Audit Bureau (IAB) conducts periodic reviews to ensure that printouts of
information are condentially destroyed, and the destruction is properly documented
by the Resource Person(s).
August 2022
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August 2022
Requestor Guidelines
Requestors must submit all requests for external agency information from DMV, FTB, and
EDD via the EAT system.
a. Using the EAT system, the Requestor enters the request for information in the “Enter
an Access Request” area and then clicks on “Submit.” The applicable Resource Person
will receive an e-mail notication that the request was submitted. The “Enter Online
Access Made” link must only be used by those in pre-dened situations (for example,
CUTS) who are authorized to access information on their own cases.
b. The requestor of the search must request information only from the authorized
Resource Person(s) within the requestor’s ofce/section/unit of responsibility. Also,
because FTB, DMV, and EDD Resource Persons often are not the same individuals,
requestors may need to send separate requests to more than one Resource Person.
For example, a request made for DMV information from an FTB Resource Person will
not be carried out and must be returned to the requestor for proper routing.
c. The requestor must complete a separate request for each “person” (individual,
corporation, partnership, or each individual partner of a partnership).
d. The EAT system provides a list of options for the purpose of the request. If the purpose
of the request is not found in the options provided, the requestor must select “other”
and enter an explanation of the purpose for the request.
e. Documents may be retained for valid business reasons including, but not limited
to, write-off account reviews, quarterly collection reviews, dual determination
investigations, petitions, claims for refund, and training purposes. During the time
the documents are retained, the documents must remain attached to the case le in
a secure area to prevent unauthorized access. When retention of the documents is
no longer necessary, FTB, EDD, and DMV documents are to be promptly returned to
the EAT Resource Person for condential destruction.
f. External agency information obtained through the EAT system is condential and
is protected from disclosure by law, regulation, and policy, as is all other taxpayer
information. This information is to only be used for valid CDTFA-related business
purposes.
g. Federal tax information (FTI) never loses its identity. Federal tax return information
may accompany the FTB documents provided. If a collector receives FTI from any
source and transcribes the data into notes, the Internal Revenue Service (IRS) still
considers the transcribed notes to be FTI even if the original document is destroyed.
Please see CPPM section 720.031 for guidance on identifying and safeguarding FTI.
Supervisor Review Guidelines
The information available from these external agencies is an important collection tool and
should be fully utilized by team members in handling their cases/assignments. However, to
ensure that the information is only being requested for valid business purposes, supervisors
and managers will conduct random periodic reviews of the requests made through the EAT
system.
Compliance Policy and Procedures Manual
October 2021
The California Revenue and Taxation Code (RTC) and the Internal Revenue Code (IRC) contain
reciprocal provisions permitting an exchange of information. The California Department of
Tax and Fee Administration (CDTFA) receives federal tax information (FTI) from the Internal
Revenue Service (IRS). In addition, IRC section 6103(p)(4) requires CDTFA to establish and
maintain safeguards to prevent unauthorized use or disclosure of FTI.
Unauthorized access, inspection, use or disclosure of FTI can result in civil and/or criminal
penalties. See the CDTFA Manual of Administrative Policy section 7205 and IRC sections
7213, 7213A, and 7431 for specic penalty provisions.
To help prevent unauthorized access, the system hides FTI from team members without
authority to access FTI. Team members without access to FTI are not able to see that FTI
exists in the system even if they can view other taxpayer information. For example, team
members with system view-only access will not be able to add a new FTI Note, read an FTI
Note, or even see that an FTI Note exists.
Denition of FTI
FTI is a term used to describe all federal tax returns and return information (and any
information derived from it) that is in the CDTFA’s possession or control which is covered by
the condentiality protections of the IRC and subject to IRC section 6103(p)(4) safeguarding
requirements, including IRS oversight.
FTI is categorized as “sensitive but unclassied” information and may contain personally
identiable information such as a taxpayer’s full name, social security number, etc. FTI
includes a return or return information received directly from the IRS (for example, information
requested using the CDTFA-33-B, Request for Federal Tax Information), and information
obtained through an authorized secondary source, such as the Alcohol and Tobacco Tax
and Trade Bureau, Social Security Administration, or other entity acting pursuant to an IRC
section 6103(p)(2)(B) agreement (for example, information accessed in the Data Warehouse
or information received from a Franchise Tax Board (FTB) External Access Tracking (EAT)
request). However, IRS returns that are attached to FTB returns received in response to a
CDTFA-1144, Ofcial Request for Return Information, request are not considered FTI.
FTI also includes any information created by CDTFA team members that is derived from
federal returns or return information received from the IRS or obtained through a secondary
source. For example, if FTI is incorporated into an exhibit in a dual determination memo,
the entire memo must be handled and protected as FTI. Similarly, if FTI is transcribed
into an audit schedule, the entire audit must be handled and protected as FTI. FTI may
not be masked to change the character of the information to circumvent IRC section 6103
condentiality requirements.
Conversely, copies of tax returns or return information provided to the CDTFA directly by the
taxpayer or taxpayer’s representative (e.g., 1040, W-2) or obtained from public information
les (e.g., federal tax lien on le with a county clerk, Offers in Compromise available for public
inspection, court records, etc.) is not considered FTI and is not subject to the safeguarding
requirements of IRC section 6103(p)(4).
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October 2021
Authorized Use
Any team member who receives FTI for an authorized use may not use the information for
any purpose other than that specic authorized use. An unauthorized secondary use of FTI
is specically prohibited and may result in the discontinuation of FTI disclosures to the
CDTFA and imposition of civil or criminal penalties on the responsible team member. For
example, audit team members may only use FTI to perform their ofcial duties as auditors
and must not disclose the FTI to any other person who does not have a “need to know” or
statutory authority to access FTI under the IRC. Browsing FTI or other tax information in any
information system for personal gain or interest, or any other improper purpose is strictly
prohibited. For more information, please read the “Federal Tax Information (FTI)” link on
the Disclosure Ofce’s page on CDTFA’s intranet site.
Authorized users consist of team members and contractors who have successfully completed
the CDTFA Disclosure Training and Mandatory Information Security Training within the last
twelve months, and have a signed CDTFA-4, Condentiality Statement, submitted to their
supervisor within the last twelve months. These prerequisites must be completed before
access to FTI can be provided. Supervisors are responsible for ensuring that each team
member and contractor reporting to them annually completes the training and provides the
signed CDTFA-4.
Team members must rst inform or consult with their supervisor before requesting or
using FTI on any assigned case (audit, Field Billing Order, or other investigation) to ensure
compliance with CDTFA and IRS standards. If you encounter a situation where the use of
FTI seems questionable, please discuss the matter with your supervisor or the Disclosure
Ofce before proceeding.
Please refer to the section “SharePoint” below to ensure compliance with key procedures,
dealing primarily with how to provide copies of audit working papers (AWP) containing FTI
to taxpayers and how to accommodate related audits and dual determinations that cannot
be attached in the system.
Internal audits are routinely conducted to ensure that the authorized use of FTI complies
with CDTFA and IRS standards.
Verifying FTI
If team members independently verify FTI provided by the IRS or a secondary source with the
taxpayer or public information les, then the veried information loses its FTI characteristic
and is no longer subject to FTI safeguarding guidelines, provided the IRS source information
is replaced or overwritten with the newly veried information.
For example, if a levy containing FTI is mailed to a bank, and the bank’s response contains
the same FTI rewritten in the bank’s own writing, then the original FTI information is
considered third-party veried. Team members can now overwrite the original IRS sourced
information with the third-party veried information, thereby removing the information’s
FTI characteristic and safeguarding requirements.
Another example is if the taxpayer’s address received from IRS sourced information is
subsequently veried by a third-party source such as CLEAR, the original FTI information
can be overwritten with the third-party veried information.
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October 2021
The FTI Tracking Log
The FTI Tracking Log is used to track FTI (see exceptions under subheading FTI in the CDTFA’s
Internal System and subheading SharePoint). An entry must be made in the FTI Tracking
Log whenever FTI is requested, received, handled, copied, or transcribed. For example, when
team members print letters containing FTI (e.g., levies) or when an EAT resource person
prints FTB information containing FTI, an entry must be made in the FTI Tracking Log.
The FTI Tracking Log is available on the CDTFA intranet site under the On the Job drop-
down menu. Step-by-step instructions regarding how to use the FTI Tracking Log are located
in the User Guide located on the FTI Tracking Log’s homepage and in two separate CDTFA
Take 5 videos titled, How to Submit a Request Using the FTI Tracking Log, and, How to Track
a Request Using the FTI Tracking Log.
Safeguarding FTI
Safeguarding FTI is critically important to ensure taxpayer condentiality is maintained, as
required by IRC section 6103. Team members in possession of FTI are personally responsible
for safeguarding it and must protect the information from unauthorized disclosure. Team
members must keep detailed notes in CDTFA systems to record the receipt, use, and transfer
of FTI information. In all instances, FTI must be safeguarded in the following manner:
Electronic Files on Portable Media (e.g., compact disk (CD), ash drive, portable hard drive,
SD card)
• Files containing FTI must contain “FTI” in the le name.
• CDTFA-85, Inspection or Disclosure Limitations (Federal), must be afxed to all portable
media.
• Portable media must always be stored in a locked cabinet when not in use.
• Receipt and transfer of FTI saved on portable media must be recorded in the FTI
Tracking Log.
Hard Copy Documents
• CDTFA-85, Inspection or Disclosure Limitations (Federal), must be afxed to all hard
copy documents.
• Hard copy documents containing FTI must always be stored in a locked cabinet when
not in use.
• Receipt and transfer of hard copy documents containing FTI must be recorded in the
FTI Tracking Log.
Retaining FTI
FTI should not be retained once it is no longer needed. However, the retention of FTI in AWP
and active collection cases should follow normal retention policies. The current procedure for
retaining AWP that is described in Audit Manual section 0117.02 also applies to collection
case les.
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October 2021
Transcribing FTI
When FTI is transcribed (e.g., copied, recreated, reproduced) in any way, the transcription is
also considered FTI and is subject to the same protection and restrictions as the original FTI.
Transcription can occur in many ways. For example, if FTI income gures are incorporated
into digital AWP or a dual determination memo, the AWP or dual determination memo is
now considered FTI. Also, if an EAT resource person accesses the FTB’s systems and prints
or transcribes IRS information, the printed or transcribed material is considered FTI (see
additional information under subheading in this section FTB Information Received Through
EAT Request).
Furthermore, merely writing notes that contain FTI information on a notepad is considered
transcription. In all instances, team members must take precaution when FTI is transcribed
and use the FTI Tracking Log to record each occurrence.
Email and Fax
To accurately comply with IRS safeguards, team members may not email or fax any document
or information containing FTI.
Voice over Internet Protocol (VoIP)
Team members may discuss a taxpayer’s FTI information over the VoIP phone system only
after conrming the taxpayer’s identity.
Telework
Team members cannot physically remove FTI from any CDTFA location and therefore must
physically be present at a CDTFA location to receive, view, transfer, and destroy all tangible
FTI, including FTI stored on removable media. While teleworking, team members may access
and view FTI contained in the CDTFA systems, provided a business need exists, and only
when connected through the CDTFA’s Virtual Private Network (VPN) on a CDTFA-issued
computer. However, all transcriptions must be recorded in the FTI Tracking Log. For example,
electronically transcribing FTI sourced from the Data Warehouse into an audit or dual memo
requires an entry in the FTI Tracking Log. Furthermore, team members who are teleworking
will only print documents containing FTI on a printer connected to the CDTFA system and
located on the premises of a CDTFA location.
Requesting FTI
All requests for direct access to FTI must be documented in the FTI Tracking Log. Requests
for FTI shall only be made when the information is not available from any other source. A
request for FTI is made using the CDTFA-33-B, Request for Federal Tax Information, which
is subsequently approved by an authorized person listed on the CDTFA Exchange List who
then creates the request and records it in the FTI Tracking Log.
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October 2021
The following summarizes the request process:
1. The requestor completes the CDTFA-33-B and sends it to the approver via email. The
email subject line shall contain the account number and taxpayer name, unless the
taxpayer’s name is derived from FTI. If the CDTFA-33-B contains FTI, the requestor
must hand-to-hand deliver it to the approver or send the request via interofce mail
(not email or fax) using the double envelope procedure described in this section under
the subheading Sending and Receiving FTI, and must create a new entry in the FTI
Tracking Log.
2. The approver will verify that the requestor is assigned to work the account listed in the
request. After verifying, the approver will complete the approver sections on the form
(including their signature), open a new request in the FTI Tracking Log, and attach
a copy of the approved CDTFA-33-B to the request before sending it to the BTFD
FTI Custodian. If the CDTFA-33-B contains FTI, it must be sent via interofce mail
using the double envelope procedure described in this section under the subheading
Sending and Receiving FTI.
3. The BTFD FTI Custodian shall fulll the request by either using the IRS’ Transcript
Delivery System (TDS) for transcripts, or if requesting photocopies, completing the IRS
Form 8796-A, Request for Return/Information (Federal/State Tax Exchange Program –
State and Local Government Only), and mailing it along with a cover letter to the IRS at:
Internal Revenue Service
Disclosure Scanning Operation
Stop 93A
PO Box 621506
Atlanta, GA 30362-3006
The IRS provides two different forms of FTI: photocopies and transcripts. However, due to
the length of time it takes the IRS to process photocopy requests, team members shall only
request transcripts, unless transcripts are unavailable. Transcript requests are fullled online
through the TDS and are typically available within two weeks from the date the BTFD FTI
Custodian receives the request.
Information available through TDS:
1. Account Transcript – Includes the following:
a. Information on the account balance, interest, and penalties.
b. Taxpayer’s ling status (e.g., “married ling jointly”).
c. Line item information from the return such as Adjusted Gross Income, Taxable
Income and Tax Per Return.
d. The date on which the IRS processed the return.
e. Subsequent activity posted to an account after the return was led (e.g., payments,
credits, adjustments).
2. Return Transcript – Contains most lines from the original return, including attached
forms and schedules. The transcript contains both the “per return” and “IRS adjusted”
entries. It does not contain subsequent activity on the account. Return transcripts
are available for returns led during the current and three prior tax years.
3. Record of Account – Includes both the “Account Transcript” and “Return Transcript”
information and is available for returns led during the current and three prior years.
4. Wage and Income Documents – Shows income reported by taxpayers. Wage and
Income information is only available for individual tax returns, and only for wages
and income earned during the current and prior ten years.
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October 2021
Sending and Receiving FTI
All receipts of FTI must be documented in the FTI Tracking Log. Upon receipt of direct access
to the FTI, the BTFD FTI Custodian will use the FTI Tracking Log to track the sending of
the completed FTI request back to the approver by doing the steps listed below. (For FTI
received via an FTB EAT request, see subheading FTB Information Received Through EAT
Request in this section.)
FTB:
1. Attach the CDTFA-85, Inspection or Disclosure Limitations (Federal), to the FTI.
2. Place the FTI in an envelope marked as “Condential – Only to be opened by designated
team member” and list the approver.
3. Place the marked envelope into another envelope (the outer envelope shall not indicate
there is FTI inside the contents of the envelope).
4. Send the hard copy FTI in the double sealed envelope marked “condential” to the
approver.
5. The approver will receive an automated email from the BTFD FTI Custodian with
directions to visit the FTI Tracking Log and conrm the receipt of the FTI. The email
contains the specic Request ID that must be conrmed.
6. The approver will go to the FTI Tracking Log and select the “Receive” button for the
specic Request ID. When the hard copy FTI is received, the approver will send the
completed request to the requestor by selecting the “Send” button in the FTI Tracking
Log, then selecting the requestor’s name.
7. The approver will then hand-to-hand deliver the hard copy FTI to the requestor.
8. The requestor will conrm the receipt of the hard copy FTI in the FTI Tracking Log.
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October 2021
Destroying FTI
When FTI is no longer needed it must be documented in the FTI Tracking Log and sent to
the BTFD FTI Custodian (MIC 40) for destruction in the following manner:
1. Attach a CDTFA-85, Inspection or Disclosure Limitations (Federal), to the FTI.
2. Place the FTI in an envelope marked “Condential – Only to be opened by designated
team member” and list the BTFD FTI Custodian (MIC 40) or FTB EAT resource person
(see number 6 below).
3. Place the marked envelope into another envelope (the outer envelope should not
indicate there is FTI inside).
4. Send the hard copy FTI in the double sealed envelope marked “condential” to the
supervisor in Compliance and Technology Section (MIC 40).
5. The team member who sends the physical FTI for destruction must also send the
request to the BTFD FTI Custodian in the FTI Tracking Log.
6. FTI received via FTB EAT request must be returned to the EAT resource person. If
both team members are in the same ofce, the FTI will be hand-to-hand delivered to
the EAT resource person and tracked in the FTI Tracking Log. If the EAT resource
person is in a different ofce from the requestor, the FTI will be sent via interofce
mail to the EAT resource person following the instructions in numbers 1-3 above, with
the outside envelope addressed to the EAT resource person. The EAT resource person
will follow the ofce procedure regarding packaging and shipping of FTI material to
the BTFD FTI Custodian.
7. The BTFD FTI Custodian shall destroy FTI, such as transcribed notes, printouts,
levies, returns, and electronic media stored on removable media in the manner that
complies with IRS publication 1075, Tax Information Security Guidelines for Federal,
State and Local Agencies.
Destruction of electronic les must also go through the BTFD FTI Custodian. For example,
when physical FTI does not exist, team members will rst delete the FTI from all the drives
on their computer (including the C Drive) and recycle bin. An entry must be made in the FTI
Tracking Log to send a request for destruction to the BTFD FTI Custodian. After sending
the request in the FTI Tracking Log, team members will send a separate email to the BTFD
FTI Custodian inbox at [email protected] with the following information:
1. Request ID
2. Account number
3. Date the destruction was requested
4. Specic les for destruction
5. Certication statement, “I certify that all electronic FTI les were deleted from the
drives on my computer and the recycle bin.”
The BTFD FTI Custodian must ensure their procedures comply with IRS publication 1075,
Tax Information Security Guidelines for Federal, State and Local Agencies.
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October 2021
FTI in the CDTFA’s Internal System
The system is built to control and monitor access to FTI that is received directly from other
agencies (Data Warehouse) or added into the system by team members (e.g., operational
data such as names and addresses, or FTI Notes). The system is generally considered FTI
compliant because it tracks and records every access to FTI in an audit trail. Therefore,
team members who have completed the requisite training including, but not limited to, the
annual Disclosure Training and Mandatory Information Security Training can view and
use FTI within the system without having to externally record each transaction in the FTI
Tracking Log. For example, transcribing FTI from the Data Warehouse to an FTI Note, within
the system, does not warrant an entry in the FTI Tracking Log. However, FTI transcribed
out of the system requires an entry in the FTI Tracking Log. FTI in the Data Warehouse is
clearly identied with the label, “FTI” (for example, “1099-MISC FTI”). Conversely, data that
does not have the FTI label, FTI shield icon, or FTI Present indicator is not considered FTI
and therefore is not subject to IRS safeguarding guidelines.
Notably, the system is not considered FTI compliant with respect to attachments. The system
does not have the capacity to control and monitor FTI attachments containing the mandatory
identication phrase “FTI” in the le name. Therefore, team members must not attach FTI les
anywhere in the system. Instead, team members will add FTI in the operational data or an
FTI Note, which are both considered FTI compliant. Team members must also remember to
use the FTI Tracking Log to record all FTI transcriptions into the system (see subheading The
FTI Tracking Log). After transcribing FTI into the system, the original FTI must be destroyed
following the procedure described in this section.
Whenever FTI is transcribed out of the system, in any form, a new entry will be made in
the FTI Tracking Log to record the transaction. For example, when an FTI levy is manually
printed, or when FTI found in the Data Warehouse is incorporated into an audit or dual
determination memo, the transcription of FTI out of the system requires an entry in the FTI
Tracking Log.
Adding FTI into the System
The shield icon and FTI Present indicator are used to identify and communicate the presence
of FTI. Whenever FTI is added into the system, team members will immediately add both
identiers to the FTI account. The most common FTI additions into the system are operational
data (names, addresses, IDs) and notes.
When adding FTI names, addresses, and IDs, conrm that the shield icon is activated in
the respective dialogue box by selecting the grey shield icon and checking the box under
the heading, “Select Protected Data Source.” When active, the shield icon will change from
grey to gold. Once the FTI is saved, record the transaction in the FTI Tracking Log then
immediately add the FTI Indicator and an FTI Note that explains the following:
1. Description of the FTI (Name, address, ID, etc.)
2. Where the FTI originates from (IRS, FTB, etc.)
3. What form the FTI is from (Return, W-2, etc.)
4. Where the FTI is located (For example, “The FTI is located on the Registration > IDs
springboard”)
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October 2021
When adding FTI notes, use the “FTI Note” type. For example, a payment plan review summary
that contains FTI sourced income gures must use the FTI Note type. FTI Notes may be added
from the Customer, Collection, and Audit springboards. FTI Notes are easily identied with
the same shield icon that is applied to FTI names, addresses and IDs. Similarly, whenever
an FTI is added into the system in an FTI Note, team members will immediately record the
transaction in the FTI Tracking Log, then add the FTI Present indicator in the system.
If FTI already exists in the system (e.g., Data Warehouse) and an FTI Note is added from
that source, no entry is needed in the FTI Tracking Log.
FTI on Outgoing Correspondence - Automated and Non-Automated Collections
When an account is staged to “Automated Collection” status, the system may incorporate
(transcribe) operational data containing FTI into outgoing correspondence. For example, FTI
names, addresses, and IDs may be transcribed onto a levy that is then automatically batch
printed. Because the automated collection process works in the background, team members
may not immediately know that an FTI transcription occurred. However, a timely entry in
the FTI Tracking Log must be made when knowledge of a transcription is established. For
example, when a response to the FTI levy is received, the team member responsible for
resolving the levy will create an entry in the FTI Tracking Log recording the initial batch
printed transcription out of the system, the subsequent receipt of the response, and nally
the destruction of the FTI. Similarly, while reviewing accounts in “Automated Collection”
status, team members will determine whether FTI was automatically transcribed out of the
system by reviewing the account’s history (for example, indicators, notes, etc.) for evidence of
auto-generated letters containing FTI (for example, levies, wage garnishments, etc.). If found,
team members shall create an entry in the FTI Tracking Log to record the transcription.
Occasionally, responses to FTI correspondence may contain third-party verication of
the original FTI. Third-party verication occurs when the recipient of the original FTI
correspondence independently reconstructs the original FTI on their response. For example,
the recipient’s response includes a statement such as, “FTIname closed account on x/x/
xx,” in the blank spaces on the Memorandum of Garnishee levy response page. When third
party verication is received, team members will overwrite the original FTI in the system
with the third-party veried data, then add an FTI Note identifying the third party that
veried the original FTI and explain the form of the verication. For example, “Bankname
independently wrote the FTIname on the Memorandum of Garnishee received on x/x/xx.”
Once overwritten, the original FTI loses its FTI characteristic and is no longer subject to
safeguarding requirements.
For accounts that are actively being worked or otherwise not in Automated Collection status,
all printing of FTI correspondence must be done manually. FTI correspondence cannot be
sent to batch print. For example, applying a system recommendation that creates an FTI
correspondence (for instance, an EWO, levy, etc.) requires that team members manually
print the document on a local printer, then immediately create an entry in the FTI Tracking
Log to record the transcription.
Collections
SharePoint
Because les or documents containing FTI cannot be attached in the system, distinct FTI
compliant SharePoint sites were created to accommodate audits and dual determinations
that incorporate FTI into the working papers. Upon completion of an audit or investigation,
auditors and dual writers must upload their investigation materials, including AWP and
dual determination memos, into the respective SharePoint sites. Please consult with your
supervisor for the specic procedures for using the SharePoint sites.
Every access to the SharePoint is tracked and recorded in an audit trail. Although les can
be viewed and modied within the SharePoint site without the need for external tracking,
the FTI Tracking Log must be used to record all transcriptions of FTI, including uploads
to and downloads from, SharePoint sites. Once FTI les are uploaded into SharePoint, the
remaining FTI must be destroyed using the procedures described above in this section.
Audits and duals containing FTI must adhere to the following guidelines:
1. When FTI is saved on a hard drive, use the naming convention: caseid_taxpayername_
FTI.
2. When the investigation is complete, upload all nal documents to the SharePoint site.
a. Add an FTI Note to the case in the system explaining that the audit or dual contains
FTI and is attached in the respective SharePoint site.
b. Once the audit or dual is uploaded to the SharePoint site, delete all remaining FTI
on all computer drives (including the C Drive) and the recycle bin. Make entries in
the FTI Tracking Log to record any transcriptions and the destruction of the FTI.
3. CRM Notes
a. Notes can be entered on the CRM Notes springboard to record that a request for
FTI was made. However, FTI-derived information, such as fact of ling or non-
ling, must not be mentioned in the notes.
4. Use the FTI Tracking Log to record:
a. The receipt of FTI.
b. Transcription of FTI to the auditor’s or dual writer’s computer, SharePoint sites,
and to any other location.
c. When sending an audit or dual to a taxpayer, a physical copy must be printed and
mailed, or hand-to-hand delivered to the taxpayer. Printing requires the creation
of a new entry in the FTI Tracking Log.
October 2021
Compliance Policy and Procedures Manual
FTB Information Received Through EAT Request
Although FTI received via an FTB EAT request is generally suppressed on the FTB system
displays, the EAT resource person is responsible for determining whether data responsive
to the request located in the FTB system contains FTI by following the instructions outlined
in the Compliance Policy Management Guidelines (CPMG).
If FTI is found, the EAT resource person will create a new entry in the FTI Tracking Log and
send it to the team member who requested the information by selecting the “Send” button.
A notication email will automatically be forwarded to the recipient directing the recipient
to go to the FTI Tracking Log and conrm receipt of the FTI. The EAT resource person will
hand-to-hand deliver the FTI to the team member who made the request following the
procedures outlined under the subheading in this section Safeguarding FTI. Upon receipt of
the physical FTI, the team member will go to the FTI Tracking Log and conrm the receipt
of FTI by selecting the “Receive” button.
If the EAT resource person and the requestor are not physically in the same ofce, the FTI
must be sent to the recipient via interofce mail following the double envelope procedures
outlined in the subheading in this section Sending and Receiving FTI.
FTI for Joint Operations Center (JOC)
The JOC was established by the IRS to increase compliance with federal and state fuel tax
programs. Audit and Carrier Bureau’s Audit Examination Branch (AEB) is a participant in
the JOC program and uses JOC data primarily to identify under-reporting or evasion of excise
taxes. Only AEB team members who are vetted and approved by the IRS may access the
JOC data. AEB maintains a policy of never removing JOC FTI from the IRS-issued laptops.
In addition, AEB may request FTI data from the IRS for use in developing audit leads for
fuel tax audits. All requests for JOC FTI shall be made using the procedures outlined in
the Memorandum of Understanding dated September 5, 2007. For information on JOC FTI
procedures, team members may contact the AEB Administrator.
October 2021
Collections
Automated Process for Receipt of FTI Data Related to Federal Taxes on Fuel
The CDTFA and IRS entered into an exchange of information agreement whereby the IRS
automatically mails hard copies of certain FTI to assist with fuel tax audit leads. Forms 5384
and 5385 – Excise Taxes Examination Changes, are received on a quarterly basis.
In addition, the following IRS forms are also received as part of the agreement; 890, 1273,
2504, 2504-WC, 3228, 4549, 4666, 4667, 4668, 5318, and 6180. The IRS sends the FTI
forms to CDTFA’s Business Tax and Fee Division, Audit and Carrier Bureau, and Audit
Examination Branch (AEB) directly. Upon receipt in the mail, it is delivered unopened to
the AEB FTI Custodian directly. The AEB FTI Custodian logs the FTI information into the
FTI Tracking Log when it is received and then secures the information in the appropriate
secured IRS storage cabinet. The FTI custodian reviews the information and, if necessary,
requests an AEB supervisor assign for eld work investigation.
When a potential audit lead is identied, the AEB team member shall access the entity’s
information in the system and add a Memorandum of Possible Tax Liability case on the
account. The team member shall add a general statement detailing the potential error that
was identied (excluding any FTI information) before staging the case to General Referral
– Special Taxes. AEB receives the assignment and works the case to determine whether an
audit, billing, or both are warranted.
After the FTI is reviewed, the AEB FTI Custodian arranges to properly destroy the FTI and
logs the destruction into the FTI Tracking Log.
October 2021
Compliance Policy and Procedures Manual
January 2017
DEPARTMENT OF MOTOR VEHICLES – PICTURES/PHOTOGRAPHS 720.032
California Government Code section 15618.5 authorizes the CDTFA to obtain copies of full-
face engraved pictures (i.e., copies of full licenses) or photographs (hereafter “photographs”
for both) directly from the Department of Motor Vehicles (DMV).
Authorized staff performing eld compliance and audit duties may request a photograph of
a taxpayer from DMV for the purpose of positively identifying that person for valid business
reasons. Any request not directly related to this business need constitutes a violation of
the CDTFA’s privacy policy and Government Code section 15618.5 and may subject the
requestor to disciplinary action.
A requestor code (hereafter “photograph code”) for requesting photographs was granted to
CDTFA by DMV. DMV issued a separate photograph code to each eld ofce for their use.
Knowledge of the photograph code is limited to compliance supervisors in the Field Operations
Division (except the Out-of-State Ofce), and supervisors of special taxes and fees programs.
The photograph code is not to be shared with other CDTFA staff.
Staff needing a photograph of a taxpayer must rst secure supervisory approval. The request
and approval comments will be entered in the system.
Audit staff requiring a photograph of a taxpayer should make their request through the
compliance section. The request will be made at the audit supervisory level. An adequate
explanation as to why a photograph is needed should rst be entered as comments in the
system by the audit staff. When the request is granted, it must also be noted in the system.
Initiating a Request
Compliance staff requiring a photograph of a taxpayer will open the account for which a
photograph is to be requested, create a permanent note and explain the need for a photograph.
Staff will then complete the DMV form INF 254 Gov’t. Agency Request for Driver License/
Identication Record Information, containing the following information:
1. All the taxpayer information, except the “Requestor Code” eld.
2. Under “Information Requested, check the ballot box for “Other” and write in, “Photo
of Subject.”
3. Check the ballot box for “Status and Record,” if that information is needed.
4. On the return address elds:
a. On the line marked “Attn,” print the name of the staff member’s supervisor and
the staff member’s initials in parentheses.
b. Complete the return address as instructed on the form (four-line limit, each line
not to exceed 35 characters).
5. The account number must be entered in the available space at the upper right hand
of the form above the word “Record Information.”
Staff will place the completed INF 254 in their supervisor’s in-box.
Collections
Approving or Denying the Request
To approve or deny the request, the supervisor will:
1. Access the account in the system to ensure that the INF 254 request is for the client/
taxpayer on the account.
2. Verify that the permanent notes entered adequately explain the need for a photograph.
3. Grant or deny approval of the request by entering a permanent note in the system.
The note should state the approval is granted or, if denied, the reason for denial.
4. Enter the photograph code on the INF 254 and put the form in an envelope, and seal it.
5. Check that the address on the envelope is correct.
6. Ensure the envelope is sealed and securely deposited in the outgoing mail.
If a request is denied, the supervisor will write “Denied” at the bottom right corner of the
INF 254, initial it, return the form to the requestor, and enter comments specifying the
reason(s) for the denial.
Processing Requests Returned from DMV
To keep knowledge of the photograph code secure, mail received from DMV, whether
marked condential or not, should remain unopened and be delivered to a supervisor. The
supervisor receiving the INF 254 which bears the photograph code should enter notes that
the photograph was received. The supervisor will remove and destroy the INF 254 before
giving the photograph to the staff person who requested it.
Sharing DMV Information with other Agencies
The CDTFA has agreements to share information it acquires or develops with other specic
agencies. However, the photographs acquired from DMV may only be shared with local
law enforcement, the California Highway Patrol, and local district or city attorneys. The
photographs may only be released to these agencies for the purpose of positively identifying
the taxpayer and providing an address or location if a civil or criminal action has been
initiated by the CDTFA against that taxpayer.
Record Retention and Destruction
While in their possession, staff must safeguard the DMV photographs by securing them in a
locked drawer or cabinet. Staff must retain photographs securely for as long as necessary
while resolving a case or assignment. When the business need for the photograph no longer
exists, the photograph must be returned to the supervisor for destruction. Retaining a
photograph for possible future use does not constitute a valid business need. If a photograph
is needed again, it should be requested again.
Supervisors should shred or otherwise destroy photographs in a manner that ensures
that the remnants cannot be reconstructed. Photographs should never be deposited in a
condential destruction bin intact. Destruction of photographs should be documented in
the system notes.
March 2014
Compliance Policy and Procedures Manual
August 2022
DEPARTMENT OF CORRECTIONS AND REHABILITATION INFORMATION 720.033
Staff can search the California Department of Corrections and Rehabilitation’s website
Public Inmate Locator System to obtain information about whether a taxpayer is incarcerated
and the facility of incarceration. Information is also available regarding whether the taxpayer
is on parole in California. If staff is unable to locate the person using the online inmate
locator they may call the ofce of the Assistant Information Ofcer at (916) 445–6713. When
requesting information by phone, be prepared to provide the taxpayer’s full name and date of
birth. Please note that it may take several days to obtain information about newly incarcerated
persons or prisoners who have been transferred between state correctional facilities, and
the website information is subject to change daily.
TAXPAYER FUNDS HELD BY OTHER STATE AGENCIES
Other state agencies, including but not limited to, Franchise Tax Board (FTB), Employment
Development Department (EDD), and Alcoholic Beverage Control (ABC) may have funds
due to the taxpayer that may be intercepted by CDTFA. While intercepts for FTB, EDD
and ABC are automated or initiated by the Collection Support Bureau (CSB), intercepts for
other agencies are requested by the collector. See CPPM section 771.000 for information on
requesting intercepts.
Some agencies, boards, etc., regulated by the Department of Consumer Affairs require a
licensee to post a security deposit. The security is usually posted in the form of a surety bond,
but may be in the form of cash, savings and loan passbooks, or certicates of deposit (CDs).
The exact requirements as to the amount of the required security deposit vary between
agencies, boards, etc., and may be determined by referencing the appropriate section(s) of the
Business and Professions Code. Usually, a security deposit is retained after the termination
of a business, pending demands of the agency or the public that was served. For example,
the Contractors State Licensing Board and the Department of Motor Vehicles do not release
their bonds for three years.
The agencies listed below require an applicant to post a security deposit:
1. Department of Motor Vehicles
2. Athletic Commission
3. Cemetery Board
4. Collection and Investigation Services
5. Contractors State License Board
6. Structural Pest Control
If a security deposit is a surety bond, the agency or board can furnish the name of the
company that issued the bond and the bond number. Sometimes taxpayers have deposits
held by surety companies that can be levied upon. Be aware that in most cases CDTFA
cannot make demand on surety for a bond in another agency’s name (for information about
making a demand on surety, see CPPM section 735.030). However, companies that issue
surety bonds usually require an applicant to provide a detailed nancial statement along with
his or her signature on the bond. If CDTFA les a lien against a taxpayer, the information
of the debt is a matter of public record that can be revealed to the company. In turn, the
company can be asked to provide CDTFA with the information from the nancial statement.
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August 2022
For security deposits other than a surety bond, a request to intercept the funds may be
made. Government Code sections 12419.4 and 12419.5 provide that the state has a lien on
any funds owed by a state agency to a person who owes an amount to another state agency.
To enforce the lien, it is only necessary that the agency to whom the money is owed notify
the other agency in writing of the amount due and request that the payment to the debtor
be intercepted.
Requests for an intercept for a security deposit held by another agency, when asserting a
lien under the above sections of the Government Code, are sent to CSB (see CPPM section
771.080).
TITLE REPORTS 720.037
Most title companies will provide title information without charge upon request. When a
taxpayer, or another source, provides real property information that cannot be veried through
the county assessor or recorder’s records because of variations in ownership listings, these
unofcial reports may eliminate the need to order a title report. However, if ordering a title
report is necessary, the ofce making the request from the title company will also send two
copies of the order, one copy to CSB and one copy to the Financial Management Division.
STATE CONTROLLER’S OFFICE 720.038
Property, such as dormant bank accounts, are often escheated to the State and held in trust
by the State Controller’s Ofce. Property escheated under the Unclaimed Property Law may
only be claimed by the person who had legal right to the property prior to its escheat, his or
her heirs, or his or her legal representative. Code of Civil Procedure (CCP) section 1540(e).
Title to such property remains vested in the state until such claimant appears and claims
it (CCP section 1300(c)).
Property escheated to the state is not subject to levy or garnishment by creditors of the
original owner. In no case should staff serve a levy to any state agency in an attempt to
reach these types of funds or for any other purpose. When funds are held for the taxpayer
by another agency, the proper procedure is to notify the appropriate agency and request that
funds being held by that agency on behalf of the taxpayer be offset to the CDTFA. However,
the offset process cannot be used for escheated unclaimed funds or other trust funds.
Compliance Policy and Procedures Manual
July 2009
POST OFFICE INFORMATION 720.039
Forwarding addresses may be secured by mailing the taxpayer a letter directed to the last
known address with a statement “Address Service Requested” entered below the CDTFA’s
return address in lettering large enough to be readily visible.
The CDTFA–53, Postal Service Letter, may also be used in obtaining addresses from the
post ofce. If a CDTFA–53 is incorrectly prepared or is sent to the wrong post ofce, the
postmaster will return the request, specifying the deciency in the space marked “Other”.
Do not submit requests in duplicate.
Instructions for submitting requests for address information:
1. Address the request to the postmaster at the post ofce of last known address.
2. List the taxpayer’s account number and the date the request is submitted.
3. On the lines provided, list the taxpayer’s name and the last known address, including
zip code.
4. The CDTFA–53 should be signed by an authorized person.
5. Type or stamp the CDTFA ofce return mailing address in the space provided at the
bottom of the form.
6. Mail the CDTFA–53 to the postmaster at the post ofce of last known address.
7. Enclose a pre-stamped return envelope or E–11 Business Reply envelope for any
request.
In answering a request for taxpayer address information, postmasters will provide one of
the following responses:
1. Mail is Delivered to Address Given: the address the CDTFA provided is veried by
the postal service as one to which mail for the taxpayer is currently being delivered.
2. Not Known at Address Given: mail for the taxpayer is not currently being delivered
to the address given.
3. Moved, Left No Forwarding Address: the addressee is believed to have moved and has
not provided the post ofce with a change-of-address order. The address is veried
as one to which mail for the taxpayer is not currently being delivered.
4. No Such Address: the address given is nonexistent.
5. Other (Specify): as appropriate, postmasters will provide other responses such as
“Returned — Sent to Wrong Post Ofce,” “Addressee is Deceased,” “Address Given is
Insufcient,” etc.
6. New Address: if the addressee has submitted a change-of-address order, the new
forwarding address will be provided.
7. Boxholder Street Address: if the last known address is a post ofce box, the taxpayer’s
street address, as shown on USPS Form 1093, Application for Post Ofce Box or Call
Number, will be provided. The location of rural route boxes is public information.
Post ofces usually have route maps posted in the lobby. Under some circumstances,
post ofces are authorized to give names and addresses of box holders when the
box is being used to solicit business from the public. Staff should discuss individual
cases with the local postmaster. Section 261.24 of the Postal Manual contains some
directions on this subject.
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June 2017
CONTACT AND INTERVIEW 722.000
THE COLLECTION INTERVIEW 722.020
All assignments will be performed in a professional manner. It is the CDTFA’s policy to
administer its laws and policies fairly and efciently, with the expectation that employees
will conduct themselves with dignity, integrity and courtesy. (See publication 336, Ethics:
Guidelines for Professional Conduct.) In addition, discretion must be exercised to avoid
disclosing condential information to unauthorized parties. (See publication 353, Information
Security Requirements for Employees with Access to Condential Information.)
To a considerable degree, collection productivity will depend on the manner in which the
collection interview is conducted and by the impression the collector makes on the taxpayer.
Whether the interview is conducted over the phone, in a CDTFA ofce, or elsewhere, the
interview will be conducted with courtesy and professionalism; but at the same time, the
collector should be rm and direct.
The collector should stress the advantages of making immediate payment in full. This includes
advising the taxpayer of the applicable penalties, interest, and Collection Cost Recovery Fee
(CRF) that may be added to the liability if payment in full is not made (see CPPM section
525.000 – 535.095 for further information on penalties, interest, and CRF). The system shows
the date on which the CRF is expected to be assessed. Providing this information to taxpayers
may encourage them to remit payment in full sooner to avoid the CRF. In instances where
this is not possible, the taxpayer may request to enter into a payment plan to avoid the CRF.
The most successful collection case, aside from a paid-in-full account, is one where the tax/
fee payer fully understands the consequences of failing to pay the liability promptly. If the
taxpayer perceives that the collector is inexperienced or uncertain, or if the collector does
not convey a sense of urgency to resolve the situation, the taxpayer may attempt to postpone
payment of the liability through excuses or insincere promises. Therefore, the impression the
collector should strive to create is one where the taxpayer understands that the interviewer
is a trained professional who:
1. Is knowledgeable about the situation,
2. Is able to apply pertinent laws and regulations to the situation,
3. Will treat the taxpayer fairly, and
4. Will follow through, if necessary, with actions to compel payment.
The collector must always be prepared to answer taxpayer questions about collection
procedures, taxpayer rights, and appeal rights. Publication 54, Tax Collection Procedures,
publication 70, Understanding Your Rights as a California Taxpayer, and publication 17,
Appeals Procedures – Sales and Use Taxes and Special Taxes, contain excellent information
covering these areas. The collector should also be prepared to discuss with taxpayers the
publications available and how to obtain them. A statement directing the taxpayer to the
CDTFA website to read publication 54 for information about CDTFA’s collection procedures
is on all billing notices. Publication 54 also briey describes the taxpayer’s rights and appeal
rights and references publications 70 and 17. Publication 54A, Behind on Your Payment? What
You Need to Know, is a brochure that summarizes the information detailed in publication 54.
Compliance Policy and Procedures Manual
June 2017
Taxpayers Questioning Liabilities
The CDTFA’s primary ethical responsibility to taxpayers is to ensure that they pay no more
and no less than the law requires. When a taxpayer questions the accuracy of a CDTFA-
assessed liability, all staff should be fully prepared to discuss with the taxpayer their rights
and options. If differences between the taxpayer and staff cannot be resolved, the matter
should be referred to a supervisor. If, after supervisor review, the taxpayer asks for review
by the TRA Ofce, the case should be referred accordingly. See CPPM section 156.010 for
guidance on when it is appropriate to refer a case to the TRA Ofce.
Bilingual and Hearing Impaired Interpreters Available
The CDTFA values fairness and objectivity in our treatment of all taxpayers and consistent
in our administration of the law, while treating every individual with respect and courtesy.
To facilitate the CDTFA’s commitment to provide excellent service to all taxpayers, the Equal
Employment Opportunity (EEO) Ofce maintains lists of bilingual employees available to assist
taxpayers who have limited English prociency. The EEO Ofce also makes arrangements to
contract for interpreter services when there are no bilingual staff available for a particular
language. When a taxpayer needs American Sign Language (ASL) or bilingual assistance,
staff should contact the EEO Ofce at (916) 322-7639 or [email protected].
CONTACT WITH TAXPAYERS REPRESENTED BY COUNSEL OR OTHER
REPRESENTATIVE 722.025
In order to protect the taxpayer, it is always a good practice to secure written authorization
from the taxpayer to discuss their case with a third-party representative, preferably prior to
initiating any discussion or correspondence with the person claiming to be a representative
of the taxpayer.
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March 2022
POWER OF ATTORNEY 722.026
A taxpayer may be represented by legal counsel, Certied Public Accountant (CPA), Enrolled
Agent (EA), or other representative. To determine if a power of attorney (POA) has previously
been entered into the system, team members may nd the link in the Registration tab and
Links sub-tab. If the taxpayer led a POA hard copy, it would be attached to the Customer
or Account springboard with a CRM Note entered in the system. If the representative is not
in CDTFA’s online system, the representative will be directed to submit the request online
by accessing CDTFA’s Online Services page. The representative may also request third party
delegate access which allows the representative to le returns, make payments, and update
account information on behalf of the taxpayer.
The taxpayer’s representative will create a username and password in CDTFA’s online
system. After logging in, the representative selects the POA link, selects the applicable tax
or fee program(s), and completes all required elds to submit the request.
The online submission by the representative initiates a letter to the taxpayer and an online
message in the taxpayer’s portal to either approve or deny the POA request. The online POA
request also creates a task in the system. If the taxpayer responds to the request online,
the task will be automatically closed. If the taxpayer contacts CDTFA, the team member can
manually approve or deny the POA request.
Taxpayers may submit a POA hard copy using a CDTFA-392, Power of Attorney, or any written
document identied as a “power of attorney” containing all of the following information:
1. Taxpayer’s name, telephone number, identication number(s), account or permit
number(s) and mailing address;
2. The name, address (including email, if any), telephone and FAX number of the
appointed representative(s);
3. The tax/fee matters the representative is authorized to represent the taxpayer;
the scope of the representative’s authority; and the ling period(s) for which the
authorization is granted;
4. A statement that the power of attorney revokes all prior powers of attorney, with any
exceptions to the revocation noted;
5. The time period during which the power of attorney shall be in effect; and
6. The signature(s) and title of all affected taxpayers and the date of signature.
Taxpayers who submit a POA hard copy will not have their representative added into CDTFA’s
online system unless sufcient information to add them was provided. If the representative
is already in the system, or is added into the system, they should be linked to the customer
or account (see Help Manager instructions for adding the link). The POA hard copy must be
attached to the taxpayer’s Customer or Account springboard. A CRM Note must be added on
the Customer or Account springboard and the representative’s contact information must be
entered under the Registration tab. In addition, the original written POA must be retained in
the ofce le until the audit or collection case is closed. These forms will be reviewed on an
annual basis and condentially destroyed as provided in AM section 0214.03. If the POA is
submitted by the taxpayer using Online Services, no further action is required.
When a taxpayer has submitted a POA appointing a representative, team members must
work with the representative regarding all tax and fee matters identied in the POA (unless
directed otherwise by the taxpayer). Team members should continue to be responsive to any
direct communication from the taxpayer.
Compliance Policy and Procedures Manual
March 2022
All copies of taxpayer correspondence must also be sent to the representative. When a
representative is involved with an audit, petition, or claim for refund, the representative will
receive copies even though a specic request has not been made.
All online correspondence, notices, statements, or reports must also be sent to the taxpayer’s
representative. If the representative is linked to the taxpayer in the system, copies of billing
notices are sent to the representative automatically. For Appeals letters, a copy will be sent
to the representative automatically only if the “cc” box is checked within the Appeals case.
For all other letters and notices, team members must manually add the representative as
a carbon copy on the Mail springboard, so they receive copies of taxpayer correspondence
covered by the POA. The Help Manager in the system contains instructions for adding a
copy of a letter.
If the representative has demonstrated a repeated failure to respond to inquiries or requests,
especially regarding issues that are time sensitive and require immediate action, team
members may, after consulting with a supervisor, contact the taxpayer directly. All actions
or correspondence must be fully documented in the system.
The decision to contact the taxpayer directly should be based on the representative’s degree of
cooperation with CDTFA and the taxpayer’s compliance with the action(s) requested through
the representative. All contacts with the taxpayer and their representative must be fully
documented in system notes to protect against potential claims or allegations of harassment.
In situations requiring personal contact with the taxpayer, a supervisor or lead person may
participate in a conference call with the collector and the taxpayer or may accompany the
collector when meeting with the taxpayer in person.
If the taxpayer, or their representative, has a restraining order forbidding contact by CDTFA,
team members must comply with the order. See the CDTFA Manual of Administrative Policy
section 7701 for procedures when a restraining order has been led against CDTFA.
DISCLOSURE OF CONFIDENTIAL INFORMATION TO TAXPAYER
REPRESENTATIVES WITHOUT WRITTEN AUTHORIZATION 722.028
The Information Practices Act (IPA) (Civil Code § 1798 et seq.), Government Code section
15619, Revenue and Taxation Code (RTC) section 7056, as well as other business tax
statutes, generally prohibit CDTFA from disclosing condential taxpayer information to
any unauthorized persons, including information regarding a taxpayer’s affairs obtained
through audit investigation, returns, or reports. In limited circumstances, the IPA provides
for the disclosure of condential information to either the taxpayer, or to the authorized
representative. An authorized representative is an individual or organization selected by the
taxpayer to represent their interests before CDTFA. (See CPPM section 120.023 for detailed
information on the IPA.)
Condential information in CDTFA records must be treated in strict condence. The only
exception is when the Governor, by general or special order, authorizes other state ofcers,
tax ofcers of another state, the Federal Government (if a reciprocal agreement exists), or
any other person to examine the records maintained by CDTFA. Requests for condential
information should be referred to a supervisor. (See CPPM, section 140.000, Exchanges of
Condential Information.)
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March 2022
Under the Sales and Use Tax program, only the following information is not condential:
account number, business name, names of general partners, business address, ownership
designation, start and close-out dates, and status of permit (i.e., active/inactive). This
information is generally available to the public. However, disclosure of the name and address
of an individual may be prohibited by Civil Code section 1798.69. (Civil Code section 1798.69
provides in part that CDTFA may not release the names and addresses of taxpayers except
to the extent necessary to verify resale certicates or administer the tax and fee provisions
of the RTC.) Account numbers for individuals (sole owners, husband/wife co-ownerships,
and domestic partnerships) are considered condential because an individual’s account
number when input into the resale verication function on CDTFA’s website would reveal an
individual’s name and address, which is considered condential. Team members should be
aware that noncondential information in other business tax and fee programs differs from
that in the Sales and Use Tax program. CPPM section 120.026 discusses what information
may be released to the public.
Requests by a taxpayer’s representative for information and records under the IPA and the
California Public Records Act (PRA) will be guided by the following policy:
A taxpayer’s representative may examine and/or receive copies of the same information
the taxpayer is entitled to, provided the representative presents a written authorization
from the taxpayer. This includes copies of all correspondence and, if involved with
an audit, a copy of the Audit Report, petition for redetermination and/or claim for
refund. The written authorization need not be notarized
Conditions for Disclosure of Information
Generally, a written authorization such as a valid power of attorney (see CPPM section
722.026) is required to provide information about a taxpayer’s account or to discuss a
taxpayer’s account with an authorized representative. However, there are some situations
where exceptions to this general rule are permitted. In all cases of providing condential
taxpayer information to an authorized representative, the name of the representative and
the information provided must be documented in the system. Only information that would
be disclosed to the taxpayer can be disclosed to an authorized taxpayer representative.
Verbal Authorization by the Taxpayer
Verbal authorization by taxpayers to discuss their case with an authorized representative
may be accepted by team members over the telephone or in person. In either situation,
proper identication must be furnished by the taxpayer to CDTFA.
If the authorization is by telephone, team members must rst verify the identity of the taxpayer
by matching a driver’s license or social security number to information in the system before
accepting the verbal authorization. If the authorization is in person, the team member must
ask for identication, such as a driver’s license, Department of Motor Vehicles identication
card, or any other document which establishes their identity.
Compliance Policy and Procedures Manual
March 2022
At the time the verbal authorization is given, the following must be provided by the taxpayer
and the information documented in the system:
• Name, address, telephone number of the authorized representative,
• Specic subject matters that may be discussed with the representative, and
• Duration of the authorization.*
*Note: Taxpayers should be informed that the verbal authorization will be limited to 30
calendar days unless they request a shorter period of time. Taxpayers should be advised
that written authorization is necessary if they want the authorization for longer than 30
calendar days.
It is important to clearly establish what subject matter may be discussed with the authorized
representative. For example, if a taxpayer that has a seller’s permit as a sole proprietor calls
a CDTFA team member regarding a bank levy that attached community property funds in
the spouse’s separate bank account and authorizes CDTFA to discuss the circumstances
relating to the levy with the spouse, the team member may explain the reason for the levy and
general information regarding levies and community property laws but may not provide any
other condential information to the spouse (e.g., the accounts receivable balance, payment
history, delinquencies) without specic authorization from the taxpayer.
Before providing condential taxpayer information to an authorized representative over
the telephone, team members should verify the identity of the caller by asking their name,
address, and telephone number and matching it with the information provided by the
taxpayer as noted in the system. When the authorized representative appears in person at a
CDTFA ofce, their identity must be veried by examining their driver’s license, Department
of Motor Vehicles identication card, or other form of valid identication and comparing it
to the information noted in the system.
Authorization by Possession of Agency Forms, Documents, or Correspondence
Pursuant to Civil Code section 1798.24 (c), condential taxpayer information for accounts
registered to individuals (sole owners, husband/wife co-ownerships, and domestic
partnerships) may also be provided to a person representing the taxpayer if it can be
proven with reasonable certainty through the representative’s possession of agency forms,
documents, or correspondence that this person is the authorized representative of the
taxpayer. Agency forms, documents, or correspondence may include, but are not limited
to, notices of determination, collection or delinquency notices, taxpayer’s copy of a notice of
levy, or other forms or correspondence addressed to the taxpayer.
However, before releasing condential taxpayer information, team members should attempt
to verify that the person in possession of the forms, documents or correspondence is the
taxpayer’s authorized representative. This verication can be done through a review of CDTFA
records or by calling the taxpayer. If the team member is unable to contact the taxpayer and
is unsure whether a person is truly an authorized representative, including the spouse of
a taxpayer, the team member should request that the person provide written authorization
from the taxpayer. If there is any doubt, condential taxpayer information should not be
provided. The following two scenarios are provided for example:
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March 2022
1. A person visits a CDTFA ofce claiming to represent a taxpayer that is a sole proprietor
and presents a statement of account issued by CDTFA in the taxpayer’s name. The
person states that certain payments made by the taxpayer were not credited to the
taxpayer’s account and requests a record of all payments made during the last three
months on the taxpayer’s account. If there is no record in the system indicating the
person is an authorized representative of the taxpayer, a telephone call must be made
to the taxpayer to verify the person is an authorized representative. If the taxpayer
states that the person is not an authorized representative, or if the taxpayer cannot
be contacted, team members should not provide the information.
2. The same situation as above, except the team member is unable to contact the
taxpayer by telephone. The person claiming to represent the taxpayer presents
additional documentation, such as copies of recent bank statements, cancelled checks
issued and signed by the taxpayer, and/or copies of recently led tax returns. In this
situation, the requested information may be provided, as the person has knowledge
of the account and the documentation is sufcient to indicate that the person is the
authorized representative of the taxpayer.
Team members should screen for situations that may involve speculative inquiries by persons
who may be aware of the general subject matter of the taxpayer’s issue(s), their business
name, and/ or account number, but who may not have been asked by the taxpayer to
represent them. An example of a speculative inquiry is a caller who knows the taxpayer’s
account number but asks to verify the taxpayer’s address or reported gross sales from a
previous quarter. Assuming there is no record the taxpayer is being represented by the
caller, the reported gross sales information cannot be provided, and if the account is a sole
proprietorship, husband and wife co-ownership, or registered domestic partnership, the
address information also cannot be provided to that person.
Condential taxpayer information should not be provided in response to questions that are
unrelated to the actual forms, correspondence, or documentation in the possession of the
person, without written or verbal authorization from the taxpayer. For example, information
relating to amounts reported on tax returns or matters related to an audit cannot be provided
to a person claiming to be an authorized representative based on the person’s possession
of a delinquency notice addressed to a taxpayer. All requests should be carefully examined
and/or analyzed before inferring with reasonable certainty that the person is the authorized
representative of the taxpayer.
Compliance Policy and Procedures Manual
March 2022
Information Requiring Written Authorization
Requests by taxpayer representatives to examine or receive copies of taxpayer account
information, correspondence, or other documents require written authorization by the
taxpayer, except under the following circumstances:
1. A written request for documents by a certied public accountant (CPA) or attorney
which clearly states that the CPA or attorney is the authorized representative of the
taxpayer. Before releasing information, however, team members should check the
system to ensure the representative was not terminated by the taxpayer.
2. Taxpayer directed ― Written authorization is not required when supplying copies of
audit working papers to the taxpayer’s bookkeeper or accountant when the taxpayer
directed CDTFA to contact the bookkeeper or accountant to conduct an audit and
the audit was made based on information supplied by the bookkeeper or accountant.
3. Oral inquiries ― Attorneys and CPAs may examine and/or receive copies of information
without having written authorization if the person is known by CDTFA to represent
the taxpayer. Most oral requests are for an informal review of working papers before
an audit is transmitted to Headquarters, and generally when the representative has
been working with the auditor. Team members should screen for situations that may
involve speculative inquiries by persons who may be aware of the general subject matter
and a taxpayer’s business name or account number but have not been asked by the
taxpayer to represent them. Team members should check the taxpayer’s information
in the system to verify the person has represented the taxpayer in the past.
• Preferably, a stream of correspondence exists for the current audit which clearly
establishes the attorney’s or CPA’s relationship with the taxpayer. If the only
information available in the system involves a prior audit, or the representative
has recently been added, the le should be carefully reviewed to determine what
event created the authorization. If the team member is still unsure as to whether
the attorney or CPA is in fact a representative of the taxpayer, they may contact
the taxpayer by telephone to conrm the authorization. Alternatively, the team
member should ask the person to put the request in writing and state specically
that he or she represents the taxpayer in question. Attorneys and CPAs have an
ethical responsibility not to misstate their authority to represent their clients.
• Requests for copies of audit, appeals, and central les must be obtained in writing.
Without written authorization from the taxpayer, a person purporting to represent the
taxpayer should not be permitted to close a taxpayer’s account, change an address, or change
ownership information. Only under limited circumstances may federal tax information (FTI)
be provided to a taxpayer’s representative with a power of attorney. Team members must
consult with the Disclosure Ofce to determine if the necessary circumstances are present
before any federal tax information is released.
Collections
July 2009
CONDUCTING THE INTERVIEW 722.030
The objective of every contact with the taxpayer is to obtain full payment of the liability.
Therefore, the representative must be in rm control of the interview from the very start.
The representative should impress upon the taxpayer the seriousness of failing to pay
immediately and apprise the taxpayer of the consequences for nonpayment. If payment is
not forthcoming, the collector does not need to disclose the specic collection action(s) that
will occur to enforce compliance.
Prior to contacting the taxpayer, it is helpful to outline a plan for working a collection case.
A typical plan should include a timeline and intended actions such as the following:
Within 10 working days from date of assignment:
1. Conrm the identity of the owner(s).
2. Contact the owner, partners, or corporate ofcers.
3. Create a sense of urgency on the part of the taxpayer to clear the problem.
4. Give the taxpayer all the information necessary to clear the assignment
5. Ask for payment in full on accounts receivable.
6. Ask for returns on delinquent or revoked accounts and give a specic due date. Make
a reasonable effort to get the taxpayer to le returns before estimated returns are
created. (Note: current policy is no more than two estimated returns be created in
any 12–month period.)
7. Contact third parties such as accountants or business managers when requested and
authorized by the taxpayer, but also make it clear to the taxpayer that they remain
responsible for the correction of the problem, including failure of the third party to
comply.
8. Do not allow third party delays. If the problem is not corrected or delays continue
you must contact the taxpayer
During the rst contact:
1. Verify ownership information.
2. Obtain pertinent collection/delinquency information. Example: banks, accounts
receivable, suppliers, etc.
3. Personally serve the Notice of Revocation at your rst in-person contact with
the taxpayer, whether in the ofce or the eld (document the service for possible
prosecution).
4. Explain RTC section 6071 and advise the taxpayer to surrender the seller’s permit
until the account is reinstated.
5. Set denite dates and times for compliance.
6. If practical, write down your agreement with the taxpayer and provide him or her
with a copy.
Immediately After Contact:
Document all contacts and actions in the case notes. Minimize abbreviations and avoid slang.
Do not include derogatory or personal comments about taxpayers or staff.
Compliance Policy and Procedures Manual
July 2009
Minimum documentation must include:
1. Date of contact.
2. The name and title of the person contacted.
3. The actions that were agreed upon or that will be taken.
4. When performance is expected, including date and time.
5. An intended follow-up date.
Set Deadlines for Action or Information & Establish Follow Ups:
Time expectation: Follow-ups should range from immediately to a maximum of two weeks,
depending upon the nature of the request unless extenuating circumstances are documented.
Follow-up procedure: Taking appropriate action(s) reects favorably on the professionalism of
the representative and is necessary to sustain a sense of urgency on the part of the taxpayer
to resolve the problem. The key to prompt action is the use of an effective follow-up system
to monitor deadlines.
1. Enter deadlines (date and time for follow up) for the next action in the case notes.
2. Set deadlines for information or taxpayer action within two weeks of contact, when
appropriate.
3. Thoroughly document in the case notes the reason(s) for any delay beyond the stated
time expectations.
If, after discussing the case with the taxpayer, the collector is certain that full payment cannot
be obtained immediately, direct questions need to be asked to secure as much information
as possible regarding sources of income, available assets, and ability to pay. This information
is always documented for future reference, for reporting purposes, or for the use of another
staff person should reassignment of the case become necessary
If the taxpayer cannot pay the liability in full, attempt to obtain a substantial payment
on account, or a denite promise to pay at an early date. The collector must stress to the
taxpayer that if payment is not made as promised, collection action will be taken to compel
compliance. When a promise of full or substantial payment is obtained, the representative
has an obligation to follow up with the taxpayer to make sure payment is made as promised.
Failure to conduct timely follow-up actions will give the taxpayer the impression that the
situation is not important to the collector.
If the taxpayer insists that payment cannot be made in full and is reluctant to enter into
payment plan, do not attempt to provide the taxpayer with any legal alternatives. It is never
appropriate for staff to offer advice regarding ling a petition in bankruptcy or to give any
legal advice other than an interpretation of the tax laws administered by the CDTFA. Instead,
the taxpayer should be encouraged to seek the expertise of a CPA, attorney, or other paid
professional who is qualied to address the taxpayer’s specic situation.
Collections
June 2017
UNCOOPERATIVE TAX/FEE DEBTORS 722.040
Taxpayers who are argumentative or uncooperative with regard to discussions of their tax
liability should be dealt with in a rm and professional manner, and without resorting to,
or assuming, a similar attitude. The collector should inform the taxpayer of:
1. The basis for the liability,
2. The taxpayer’s rights, and
3. The time frame for making payment to avoid immediate collection action.
If the taxpayer remains uncooperative or argumentative, politely terminate the discussion and
shift to an approach of compelling payment through appropriate active collection action(s).
Be sure to note the taxpayer’s uncooperative attitude in the case notes and, if necessary,
notify your supervisor of the situation.
In the event that the situation escalates to the point where a threat is issued by a taxpayer,
or his or her representative, refer to the procedures outlined in publication 390, Workplace
Violence and Bullying Prevention Plan.
INABILITY TO PAY IN FULL 722.050
If a taxpayer indicates an inability to pay the amount due in full, the collector should stress
the advantages of making immediate full payment. The following points are often helpful in
convincing a taxpayer to make payment in full immediately:
1. Not having to pay a 10 percent failure to le timely penalty if the tax/fee amount is
paid in full on or before the due date of the return;
2. Saving an additional 10 percent by not having to pay a nality penalty on a CDTFA-
assessed liability, if the tax/fee amount is paid in full on or before the thirtieth day
after the date on the notice of determination;
3. Saving accruing interest every month on the unpaid tax/fee balance;
4. Saving an additional Collection Cost Recovery Fee (CRF) if the payment is made prior
to the assessment of the CRF (see CPPM section 525.000 for information on CRF);
5. The negative effect on the taxpayer’s credit standing if a Notice of State Tax Lien or
Abstract of Judgment is led (see CPPM Section 757.000); or
6. The loss of personal property as a result of liens, levy, and seizure and sale procedures.
The collector may point out that, in addition to applying for a loan with legitimate lending
institutions such as banks and credit unions, taxpayers often have other sources of money
available that may clear the liability. Some avenues include, but are not limited to, borrowing
from friends and family members, borrowing against the equity in real estate owned by the
taxpayer, renancing vehicles, vessels or aircraft owned by the taxpayer, or paying with a
credit card.
Compliance Policy and Procedures Manual
January 2017
PAYMENTS TO OTHER CREDITORS 722.060
A taxpayer may refuse to pay the CDTFA because payments are due to other creditors, for
example, employees, vendors, other government agencies, etc. The taxpayer should not be
given the impression that payments to other creditors are a higher priority than payments
due to the CDTFA.
The taxpayer should be informed that:
1. Failure to pay taxes and fees at the time they become due and payable creates a
perfected and enforceable state tax lien that includes the tax/fee, penalties, interest,
and any additional costs. (RTC section 6757, and similar statutes for special taxes
and fees),
2. Payment to other creditors will result in collection action being taken without delay,
and
3. For sales and use tax, if the taxpayer is a corporation, LLC, etc., payment to other
creditors can lead to the ofcers or other responsible parties being held personally
liable. (RTC section 6829).
NOTIFICATION TO ATTORNEY GENERAL 722.070
The Ofce of the Attorney General of the State of California is the legal counsel for the CDTFA
and represents the CDTFA as its attorney in most cases before a court. The Collections
Support Bureau (CSB) may refer certain types of collection matters to the Attorney General’s
Ofce for action when requested to do so by eld ofces or the Use Tax Administration Section
(UTAS). These matters include ling a notice of lien on cause of action, objection to a third
party claim or a claim of exemption, ling a suit for tax for collection against a surety or
guarantor, spousal earnings withholding orders for taxes, out-of-state collection accounts,
foreclosure on a CDTFA lien, and seizure and sale of property.
To maintain a good working relationship between attorney and client, the Attorney General’s
Ofce must be notied whenever there is a change in the status of an account that the
CDTFA has referred to it. For example, a payment received from a delinquent taxpayer in a
eld ofce must be reported to CSB so that the Attorney General’s Ofce may be notied.
The ofce responsible for the account will maintain controls to ensure that CSB is notied of
any status changes in all accounts that have been referred to the Attorney General’s Ofce.
RETENTION OF LEGAL DOCUMENTS 722.080
Whether received by mail, or through personal delivery, legal documents or documents that
could have legal ramications should be forwarded immediately to CSB for review. These
types of documents include, but are not limited to, notication of an assignment for benet
of creditors, probate notice, information regarding receivership proceedings, and bankruptcy
notices. After review by CSB, the documents may be referred to the CDTFA’s legal staff or the
Attorney General’s Ofce for appropriate action. (The above statement should not be construed
to conict with the instructions contained in CDTFA Manual of Administrative Policy section
7701 covering service of legal process, summons, restraining orders, subpoenas, etc.)
Collections
January 2017
EVALUATION OF COLLECTION PROGRAM 722.090
The Chief of the Tax Policy Bureau has overall responsibility for evaluating the effectiveness
of the statewide collection program and determining whether the cumulative collection efforts
meet the projected work goals set by the Business Tax and Fee Division. .
REPORTING EXTRAORDINARY SITUATIONS
OR TECHNICAL COLLECTION PROBLEMS 722.092
Whenever extraordinary situations or technical problems that require a legal opinion are
encountered in a collection case, the supervisor of CSB must be notied. When this type
of guidance is necessary, the Administrator, Compliance Principal, or delegated supervisor
should make the contact with the supervisor of CSB and the Legal Division. The supervisor
of CSB will keep the Chief, Tax Policy Bureau informed of these occurrences so that they
may be included in the evaluation of the collection program.
CDTFA-ASSISTED SEARCHES OF THE
PREMISES OF TAXPAYERS ON JUDICIAL PROBATION 722.100
In some instances, CDTFA staff may be asked to accompany a probation department ofcer
who conducts a search of a taxpayer’s business and/or residence. Although rare, these
situations can occur, for example, as the result of misdemeanor or felony cases where the
taxpayer must pay court-ordered restitution to the CDTFA.
When a eld ofce receives a request for this type of assistance, the request must be sent
to the Investigations Section. The probation department ofcer should be instructed to
contact the appropriate Administrator in Investigations by telephone. The Southern Area
Administrator is responsible for Ventura, Los Angeles, San Bernardino, Riverside, Orange,
San Diego, and Imperial counties, while the Northern Area Administrator is responsible for
all other counties. If the eld ofce is requested to provide assistance or advice in a search,
the appropriate Administrator of Investigations will send the request to the Deputy Director
of Field Operations.
Compliance Policy and Procedures Manual
July 2009
PARTNERSHIP COLLECTIONS 724.000
GENERAL 724.010
A partnership is a “person” as dened in RTC section 6005. A partnership is an association
of two or more “persons” formed to carry on a business for prot. Partnerships can be formed
either by written or verbal agreement. With sufcient evidence, a person may be considered
a partner without an agreement if the person invested in the business or if, in the operation
of the business, there was an exercise of rights or authority normally reserved to a partner.
There are three main types of partnerships:
1. A general partnership (entity type “P”) is one in which all the partners share in the
prots, losses, and management of the business, although their capital contributions
may vary. The general partners are also jointly and severally liable for all of the debts
and obligations incurred by the partnership.
2. A limited partnership (entity type “L”) consists of one or more general partners and
one or more “limited” or “silent” partners. The limited partners are not involved in the
operation or management of the business and their liability is limited to the amount of
their capital contribution to the partnership as written into the partnership agreement.
3. A limited liability partnership (entity type “K”) is only available for the business
operations of accountants, architects and lawyers. A LLP is similar to a general
partnership in that the partners share in the prots, losses and management of the
business but the partners have limited liability for the debts and obligations incurred
by the limited liability partnership.
The California Department of Tax and Fee Administration (CDTFA) issues permits to all three
types of partnerships but most commonly to general partnerships. All general partnerships
and LLPs are governed by the Revised Uniform Partnership Act (RUPA). Limited partnerships
are governed by the California Revised Limited Partnership Act rather than RUPA, but RUPA
does apply to some activities of general partners in a limited partnership. Under these acts,
limited partnerships and limited liability companies are required to have written partnership
agreements and must le with the Secretary of State.
A “partnership” also includes a joint venture (entity type “V”). As used in this section,
“partnership” refers to entities whose partners have joint and individual liability, which
includes partners of entity types “P” and “V”, and general partners of entity type “L”, but
does not include partners of entity type “K” or limited partners of entity type “L”.
Note: A business specied as a “co-ownership” such as a husband and wife co-ownership
(entity type “M”) or a registered domestic partnership (entity type “N”) is not a “partnership”,
but IRIS does allow separate notices to be issued to each spouse or registered domestic
partner.
RUPA provides that a partnership is a distinct and separate entity from its individual partners
and that the individual partners are distinct and separate entities from each other and
from the partnership. RUPA requires that a separate notice for a liability be served on the
partnership entity and on each partner individually. RUPA also imposes certain conditions
on the collection of partnership debt from assets of individual partners and provides for the
continuation of a partnership after the addition or deletion of partners.
Collections
November 2015
RTC section 6831 (and similar statutes for other CDTFA–administered tax and fee programs)
states, in part, that it shall not be subject to subdivisions (c)
1
and (d)
2
of section 16307 of
the Corporations Code unless, at the time of application for a seller’s permit, the applicant
furnishes a written partnership agreement that provides that all business assets shall be
held in the name of the partnership.
The subdivisions of the Corporations Code referred to above impose the noticing requirements
for issuing billings and specify the conditions under which collection can be made from
the assets of individual partners. Although RUPA provisions may not apply to the CDTFA’s
tax programs unless the applicant provides a copy of the partnership agreement, it is
CDTFA policy to follow RUPA guidelines for all billings issued to partnership accounts,
notwithstanding RTC section 6831 and other related statutes.
Summary of Key RUPA Provisions
1. Pursuant to RTC section 6831 and other related statutes, RUPA billing and debt
collection requirements may not apply to the CDTFA in every case. However, the
CDTFA’s policy is that all partnership accounts are presumed to have RUPA rights
for billing and collection purposes, despite RTC section 6831 and similar sections.
2. The legal theory of “entity” applies, i.e., the partnership is a distinct and separate
entity from each of its partners. A notication sent to one partner is not sufcient to
assert liability against the partnership or the other partners.
3. A partnership (entity) survives the addition or deletion of partners (unless the
written partnership agreement stipulates that the partnership terminates in such
circumstances).
4. Partners are jointly and severally liable for the debts and obligations incurred
by the partnership, subject to certain limitations and conditions as discussed in
CPPM 724.020.
5. A partnership entity must be billed separately from individual partners, and each
partner must receive a separate billing.
6. Attempts to collect partnership debt must be taken rst against assets of the
partnership and the partnership assets must be insufcient to satisfy the liability
before collection can be attempted against assets of individual partners (unless the
partnership is a debtor in bankruptcy).
1
Corporations Code Section 16307(c) states: “A judgment against a partnership is not by itself a judgment against a partner.
A judgment against a partnership may not be satised from a partner’s assets unless there is also a judgment against a partner.”
This is the section of RUPA that requires separate and distinct notices (billings) to the partnership entity and to each partner.
A Notice of Determination that becomes nal is, in essence, the legal equivalent to a “judgment” against the debtor to whom
the liability was assessed. This is also true for demand billings for tax, penalty, and interest on NR/PR returns, dishonored
checks, etc.
2
Corporations Code Section 16307(d) states, in part: “A judgment creditor of a partner may not levy execution against the
assets of the partner to satisfy a judgment based on a claim against the partnership unless either of the following apply:
a. A judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment
has been returned unsatised in whole or in part.
b. The partnership is a debtor in bankruptcy….”
While other conditions also apply (e.g., a partner can agree that a creditor need not exhaust partnership assets before
attempting to collect from the partners), these two subdivisions of the Corporations Code are the two that most affect the
CDTFA’s administration of partnership accounts.
Compliance Policy and Procedures Manual
November 2015
LIABILITY OF PARTNERS 724.020
As noted previously, all general partners are jointly and severally liable for all the debts
and obligations incurred by the partnership. Partners in a LLP (accountants, attorneys and
architects) have limited liability except for liabilities arising from their own professional
malpractice. In a limited partnership, a limited partner has no liability for debts of the
partnership unless the limited partner takes part in the control of the business (Corporations
Code section 15507).
If the partnership is no longer operating and all partnership assets have been distributed,
collection action may be taken against the individual assets of the former partners without
concern as to whether equal amounts are collected from each of them. CDTFA staff should
not lead any general partner to believe that the partner will be relieved of further liability
if a payment equal to their partner’s particular percentage ownership of the partnership is
made. The fact that one or more members of a partnership may be making payments is not
a reason to withhold action against other partners. Until the liability is paid in full, collection
action should be imposed against any or all of the partners.
It should be noted that each individual partner, depending on that partner’s period of
association with the partnership, may be held responsible for all, part or none of the total
liability of the partnership. Because the partnership liability may vary between partners,
the online system tracks each partner separately (through the creation of a RUPA account)
so that the proper collection action may occur when necessary.
When a partner dissociates from a continuing partnership, that partner is generally not liable
for partnership obligations incurred after the date of dissociation. There are two exceptions
to this general rule, both of which are contained in the Corporations Code (CC) sections
16308(a) and 16703(b). However, these exceptions do not pertain to unpaid sales and use
tax and special tax and fee liabilities incurred by a continuing partnership. Both of the
exceptions provided by CC sections 16308(a) and 16703(b) exist for the purpose of protecting
creditors who enter into transactions based upon a representation that a specic person
was a partner. As such, a partner that dissociates from a continuing partnership but who
does not notify the CDTFA, either directly or by ling a Statement of Dissociation with the
Secretary of State, is not liable under RUPA for taxes and fees incurred by the continuing
partnership after the date of dissociation.
Collections
November 2015
If a partner fails to notify the CDTFA of their dissociation from a continuing partnership,
evidence provided by the partner should be examined to determine if the partner did, in
fact, dissociate from the partnership and the date of the dissociation. Corporations Code
sections 16601(1) and 16602(a) provide that a partner has the authority to dissociate from
a partnership at any time by providing notice to the partnership of his will to withdraw as
a partner. The dissociated partner has the burden of proving the date of dissociation which
may involve providing substantiating documentation such as:
1. Federal and state income tax returns for the periods in question for the dissociated
partner and the business. Schedule K-1 of form 1065, U.S. Partnership Return
of Income, should list each partner and its individual share of income from the
partnership business.
2. Statement of Partnership Authority, Statement of Denial, and/or Statement of
Dissociation led with the California Secretary of State.
3. Registration records and tax returns from other government agencies.
4. Public records, such as a city business license, ctitious name statement, liquor
license, etc.
5. Copy of business premises lease agreement, utilities billings, etc.
6. Cancelled business checks and bank records showing authorized signers.
7. Any other evidence that will assist in substantiating the true ownership of the business
during the period in question
The date of a partner’s dissociation must be captured in the online system by entering the
date of dissociation in both the End Date and Legal End Date elds in the Client Taxpayer
System.
If a partnership is dissolved as a result of a partner’s dissociation or dissolved within 90
days after a partner dissociates, the partner will continue to be liable to the partnership’s
creditors for all of the obligations the dissolving partnership incurs until it winds up its
affairs, including a predecessor liability pursuant to RTC section 6071.1 and Sales and Use
Tax Regulation 1699(f), and CC sections 16701.5 and 16807. A predecessor liability could
arise in any situation where the CDTFA was not informed that a partnership dissolved and
post dissolution liabilities were incurred by an entity that continued operating the business
under the dissolved partnership’s seller’s permit. Information regarding predecessor’s liability
is provided in CPPM 734.000, Predecessor’s Liability for Successor’s Tax.
RTC section 6071.1 provides the consequences for failure of a permit holder to surrender a
seller’s permit upon transfer of a business. The transferor (predecessor) may be held liable
for up to four quarters for taxes incurred by the transferee (successor) after the transfer.
Since a partner’s dissociation does not cause a partnership to terminate under RUPA (unless
so stipulated in the partnership agreement), application of RTC section 6071.1 applies in
the rare case where the dissociation triggers the termination of the partnership and the
partnership business continues, with no actual or constructive notice being received from
the dissociating partner or the partnership.
Compliance Policy and Procedures Manual
March 2014
Referral to the CDTFA’s Legal Division
If it is necessary to determine post-dissociation liability in a given case and there is doubt
as to what the appropriate liability period should be, staff may contact the CDTFA’s Legal
Division for assistance. The request should be directed to a staff attorney and should be
made at the Business Taxes Compliance Specialist level or above.
A referral to the Legal Division should be made only after there has been sufcient investigation
and review of all the facts, circumstances, and available evidence, including a review of the
partnership agreement if there is one. CDTFA electronic les and records should be checked
for relevant information about the partnership account, such as comments that might have
been entered in the IRIS system. Files in eld ofces, Taxpayer Records Section, and other
headquarters units should be checked for information or copies of documents, such as a
partnership agreement.
In addition to CDTFA les, the Secretary of State’s Ofce maintains information on
partnerships. Both limited partnerships and limited liability partnerships are required to
register with the Secretary of State by ling a Certicate of Limited Partnership (LP–1), a
Registered Limited Liability Partnership Registration (LLP–1), or a Foreign Limited Partnership
Application for Registration (LP–5).
Federal or state income tax returns can also be valuable sources of partnership information.
All partnerships are required to le Form 1065, U. S. Partnership Return of Income, with the
IRS and attach a Schedule K–1, Partner’s Share of Income, Credits, Deductions, etc,” for each
partner active in the partnership business during the taxable year. The Franchise Tax Board
(FTB) requires a similar ling (California Form 565) with the same Schedule K–1 attachments.
Key points to remember:
In the case of a disputed tax liability, the taxpayer has the burden of proof to show the
liability is not owed. Accordingly, in cases regarding a partner’s claim of dissociation, the
burden of proving the date of dissociation is on the dissociating partner. Standard appeal
procedures apply.
Dissociating general partners are each 100 percent liable for all the debts and obligations
incurred by the partnership before dissociation, for the entire time they were in the
partnership.
Collections
January 2017
PARTNERSHIP BILLINGS 724.022
RUPA noticing requirements for billing purposes apply to the assertion of liability. These
requirements do not apply after a liability has been assessed and has become nal. Therefore,
the CDTFA is only obligated to apply RUPA rules for noticing (billing) the partnership and
the partners when issuing a Notice of Determination or a Notice of Redetermination, and for
initial billings for tax, penalty, and interest due to receiving a non-remittance or partial
remittance return, a dishonored check(s), etc. The CDTFA has determined, however, that
the RUPA noticing rules will be followed for all billings generated by IRIS to partnership
accounts. This is because the rst 30-day lien warning (required by the Taxpayer’s Bill of
Rights, RTC section 7097) does not appear in system generated billings until the demand
billing is sent, which occurs substantially after the original Notice of Determination (or Notice
of Redetermination) has become nal.
Compliance staff issuing compliance assessments (CAS) to closed-out partnership accounts
shall ensure that the names and addresses of all general partners have been entered in IRIS.
Requesting a RUPA Demand
If the liability of an individual partner of a closed partnership is less than the partnership’s
overall liability, a RUPA account may be established for the individual partner. This allows
CDTFA to track a partner’s liability separately in IRIS so the partner is only held liable for
those liabilities incurred while associated with a partnership. The following conditions must
exist before a RUPA account may be created for a partner:
• A nal liability must exist.
• The partner owes less than the total amount owed by the partnership.
• Collection action was taken against the partnership assets and the liability was
not satised (see CPPM section 724.023).
• The liability is attributable to the partnership.
o A partnership must have at least two partners and will dissolve on the
date that it ceases to have at least two partners, unless at least one new partner
joins the partnership within the following 90 days (Corporations Code sections
16101 and 16801).
Before creating a RUPA account, the collector must:
• Review the partnership account in IRIS and verify each person for whom the RUPA
account is being requested has been added and/or dissociated.
• Identify the partner(s) that owe less than the partnership by reviewing each
partner’s period of association and the period(s) of liability remaining unpaid by
the partnership.
Staff must select “RUPA ARB” from the pop-up screen in IRIS to generate a RUPA account.
After the account is generated, the collector must identify the RUPA account number by
inputting a comment on the primary (partnership) account in ACMS.
Compliance Policy and Procedures Manual
January 2017
After a RUPA account is established, a demand notice should be issued to the partner
identifying the specic liability for which the partner is liable. To request a demand notice,
staff will prepare a CDTFA-200-A in ACMS. In the section marked “Other Request,” the
name of each partner for whom a RUPA account was established and for which a demand
notice is being requested must be identied. Each partner’s RUPA account number, mailing
address, and period(s) of liability must be included in the request. The liability period(s) is
determined by the partner’s “Start Date” through, and including, the partner’s “Legal End
Date” shown in IRIS. Staff should attach to the CDTFA-200-A all documentation such as
copies of partnership documents, CDTFA correspondence (CDTFA-400-PD), or other material
relating to the partner’s association/dissociation activity with the business. After supervisory
approval, the package should be sent to the Collections Support Bureau (CSB). CSB staff
will review the request, and if approved, issue a dual billing under the RUPA account. Staff
should note the RUPA account number under the primary account, and enter notes in
ACMS that include what documentation was included to support the RUPA billing. Once a
RUPA account is established in IRIS, staff may need to use the “Manual Account Set Up”
process to establish the account in ACMS (instructions are available on myCDTFA under
the “Technology Tab,” by selecting the ACMS link and selecting the “Supervisor Functions
and Misc” under Cheat Sheets).
Procedures for Issuing Demand on RUPA Account
CSB staff will review each CDTFA-200-A and the accompanying documentation for accuracy
and completeness. CSB staff will calculate the portion of the liability that was incurred
while the partner was associated with the partnership. Corrections to the CDTFA-200-A or
questions should be resolved with the requesting ofce in the most practical manner possible
(e.g., phone call, email, and fax). If a correction or question cannot be resolved by phone,
email or fax, CSB staff may return the CDTFA-200-A and documentation to the requestor
with an explanation of why the request could not be processed.
After the demand is issued, CSB staff will enter notes in ACMS on the primary account by
using the ADD Summary button and selecting RUPA Summary in the Internal Summary
drop-down box. Notes will include the partner’s name, RUPA account number, the period
the partner was associated with the partnership, and the liability amount.
A RUPA account is a secondary account and any payments made by the partnership and
applied to the primary (partnership) account will show as an adjustment, and not a payment,
on the RUPA account. Payments received from a partner with a RUPA account should be
applied to the RUPA account and not to the primary account. Payments applied to the RUPA
account will appear as an adjustment on the primary account.
In addition, once the liability under the RUPA account is paid in full, staff may send a request
for a partial lien release to CSB for liens led under that partner’s name, if applicable.
Similarly, if a lien was led against a partnership and a partner later provides evidence that
he or she was not a partner for the period of liability, staff may send a request to CSB for a
partial lien release. See CPPM section 761.070 for procedures to request a partial lien release.
Collections
January 2017
PARTNERSHIP COLLECTIONS 724.023
As previously stated, it is the CDTFA’s policy to follow RUPA rules regarding the collection
of partnership debt regardless of whether at the time of application the applicant les a
copy of the partnership agreement specifying that all assets are to be held in the name of
the partnership. Collection must rst be attempted from assets of the partnership entity
before collection can be attempted from assets of the individual partners. The partnership
assets must also be insufcient to satisfy the liability before collection is allowed against
the partners.
NON-PARTNER CLAIMS 724.025
If a partner is billed for a partnership liability and claims that he or she was not involved as
a partner during all or part of a liability period (and therefore should not be held responsible
for payment of the liability), the claimant must make a written request for relief. The burden
of proof for substantiating the request rests with the claimant. The claimant’s request must
state the specic reason(s) why the claimant should not be held liable as a partner and must
include supporting documentation. The request should be presented to the ofce of control.
Examples of supporting documentation include the following:
1. Federal and state income tax returns for the periods in question for the claimant and
the business. Schedule K–1 of Form 1065, U.S. Partnership Return of Income, should
list each partner and their individual shares of income from the partnership business.
2. Statement of Partnership Authority, Statement of Denial, and/or Statement of
Dissociation led with the California Secretary of State.
3. Registration records and tax returns from other government agencies.
4. Public records, such as a city business license, ctitious name statement, liquor
license, etc.
5. Copy of business premises lease agreement, utilities billings, etc.
6. Canceled business checks and bank records showing authorized signers.
7. Any other evidence that will assist in substantiating the true ownership of the business
during the period in question.
The receiving ofce will forward the written request along with the claimant’s documentation
to the Collections Support Bureau (CSB) whose staff will review the documents, the seller’s
permit application, tax return signatures, other CDTFA records, and the submitted reasons
when considering the claimant’s request. The CSB makes a recommendation and forwards
the case to the Deputy Director of the Field Operations Division (FOD) for an approval or
denial decision. After a decision is rendered, the case is returned to the CSB supervisor
who will send the requester a denial or approval notication letter with a copy to both the
receiving ofce and the FOD Deputy Director.
For approved requests, the case is forwarded to the Tax Policy Bureau’s Registration Specialist,
Compliance Policy Unit (or appropriate program area) for removal of the claimant from the
liability. If the request is denied, an appeal must be made through the refund request/appeal
process as long as the refund request is for paid amounts or the appeal is within statutory
periods.
Compliance Policy and Procedures Manual
January 2017
LIMITED PARTNERS 724.030
As noted in CPPM 724.020, the liability of a limited partner for debts of the partnership
extends only to its contributed and un-contributed obligation to the business enterprise.
Contributions of a limited partner may be in the form of money, goods, real or personal
property, and, in the case of restaurants, bars, or liquor stores, interest in the liquor license.
All of these are subject to levy and execution for debts of the limited partnership. However,
unless a limited partner contributed real property that was all or part of the partner’s
contribution to the business, the name of the limited partner cannot be included in liens or
abstracts recorded to acquire liens on the real property.
JOINT VENTURE 724.040
A joint venture is a legal organization that takes the form of a short-term partnership in
which the persons jointly undertake a transaction for mutual prot. Generally, each person
contributes assets and shares the risks. Like a partnership, joint ventures can involve
any type of business transaction and the “persons” involved can be individuals, groups of
individuals, companies or corporations.
In general, collection of liabilities from joint ventures is governed by and enforceable under
the rules applicable to partnerships. If collection cannot be made from the assets of the
joint venture, then collection action may commence on the assets belonging to the members
of the joint venture.
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CORPORATE COLLECTIONS 726.000
GENERAL 726.010
Revenue and Taxation Code (RTC) section 6005 recognizes a corporation as a “person”
separate and distinct from its members, stockholders, directors, or ofcers. Generally,
a corporate liability is collectable only from assets of the corporation. Although personal
liability for amounts owed by a corporation can be asserted against members, stockholders,
directors, or ofcers under certain conditions, they do not acquire personal liability solely
through afliation with the corporate entity.
When a corporation has no assets, is defunct, or when personal liability cannot be asserted
against the corporate ofcers, there is no source from which collection can be made.
Therefore, to minimize losses arising from delinquent corporate liabilities, it is necessary to
take appropriate actions when rst in contact with the corporation, such as:
1. Thoroughly analyzing the corporation’s nancial status when nancial documentation
is provided.
2. Assessing if a security deposit is warranted when difculties with the corporate
account develop.
3. Documenting all responsible parties and determining if it is the normal practice of
the corporation to collect tax reimbursement.
CORPORATIONS SUBJECT TO DUAL DETERMINATION 726.015
A “dual determination” is a determination made against a person for a tax liability that is
also the obligation of another person. Under RTC section 6829, a corporate ofcer or other
person may be held personally liable for the tax liability of the corporation if certain criteria
are met (see CPPM section 764.030 et seq. for information on dual determinations).
The best time to gather evidence to support a dual determination is while an entity’s business
is still active. While working an active corporate account, the following questions should be
asked and responses documented in system notes:
• Who is responsible for sales and use tax matters? When did the responsibility
begin? Who ultimately determines which bills get paid? Is this person aware of the
delinquency/liability owed?
• Is the corporate ofcer/member/partner information on record with CDTFA current?
If it is not, obtain the necessary information to update CDTFA’s registration in the
system. What are the start and end dates for each ofcer/member/partner?
• Does the entity collect sales tax from its customers? If so, request a copy of an invoice
or receipt showing tax reimbursement collected. Does the entity collect use tax on
its sales? If so, request a copy of an invoice or receipt. Upload these copies to the
system. Enter detailed notes about how the tax is collected, whether it is included in
the sales price or charged separately, and whether or not they have a Point of Sale
(POS) system that charges tax automatically.
• What other bills are currently being paid? If the taxpayer is requesting a payment
arrangement and nancial information is being requested, the document should be
uploaded as an attachment to the Customer springboard.
If a team member is made aware of an impending closeout of an entity’s business, the ofcer,
member, or partner should be informed of RTC section 6829 and its implications, should
any outstanding sales and use tax liability of the entity remain unpaid when the entity’s
business terminates. For information about issuing a dual determination under RTC section
6829, see CPPM section 764.080.
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REQUIREMENTS AS A CORPORATION 726.020
A corporation is formed after ling articles of incorporation with, and receiving a corporate
charter from, the Secretary of State’s ofce. A corporation does not legally exist until this
process is complete. If the unincorporated entity begins to make retail sales or purchases of
tangible personal property for self-consumption in California without payment of use tax, a
dual determination for sales or use taxes applicable to those sales or purchases should be
issued against the individual owner(s), sole proprietorship(s), partnership(s), joint venture(s),
or other entities comprising the ownership of the business.
If an entity, after obtaining a seller’s permit as a corporation, is found to be an unincorporated
entity, a dual determination should be issued against the true owners of the business, e.g.,
a sole proprietorship, an individual or individuals, a partnership, a joint venture or other
entity. For purposes of tax administration, a foreign corporation that has not registered with
the California Secretary of State is an incorporated entity not qualied to conduct business
in this state.
Under RTC section 23301, a corporation may have its active status suspended for a variety
of reasons. If a corporation is suspended, the liability for payment of sales and use tax
becomes the obligation of the individual members, stockholders, directors, or ofcers for the
period in which the corporation is suspended. Certain requirements must be satised prior
to issuing a determination against a corporate ofcer or ofcers of a suspended corporation
(see CPPM section 764.060).
INCORPORATION WITHOUT NOTIFICATION TO CDTFA 726.030
Occasionally, an individual or partnership will obtain a seller’s permit and then incorporate
without notifying CDTFA of the change. The newly formed corporation is a separate “person”
under RTC section 6005 and is required to obtain a new permit. If a liability is disclosed that
was incurred after the date of incorporation, team members will request the individual or
partnership to register for a new permit and transfer the liability to the corporation using a
CDTFA-523, Tax Return And/Or Account Adjustment Notice. If the taxpayer refuses to obtain
a new permit, team members may create an account using the procedures under CPPM
section 295.090.
If the liability is uncollectible from the corporation, a report may be sent to the Collections
Support Bureau (CSB) requesting a dual determination against the entity to which the initial
permit was issued (the predecessor). The basis for issuing a dual determination against
the predecessor is that the taxpayer’s failure to notify CDTFA of the incorporation deprived
CDTFA of an opportunity to obtain an adequate security deposit resulting in a loss to the
state. To request a dual determination in the above circumstance, notify CSB by sending
a memorandum along with supporting documentation. (See Regulation 1699(f) and RTC
section 6071.1.)
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BUSINESS CONVERSIONS, MERGERS, AND ACQUISITIONS 726.033
OVERVIEW
There are various forms of business entities recognized in California. They are: corporations,
partnerships, limited partnerships, limited liability companies (LLCs), and limited liability
partnerships. As discussed below, the rst four entity forms can participate in various
transactions that may affect their status, including merger, conversion, and acquisition,
all as provided in the California Corporations Code (CCC). Limited liability partnerships,
however, are precluded from some such transactions. (There are also sole proprietorships,
the treatment of which is discussed below.) A merger involves two or more entities while
a conversion involves only one. A merger, or merger reorganization, is the absorption of
one entity by another that survives, retains its name and identity, together with the added
capital, franchises, and powers of the merged (or disappearing) entity, and continues the
combined business. The merged entity ceases to exist, and the merging entity alone survives.
Thus, the surviving entity acquires all rights and property of the disappearing entity and is
subject to all debts and liabilities of the disappearing entity (as if the surviving entity had
itself incurred them).
In a conversion, the entity that converts into another is, for all purposes, the same entity that
existed before the conversion, except that the form of business organization (and possibly the
name) has changed. In both cases, the debts and obligations of the former entity become the
debts and obligations of the new or surviving entity. A limited liability partnership, however,
is precluded from converting into another form of business entity.
Since the debts and obligations of the former entity become the debts and obligations
of the converted or merged entity, it is inappropriate to issue successor billings or dual
determinations to transfer or replicate a liability established against the former entity to the
converted or merged entity. If the liability of the disappearing entity has gone nal, these
merged or converted entities are not entitled to the statutory 30-day petition rights accorded
rightful dualees or successors. Instead, a demand billing (that includes information regarding
the conversion and a reference to the origin of the liability) will be sent to the surviving
or converted entity for payment of the liability incurred by the former entity. If a demand
billing needs to be sent to a converted entity, an email request should be sent to CSB with
all pertinent information included such as the names and account numbers of the former
and succeeding entities, amount(s) and periods of liability, documentation, and information
sources, etc. Any other evidence, such as written statements or documents should also be
forwarded.
There are also two types of acquisitions. One involves the acquisition of the shares of a stock
of a corporation (also known as an “exchange reorganization”), and the other involves the
acquisition of the assets of a corporation (a “sale-of-assets reorganization”). Thus, when one
person or entity acquires all of a corporation’s shares of stock from others, the corporate
form remains intact, and only the shareholders have changed. The corporation has been
acquired by new owners, but it retains its identity. Therefore, if the corporation holds a seller’s
permit with CDTFA, that permit remains valid with the corporation’s name. Alternatively, in
the case of a “sale-of-assets reorganization,” when any form of business sells its assets (as
opposed to sale of its shares or membership interests), the provisions of RTC sections 6811-
6814 and Regulation 1702 may apply, leading to the issuance of a successor determination.
Specic types of each of these transactions (along with instructions for registration and
billing requests once a transaction has occurred) are discussed below.
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STATUTORY MERGERS
Statutory mergers follow the provisions set forth in the CCC for different types of entities.
For a merger to be valid, the merged entities must have followed the requirements set forth
in the CCC.
Statutory provisions governing merger reorganization for corporations are set forth in the
CCC, Chapter 11, and specify the statutory legal formalities required to merge a corporation
with another corporation or other business entity in California. Two or more corporations
may be merged into one of those corporations. The board of each corporation seeking to be
merged must approve an agreement of merger. As set forth in section 1107(a) of the CCC,
once a statutory merger has occurred, the merged or disappearing corporation no longer exists
and the surviving corporation succeeds to all the rights and property of the disappearing
corporation and is subject to all of the debts and liabilities of the disappearing corporation
(as if the surviving corporation had itself incurred them).
Mergers of limited partnerships are authorized pursuant to section 15911.10 of the CCC.
Mergers of partnerships are authorized pursuant to section 16910. Mergers of LLCs are
authorized by section 17710.10. With respect to mergers of each of these forms of entity,
the surviving entities are subject to debts and liabilities of the disappearing entity, as if the
surviving entity had incurred them.
There is no authority for mergers of limited liability partnerships.
Another type of statutory merger is called “short-form merger,” which is a merger of a parent
corporation with one or more wholly owned subsidiaries, or the merger of a parent corporation
and one or more subsidiaries of which the parent corporation owns at least 90%, but not
all, of the outstanding shares of each class.
Registration for Mergers
In a statutory merger, the merged corporation ceases to exist. Team members should close
out CDTFA account(s) of the disappearing corporation and document that the accounts were
merged into the surviving corporation and its CDTFA account(s).
CONVERSIONS
Conversions of corporations are governed by sections 1150-1160 of the CCC. In a conversion,
the entity that converts into another is, for all purposes, the same entity that existed before
the conversion, except that the form of business organization (and possibly the name) has
changed. A corporation may be converted into a “domestic other business entity” if the shares
of the converting corporation are treated in conformity with CCC section 1151 in that: (1)
each share of the same class of the converting corporation is treated equally with respect to
any cash, right, securities or other property to be received and (2) nonredeemable common
shares of the converting corporation are converted into non-redeemable equity securities
of the converted entity. An entity in California that wishes to convert to another domestic
entity must have an approved plan of conversion that states all of the following:
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• The terms and conditions of the conversion.
• The jurisdiction of the converted entity and of the converting corporation, and name
of the converted entity after conversion.
• The manner of converting the shares of each of the shareholders of the converting
corporation into securities of, or interests in, the converted entity.
• The provisions of the governing documents for the converted entity, including the
partnership agreement or LLC articles of organization and operating agreement, to
which the holders of interests in the converted entity are to be bound.
• Any other details or provisions that are required by the laws under which the converted
entity is organized, or that are desired by the converting corporation.
Conversions of limited partnerships are authorized pursuant to CCC section 15911.02.
However, a limited partnership may not convert to a limited liability partnership (CCC section
16955). Conversions of general partnerships are authorized pursuant to CCC section 16902.
Conversions of LLCs are authorized by CCC section 17710.02. With respect to conversions
of each of these forms of entity, the converted entities are subject to all debts and liabilities
of the converting entity, as if the converting entity had incurred them.
There is no authority for conversions of limited liability partnerships.
Registration for Conversions
In this type of situation, it is not necessary to close out the account(s) of the converting entity
and issue a new account(s). The name of the entity and type of business may be changed
on the account(s).
If a sole proprietor decides to incorporate or form another type of business entity (such as a
partnership, limited partnership, or LLC), it is not considered a conversion. Team members
should close the account(s) of the sole proprietor and have the taxpayer register a new
account(s) for the new entity. There would be no question of the liability of the individual for
taxes and/or fees owed prior to the incorporation. The liability of the individual owner(s) for
the subsequent liabilities of the new entity would be subject to CDTFA’s rules as set forth
in RTC section 6829 or RTC section 6071.1 (a) and (b).
Conversions - Administrative Fees for Cigarette Licensees
Under the Cigarette and Tobacco Licensing Act of 2003, cigarette manufacturers and
importers are required to pay an administrative fee when they begin operations in the state.
In cases where a corporation undergoes a conversion, the entity would not be required to
pay an administrative fee. Conversely, if a sole proprietor incorporated, or formed an LLC
or other form of business entity, the resulting corporation or other form of entity would be
required to obtain a new Cigarette and Tobacco Products License and pay an administrative
fee when it begins operations in this state.
BILLING REQUESTS FOR STATUTORY MERGERS AND CONVERSIONS
To obtain a demand billing for a merged or converted entity, a request should be sent to CSB.
The request must indicate the status (nal or non-nal) of the liability. An open petition or
appeal of one or more of the disappearing entities must be respected. In such case, rather
than issue a demand billing, CSB will send the new entity a Statement of Account with
specic bill notes and notify the Petitions Section who will add or substitute the surviving
entity in place of the disappearing entity during the petition or appeals process.
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Along with the status of the liability, the request should include all pertinent information
such as the names and account numbers of the former and succeeding entities, amount(s)
and periods of liability, documentation, and information sources, etc. Any other evidence,
such as written statements or documents, should also be forwarded.
DE FACTO MERGERS
A more difcult issue arises when one entity has effectively shut down without formally
dissolving, and the owner has formed a new entity, doing the same business in the same
location. There is no formal merger and no contract of sale that would support a successor
liability billing. If the facts have been sufciently investigated and certain conditions are
present, CDTFA may be able to assert that there has been a “de facto” merger and that
the new entity should be billed as a “mere continuation” of the former entity. The following
elements must be present to determine that there has been a de facto merger:
Elements of a De Facto Merger
1. Transfer of substantially all business assets of the former entity to the new entity,
2. Substantial alignment of ownership and/or control of the new and old entities (are
the owners and managers of both entities substantially similar?),
3. Absence of meaningful consideration paid by the new entity for the assets of the
former entity,
4. Evidence that the new entity is merely continuing the business of the former entity,
such as: using a substantially similar business name, using the same business
location, maintaining the same vendor accounts who supply to the new entity, using
the same phone number, and having the same employees, and
5. The absence of evidence that the former entity formally dissolved, led appropriate
documentation with SOS and wrapped up its affairs.
Before registering the new entity under a de facto merger theory, or submitting billing requests
for the new entity, a dual determination under RTC section 6829 must have been explored.
CDTFA may not issue a de facto billing until after a dual determination under RTC section
6829 has been issued, or until after CDTFA has determined that the requisite elements for
a section 6829 dual determination are not present.
Registration for De Facto Mergers
In this situation, the account(s) of the terminated entity should be closed and a new account(s)
issued for the new entity. If the new entity is not willing to self-register, an account can
be issued to complete the registration (see CPPM section 295.090). Registration should be
performed based on the results of CDTFA investigation.
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Billing Requests for De Facto Mergers
A demand billing for a nal liability can be issued to the surviving entity for payment of
the liability incurred by the former entity. The request must state the status of the existing
liability. An open petition or appeal of one or more of the disappearing entities must be
respected. In such case, rather than issue a demand billing, CSB will send the new entity a
Statement of Account with specic bill notes and notify the Petitions Section who will add
or substitute the surviving entity in place of the disappearing entity during the petition or
appeals process.
The request must include all pertinent information such as the names and account numbers
of the former and succeeding entities, amount(s) and periods of liability, documentation and
information sources, etc. However, in order to pursue a de facto merger, all ve elements
of a de facto merger must also be present and clearly documented in the request. Send
requests for demand billings to CSB who will consult with the Litigation Bureau before the
request is approved.
Statute of Limitations for Mergers and Conversions
There is no specic statute that limits a conversion, merger, or de facto merger billing of a
secondary entity for the liability of a primary entity. The doctrine of laches may apply in these
cases where there is no statute. The doctrine affords a taxpayer an equitable defense if the
billing was unreasonably delayed. Therefore, the policy is to issue the conversion, merger,
or de facto merger billing within three years of acquiring knowledge of the facts supporting
the secondary billing.
ACQUISITIONS
Acquisitions are a form of reorganization and are covered in subdivisions (b) and (c) of
section 181 of the CCC. Persons or entities can make acquisitions of all forms of business
entities discussed in the Overview part of this section. It is important to distinguish between
a situation involving the acquisition of the equity securities of an entity, such as shares
of stock of a corporation, a partnership interest of a general partnership, or membership
interests of an LLC (also known as an “exchange reorganization”), and the acquisition of
the assets of an entity (a “sale-of-assets reorganization”). The two types of acquisitions are
described below.
Acquisition of Equity Securities / Exchange Reorganization
When one person or entity acquires some or all of an entity’s equity, the entity remains intact,
and only the shareholders or owners have changed. The entity acquired by new owners, in
whole or in part retains its identity. If it has accounts(s) with CDTFA, the account(s) should
continue with the same name. The acquisition of an entity through exchange reorganization
does not trigger a successor liability. The sale of equity securities, including membership
interests of an LLC, is not a transfer of ownership of physical assets for a nancial
consideration. Any liability of the entity that existed before the exchange reorganization will
remain a liability after such a transaction. There is no “disappearing entity” and no “surviving
entity,” therefore, there is no billing.
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Registration for Acquisition of Equity Securities
It is not necessary to close out the account(s) of the entity and issue new account(s) in
this case since the entity continues to exist. Depending on the responsibility of the person
acquiring the equity securities, the names of the persons acquiring the interest in the entity
(such as partnership shares in a general partnership or a new CEO of a corporation) may
need to be added to the account as if such purchaser was one of the owners at the time the
entity was originally registered as provided in Chapter 2 of the CPPM.
Registration for Assets/Sale-of-Assets Reorganization
Team members must determine if the entity whose assets were acquired has ceased operating.
All locations of the “selling” entity must be closed before closing out its account(s). Team
members should issue new account(s) to the entity that acquired the assets.
Billing Requests When There is an Acquisition
If the elements of a successor liability are present, the acquiring entity can be billed as a
successor. See CPPM section 732.000 for more information.
NOTIFICATION OF REGISTRATION CHANGES
Updates to registration due to mergers, acquisitions or conversions may come from the tax
or fee payer or their representatives through written correspondence, communication by
telephone or email, or through the team member’s investigation. Regardless of whether a
liability exists, upon notication of a merger, acquisition, or conversion, the team member
receiving the information should verify the status of the old and new entities via the “Business
Search” function available on the Secretary of State’s (SOS) website.
Since the entity may be registered for multiple programs with CDTFA, the team member who
discovers the merger, acquisition, or conversion, should check for other related accounts
in the system. In the event the team member locates other accounts that are affected by
the merger, acquisition or conversion which are not under their jurisdiction, they should
prepare a memo or email to their Compliance Principal (or equivalent for special taxes and
fees programs) with the following information:
1. CDTFA account number(s) and TIN affected.
2. SOS number (existing if applicable and new) affected by change.
3. Type of change (merger, de facto merger, conversion, sole proprietor to corporate
change, acquisition of equity securities, acquisition of assets).
4. Effective date of change.
5. Action taken on CDTFA account(s) administered by discovering jurisdiction.
6. New CDTFA account number(s) and TIN established, if applicable.
The Compliance Principal (or equivalent for special taxes and fees programs) overseeing the
area that discovered the merger, acquisition, or conversion should forward the aforementioned
information and documents used to verify the information to the Compliance Principal (or
equivalent for special taxes and fees programs) responsible for overseeing registration activities
outside their jurisdiction (based on tax or fee program) requiring potential account updates.
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JEOPARDY DETERMINATIONS
If a team member discovers that the secondary entity is concealing or otherwise disposing of
its assets, a jeopardy determination may be issued, rendering that entity’s liability as nal
(see CPPM section 764.020 for information on jeopardy determinations). The mere creation
of the secondary entity and the cessation of business by the primary entity, however, does
not in itself justify a jeopardy determination. A jeopardy determination is used for those
cases where assets are truly in danger of being immediately hidden, moved, or otherwise
disposed of.
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INCORRECT CORPORATE REGISTRATION 726.035
It may happen that a California corporation holding a seller’s permit dissolves and then
incorporates in another state without notifying the CDTFA and without signicantly changing
the conduct of their business in California. The dissolution invalidates the seller’s permit
as the “person” that the seller’s permit was issued to no longer exists, and therefore the
dissolved corporation cannot continue to engage in business as a retailer in this state. The
new corporate entity must rst register with the Secretary of State’s ofce and then obtain
its own seller’s permit from the CDTFA.
If the dissolved corporation has an existing liability, or a liability is disclosed through
investigation or audit subsequent to dissolution, a dual determination should be requested
against the new entity. In cases where the successor has terminated and the security deposit
is in the form of a surety bond, see CPPM 732.000 et. seq.
California corporate law applies to both California corporations and foreign (out-of-state)
corporations doing business in this state. If a California corporation dissolves, it is required
to notify the CDTFA, the Secretary of State’s ofce, and all other creditors whose addresses
appear in the corporate records. If it does not do so and there is no security deposit or other
means of collection because the corporate assets have been distributed, shareholders who
are, or were, responsible persons may be held liable for any debts of the corporation arising
prior to dissolution. Examination of the company stock register or Secretary of State les will
provide information on corporate shareholders. (See California Corporations Code sections
1901(a), 1901(c), and 2011(a)).
UNPAID LOANS 726.045
A corporation may authorize a loan of corporate funds or assets to stockholder(s), ofcer(s)
or director(s). When authorized corporate loans to stockholders, ofcers, or directors remain
unpaid, and the corporation has a sales and use tax liability, collection from such person(s)
may be pursued. In other words, if the stockholder, ofcer or director owes money or assets
to the corporation, the money or assets can be reached through the following:
1. Notice to withhold.
2. Notice of levy.
3. Warrant.
Loans that are not voted on by the holders of a majority of the shares of all classes of stock
(other than stock held by the beneted person) are unauthorized loans. If ofcers or directors
approve unauthorized loans, similar collection action can be taken against those directors
and/or shareholder recipients.
When either unpaid authorized loans or unauthorized loans exist, the auditor or collector
should document the type of loan, name of recipient, terms of loan, balance unpaid and
type of action by the board of directors authorizing such loans (Corporation Code sections
315, 316(a)(3)).
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UNLAWFUL DISTRIBUTIONS 726.050
When collection of a corporate liability is doubtful and an unlawful distribution or other
unlawful act by a director or directors (as described below) is suspected, the minutes of the
corporate Board meetings should be examined for proof of such unlawful distribution or other
unlawful acts. Other documents that may need to be examined are the retained earnings
statement, the balance sheet, the statement of changes in nancial position, etc. If there is
sufcient proof of an unlawful distribution, the CDTFA may seek court action against the
directors and/or shareholders in order to pursue collection of the liability.
Shareholders of a corporation may be liable for unlawful distributions that they knowingly
receive. Corporations Code section 506 describes the actions that constitute unlawful
distributions.
Corporations Code sections 309 and 316 provide that directors who approve any of the
following corporate actions are jointly and severally liable to the corporation for the benet
of all of the creditors or shareholders:
1. The distribution of retained earnings or assets to the corporation’s shareholders in
the following circumstances:
a. When the amounts of retained earnings prior to the distribution do not at least
equal or exceed the amount of the proposed distribution; or
b. When immediately after the distribution:
1. The sum of the assets of the corporation (exclusive of goodwill, capitalized
research and development expenses and deferred charges) is not at least equal
to 1 1/4 times its liabilities (not including deferred taxes, deferred income and
other deferred credits); and
2. The current assets of the corporation are not at least equal to the corporation’s
current liabilities or, if the average of the earnings of the corporation before
taxes on income and before interest expense for the two preceding scal years
was less than the average of the interest expense to the corporation for such
scal years if the average earnings were not at least equal to 1 1/4 times
current liabilities (Corporations Code section 500); or
c. When a corporation makes a distribution and it is likely the corporation will be
unable to meet any liabilities as they mature (Corporations Code section 501).
2. The distribution of assets to shareholders after institution of dissolution proceedings
without paying or adequately providing for all known liabilities.
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OUT-OF-STATE COLLECTIONS 731.000
A collection case remains with the assigned collector even when the taxpayer subsequently
relocates outside of California. The collector shall attempt to locate taxpayers and their assets
using collection and skip tracing tools available (see CPPM sections 720.000 et seq). A case
may be referred to the Out-of-State ofce for additional investigation when:
1. The amount owing is sufcient to warrant an out-of-state auditor making personal
contact, or
2. The account is identied in CROS as a collection case for the CA Nexus Program.
Accounts should not be referred to the Out-of-State ofce if the amount owing is relatively
small or if it is obvious that no further action can be taken beyond the actions already
completed. Additionally, accounts should not be referred to the Out-of-State ofce when it
is clear that it is going to be written off.
Referral is made using procedures in CPPM section 749.023.
OUT-OF-STATE OFFICE ACTION 731.023
Upon receipt of a Request for Field Ofce Investigation case, the Out-of-State ofce reviews
the account and any other signicant factors to determine whether an auditor should make
a eld call if assigned an audit in the taxpayer’s area.
If the out-of-state auditor contacts the taxpayer, the auditor should obtain as much
information as possible concerning the taxpayer’s assets and notify the Out-of-State ofce
so that the compliance team member can take appropriate action.
The auditor’s report will describe the actions taken on the account and any information that
may be helpful in determining whether to initiate a write off or if a referral to the Attorney
General (to obtain an in-state judgement for out-of-state enforcement) is warranted. The
referring ofce is responsible for writing off the liability if personal contact by the auditor does
not result in payment or yield information on the taxpayer’s assets, or initiating a referral
to the Attorney General, if warranted.
The Out-of-State ofce will enter case notes on the results of the investigation, then notify
the responsible collector. The case will be closed when:
c. Personal contact is not practical.
d. Personal contact by the out-of-state auditor did not result in payment or positive
information on assets.
e. Collection action cannot be pursued by the Out-of-State ofce.
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OUT-OF-STATE TAXPAYER — COLLECTION ACTIONS 731.025
Under RTC section 6757 and similar special taxes and fees statutes, a perfected and
enforceable state tax lien is created when a taxpayer fails to timely pay their taxes/fees,
including interest, penalties, and any additional costs, when they become due. The lien is
created by operation of law. Although not recorded with the Secretary of State or with a
county recorder, the lien satises any lien requirements mandated by the various California
Codes that address earnings withholding orders for taxes (EWOT).
Generally, assets of a taxpayer located outside California are outside the jurisdiction of the
State of California for collection purposes. However, when a taxpayer who owes a liability
is located out of state and is employed, collectors may send an EWOT to the out-of-state
employer if the employer has a place of business, payroll ofce, payroll account, or some
other presence in California or has a designated agent for service of process in California. In
such a case, the employer has submitted itself to California’s jurisdiction and must honor
the EWOT by garnishing the wages of the specied employee.
In addition, if a taxpayer has funds held by a nancial institution with nexus in California,
under certain circumstances, a Notice of Levy may be enforceable (see the Compliance Policy
and Management Guidelines for additional information on out-of-state levies).
OUT-OF-STATE OFFICE — COLLECTION RESPONSIBILITY 731.040
The Out-of-State ofce is responsible for performing all compliance functions for retailers
whose records are located out of state but who maintain a place of business in this state.
However, the Out-of-State ofce compliance team members do not perform eld calls.
Therefore, if an out-of-state account has a business location in California, the responsible
in-state ofce may be called upon for assistance in performing a eld investigation.
AND RESPONSIBILITY 731.050
CSB has nal authority for determining whether a request for discharge from accountability
(write-off) should be made pursuant to an Out-of-State ofce recommendation. CSB will
thoroughly review each request received. If CSB agrees with the recommendation, the write-off
will be processed. However, if for any reason CSB does not agree with the recommendation,
the request will be returned to the originating ofce.
CSB also has nal authority for determining whether a referral to the Attorney General
should be made pursuant to an Out-of-State ofce recommendation. In most cases, when
such a recommendation is received, CSB will review all factors and determine whether the
case should be referred to the Attorney General.
NOTIFICATION OF ACTION 731.060
In every case where a write-off is received by CSB, or where referral to the Ofce of the Attorney
General has been recommended, CSB will inform the responsible ofce of the action taken.
Compliance Policy and Procedures Manual
April 2017
SUCCESSOR’S LIABILITY 732.000
POLICY REGARDING COLLECTION FROM SUCCESSORS 732.010
The following Revenue and Taxation Code (RTC) sections provide that a purchaser of a
business or stock of goods may become liable for taxes and fees owed by the seller:
• Sales and Use Tax 6812
• Motor Vehicle Fuel Tax 7959
• Use Fuel Tax 9022
• Diesel Fuel Tax 60472
• Oil Spill Response,
Prevention, and Administration Fees 46452
The purchaser of a business or stock of goods is a potential successor and should request
from the seller a Certicate of Payment (CDTFA-471 for Sales and Use Tax and Use Fuel Tax
accounts; for Diesel Fuel Tax and Oil Spill Response, Prevention, and Administration Fees
accounts, purchasers should obtain a letter from CDTFA containing similar language to the
CDTFA-471) issued by the CDTFA showing that the seller’s tax and fee liabilities have been
paid in full and that no tax or fee amounts are due. The seller can request the Certicate
of Payment from the CDTFA. If the seller does not produce a Certicate of Payment, the
purchaser should withhold from the seller, or any agent of the seller, an amount to satisfy
the seller’s debt, up to the amount of the purchase price and request a tax clearance from
the CDTFA. The CDTFA will issue a Certicate of Payment if no amounts are due from the
seller. If the seller owes a liability to the CDTFA, a CDTFA–1274, Notice of Amounts Due
and Conditional Release, or a CDTFA-48, Notice to Purchaser on Request for a Certicate of
Payment, if no escrow company is involved (or similar documents for the applicable Special
Taxes and Fees accounts), will be provided that shows the amount that must be paid in
order to obtain a release from liability for amounts owed by the seller.
If a purchaser requests a tax clearance, the CDTFA must issue either a CDTFA–471,
CDTFA–1274, or CDTFA-48, (or similar documents for the applicable Special Taxes and
Fees accounts) within 60 days of the latest of the following three dates or successor liability
cannot be assessed against the purchaser (except as noted in footnote
1
):
1. The date the CDTFA receives the written request from the purchaser.
2. The date of the sale of the business or stock of goods.
3. The date the seller’s records are made available to the CDTFA for audit.
If a purchaser of a business or stock of goods does not receive a Certicate of Payment from
the seller or does not request a tax clearance from the CDTFA pursuant to the applicable RTC
sections listed in the table, and does not withhold a sufcient portion of the purchase price
from the seller (predecessor) to cover the seller’s tax/fee liabilities, the purchaser becomes
personally liable for the seller’s unpaid tax/fee liabilities to the extent of the purchase price
valued in money. However, no collection action can be taken against the purchaser (successor)
until a notice of successor’s liability is issued and becomes nal.
1
Motor Vehicle Fuel Tax Law does not have a provision for relief of the purchaser’s/transferee’s
potential liability if they request a Certicate of Payment from the CDTFA. Instead, under the Motor
Vehicle Fuel Tax Law, the supplier must notify the CDTFA of the sale or transfer as provided by RTC
section 7956 to relieve the purchaser/transferee of potential liability.
Collections
April 2017
Certain types of transactions may not support issuing a notice of successor billing, such as
a purchase of a business or a stock of goods:
1. Through a bankruptcy proceeding.
2. From a franchisor.
3. From a creditor who has obtained a judgment and seized the business assets.
4. From a landlord who has evicted a tenant and seized assets.
First efforts to collect will be directed against the predecessor. However, a notice of successor
liability should be issued as soon as staff determines that there is a successor’s liability,
unless there is a strong possibility of collecting the entire amount from the predecessor in
a very short period of time. The issuance of the notice will make the successor aware of
the liability and will facilitate their pursuit of remedies against the predecessor. Collection
from the successor should not be pursued until all efforts to collect from the predecessor in
a reasonable amount of time are exhausted.
If, however, it becomes clear that collection of the entire amount from the predecessor in a
reasonable amount of time is not possible, collection action must be initiated against the
successor immediately. In addition, collection action against the successor must not be
withheld or postponed if there is evidence that collection from the successor will be jeopardized
by delay, such as the successor is closing or transferring the business, liquidating assets,
or intends to le for bankruptcy.
LIABILITY SECURED BY SURETY BOND 732.020
If the liability of the predecessor is secured entirely by a surety bond, no collection action
should be taken against the successor even though a successor’s billing has been issued. If
payment cannot be obtained from the predecessor, demand will be made upon the surety to
clear the liability. The billing to the successor serves as notication of a “contingent liability”
since it is anticipated that the surety will pay the liability.
If only a portion of the predecessor’s liability is secured by a surety bond and the predecessor
has no assets to pay the liability, demand should be made on the surety before requiring
the successor to pay. The approximate amount anticipated from the surety should be taken
into consideration if collection action commences against the successor before the surety
makes payment to the CDTFA. However, the successor’s liability is not reduced by the
amount for which the surety of the predecessor is liable until the CDTFA receives payment
from the surety.
SURETY BOND ON SUCCESSOR’S ACCOUNT 732.030
The successor may be required to post a security deposit upon obtaining a seller’s permit
for the purchased business. If the successor posts a surety bond, the surety (usually an
insurance carrier) can only be held liable for amounts arising from the business operations
of the successor. In other words, a surety bond posted by a successor cannot be used to
satisfy an obligation billed to the successor for successor’s liability.
Compliance Policy and Procedures Manual
June 2017
SUCCESSOR’S LIABILITY AS A TAX/FEE 732.040
With the exception of the preceding section, the liability of a successor is considered to be
a tax/fee liability and is subject to all remedies and priorities as if the liability had been
incurred by the successor through its own operations. A successor’s liability may be included
in bankruptcy, an assignment for benet of creditors, or probate claims led against the
estate of a successor and is entitled to the same priority as other tax claims.
Agreements or contracts between the buyer and seller that attempt to place the responsibility
and time of payment of the liability cannot overcome the requirements of the law and will
be disregarded.
SUCCESSOR BILLINGS 732.050
The law requires the CDTFA to issue a notice of successor liability to the purchaser of a
business or stock of goods in order to enforce the purchaser’s successor liability. A notice
of successor liability is issued for any amount owed by the predecessor over $500, up to the
purchase price of the business or stock of goods. Once the notice of successor liability is
mailed, the successor has 30 days to petition the liability prior to the initiation of collection
action (RTC section 6814). If the successor les a timely petition of the amount determined
to be due, the account will not enter into active collection status pending the outcome of
the petition.
AMOUNTS NOT DUE OR DELINQUENT AT TIME OF SALE 732.060
A successor’s liability only extends to the amount the successor was required to withhold
from the purchase price at the time the successor purchased the predecessor’s business or
stock of goods. The amount a successor is required to withhold includes all of the seller’s
tax/fee liabilities, interest, penalties, and Collection Cost Recovery Fees (CRFs) incurred
with regard to the business or stock of goods up to the date of the purchase regardless
of whether the liabilities have been reported, billed, or become nal, to the extent of the
purchase price (with the exception that only CRF amounts assessed on or before the date
the business was purchased can be included in a successor billing). The amount does not
need to be a matter of record when the sale of the business takes place. For example, the
successor’s liability may be disclosed during a close out audit of the predecessor’s account
or generated if, subsequent to the sale, the predecessor les a nal return without payment
(or with a partial payment).
SUCCESSOR’S LIABILITY RESTRICTED TO LOCATION PURCHASED 732.070
The liability of the successor is limited to amounts owed by the predecessor incurred at
the business location(s) purchased. If the predecessor operated the business at multiple
locations, the liability incurred at the purchased location(s) must be determined to assert
successor’s liability against the purchaser.
Collections
June 2017
PURCHASE OF FIXTURES, EQUIPMENT, OR STOCK OF GOODS 732.080
Before a purchaser can be held liable as a successor, the fact, that “a business or stock of
goods” has been purchased must be established. If the purchase involved only an item or
items such as xtures, equipment, name, lease or a liquor license, successor’s liability is
not necessarily applicable.
If the purchaser acquired only a portion of the business or stock of goods of the seller, the
portion purchased must be substantial in order to assert successor’s liability. In all cases
where there is doubt as to whether the purchaser has acquired sufcient of the predecessor’s
business to become liable as a successor, a comprehensive report should be submitted to
the next level of supervision for possible referral to the Collections Support Bureau (CSB).
One source of information for determining whether there was a sale of a business or stock
of goods is the taxpayer’s returns led with the Internal Revenue Service (IRS). The IRS
requires taxpayers to le Form 8594, Asset Acquisition Statement, when there is a transfer
in the ownership of a business. IRS Form 4797, Sales of Business Property, is required
when there is a sale of a group of assets that makes up a trade or business. The information
contained on these forms may help in determining the value of xtures, equipment, or other
assets when a business is sold.
Bulk Sale of a Business – IRS Form 8594
IRS Regulation section 1.1060-1(e)(1)(ii) and Internal Revenue Code (IRC) section 338 require
that both the buyer and seller in an applicable asset acquisition report on Form 8594 the
amount of consideration in the transaction and specic information about the allocation of
consideration among the assets transferred.
Both the seller and the buyer of a group of assets that make up a trade or business are
required to le Form 8594 to report such sales if goodwill or going concern value attaches
to, or could attach to, the assets and if the buyer’s basis in the assets is determined only
by the amount paid for the assets. Generally, Form 8594 would be attached to the Federal
Income Tax Return for the year in which the sale occurred. However, a supplemental Form
8594 must be led if the buyer or seller is amending a previously led form because of an
increase or decrease in the buyer’s cost of the assets or the amount realized by the seller.
The information that must be reported on Form 8594 includes the following:
1. Name, address, and taxpayer identication number of the buyer and seller
2. Purchase date
3. Total consideration for the assets
4. Amount of consideration allocated to each class of assets and the aggregate fair market
value of assets of each class
5. Statement as to whether the buyer and seller agreed upon the fair market value of
the assets in the contract of sale
6. The useful life of each class III intangible and amortizable asset - Class III assets
are all tangible and non-tangible assets (e.g. furniture and xtures, land, buildings,
equipment, and accounts receivable)
7. A statement as to whether, in connection with the acquisition of the group of assets,
the buyer also obtained a license, a covenant not to compete, or entered into a lease
agreement, an employment contract, a management contract, or similar arrangement
between the buyer and the seller (or the managers, directors, owners, or employees
of the seller).
Compliance Policy and Procedures Manual
June 2017
Exceptions to the requirement for ling IRS Form 8594 include the following:
1. The acquisition is not an applicable asset acquisition. An applicable asset acquisition
includes both a direct and indirect transfer of a group of assets, such as a sale of a
business, if goodwill or going concern value attaches to, or could attach to, the assets,
and the buyer’s basis in the assets is wholly determined by the amount paid for the
assets.
2. A group of assets that makes up a trade or business is exchanged for like-kind property
in a transaction to which IRS Regulations section 1.1031(j)-1 applies. Generally, for a
like-kind exchange, there must be a property-by-property comparison for computing
the gain recognized.
3. A partnership interest is transferred.
Sale of Business Property – IRS Form 4797
IRS Form 4797 is used to report the sale or exchange of property used in a trade or business;
depreciable and amortizable property; oil, gas, geothermal, or other mineral properties; and
IRC section 126 (certain cost-sharing payments) property. Form 4797 is also used to report
the following:
1. The involuntary conversion of property used in a trade or business and the capital
assets held in connection with a trade or business or a transaction entered into for
prot, as well as the disposition of non-capital assets other than inventory or property
held primarily for sale to customers in the ordinary course of a trade or business.
2. The disposition of capital assets not reported on IRS Schedule D.
3. The recapture of IRC section 179 expense deductions for partners and S corporation
shareholders from property dispositions by partnerships and S corporations. The
deduction allows for up to the entire cost of certain depreciable business assets,
other than real estate, in the year purchased, which may be used as an alternative to
depreciating the asset over its useful life. Taxpayers cannot use the IRC section 179
deduction to the extent that it would cause them to report a loss from their business.
4. The computation of recaptured amounts under IRC section 179 and IRC section
280F(b)(2), when the business use of section 179 or listed property drops to 50% or
less (IRC section 179 - The limitation on depreciation for luxury automobiles; limitation
where certain property is used for personal purposes).
Requesting Copies of Forms
Staff should request a copy of IRS Forms 8594 and 4797 from the taxpayer to determine
the sales price of the tangible personal property when it is either sold or transferred under
the conditions covered in this section. If the information is not readily available from the
taxpayer, staff may request the information following the procedures outlined in CPPM
section 720.031.
Collections
October 2016
CONSIDERATION IN A FORM OTHER THAN MONEY 732.090
The purchase price paid for a business need not be in the form of money to establish a
liability against the successor. Furthermore, the sale of a business or stock of goods may
occur with or without documents that convey the terms of the sale and an escrow may not
be involved. If the purchaser agrees to the assumption of obligations owed by the seller,
agrees to cancel amounts owed to him by the seller, or gives something other than money
as a consideration for the transfer of the business, the purchaser can be held liable as a
successor. In cases where the consideration is represented by something other than money,
the value of the business or stock of goods purchased must be determined to dene the
extent of liability. (RTC section 6812).
When the only consideration is an assumption of debt, the purchase price of a business is
that portion of the seller’s debt obligation that the buyer has assumed. A written request
should be sent to both the buyer and the seller to obtain documents relative to the transfer
of the business assets. Based on the response, additional evidence may be required to
support a successor’s liability action.
Some examples of documentation that may support an assumption of liability for a
successor billing include:
1. Buyer’s income tax returns listing expenses of the seller.
2. Information from a county assessor or state agency that shows the buyer paid
back-taxes and/or fees on the seller’s behalf
Documentation to support a request for a successor’s liability billing can be generated from
many different sources such as:
1. Reviewing all le material and history notes for supplier and landlord information.
2. Searching the Internet (sites such as CLEAR or other available sources).
3. Making eld calls to identify suppliers.
4. Reviewing the predecessor’s audit information.
Use Form CDTFA–1511, Dual Determination — Creditor/Supplier/Landlord, to obtain
documentation from these sources. In certain instances, a subpoena duces tecum (subpoena
for production of records) may be necessary to obtain copies of the payments made by the
seller.
Compliance Policy and Procedures Manual
December 2014
PENALTY AND INTEREST — SUCCESSOR’S LIABILITY 732.100
The liability incurred by a successor with regard to the purchase of a business or stock
of goods includes all amounts incurred by the predecessor, or any former owner, from the
operation of the business, including amounts incurred from the sale of the business, even
though such amounts may not be determined as of the date of purchase. All tax, interest,
and penalties incurred by the predecessor, up to the amount of the purchase price, shall be
billed to the successor. Although the successor liability billings are not directly subject to
accrual of interest, successors are liable for all the predecessor’s tax, penalty, and interest,
including interest accrued after the issuance of the notice of successor liability. However,
negligence or fraud penalties assessed to the predecessor after the date of purchase will not
be due from the successor pursuant to Regulation 1702(d)(2) unless there is a relationship
between the successor and the predecessor. Such penalties may be relieved under certain
circumstances. (See RTC section 6814 and Regulation 1702.)
Successors seeking relief from penalty under RTC section 6814(b)(2) should be directed to
le an online request for relief from penalty on the CDTFA website. Staff should encourage
taxpayers without internet access to visit a eld ofce or another location with internet access
to complete the request. However, if these options are not available, staff should provide a
CDTFA–193, Request for Relief from Penalty. This form should be returned to the ofce that
handles the taxpayer’s account and not to headquarters.
Staff will update the system with a note to indicate that the taxpayer has either led an online
relief request, or led a completed CDTFA–193. The system note will include the successor’s
reasons for making the request. If appropriate, the CDTFA–193 is then approved and signed
by the Administrator or his/her designee. The person approving the form should likewise
enter notes in the system and send the form to headquarters for processing, which includes
further review of the request and adjustment of the penalty, if warranted. If the liability has
not been petitioned, the CDTFA–193 should be sent to CSB. If the liability has been petitioned
or a late protest has been submitted, the form should be sent to the Petition Section.
PURCHASE MONEY DEPOSITED IN
ESCROW DOES NOT RELIEVE A SUCCESSOR 732.110
If the purchaser allows funds in escrow to be distributed without rst securing a tax clearance
from the CDTFA, the fact an escrow was conducted is of no signicance. A successor cannot
be relieved of liability because funds in the amount of the purchase price or a portion thereof
were deposited in an escrow from which the CDTFA did not receive payment.
If other creditors are serving levies on funds in escrow, the CDTFA should promptly levy
for the amount of the obligation due from the predecessor in order to secure the available
escrow funds. If the escrow funds are exhausted, or if there is only enough money for a
partial payment against the predecessor’s debt to the CDTFA, the successor remains liable
for the predecessor’s liability to the extent of the purchase price.
Collections
August 2022
REQUESTING A SUCCESSOR BILLING 732.115
To request a successor billing, the collector must:
1. Gather evidence of a successor liability
a. Purchase price
b. Sale date
c. Description of assets purchased, including business locations purchased
d. Description of the type of consideration if the consideration was other than money
e. Bill of sale signed by both buyer and seller, if available
f. Proof of assumption of liability where applicable
g. Other evidence to support the sale of the business
2. Create a Dual/Secondary Billing case, and select the Collection Type “Successor” (see
“Adding a Dual Determination Billing” in the system’s Help Manager)
3. Complete and attach a CDTFA-1512, Dual Liability Billing Worksheet to the case
4. Create a memo containing the facts supporting the successor billing, including
supporting documents as exhibits
5. Attach the memo and exhibits to the successor case as a Dual Packet
6. Forward the case to their supervisor for approval
If approved, the case will be staged for CSB approval (the supervisor will remove the name
of the collector from the case so that it is unassigned when going to the CSB queue).
If approved, CSB will issue the successor billing and will notify the Petitions Section of the
billing by email if the predecessor liability is in petitions status.
PERIOD WITHIN WHICH TO ESTABLISH SUCCESSOR’S LIABILITY 732.120
A notice of successor’s liability billing may be issued no later than three years after the
CDTFA is notied in writing of the purchase of the business or stock of goods. The statute
of limitations for issuing the notice of successor’s liability begins to run once the CDTFA
has been notied of the purchase of the business.
Issuing a notice of successor’s liability can occur as soon as there is evidence of a successor.
Some examples of appropriate times to request a notice of successor’s liability include:
1. The predecessor’s liability is in petition status and is not yet nal.
2. After an audit has been completed, billed, but is not yet nal on the predecessor’s
account.
3. As soon as a liability on the predecessor’s account becomes nal.
4. The predecessor’s account is closed-out with established non-nal liabilities.
Issuing a notice of successor’s liability prior to the predecessor’s liability becoming nal does
not violate any statutory requirement. The notice can be issued at any time during the three
years after the CDTFA is notied of the purchase of the business or stock of goods. Billing
early allows the successor to respond to the potential liability in a more timely manner and
helps protect the state’s ability to collect the outstanding balance once the petition is resolved.
Compliance Policy and Procedures Manual
July 2009
HEADQUARTERS’ RESPONSIBILITY — SUCCESSOR BILLINGS 732.130
Although successor liability billings are generated by CSB, the Petitions Section processes,
acknowledges, and controls all petitions for reconsideration of a notice of successor liability.
The Petitions Section is charged with the responsibility of seeing that petitions are resolved
expeditiously and, if possible, without the necessity of an appeals conference and/or appeals
hearing(s).
After being notied by CSB of a successor billing on a petitioned predecessor account, the
Petitions Section will place a sundry withhold on the successor account. This will cause a
sundry withhold indicator to appear on the successor’s liability difference. The Petitions
Section will be responsible for the removal of the indicator once the predecessor liability is
removed from petition status.
Since successor billings may be based on limited information, the Petitions Section may refer
a taxpayer’s petition to the responsible ofce for additional investigation. Petitions referred
to another ofce will be directed to the Administrator for assignment to the appropriate staff.
Periodically, the Petitions Section will request a progress report to ensure that the ofce of
control is handling the petition on a priority basis.
RESPONSIBILITY — SUCCESSOR BILLINGS 732.140
The assigned collector or other staff in the ofce responsible for the account occasionally
receive a petition for reconsideration of a notice of successor’s liability directly from the
successor. Since routine collection procedures are normally instituted on “nal” liabilities,
the original petition and the envelope in which the petition was mailed should be immediately
forwarded to the Petitions Section for processing. When the Petitions Section places the
successor billing into petition status, the account is agged to stop any collection activity
that would normally commence on the petitioned liability.
The ofce responsible for the account must ensure that all petitions for redetermination are
handled on a priority basis. Copies of any correspondence between the successor and staff
should be sent to the Petitions Section.
When the investigation is completed by the ofce responsible for the account, a report of
the ndings should be sent to the Petitions Section. This report should include the following:
1. If applicable, the basis for recommending that the successor billing either be reduced
or canceled.
2. Whether or not the successor agrees with the recommendation.
3. Whether or not the successor wants a hearing.
4. Information summarizing efforts to collect from the predecessor. This information must
also be clearly documented in the predecessor’s le and be included in information
prepared for a hearing.
Collections
July 2009
PREDECESSOR’S LIABILITY FOR SUCCESSORS’ TAX 734.000
GENERAL 734.010
Under RTC section 6072, a person will surrender its seller’s permit to the California
Department of Tax and Fee Administration (CDTFA) for cancellation when the person is no
longer actively engaged in conducting business that requires the person to hold a permit.
Upon discontinuing or transferring a business, the permit holder shall promptly notify the
CDTFA of the change in status. When possible, the permit holder should deliver the seller’s
permit to the CDTFA for cancellation, but is not required to do so. Notifying another state
agency of the transfer does not constitute notice to the CDTFA. If the predecessor claims that
the CDTFA received constructive notice that the business was transferred to a successor,
the information supporting the claim should be referred to the Collections Support Bureau
(CSB) for possible cancellation of the predecessor’s liability.
Notice of the transfer must be received by either:
1. An oral or written statement to a CDTFA office or authorized representative
accompanied by delivery of the permit, or followed by delivery of the permit upon actual
cessation of the business. (The permit itself need not be delivered to the CDTFA if it
is lost, destroyed, or is unavailable for some other acceptable reason).
2. Receipt of the transferee’s (successor’s) application for seller’s permit. It is unlawful for
a successor of a business to operate the business without a permit issued in its name.
If the transferor has actual or constructive knowledge that the transferee is using the
transferor’s permit in any way, the failure of the transferor to notify the CDTFA of the transfer
or to deliver the seller’s permit for cancellation subjects the transferor to liability for taxes,
interest, and penalties (excluding fraud penalties) incurred by the transferee. Except in
the case where, after the transfer, 80 percent or more of the real or ultimate ownership of
the business transferred is held by the predecessor (substantially the same ownership),
the liability is limited to the quarter in which the business is transferred, and the three
subsequent quarters (Regulation 1699(f)). Some of the ways the transferee may improperly
use the transferor’s permit include:
1. Displaying the transferor’s permit in transferee’s place of business.
2. Issuing resale certicates using the transferor’s seller’s permit number.
3. Filing tax returns using the name and seller’s permit number of the transferor.
Collectors should attempt to collect from the successor rst. However, collection efforts
should begin against the predecessor if it appears that delaying action against the predecessor
will jeopardize the collection of the liability. When it is evident that the predecessor did
not notify the CDTFA of the business transfer, a notice of determination in the name of the
predecessor should be requested by sending a memo to CSB. The request must explain
the circumstances involved. The notice of determination, when issued, is a formal notice
informing the predecessor of his/her liability. Active collection actions can be taken after
the nality date of the notice of determination.
Compliance Policy and Procedures Manual
July 2009
DUAL DETERMINATIONS AGAINST PREDECESSOR -
WHEN APPLICABLE 734.012
When a predecessor fails to notify the CDTFA that he or she discontinued, sold, or transferred
his or her business, the predecessor may be held liable for tax, interest, and penalty (except
for fraud or intent to evade) incurred by the successor/transferee, if the predecessor had
actual or constructive knowledge that the successor/transferee was using his or her permit
in any manner. The predecessor’s liability, however, is limited to the quarter in which the
business was transferred, and the three subsequent quarters. However, the limitation on
liability does not apply in cases where, after the transfer, 80 percent or more of the real
or ultimate ownership of the business is still owned or held by the predecessor (see RTC
section 6071.1(a) and (b), and Regulation 1699(f).)
DUAL DETERMINATIONS AGAINST PREDECESSOR FOR SUCCESSOR’S
LIABILITY 734.015
Collection problems can arise due to the lapse of time between the determination of liability
against the successor and issuing a dual determination against the predecessor. Some
examples of these problems are:
1. The predecessor’s account is closed out with no record of a liability and the predecessor’s
security deposit is refunded prior to issuing a dual determination.
2. The predecessor is not immediately informed of a tax liability that he/she shares
equally with the successor.
3. The predecessor’s le, along with possible collection leads, may have been destroyed
prior to issuing the dual determination.
When a predecessor’s liability is involved, three determinations may result.
1. A determination issued against the predecessor for any period that he/she actually
operated the business.
2. A second determination issued against the successor for the period during which he/
she operated the business.
3. A dual determination issued against the predecessor concurrent with the issuance
of a determination against the successor. The dual determination should be issued
beginning with the date on which the CDTFA rst had knowledge of the change in
ownership. As stated in the previous section, except in the case where the ownership
is substantially the same after the transfer as before the transfer, the liability is
limited to the quarter in which the business was transferred and the three subsequent
quarters. Periods prior to the transfer date may not be included in dual determination
for predecessor’s liability as they are not legally assessable against the predecessor.
In the case of a billing for predecessor’s liability, current practices applying to dual
determinations will be followed. The only exception would arise if a 25% fraud penalty is
applied to the successor’s tax liability. Sales and Use Tax Regulation 1699(e) specically
states that the predecessor is not liable for any fraud penalties. In this instance, the fraud
penalty will be replaced by a 10% negligence penalty on the dual determination issued
against the predecessor.
Collections
COLLECTION FROM SURETIES AND GUARANTORS 735.000
EFFECTIVE PERIODS AND LIABILITY 735.010
A surety can be held liable for an amount that its principal failed to pay only if the liability
results from transactions that occurred during the effective period of the bond. The bond
effective period runs from the date shown on the face of the bond until 30 days after the
California Department of Tax and Fee Administration (CDTFA) receives a notice of termination
from the surety. The liability of the surety extends to tax, penalty, and interest, regardless
of the location(s) where the liability was incurred.
NOTIFICATION TO SURETIES 735.020
The Collections Support Bureau (CSB) prepares the demand for payment against a surety
bond posted by a taxpayer as a security deposit. Making a demand on the surety may only
be used as a last resort (see CPPM 735.035).
In order to keep sureties informed of the status of the accounts of their principals, they are
also notied when the CSB les claims in bankruptcies, assignments, or probates.
RECOMMENDATIONS FOR DEMANDS ON SURETIES 735.030
A collector may recommend making demand on the surety if all of the following conditions
are met:
1. The liability exceeds $50.
2. Collection from the taxpayer is not possible.
3. There is no corporate ofcer personal liability.
4. There are no assets upon which to levy.
The collector should submit the request to the CSB through the system.
DEMANDS ON SURETIES — CORPORATE ACCOUNTS 735.035
The recommendation to make a demand on the surety can be initiated as soon as collection
from the taxpayer appears doubtful. However, Civil Code section 2845 states:
“A surety may require the creditor, subject to Section 996.440 of the Code of Civil
Procedure, to proceed against the principal, or to pursue any other remedy in the
creditor’s power that the surety cannot pursue, and that would lighten the surety’s
burden; and if the creditor neglects to do so, the surety is exonerated to the extent to
which the surety is thereby prejudiced.”
Therefore, the CDTFA must exhaust all collection avenues and investigate all other available
remedies prior to making demand upon a surety bond unless the surety has similar remedies.
If a bond is indemnied by the corporate ofcer(s) who would also be the individual(s) billed
by the CDTFA, similar remedies exist.
Consequently, the following procedures will be followed when a surety bond secures liability
on a corporate account.
1. If collection cannot be made from the corporation, and the corporate ofcer(s) indemnify
the bond, and the liability for the secured bond does not exceed the penal sum of
the bond plus $500 (normal minimum amount of liability required to issue a dual
determination), a request for demand on the bond is in order.
January 2017
Compliance Policy and Procedures Manual
2. If the liability for the secured period exceeds the penal sum of the bond by more
than $500, corporate ofcer/employee liability must be explored. If the review for
individual liability is negative, a request for demand on the bond is in order. If the
review is positive, the individuals should be billed and demand on the bond deferred
until the potential for collection from the individual(s) has been thoroughly explored.
INTEREST CHARGES ON DEMANDS 735.040
In many cases, the amount of the tax-debtor’s liability covered by the surety is not sufcient
to pay the liability in full. When a demand is made on a surety:
1. If the total amount of the tax-debtor’s liability is less than the amount of the bond,
the demand will provide for interest (calculated on the tax portion of the liability) at
the prevailing interest rate required under the RTC, and any portion of the penalty,
up to the full amount of the liability.
2. If the liability exceeds the total amount of the bond, the demand will be for the full
amount of the bond. In addition, the demand will provide for additional legal interest
at the prevailing per annum rate as provided for in the Code of Civil Procedure.
APPLICATION OF PAYMENTS FROM SURETIES 735.050
Payments received from a surety for application to a liability incurred during the effective
period of the bond will be applied as follows (except as otherwise authorized by the supervisor
of the CSB):
1. Tax.
2. Interest.
3. Penalty.
LIMITATION PERIODS FOR DEMANDS 735.070
The CDTFA’s legal staff believes that the limitation period for making demand on a surety
bond or guaranty is within ten years from the date a tax liability becomes due, or within
ten years from the effective date of termination by the surety or guarantor, whichever is
earlier. The CSB will make demand on the surety well in advance of the expiration of the
limitation period to allow for the ling of a legal action, if necessary, or to obtain a waiver
of the limitation period. If the surety will not furnish a waiver and has not made payment,
the CSB will refer the matter to the Attorney General to le a legal action if the amount of
liability warrants such action. Legal action must be led against the surety or guarantor
before the limitation period expires.
DEMANDS INVOLVING MORE THAN ONE SURETY 735.080
If there is more than one surety on an account, demands will be made on each surety for
the amount of liability incurred during the effective periods to the extent of the penal sum
of each bond. If there is an overlap of the effective periods, the liability due for the overlap
period will be prorated between the sureties. If an overlap exists, each surety is liable for
the full amount incurred during the overlap period.
COLLECTION FROM GUARANTORS 735.090
The provisions applying to collection from guarantors in relation to effective periods,
limitation of liability, notication, demands, interest charges, application of payments due,
and limitation periods for demands are the same as those applying to sureties.
July 2009
Collections
June 2022
BANKRUPTCIES, ASSIGNMENTS FOR THE BENEFIT
OF CREDITORS, RECEIVERSHIPS, AND PROBATES 740.000
BANKRUPTCY – IN GENERAL 740.010
Bankruptcy is a system of federal laws, rules, and procedures pursuant to which persons
and entities may submit their assets, liabilities and nancial affairs to the jurisdiction of the
United States bankruptcy courts. Bankruptcy often involves the interplay of both federal
bankruptcy law and state law. The Bankruptcy Reform act of 1978 created the Bankruptcy
Code, which became effective in October 1979. The Bankruptcy Code contains the federal
statutes that provide the substantive law for all bankruptcy cases. The Federal Rules of
Bankruptcy Procedure govern bankruptcy procedures, administration, and litigation.
Bankruptcy case law interprets the statutes and rules under the specic facts of a case and
provides legal precedents for cases with similar facts.
The California Department of Tax and Fee Administration (CDTFA) is prohibited from
collecting from a tax debtor outside of bankruptcy when a tax or fee is discharged in a
bankruptcy case. If a debtor has a liability that is excepted from the bankruptcy discharge,
creditors may continue to take collection action against the debtor, since the debtor is no
longer protected by the automatic stay provided by ling bankruptcy. When a debtor has
a current or potential unpaid tax or fee liability to CDTFA, the Bankruptcy Team in the
Collections Support Bureau (CSB) should review the bankruptcy case to determine whether
CDTFA has a right to receive a distribution from a bankruptcy estate and to collect from a
debtor. If so, the Bankruptcy Team should take appropriate action to protect CDTFA’s right
to receive a distribution from the bankruptcy estate and to collect from a debtor outside the
bankruptcy case.
Ordinarily, to receive distributions in bankruptcy cases, creditors, including tax agencies,
must le proofs of claim. The Bankruptcy Team monitors the status of bankruptcy cases,
les proofs of claim, and collects liabilities for accounts in bankruptcy. Once a bankruptcy
case is closed, the Bankruptcy Team will remove it from legal status, and return the account
to the ofce responsible for the collection, if appropriate.
PACER 740.020
There are thirteen Bankruptcy Courts in California, spread among four districts: Southern
(San Diego), Central (Los Angeles/Santa Barbara/San Fernando Valley/Santa Ana/Riverside),
Northern (San Francisco/Oakland/San Jose/Santa Rosa), and Eastern (Fresno/Sacramento/
Modesto). Although many of CDTFA’s tax debtors le bankruptcy in California, cases affecting
CDTFA’s tax debtors may be led in bankruptcy courts throughout the country.
The court dockets of cases filed in these courts and most legal papers filed in
these cases can be accessed using the PACER System (Public Access to Court
Electronic Records). PACER is accessible via myCDTFA or through the internet at:
http://pacer.psc.uscourts.gov/psco/cgi-bin/links.pl. To access this site, CDTFA has specic
usernames and passwords available through the responsible team supervisors.
The U.S. Party/Case Index serves as a locator index for PACER. The U.S. Party/Case Index is
a national index for U.S. district, bankruptcy, and appellate courts that searches the entire
nation’s bankruptcy lings by name, social security or case number.
PACER can also be used as a collection tool since it can be used as support for issuing dual
determinations and successor liabilities.
Compliance Policy and Procedures Manual
June 2022
IDENTIFICATION OF BANKRUPTCY STATUS 740.030
General notice that a bankruptcy case is commencing may come from many different sources
such as actual written notice, verbal notice from a taxpayer, attorney or trustee, a search in
PACER, or the media. After receiving notication and verifying that a bankruptcy case has
commenced in PACER, the bankruptcy information should be entered into the Bankruptcy
Case Springboard when CDTFA has either a current interest (current liability due on active
and closed out accounts) or future interest (potential liability due) in the case. Additionally,
there are occasions where it is appropriate to add a bankruptcy case that has already closed
for historical purposes.
Either PACER information or an actual written notice of a taxpayer’s bankruptcy is required
in order to update accounts in the online system with the legal status.
Field Operations Division (FOD) and Business Tax and Fee Division (BTFD) collection team
members and CSB are collectively responsible for designating bankruptcy status for accounts
in the system. Collection team members should enter the bankruptcy information into the
system when:
1. A notice regarding the commencement of a bankruptcy case is sent directly to a CDTFA
ofce either via mail or Electronic Bankruptcy Noticing (EBN).
2. Collection team members are made aware of a bankruptcy ling by a taxpayer or their
representative and veries the ling with the court.
3. Team members become aware of an immediate deadline in a bankruptcy case. If such
a deadline occurs, CSB must be notied without delay after entering the bankruptcy
information.
Information on adding bankruptcy information is available in the system’s Help Manager.
When a notice regarding commencement of a bankruptcy case is sent directly to the
headquarters ofce of CDTFA, CSB will enter the bankruptcy information into the system.
CSB does not forward the bankruptcy notice to other divisions.
All other bankruptcy related notices received by FOD or BTFD ofces should be sent to
CSB (MIC 55). See CPPM 740.230 regarding procedures for inputting information into the
Bankruptcy Case springboard.
In the California bankruptcy court registries, CDTFA has designated the following address
to be used for notication of all general bankruptcy matters: California Department of Tax
and Fee Administration, Account Information Group, MIC 29, P.O. Box 942879, Sacramento
CA 94279- 0029.
Collections
June 2022
AUTOMATIC STAY 740.040
USBC §362
United States Bankruptcy Code §362 places a “stay” (stop order) on most collection activity
starting the moment the debtor les bankruptcy. Most collection efforts must be immediately
released, removed and/or stopped from that date until the automatic stay and the discharge
injunction no longer restrain CDTFA’s collection actions.
CDTFA collection actions prohibited by the automatic stay include:
1. Revocation of a seller’s permit.
2. Supplier cut off letters.
3. Liens.
4. Levies or withholds.
5. Warrants (including keepers, till taps, and seize and sells).
6. Demands for payment (including demand notices).
7. FTB, EDD and other offsets.
8. Suspension of Liquor License.
9. Earnings Withholding Orders for Taxes (wage garnishments).
CDTFA actions that are not prohibited by the automatic stay include:
1. Demands for tax returns to be led.
2. Assessments including compliance assessments, field billing orders, dual
determinations, successor billings and audits.
3. Providing Statements of Account.
4. Continuance of any petition or appeal.
5. Withholds on transfer of liquor licenses.
6. Filing of criminal complaints.
7. Correspondence or discussions with the debtor and counsel regarding the things
specically listed in this section.
When in doubt as to whether an action may violate the automatic stay, please contact the
Bankruptcy Team before proceeding. A violation of the automatic stay can lead to sanctions
against CDTFA.
Compliance Policy and Procedures Manual
June 2022
EFFECTS OF LAW CHANGES 740.050
Since the enactment of the Bankruptcy Code in 1978, there have been many signicant
amendments. Some of the more signicant amendments that affect CDTFA are:
1. The Bankruptcy Reform Act of 1994. The automatic stay exception was broadened
to permit taxing agencies to take the following actions:
a. Audit to determine a tax liability.
b. Issue a notice of tax deciency to the debtor.
c. Demand delinquent tax returns.
d. Make an assessment for any tax.
2. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became
effective beginning October 17, 2005 and it:
a. Codied the tolling of certain periods while a previous bankruptcy case was
pending.
b. Added exceptions to discharge in both chapter 13 and chapter 11 cases for:
1. Failure to le
2. Fraud
CLAIM PREPARATION ON PRE-PETITION LIABILITY 740.060
Prior to the ling of a bankruptcy proof of claim:
c. All potential pre-petition liabilities must be identied. To accomplish this:
a. Delinquent returns must be led, or estimated returns should be processed and
billed.
b. Pending audits should be completed and billed.
c. In cases where successor liability exists, a notice of successor liability should be
issued and billed.
d. In cases where responsible person liability exists, a notice of dual determination
should be issued and billed.
d. In addition, prior to ling a bankruptcy proof of claim, CSB team members should:
a. Review led returns to determine whether they are correct.
b. Return any money collected in violation of the automatic stay.
c. Determine whether a cash deposit may be applied to the account.
d. Verify correct application of payments.
After completing the above steps, CSB team members should prepare a proof of claim
including all pre-petition tax and fee liabilities. The proof of claim must indicate the
appropriate designation of a liability as secured, priority, or general unsecured. When an
audit or other determination is not complete, a contingent proof of claim indicating a potential
tax or fee liability should be led.
CSB is responsible for accounts in bankruptcy legal status until the Bankruptcy Case
springboard is closed in the system. All account maintenance and compliance tasks required
to prepare and le a proof of claim in a bankruptcy case will be handled by CSB. Team
members in FOD and BTFD ofces should continue to provide taxpayers with all other
account related services requested by the taxpayer (e.g., provide split returns, close-out of
permits, update addresses, etc.)
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June 2022
DELINQUENT AND SPLIT RETURNS 740.070
After entering the case into the Bankruptcy Case springboard, the ofce responsible for the
account or CSB must ensure all pre-petition returns have been led. In many cases, a tax/
fee return must be split to account for liabilities incurred before and after the bankruptcy
petition date.
Although this function is primarily the responsibility of CSB, if the taxpayer is present in a
eld ofce or in communication with team members, they should assist CSB by determining
whether the permit or license is active or closed out and obtaining delinquent or split returns.
When pre-petition returns cannot be obtained with adequate time (two weeks) for CSB to
le a claim, estimated returns should be prepared (see CPPM 540.170).
AUDIT ON PRE-PETITION LIABILITY 740.080
In any case where an audit is to be conducted or is in process but is not yet completed and
audit team members are aware of an existing bankruptcy, they should consult with CSB
immediately. Audit team members should be informed of the bankruptcy claims bar date so
that an audit can be billed with sufcient lead-time to permit CSB team members to timely
le a proof of claim. CSB team members need at least two weeks prior to a claims bar date
to process and le a proof of claim.
Audit team members should periodically communicate with CSB regarding the status of the
audit. If there are problems or delays in the completion of the audit, communication should
take place as early as possible to ensure that all required steps to preserve CDTFA’s claim
are taken by both audit team members and CSB.
When audit team members are contemplating an audit after a bankruptcy case was led and
the audit period is pre-petition, or pre-conrmation (Chapter 11 cases), audit team members
should contact the Bankruptcy Team to determine whether the bankruptcy case will affect
the unbilled liability, prior to investing time in an audit.
For requests for Determination of a Tax Liability pursuant to section 505(b)(2) of the
bankruptcy code, see CPPM 740.190.
DUAL DETERMINATIONS ON PRE-PETITION CORPORATE LIABILITY 740.090
Revenue and Taxation Code §6829
Sales and Use Tax Regulations 1702.5 and 1702.6
If an ofcer of a corporation that has a liability with CDTFA les a bankruptcy petition, the
corporate account should be reviewed for a possible responsible ofcer dual determination
against the ofcer. If a responsible person dual determination cannot be completed in time
to le a proof of claim, but there are indications that a responsible person liability may be
established, CSB team members should le a contingent claim. A contingent claim asserts
the potential liability of the corporate ofcer. The minimum threshold for issuing a dual
determination when Bankruptcy is involved is $5,000.
Compliance Policy and Procedures Manual
June 2022
DISPOSITION OF SECURITY 740.100
Revenue and Taxation Code §6815 and §6701
If a bankruptcy case is pending when an account is closed out with no delinquencies or
liabilities pending or otherwise, the taxpayer’s security deposit should be returned in care
of the:
1. Bankruptcy trustee (Chapter 7 cases).
2. Debtor-in-Possession (DIP) or trustee (Chapter 11 cases).
3. Debtor (Chapter 13 cases).
If a liability exists when an account in bankruptcy status is closed out, the taxpayer’s
security deposit should be applied to the outstanding liability and the Bankruptcy Team will
be notied so that a review of the account can be made. Any security in the form of cash,
government bonds, or insured deposits in banks or savings and loan institutions shall be
held by CDTFA in trust to be used solely in the manner provided by Revenue and Taxation
Code (RTC) sections 6701 and 6815. Generally, demands are not made on surety bonds or
guarantees until after the bankruptcy case is closed.
USBC §502
USBC §507
“Sales tax”, “excise tax”, and “fees”, as used in this section, are from section 507(a)(8) and
other pertinent sections of the United States Bankruptcy Code. Denitions of “sales tax”,
“excise tax”, and “fees” may differ under California laws.
Types of Pre-petition Claims
1. Priority Claim: A priority claim can be led for a liability that qualies for priority
under §507(a)(8) of the bankruptcy code. This includes:
a. Sales tax liabilities for which returns were due within three years of the petition
date.
b. Sales tax liabilities that became nal within 240 days of the petition date.
c. Sales tax liabilities that were assessable, but not yet assessed, as of the petition
date.
d. Excise tax liabilities (includes use tax) for which a return is required and due
within three years of the petition date.
e. Excise tax liabilities (includes use tax) that arise from a transaction occurring
within three years of the petition date.
(These periods may be tolled for cases in which a prior bankruptcy case or offer-in-compromise
was pending.)
2. Secured Claim: A secured claim is a tax or fee liability secured by an interest in real
or personal property when:
a. The CDTFA has a valid pre-petition lien led with the Secretary of State’s Ofce
or the CDTFA has a valid pre-petition lien recorded with a county recorder’s ofce
in which the debtor owns real property as of the petition date, and
b. There appears to be equity in the property to which the CDTFA’s lien attaches.
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December 2009
3. General Unsecured Claim: A general unsecured claim is a tax or fee liability that is
neither entitled to priority treatment nor secured.
4. Gap Claim: When a debtor is forced into bankruptcy through the ling of an involuntary
petition, the period after the commencement of the involuntary case, but before the
order of relief, is referred to as the “gap” period. A tax liability arising during the gap
period is entitled to priority and should be asserted as a gap claim.
Emergency Proof of Claims
Occasionally, a eld ofce may be asked by the Bankruptcy Team to le a proof of claim
with a bankruptcy court to meet a claim bar date.
In these cases, CSB will email a copy of the claim to the eld ofce. The proof of claim should
be signed by a Business Taxes Compliance Supervisor II at the eld ofce. The eld ofce
will then be responsible for ling the proof of claim with the bankruptcy court. If there is
no ofce located near the court, CSB will email the proof of claim to the ofce nearest the
bankruptcy court. Once a proof of claim has been led with a bankruptcy court, the eld
ofce should provide the CSB with a court-stamped copy of the proof of claim.
Claims Bar Date
With few exceptions, proof of claims must be led before a claims bar date to be paid. The
law allows governmental units 180 days from the bankruptcy petition date to le pre-petition
claims. However, if a different bar date has been set by court order, then CDTFA must follow
that bar date.
Proofs of claim in chapter 13 cases should be led prior to the date rst set for hearing on
conrmation of a debtor’s chapter 13 plan.
Claims Agent
Proofs of claim must be led at the address designated for ling. In large chapter 11 cases,
a claims agent may be assigned to administer claims. In those cases, the CDTFA may be
directed to le its proof of claim with the agent – not the bankruptcy court.
Compliance Policy and Procedures Manual
April 2017
CHAPTER 7 BANKRUPTCY 740.120
USBC Chapter 7 in General, Specically §727
USBC §523
A chapter 7 bankruptcy case is a liquidating bankruptcy case. A chapter 7 case can be
commenced by an individual or a business entity through the ling of a bankruptcy petition,
or by creditors who le an involuntary petition.
A chapter 7 trustee is appointed to administer a chapter 7 case. The trustee is responsible
for gathering the debtor’s non-exempt assets, if any, reducing those assets to cash (when
appropriate), and making distributions to creditors in accordance with the distribution
provisions of the Bankruptcy Code. All legal or equitable interests of a debtor in property as
of the petition date become property of a debtor’s bankruptcy estate.
Chapter 7 cases can be considered either “asset” or “no asset” cases. Although a debtor’s
voluntary petition will state whether a case is believed to be an asset case or a no asset case,
the chapter 7 trustee ultimately makes this determination. If a trustee declares the case to
be a “no asset” case but later recovers assets for distribution to creditors, the designation
can be changed with a notice sent to creditors advising them to le a claim.
Late Proofs of Claim
The law allows the CDTFA to le a late proof of claim in a chapter 7 case as long as the
proof of claim is led on or before (1) the trustee’s commencement of a nal distribution to
creditors, or (2) 10 days after the mailing to creditors of a summary of the trustee’s nal
report, whichever comes rst. Nevertheless, every attempt should be made to le a proof of
claim before a claims bar date.
The CDTFA’s proof of claim should include all unpaid taxes and fees and all interest accrued
up to the petition date. In a separate category, the proof of claim should include post-petition
interest and penalties. In surplus cases where unsecured creditors will be paid in full, the
CDTFA may be entitled to receive a distribution on its post-petition interest and penalties.
Discharge
A discharge in a chapter 7 bankruptcy is typically issued by a bankruptcy court within 180
days of the petition date. Only individuals are entitled to receive a discharge in a chapter 7
case.
Closure
The date of closure of a chapter 7 bankruptcy case depends on whether the case is an “asset”
or a “no asset” case. “No asset” cases typically close within a few months of the petition date.
“Asset” cases typically close many months, if not years, after the petition date.
Resumption of Collection Activity
If a tax or fee liability to the CDTFA is excepted from discharge, CDTFA staff may resume
collection activity against a debtor and a debtor’s assets that are not included within a
bankruptcy estate, after the debtor receives a discharge in bankruptcy. Ordinarily, CDTFA
staff waits until a bankruptcy case is closed to commence collection action to avoid any
possibility of violating the automatic stay.
A case will remain under CSB control as long as CSB deems necessary. Staff should not
pursue collection against a debtor without CSB direction while a case remains under CSB
control due to a bankruptcy.
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April 2017
Pursuant to Bankruptcy Code section 523, certain liabilities are excepted from a chapter 7
discharge. The following types of liabilities are excepted from discharge:
1. Priority tax debt (see CPPM 740.110 and USBC §507).
2. Tax or fee liabilities associated with a fraudulent return.
3. Tax or fee liabilities for which the debtor made an attempt to evade or defeat the tax.
4. Tax or fee liabilities associated with the debtor’s failure to le returns.
5. Tax or fee liabilities associated with returns led late and within two (2) years of the
petition date.
If a tax or fee liability is discharged and it is not secured by a valid state tax lien, then CSB
will process an adjustment to the liability within the system. If a liability is discharged,
but a valid state tax lien secures the liability and was recorded before the petition date, a
“Discharge from Accountability” should be processed in the system with the reason “balance
outlawed” (see CPPM 740.160). If the lien is released at a subsequent date, CSB staff will
adjust the liability.
CHAPTER 13 BANKRUPTCY CASES 740.130
USBC Chapter 13 in General, Specically USBC §1305, §1325, and §1328
Chapter 13 bankruptcy cases enable individuals only (not legal entities) with regular income
to repay all or part of their debts pursuant to the provisions of a plan conrmed by order of
a bankruptcy court. Debtors make installment payments to a chapter 13 trustee, who, in
turn, makes a distribution to creditors. The term of the plan is usually three to ve years.
Basic Terms of a Chapter 13 Plan (USBC §1325)
The debtor’s plan should:
1. Provide for installment payments.
2. Not exceed 5 years in duration.
3. Pay priority claims in full.
A chapter 13 trustee and creditors can object to conrmation of a debtor’s proposed plan if it
is not feasible or if the plan does not provide for the proper amount, treatment, or payment
of the claims of the creditors.
The Bankruptcy Team will monitor chapter 13 cases to insure that all payments that the
CDTFA is entitled to receive under a conrmed chapter 13 plan are being timely paid to the
CDTFA and applied correctly to pre-petition liability.
Claim
In a chapter 13 case, the CDTFA’s proof of claim may include only pre-petition tax and
pre-petition interest. CDTFA proofs of claim led after a claims bar date usually receive no
distributions from the chapter 13 trustee, and the liability may be ultimately uncollectible
if the debtor receives a discharge in bankruptcy.
Post-Petition Tax Liabilities
Compliance Policy and Procedures Manual
December 2009
A chapter 13 debtor is required to timely report and pay post-petition tax liabilities while a
bankruptcy case is pending. Since the automatic stay remains in effect until a debtor receives
a discharge or the case is dismissed, the CDTFA may not take collection action on post-
petition liabilities. The CDTFA may move to dismiss a case or convert a case to a chapter 7
if a taxpayer does not report or pay a post-petition tax liability. The CDTFA may also le a
claim under Bankruptcy Code section 1305 (see CPPM 740.170). The CDTFA’s Legal Division
must be consulted before ling a section 1305 claim. Efforts should be made to collect a
post-petition tax liability by voluntary compliance before either course of action is pursued.
Discharge (USBC §1328)
A chapter 13 debtor does not receive a discharge until all payments under a plan have
been made and a plan is otherwise consummated. A chapter 13 discharge, for cases led
prior to October 17, 2005, discharges all tax liabilities arising prior to the petition date. If
a bankruptcy case is led after October 17, 2005, tax liabilities resulting from the debtor’s
failure to le returns or fraud are excepted from discharge.
The Bankruptcy Team will process any necessary legal adjustments and lien releases for tax
and fee liabilities that are discharged in a chapter 13 bankruptcy case.
In some chapter 13 cases, a debtor can receive a hardship discharge without completing
all plan payments. The Bankruptcy Team should be consulted to determine the effect of a
hardship discharge on a CDTFA liability.
CHAPTER 11 BANKRUPTCY CASES 740.140
USBC Chapter 11in General, Specically USBC §1129 and §1141
A chapter 11 bankruptcy case can be either a reorganization case or a liquidation case.
Occasionally a trustee will be appointed to administer a chapter 11 case, but generally a
debtor remains in control of the assets and business affairs as a DIP (DIP).
Plan (USBC §1129)
In most chapter 11 cases, a DIP or trustee is required to le a disclosure statement and a
plan of reorganization or liquidation. A disclosure statement should explain in ordinary terms
the reasons why the debtor commenced its bankruptcy case, describe in ordinary terms how
creditors’ claims will be treated, and describe how the debtor will reorganize or liquidate.
The CDTFA often has a priority tax claim in a chapter 11 case. The Bankruptcy Code requires
a priority tax creditor to be treated not less favorably than as follows:
For cases led prior to October 17, 2005:
1. Deferred cash payments.
2. Payment of a priority tax claim under a plan are not to exceed 6 years from the date
of assessment.
3. Priority tax claims should include all pre-petition taxes or fees and all interest accrued
to the petition date.
4. Allowed claims are required to be paid in full, plus post-conrmation interest on the
claim at a rate set by the court.
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For cases led after October 17, 2005:
1. Regular installment payments.
2. Payment of a priority tax claim under a plan cannot extend beyond 5 years from the
petition date.
3. Treatment of a priority tax claim will include all pre-petition taxes or fees and all
interest accrued to the petition date and will not be less favorable than the most
favored non-priority unsecured claims.
4. The CDTFA’s allowed priority tax claim must be paid post-conrmation interest at
the CDTFA’s rate as of the date of conrmation.
If a proposed plan does not properly provide for treatment of the CDTFA’s claim, the CDTFA
may object to conrmation of the plan.
Claim
In a chapter 11 bankruptcy case, a CDTFA claim includes only pre-petition tax and/or
interest.
Plan Default
Once a chapter 11 plan is conrmed, the CDTFA cannot collect on a pre-conrmation tax
or fee liability except as provided for in the conrmed plan. If there is a default in payment
under a conrmed plan, the CDTFA can declare a default under the conrmed plan, notify
the plan administrator of the default, and demand payment. If the demand is not met, the
CDTFA can collect the full unpaid balance of the amount of its allowed proof of claim.
1. “Notice of Default” letter is sent approximately 30 days or more after the debtor
defaulted on the plan.
2. “Notice of Breach of Contract and Demand for Payment” is sent approximately 60 days
after a debtor defaults on a conrmed plan and after no response to the rst letter.
It sets a response deadline by which the CDTFA will consider the default a breach of
contract and will begin collection action.
Once the date specied in the second letter passes, the Bankruptcy Team may remove the
account from legal status and return the account to the staff responsible for collection action.
Collections are limited to the liability provided by the conrmed plan. This will include the
monitoring of legal interest on the claim. The Bankruptcy Team should be consulted if there
are any questions as to what should be collected – or about how to monitor the payments.
(See CPPM 740.150 for specics on the Discharge Review process).
Post-Petition Collections
The DIP or trustee who continues with the operation of the business is required to comply
with the requirements of the law to le tax returns and pay taxes as they come due. Any
liability that accrues subsequent to the date of the petition and prior to conrmation of a
plan is an expense of administration, and, as such, is entitled to expense of administration
priority. An expense of administration claim should be led prior to plan conrmation. See
CPPM 740.170 for more information on expense of administration claims. Any liability that
accrues after conrmation of a plan can be collected as if the debtor was not in bankruptcy.
Compliance Policy and Procedures Manual
March 2022
Discharge of a Tax or Fee Liability upon Conrmation (USBC §1141)
In chapter 11 cases led prior to October 17, 2005, for both individuals and legal entities,
discharge occurred upon conrmation of a plan. A full discharge is only granted to corporate
debtor’s, not to individuals. A discharge for an individual is subject to the same exceptions
to discharge provided by Bankruptcy Code section 523 in a chapter 7 case.
In chapter 11 cases led on or after October 17, 2005, CDTFA tax and fee liabilities owed
by legal entities are discharged when a plan of reorganization is conrmed. Tax and fee
liabilities owed by individuals are discharged only when a plan of reorganization is fully paid
and otherwise consummated. Plans of liquidation should not contain a discharge provision
because discharge is not allowed in these cases.
In legal entity cases led prior to October 17, 2005, a discharge under chapter 11 discharges
all liabilities incurred prior to the conrmation date. For cases led after October 17, 2005,
tax liabilities incurred either for failure to le a return or associated with a fraudulent return
are excepted from discharge.
While an account remains in chapter 11 bankruptcy status, the Bankruptcy Team will monitor
the case to insure that all plan payments are made to the CDTFA. After all payments have
been made, the Bankruptcy Team will make any necessary adjustments to the liability and
route the account back to staff responsible for collection if a collectible liability still exists.
DISCHARGE REVIEW 740.150
After a taxpayer receives a discharge in bankruptcy or a proof of claim for a tax or fee liability
is paid through a bankruptcy case, or both, it will be the responsibility of the CSB to:
1. Determine the extent to which a CDTFA liability has been satised through payment.
2. Determine whether or not a CDTFA tax or fee liability has been discharged in
bankruptcy.
3. Legally adjust discharged liabilities using the legal adjustment process.
4. Apply discharge-in-bankruptcy status to any liability periods in the system that are
discharged.
5. Post notes in the system that specically describe the discharged and non-discharged
status of pre-bankruptcy balances.
6. Analyze whether a pre-bankruptcy CDTFA tax lien has survived the discharge (CPPM
740.160).
7. Release CDTFA tax liens that have not survived a bankruptcy discharge.
8. Post notes in the system specically describing property/conditions to which any
surviving lien remains attached.
9. Post notes in the system regarding any joint debtor accounts (partnership, husband
and wife co-ownership, etc.) as to discharge ability for the specic joint debtor who
has received a discharge.
10. Verify that the system has issued a demand for all non-discharged liabilities and
manually issue a demand if one has not been generated.
Collections
March 2022
Once the discharge review is complete, the bankruptcy indicator is removed, and demands are
issued. The case is then assigned to FOD or BTFD for collections. FOD or BTFD collections
team members are then responsible for verifying that a demand has been issued for all eligible
periods and billings. If a demand has not been issued for a non-discharged liability, team
members should email the discharge reviewer, referring the case back to CSB for issuance
of the demand. In some cases, due in part to the length of the bankruptcy proceedings, it
may be necessary for CSB team members to work with audit supervisors to facilitate the
issuance of a demand.
LIENS ON DISCHARGED DEBT 740.160
In re Carlson 292 F.Supp. 778
In re Isom 901F.2d 744
Generally, in a chapter 7 or chapter 13 bankruptcy case, state tax liens on liabilities that
are discharged will survive bankruptcy if the liens are attached to real or personal property
prior to the bankruptcy ling. The CDTFA retains the legal right to collect the tax or fee
liability, but only from the property to which the tax lien attached prior to the bankruptcy
case and not from the tax debtor personally.
Where a tax or fee liability is discharged, but the tax lien survives bankruptcy discharge,
the tax or fee liability should not be legally adjusted. Instead, collection team members will
process a “Discharge from Accountability” in the system with the reason “balance outlawed.”
If, at a future time, the lien is released (see below), the Collections Support Bureau (CSB)
will process a legal adjustment at that time.
To issue a lien release on a liability that was discharged through bankruptcy, it must be
established that the lien did not attach to any pre-petition property. Evidence to support
this assertion may include:
1. A copy of the bankruptcy Schedule A showing no real property.
2. Copies of IRS tax returns for the period between the time the lien was recorded to the
time the bankruptcy petition was led.
3. A statement under penalty of perjury that the taxpayer owned no property, nor had
property transferred to or from their ownership between the date the lien was recorded
and the petition date.
4. If property was owned, but was subject to foreclosure, all documents/deeds, etc.,
verifying this transfer must be provided.
CSB will review the evidence submitted to determine if additional documentation may be
required. If the evidence submitted supports the assertion that the lien has no value (does
not attach to any property), CSB will adjust the liability to zero. These requests are subject
to approval as follows:
• Bankruptcy team members – discharged debt less than $5,000
• Administrator II or another delegated Administrator – discharged debt equal to or
greater than $5,000.
Once an adjustment results in a zero balance, the system will auto-release the liens. An
expedited manual lien release will be processed if requested by the taxpayer (see CPPM
section 761.030).
Compliance Policy and Procedures Manual
If the CSB bankruptcy team locates pre-petition property, or the public record is unclear,
CSB will send a letter to the taxpayer indicating that there is evidence that the taxpayer has
an interest in real property that may be secured by the lien. The letter will further explain
that, to obtain a lien release on a liability that was discharged through bankruptcy, the
taxpayer must establish that the lien did not attach to any pre-petition property.
In cases where a lien secures both discharged and non-discharged debt, the discharged
balance can be adjusted to zero without the release of lien. Pre-petition liens that attach
to pre-petition property will remain in place until the balance secured by the lien is paid.
A lien that only secured discharged debt would not attach to property acquired after the
bankruptcy was led.
Enforced collection against a taxpayer or taxpayer’s property must not take place on any
discharged debt, except as against property to which the CDTFA’s tax lien attached and as
permitted under CDTFA policy.
POST-PETITION CLAIMS 740.170
USBC §503 and §1305
Post-petition claims include:
1. Expense of Administration Claims (EOA):
a. In a chapter 11 case in which the debtor incurs tax liability after ling bankruptcy
but before conrmation of a chapter 11 plan, an EOA claim should be led for the
liability between the petition date and the conrmation date, if the tax liability is
not voluntarily reported and paid.
b. In a chapter 11 or 13 case in which the debtor incurs tax liability after ling
bankruptcy, but the case converts to a chapter 7 case, an EOA claim should be
led for any liability incurred between the petition date and the conversion date.
2. Section 1305 Claims: Pursuant to Bankruptcy Code section 1305, the CDTFA may
le a claim for unpaid taxes incurred while a chapter 13 case is pending, however,
such claims should be led only after consulting with the CDTFA’s Legal Division.
Both EOA and section 1305 claims include tax, interest and penalties (full debt as of the
date the EOA or section 1305 claim is led).
May 2021
Collections
December 2009
SALE OF ASSETS OF A DEBTOR DURING BANKRUPTCY 740.180
Business and Professions Code §24074 and §24049
In re Farmers Market Inc. 792 F.2d 1400
California State Board of Equalization v. Goggin 191 F.2d 726
California State Board of Equalization v. Sierra Summit 490 U.S. 844
1. Liquor Licenses:
The CDTFA should place withholds on transfers of liquor licenses when it is discovered
that a debtor has led for bankruptcy.
California Business and Professions Code Sections 24049 and 24074 provide that all
liabilities owed to the CDTFA, the Franchise Tax Board, the Employment Development
Department, the Alcoholic Beverage Control, and unsecured county taxes incurred
in connection with a liquor license shall be paid prior to distribution of any funds to
any other person.
The CDTFA is entitled to payment of the sales proceeds of a liquor license to the extent
necessary to satisfy an unpaid tax or fee liability. If there are insufcient sales proceeds
to pay a CDTFA tax liability in full, then the CDTFA takes the full sales proceeds and
applies them to the liability. The CDTFA should be paid outside a bankruptcy case
and directly from escrow.
2. Sale of Personal Property (Liquidation Sales):
An Asset Purchase Agreement (APA) is a contract between a buyer and a seller (the
seller may be a debtor in possession or a trustee) for the purchase of substantially all
the assets of the debtor’s bankruptcy estate. The APA many times will describe the
assets, the purchase price, conditions to closing, real estate matters, assumptions of
liabilities, and other details that are required to complete the transfer of the assets
from one party to the other. An APA must be approved by the court. The CDTFA,
along with other creditors, may object to the sale.
An APA is often found in large liquidating cases. The APA should be reviewed closely
to determine if there is any California taxable tangible personal property being sold
– usually in the form of xtures and equipment.
CSB staff may request audit staff to review the APA to determine the tax consequences
of a sale. Taxpayers should be encouraged by CDTFA staff to declare the amount due
on a Sales and Use Tax Return – or to state in writing the amount of the measure of
the tax liability. If the APA does not specify a value for the xtures and equipment,
CDTFA staff should prepare an estimate of value.
Once the amount of the tax liability is declared by a taxpayer, or determined by the
CDTFA, an EOA claim should be led for the full amount due if the liability is not
voluntarily paid.
If an objection to an EOA claim is led, the CDTFA must defend it in bankruptcy court
or the claim may be disallowed and the CDTFA will not receive a distribution.
When a trustee or a DIP employs an auctioneer/liquidator to sell the assets of the
estate, any taxes are to be reported and paid by the auctioneer/liquidator.
The effective date of payment on all remittances received from the bankruptcy court/
trustee on taxable liquidation sales will be the date the court approves the payment.
All additional interest that has accrued from the time payment is approved by the
court to the time the CDTFA actually receives the money will then be backed out.
Compliance Policy and Procedures Manual
December 2009
3. Sale of Real Property:
If a trustee or DIP is selling real property located in a county in which the CDTFA
has a lien, the CDTFA can require that the lien be paid in full prior to a release of the
lien.
The trustee can request that a sale take place “free and clear” of all liens and
encumbrances. Although this removes the lien from the property, the lien will usually
attach to the proceeds of the sale to the same extent and validity. The funds should then
be disbursed according to the priority of the liens led. If there are other governmental
agencies (FTB, IRS, EDD) involved, the agencies will typically use assessment dates
instead of recording dates to determine who should receive payment (although
bankruptcy is excluded from the requirements of the Inter-Agency Agreement, its
guidelines are still utilized in lien comparisons between agencies during bankruptcy).
The CDTFA’s Legal Division should be advised and consulted upon receipt of a motion
to approve a sale free and clear of a CDTFA lien or interest.
If there is not enough money (equity) in the property to pay the CDTFA’s lien, then
the CDTFA does not receive payment – the lien remains in place (i.e. recorded in the
county), but the property was sold free and clear.
4. Retail Sales
If a trustee is continuing the business or if there will be a taxable liquidation sale by
a trustee who does not hold a valid seller’s permit for the estate, an account will need
to be issued. The account should be opened in the name of the estate or the trustee,
just as if the trustee was a regular taxpayer. (See CPPM 210.010, Sellers Permit).
If the trustee is declaring the proceeds from one sale or a few sales, then an arbitrary
account number should be issued with the reason “bankruptcy, liquidation” cross-
referencing the debtor’s account number. Arbitrary accounts are used because they
will not create delinquencies leading to the revocation of the trustee’s account. At the
time of registration, staff will provide the trustee with a tax return and information
pertaining to the taxability of the liquidation sale and the completion of the return.
5. Other CDTFA Accounts
In the event a trustee requires a seller’s permit to continue an ongoing business, or
an arbitrary account to report liquidation of assets, staff should determine whether
the trustee needs to be registered for any other CDTFA programs. Staff should review
the predecessor’s Taxpayer Identication Number for additional CDTFA accounts. In
the event the trustee needs additional CDTFA accounts, staff should contact Program
and Compliance Bureau (PCB) and advise them of the potential new accounts.
In such cases, a Compliance Principal (or their designee) should send an email
notication to the PCB.
The email notication should include the name, address and phone number of the
trustee. The notication should also include the predecessor’s and trustee’s seller’s
permit number. The notication should include other CDTFA accounts the predecessor
held prior to the trustee assuming control of the business.
Collections
December 2009
REQUESTS FOR PROMPT DETERMINATION OF TAX 740.190
USBC §505(b)(2)
Under Bankruptcy Code section 505(b)(2), a trustee or taxpayer may request a determination
of any unpaid liability of the estate for any tax incurred during the administration of the
estate by submitting a tax return and a request for such a determination. The trustee and
the debtor will be discharged of any liability for any unreported tax if:
1. The CDTFA does not notify the trustee within 60 days that the return has been selected
for examination (audit).
2. After notifying the trustee the account will be examined, the CDTFA does not notify
the trustee within 180 days of the additional amount due (if any) or within such
additional time as the court permits.
3. Once the amount determined by the CDTFA, or the court, is paid.
When staff is contacted by the CSB concerning requests made under Bankruptcy Code
section 505(b)(2), it is important that they process such requests to examine or audit returns
on a priority basis.
VALID SERVICE UPON THE CDTFA 740.200
The Rules of Bankruptcy Procedure and the Federal Civil Rules of Procedure are very specic
in reference to what constitutes valid service. The CDTFA is presumed to have received
proper notice when it is served in compliance with the following rules:
1. Summons and Complaint for Adversary Proceedings:
Pursuant to Federal Rule of Bankruptcy Procedure 7004(b)(6) and California Code
of Civil Procedure (CCP) section 416.50, the summons and complaint must be
served upon the CDTFA’s Director at:
California Department of Tax and Fee Administration
Director
450 N Street, MIC: 104
Sacramento CA 95814
2. Service on the California Department of Tax and Fee Administration
Pursuant to Federal Rule of Bankruptcy Procedure 2002, the following address has
been designated for all bankruptcy notices, unless otherwise indicated:
California Department of Tax and Fee Administration
Account Information Group, MIC 29
P.O. Box 942879
Sacramento CA 94279-0029
3. Objections to Claims
Pursuant to Federal Rule of Bankruptcy Procedure 3007, a Notice of Objection to
Claim must be served at the address specied on the Proof of Claim led by the
CDTFA.
Requests for Prompt Determination of a Tax Liability
Pursuant to Bankruptcy Code section 505(b)(1)(A) the address designated for service of all
section 505(b) requests for prompt determination of tax liability is:
California Department of Tax and Fee Administration
Special Operations Bankruptcy Team, MIC 74
P.O. Box 942879
Sacramento CA 94279-0074
Compliance Policy and Procedures Manual
June 2022
PARTNERS IN BANKRUPTCY 740.210
When two or more persons are jointly responsible for payment of a CDTFA tax liability
(partnership accounts, married co-ownership accounts, etc.), the Collections Support Bureau
(CSB) will be responsible for determining which liabilities, if any, have been discharged by
a joint debtor’s bankruptcy discharge.
There are several options that can be utilized to make sure that the partnership liability
is handled correctly post-bankruptcy. These are used based on the best option for the
individual circumstances involved in the case. CSB team members will analyze the situation
and proceed with the best option.
The options include:
• Liability Remains Due (No Change) – the debt is not subject to discharge and it
remains due by all partners.
• Adjustment of the Partnership Liability – typically used when all partners are
relieved of the debt.
• Account Transfer – typically used when the account is closed and one of the partners
is no longer liable in any capacity.
• Creation of Separate Partner Collections – typically used when all partners remain
liable for some of the debt but not the same liabilities.
• Marking the Entire Liability Discharged – typically used when all partners are
discharged and there are pre-petition tax lien issues – or – when only one partner
remains liable and the total remaining liability is less than $500.
A partner that is not in bankruptcy is not protected by the automatic stay of the partner
in bankruptcy. Collections can continue on the partner not protected by the automatic
stay. When a partnership consists of a married couple, marital community property and
funds will be protected from collection by the automatic stay of 11 U.S.C. Section 362(a). It
does not matter whether one or both spouses le for bankruptcy. Most or all of the marital
community’s property and funds will belong to the bankruptcy estate pursuant to 11 U.S.C.
Section 541(a)(2)(A). Questions about community property should be directed to CSB.
Collections
March 2016
APPLICATION OF BANKRUPTCY PAYMENTS 740.220
Payments made during a pending bankruptcy need to be closely monitored. Only the CSB
should change applications of bankruptcy payments (i.e. payments from a trustee or DIP).
1. Payments made by an estate, trustee, or debtor for payment of a bankruptcy claim
through the bankruptcy court must be applied to the periods specied in the CDTFA’s
proof of claim.
2. Payments made by an estate, trustee, or debtor for payment of a secured liability must
be applied to the liability which that asset secured (i.e. if not all periods are subject
to a lien, then proceeds from the sale of a property should be applied to the liabilities
that are subject to a lien).
3. Payments made by a debtor after the petition date must be applied to the debtor’s post-
petition liability. (The only exception is if a chapter 7 debtor wants to make voluntary
payments toward pre-petition debt, as he will still owe it when his bankruptcy has
concluded).
4. Over-payments made prior to the bankruptcy must be either applied to pre-petition
liability or refunded to the trustee or DIP.
When collection staff have questions concerning the application of a payment, they should
contact the Bankruptcy Team.
If a payment from a source outside the bankruptcy proceedings alters the CDTFA’s led
claim, the Bankruptcy Team should be notied to review the claim for possible amendment.
Compliance Policy and Procedures Manual
June 2022
BANKRUPTCY THE SYSTEM 740.230
In the system, all information concerning a bankruptcy case is coordinated under the
Bankruptcy Case springboard.
Generally, CSB is notied directly of new bankruptcy cases via Electronic Bankruptcy
Noticing (EBN). CSB receives this data stream from all California Courts into the system with
information concerning new case lings. The system then screens the data identifying when
it matches one of our taxpayers and enters the case into the Bankruptcy Case springboard
in a batch run. EBN also noties CDTFA when a case receives a discharge, closes, or receives
certain types of notices like Notice of Assets.
The Bankruptcy Case springboard can be accessed using the Customer or Account
springboard, under the Collections Tab, and Bankruptcies Subtab. Cases that are active will
be highlighted in blue; cases that have been closed in gray (to see closed cases, the History
button may need to be selected).
Attached to the Bankruptcy Case springboard, under the CRM tab, will be all correspondence
sent by CSB team members, copies of any CDTFA claims led, Discharge Reviews, Discharge
Orders and other documents that are used during the time the case is pending.
Adding a New Case
Prior to adding a new case, verify that the case is not yet in the system. If the case is not in
the system, you may proceed with adding the case.
Having a copy of the Bankruptcy Notice or having PACER available will ensure all information
is available for entering the case.
Search all parties associated with the bankruptcy ling to ensure they are already listed as
Customers in the system. These would include the taxpayer in bankruptcy, any co-debtors,
bankruptcy trustee, etc. By searching and accessing the Customer Springboards before you
begin to enter the Bankruptcy Case, those Customers will appear at the top of your history
and can easily be selected when adding the Bankruptcy Case Springboard. The important
parties include our Customer in Bankruptcy, the Trustee, and any Co-Debtors. See the
Bankruptcy Help Manager.
Understanding a Liability in the System after a Discharge Has Occurred
Every case should have a Discharge Review note entered by CSB prior to being released back
to collections. This note should be reviewed carefully before proceeding with collections (see
CPPM sections 740.150).
In cases where the taxpayer’s balance may include discharged liability an indicator is
displayed in the yellow bar at the top of the Customer springboard. This indicator should
prompt team members to read the review notes on the Bankruptcy Case springboard prior
to proceeding with collections.
If the liability is a Primary Liability, the taxpayer’s balance will continue to include the
discharged liability (until the discharged liability is adjusted off the system). The collection
amount however, will be reduced by the discharged liability and will reect only the collectible
balance. This means that there is a pre-petition tax lien that survived the discharge (see
CPPM section 740.160).
Collections
June 2022
If the liability is a Secondary Liability, the taxpayer’s balance will not include the discharged
liability. Liabilities with no liens in place will be removed from the collection amount. Liabilities
with liens will be marked Discharged from Bankruptcy (DFB) to remove it from collection,
but it will leave the lien securing the balance. The collection amount will only reect the
collectible balance. However, a pre-petition tax lien may survive and need to be resolved
by the taxpayer (see CPPM section 740.160). Team members can conrm which liabilities
are secured by a tax lien by reviewing the liens in the system on the Collection Tab/Liens
Subtab. See Discharge From Bankruptcy in the Help Manager.
GLOSSARY OF BANKRUPTCY TERMS 740.250
TERM DEFINITION
Assets Abandoned by
Trustee
The trustee in bankruptcy may decide not to retain certain assets of
the debtor as part of the bankruptcy estate. For example, the debtor
may not have sufcient equity in certain assets to make retention
of those assets worthwhile for the estate. The trustee may petition
the court for abandonment of the assets and, if approved, the assets
are released from the estate. The debtor may also le a motion to
compel the trustee to abandon particular assets on the grounds
that they are burdensome to the estate, or of inconsequential value
or benet to the estate.
Automatic Stay The filing of a bankruptcy petition operates as a stay of (in
effect, an injunction against) collection activities, including the
commencement or continuation of judicial and administrative
proceedings, the enforcement of liens, the setoff of mutual debts,
and all actions to collect, assess, or recover a claim that arose before
the bankruptcy ling. The stay does not prevent or stop an audit
to determine tax liability, the issuance of a notice of tax deciency,
a demand for tax returns, or the making of an assessment for any
tax and issuance of a notice and demand for payment of such
an assessment. Creditors acting in violation of the stay may be
sanctioned by the court.
Compliance Policy and Procedures Manual
TERM DEFINITION
Claims Bar Date The deadline date by which claims for pre-petition liabilities must
be led.
Administrative
Claims Bar Date
The deadline date by which claims for post-petition liabilities must
be led.
Bankruptcy Code The informal name for Title 11 of the United States Code, the federal
bankruptcy law.
Bankruptcy Estate The commencement of a bankruptcy case creates an estate, which
is comprised of all property, real and personal, of the debtor as
of the commencement of the case, plus property acquired by the
estate during the case.
Case Closed Administration of the bankruptcy estate is complete and the case
is closed.
Chapter 7 The chapter of the Bankruptcy Code providing for liquidation, i.e.,
the sale of the debtor’s nonexempt property and distribution of the
proceeds to creditors.
Chapter 9 The chapter of the Bankruptcy Code providing for the reorganization
of a political subdivision, municipality, public agency, or
instrumentality of a state.
Chapter 11 The chapter of the Bankruptcy Code providing for the reorganization
of a business or of the nancial affairs of an individual or a husband
and wife (can also be a liquidation)
Chapter 12 The chapter of the Bankruptcy Code providing for the adjustment
of debts of a family farmer with regular income.
Chapter 13 The chapter of the Bankruptcy Code providing for the adjustment
of debts of an individual with regular income.
Claims in
Bankruptcy
A creditor’s assertion of a right to payment from the debtor or the
debtor’s property.
Conrmed Plan of
Reorganization
Court approved plan that provides the terms of debt repayment,
and that often re-vests the assets of the bankruptcy estate in the
reorganized debtor.
Date of Order of
Relief
The date of ling of any voluntary petition, or the date that that
court enters an order for relief against the debtor in an involuntary
case (commenced by creditors).
Debtor
A person or entity that has led a petition for relief under the
Bankruptcy Code.
Debtor in Possession
(DIP)
A debtor who remains in control of the administration of the
business and assets of the debtor’s estate during a chapter 11
case. A DIP has powers and authority similar to those of a court
appointed chapter 11 trustee.
Discharge The release of a debtor from personal liability for dischargeable debts.
A discharge operates as an injunction against the commencement or
continuation of any action to collect, recover, or offset a discharged
debt as a personal liability of the debtor.
Dismissal Places the parties in essentially the same position as before the
bankruptcy was led.
December 2009
Collections
December 2009
TERM DEFINITION
Dividend Monies received from the bankruptcy estate as a result of a claim.
Expense of
Administration
Claims (or
Administrative
Claims)
The actual, necessary costs and expenses of preserving the
bankruptcy estate. Generally, claims arising after the commencement
of the case are administrative claims. Tax debts incurred by the
estate (i.e. after the case commenced) are administrative claims.
Gap Period Claim A creditor’s claim that arises in an involuntary case after the petition
is led but before the issuance of the order for relief.
Involuntary
Bankruptcy
A bankruptcy petition led by creditors against a debtor. The
court will order relief against the debtor (order the debtor into
a bankruptcy) if a debtor is generally not paying his/her debts
as they become due. The automatic stay applies upon ling the
petition. Until the court enters an order for relief, may continue to
use, acquire, or dispose of property. An involuntary case can only
be led in a chapter 7 or chapter 11 bankruptcy. When dealing
with an involuntary petition, complete the legal claim screen and
transmit to SPS. Enter BI7 in the “type” eld.
No-Asset Case A chapter 7 case in which there are insufcient assets to warrant
liquidation and distribution to creditors. A no-asset case may later
become an asset case if assets are discovered. Conversely, a case
originally believed to be an asset case may become a no-asset case.
Petition The document that commences a bankruptcy case.
Priority of Claims 1. In cases led on or after October 17, 2005, claims for child,
spousal and family support have rst priority. In cases led
before October 17, 2005, these claims have seventh priority,
just ahead of tax claims.
2. Expense of Administration Claims.
3. Gap Period Claims.
4. Claims for wages, salaries, and commissions owed by the
debtor, with certain limitations.
5. Claims for contributions to employee benet plans, with
certain limitations.
6. Certain claims of grain producers and U.S. shermen
7. Claims for deposits toward the purchase or rental of items for
personal, family or household use, with certain limitations.
8. Certain claims for federal, state, and local taxes.
Compliance Policy and Procedures Manual
December 2009
TERM DEFINITION
Trustee in
Bankruptcy (the
Case Trustee)
Disinterested person appointed by the Ofce of the United States
Trustee. The trustee has authority to control all assets of the
debtor and is responsible for administering the estate. A trustee is
always appointed in chapter 7 cases. In chapter 11 cases, a trustee
is appointed in cases where the court nds fraud, dishonesty,
incompetence, or gross mismanagement by the debtor, or where
the appointment of a trustee would be in the best interests of the
creditors. If a chapter 11 trustee is appointed, the trustee will
manage the debtor’s business. In chapter 7 cases, the business is
usually closed, but the trustee may operate the business pending
liquidation if the court nds that the creditors would be better
served by keeping the business open.
U.S. Trustee The United States Trustee Program is an agency of the United
States Department of Justice that is responsible for overseeing
the administration of bankruptcy cases and private trustees. The
United States Trustee is responsible for the integrity of the system
to insure that all the parties, including the attorneys and trustees
are doing what they are required by law to do.
Voluntary
Bankruptcy
A bankruptcy case in which the debtor les the petition.
Collections
December 2009
ASSIGNMENT FOR THE BENEFIT OF CREDITORS 740.260
Revenue and Taxation Code §6757, 7053, and 7054
Code of Civil Procedures §493.010 et seq., §1204 - §1206, §1800, and §1802
Civil Code §1954.1
1. An assignment for the benet of creditors (assignment) is not a court action.
It is a contractual agreement between a debtor (assignor) and a company or individual
(assignee) selected to liquidate all assets, and disburse the proceeds for the benet
of creditors.
2. Assignments are very loosely regulated. There is no one place in California Law to
nd information on assignments.
3. Notice must be given to creditors. (CCP section 1802).
a. The assignor must le, under penalty of perjury, a list of creditors on the day the
assignment is entered.
b. The assignee has 30 days after the assignment has been accepted to give written
notice of the assignment to the creditors.
c. The assignee will establish a date by which creditors must le their claims. The
date should not be less than 150 days and not greater than 180 days from the
date of written notice of creditors.
d. If a corporate ofcer turns the company over to the assignment company without
disclosing a debt to the CDTFA and the CDTFA is not noticed of the assignment,
the CDTFA can treat the liability as if no assignment has been led. The CDTFA
should determine if a dual determination should be pursued against the corporate
ofcer.
4. Priorities of Claim. Claims are paid in the following order:
a. Claims of the United States (31 U.S.C. section 3713).
b. Wages (CCP section 1204).
c. Employee benet contributions (CCP section 1204).
d. Money placed on deposit for goods and services not delivered (CCP section 1204.5).
e. Preferred labor claims (CCP section 1206).
f. Amounts due to the CDTFA (including penalties and interest thereon) – except
where a lien or secured interest is superior to any CDTFA lien or interest. (RTC
section 6756).
5. Account Maintenance
a. An assignee has a right to occupy any business location for up to 90 days as long
as it pays the monthly lease amount. After 90 days a landlord can terminate the
lease if allowed by contract (Civil Code section 1954.1)
b. If an assignee operates a business after the business enters into an assignment,
the assignee should have its own permit.
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December 2009
6. Preference Payments
a. Under state law, if within 90 days of the assignment a creditor received a payment
either voluntary or involuntary, the assignee may assert a preference action in
court. (CCP section 1800(b))
b. The assignee may also try to have any liens or attachments removed.
c. A preference action must be led within 1 year of the commencement of the
assignment.
d. If the assignee asserts that a payment to the CDTFA was a preference payment,
there are several defenses listed in CCP section 1800(b) that include:
1. The new transfer was intended to be a contemporaneous exchange for new
value.
2. The transfer was in payment of a debt incurred during the ordinary course
of business, the challenged payment was made in the ordinary course of
business and according to ordinary business terms.
3. The transfer constitutes the creation of a statutory lien under RTC section
6757, or the “xing” of that lien by the subsequent recording of the Notice of
State Tax Lien.
4. The payment to a claimant was in exchange for a release of an asserted claim
of lien.
7. Control of the Account
a. Day-to-day control of the account is in the hands of the ofce responsible for the
account.
b. CSB handles the monitoring of the assignment case.
8. Status of the Case
a. Status is only obtainable through communication with the assignment company.
b. There is no current law that requires the assignment company to provide a
disbursement schedule for creditors (in general) showing the proposed distribution
of the liquidated funds.
c. The CDTFA can use RTC sections 7053 and 7054 to request that a disbursement
schedule or proposed disbursement be supplied.
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December 2009
PROBATES 740.270
Probate Code (in general), Specically Probate Code §11420, §9760, §9201,and §9203
Revenue and Taxation Code §6487.1
Probate: Probate is a legal process by which legal title to property of a deceased person (“the
decedent”) is transferred from an estate to its beneciaries by the court. It is designed to
ensure the fair distribution of a decedent’s assets and settlement of outstanding debts. If the
decedent had a will at the time of death, an executor is named in the will as the individual
selected by the decedent to fulll the instructions set forth in a will. If the decedent did not
have a will, an administrator is appointed by the court to handle the affairs of the decedent
and distribute property as required by statute.
1) Assets subject to probate:
a) Assets in the decedent’s name alone.
b) One-half of each asset registered as community property in the decedent’s name
with his or her spouse.
c) The decedent’s portion or share of an asset where the asset is registered as tenants
in common with other people
d) Assets which are owned by the decedent, but not registered, such as furniture,
jewelry, etc.
2) Assets not subject to probate:
a) Assets held in joint-tenancy.
b) Assets held in a living trust.
c) Life insurance and IRA benets where a beneciary is named.
d) Assets passing to the surviving spouse, even if held in the decedent’s name alone.
e) Assets registered by husband and wife as “community property with right of
survivorship.”
3) Making a Claim
a) Probate Code section 9201: The personal representative or administrator must
make a written request to a public entity creditor. The creditor’s time to respond
is based on the law of the public entity. For sales and use tax law, see RTC section
6487.1, which provides that a notice of deciency determination shall be mailed
within four months of the written request. Otherwise, pursuant to Probate Code
section 9100, a claim must be led four months after the date letters are rst
issued to a general personal representative or sixty days after the date notice of
administration is delivered to the creditor.
b) RTC section 6487.1: The CDTFA has four months from the written request to issue
a deciency determination to the personal representative or administrator.
c) Probate Code section 9203: If property of the estate is disbursed before the CDTFA’s
allowed time to le a claim, we can hold the distributee’s (whomever received the
funds) liable with costs.
d) A claim is either Allowed or Rejected by the personal representative (administrator).
e) The CDTFA has 90 days to respond to a rejected claim.
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December 2009
4) Account Maintenance
a) Staff must determine the status of a decedent’s business, did it close or was there
a change in ownership – is a new permit needed?
b) A sole proprietor who dies should not have a close out date beyond the date of
the individual’s death.
c) A partnership should only remain as a partnership if there are two or more remaining
partners, otherwise the remaining partner should get a sole proprietor permit.
5) Probate Estate as operator of the business
a) If the probate estate (i.e. estate administrator) is operating a decedent’s business,
the estate should get its own permit (ex., The Estate of Emma Lou Pappel, as the
taxpayer).
b) Probate Code section 9760: The personal representative may continue to operate
a decedent’s business for up to 6 months without a court order. A court order is
required after 6 months.
c) Staff should request a copy of the death certicate for the le – but this is not a
requirement to proceed.
6) Control of the account
a) Day-to-day control of the account is in the hands of the ofce responsible for the
account.
b) The CSB handles the monitoring of the probate case.
7) Status of the case
a) A probate action is led in probate court, which in most cases is a separate division
of Superior Court. The action is usually commenced in the county in which the
debtor died.
b) Many probate courts have docket information available through the court’s website.
c) The CSB can send a letter to the administrator requesting status of the case if
unable to access the docket information – or if the information in the docket is
sparse.
8) Non-Compliance of an Estate while running a decedent’s business
a) Probate Code section 11420: Any taxes incurred by the Estate would be considered
an “expense” of the Estate.
b) The CDTFA must use the Attorney General to le a motion to allow the expense –
it is not just a regular claim ling (there is no such thing as an expense claim in
a probate case).
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9) State Tax Liens
a) A tax lien led before the date of death remains in effect against the estate and is
fully enforceable.
b) A tax lien led on a decedent after the death is also a valid lien against the estate
of the debtor. If the CDTFA knows a taxpayer is deceased, a lien should be led
against “The Estate of X.”
c) In cases where the decedent’s property was held in joint tenancy, transferred to a
living trust, or transferred to a spouse on or before the date of death – a lien led
after death would have no effect.
d) In most cases, the CDTFA’s ling of a lien after a probate action has commenced
is unlikely to improve CDTFA’s position with respect to payment of its claim and
it may hinder efforts by the representative to sell the property.
e) On the other hand, where a personal representative of an estate incurs a tax
liability and fails to pay or there is a risk of additional liens or security interests
being recorded against the property (decreasing the likelihood that the CDTFA will
be paid) a lien may be appropriate.
f) Accordingly, a lien should be led after a probate action has commenced only after
consulting with the CDTFA’s Legal Division.
December 2009
Compliance Policy and Procedures Manual
December 2009
RECEIVERSHIPS 740.280
Code of Civil Procedures §1204 - §1206 and §564
1. Receivership: The appointment of a person to hold in trust and administer property
subject to litigation, settle the affairs of a business involving a public interest, or
manage a corporation during reorganization.
a. A receiver is appointed by the court in any case in which the court is empowered
by law to appoint a receiver. (Code of Civil Procedure section 564)
b. A receivership is not always a liquidation proceeding and, therefore, there is not
always a disbursement.
2. A receiver can be appointed by the court in the following cases (Code of Civil Procedure
section 564):
a. By a vendor, partner, or creditor, where it is shown that property or funds are
in danger of being lost, removed, or materially injured, or where a party seeks to
vacate a fraudulent purchase.
b. By a secured lender, where it appears that the property is in danger of being lost,
removed, or materially injured (and the property is insufcient to pay the debt).
c. By judgment or to enforce a judgment.
d. When a corporation is insolvent or has been dissolved.
e. In an action of unlawful detainer.
f. At the request of either the Ofce of Statewide Health Planning and Development
or the Attorney General.
g. In an Assignment for Benet of Creditors, regarding the assignment of rents to
maintain real property.
3. The receiver is sworn in. The receiver has the power to bring and defend actions in his
own name as receiver, keep possession of the property, receive rents, collect debts,
make transfers, and generally do such acts respecting the property as the court may
authorize.
4. Priorities. Claims are to be paid in the following order:
a. Claims of the United States (31 U.S.C. section 3713).
b. Wages (CCP section 1204).
c. Employee benet contributions (CCP section 1204).
d. Money placed on deposit for goods and services not delivered (CCP section 1204.5).
e. Preferred labor claims (CCP section 1206).
f. Amounts due to the CDTFA (including penalties and interest thereon) – except
where a lien or secured interest is superior to any CDTFA lien or interest. (RTC
section 6756).
5. Claims in Receiverships. There is no formal timeline to le a claim in a receivership
case, however the CDTFA’s policy is to le the claim within 4 months of the ling if
possible.
6. Account Maintenance. If a receiver runs the business, then the receiver should have
its own permit. (See CPPM 210.010, Sellers Permits).
7. Control of the Account
a. Day-to-day control of these accounts remains in the ofce responsible for the
account. Status requests and questions regarding the proceedings can be directed
to CSB staff.
b. CSB staff will maintain the legal case.
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October 2016
8. Status of the Case. Since receiverships are monitored through the court, information
regarding the case can be accessed through the Superior Court website, or, if not
online, at the court itself.
COURT ORDERED RESTITUTION 740.290
Restitution is dened as the act of making whole or giving the equivalent for any loss, damage,
or injury. The purpose of restitution is to help victims recover from any nancial hardship
caused by a criminal activity.
A restitution order is a court order directed to the taxpayer requiring the payment of
restitution (monetary payment), generally as a condition of probation or parole in a criminal
case. The court issues a restitution order to cover the economic loss or actual crime-related
expenses incurred by a victim as a result of a crime.
Under state law, offenders convicted of a felony or misdemeanor in California may be required
to pay a ne, penalty, and the cost of investigation, in addition to an amount for restitution.
If the defendant is on formal probation, payments may be made to the county where the
crime/offense occurred. If the payment is directed to the county, the designated county is
responsible for dividing the total funds received and forwarding the CDTFA’s portion to the
appropriate CDTFA ofce.
The stipulated nal judgment documents may specify how the restitution payments are
allocated between taxes, nes, penalties, and cost of investigations. When the stipulated
nal judgment documents do not provide specic information regarding the allocation of
payments, the Investigations Section must review the criminal complaint and determine the
amounts and periods to designate as restitution and whether any portion of the restitution
is already billed. When any of the seized funds are provided to CDTFA, Investigations will
determine how to apply any monies received toward the restitution periods.
Restitution payments ordered by the court on behalf of the CDTFA may be for less than the
full amount of the civil liability (e.g., audit billing) owed by the taxpayer to the CDTFA. In
this situation, the taxpayer remains liable for the full amount of the civil liability.
The passage of Assembly Bill 242, led with the Secretary of State on October 9, 2011, and
made effective on January 1, 2012, allows the CDTFA to collect on restitution orders in the
same manner as other collections. Collections Support Bureau (CSB) will monitor accounts
in the system that have active court-ordered restitution and are currently on probation,
parole, or diversion; however, the control of the accounts will remain assigned to the Field
Operations Division (FOD), or the Business Tax and Fee Division (BTFD) and will not transfer
out of their assigned state in the system. The assigned collector will continue to work any
additional liabilities and/or delinquencies and take the necessary collection action.
The collection of restitution by the court is a continuation of a criminal court action and
therefore excepted (excluded) from the automatic stay provisions of the bankruptcy code
(11 USC 362(b)(1)). However, if the court relies on the CDTFA to collect the restitution due,
the automatic stay does apply, and the CDTFA cannot collect until the bankruptcy case is
dismissed, or the CDTFA obtains leave from the court to collect while the stay is in place.
Payments required by a restitution order may continue to be due, even after a taxpayer’s
probation has ended.
Compliance Policy and Procedures Manual
October 2016
Investigations’ Responsibilities:
Document the information from the court-ordered restitution in ACMS for sales and use tax
accounts and IRIS for special taxes and fees accounts.
Obtain and forward the restitution orders or information from the court to CSB for monitoring
while the taxpayer is on probation, parole, or diversion. A copy of the restitution order will
be attached to a formal memorandum to CSB with the following information:
• Investigations’ restitution summary form.
• Copies of Investigations’ executive summary (when applicable) and all court documents
detailing the sentencing, restitution, terms, and requirements during the probation
period.
File a court motion to:
• Modify restitution orders that are in default,
• Request an extension of probation,
• Request an increase in court-ordered restitution payments
Attend court hearings as referred by the eld ofce on restitution cases.
Prepare a memo to FOD or BTFD when collection of the restitution order is paid in full, or
the taxpayer’s probation or parole has ended and the restitution has not been fully satised.
The memo should include the most recent contact information available, and any additional
notes or materials gathered by CSB while they were monitoring the case.
Provide quarterly reports to the Deputy Director, FOD and BTFD of those restitution cases
that are being monitored by Investigations or CSB.
In the case of a Revenue and Taxation Code (RTC) section 6071 misdemeanor citation
(operating with a revoked permit) where the taxpayer does not appear for a court hearing,
a bench warrant is typically issued. If a bench warrant is issued, Investigations should
attempt to have the taxpayer arrested or brought before the local District Attorney’s ofce.
CSB, Liens and Specialized Collections Section’s Responsibilities:
Monitor all active court-ordered restitution and nes for FOD and BTFD during the period
the taxpayer is on probation, parole, or diversion. CSB will also monitor individual partners
and corporate ofcers that were ordered to pay restitution on behalf of the partnership or
corporation while the individual is on probation, parole, or diversion. CSB will perform the
following duties:
• Coordinate with FOD or BTFD to establish an account number for court-ordered
restitution and create a restitution period.
• Ensure restitution payments are applied appropriately.
• Create the unbilled cost of collection assessment for sales and use tax accounts
on IRIS to track and monitor restitution payments. (Return Processing Branch
personnel will create unbilled differences for special taxes and fees accounts.)
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October 2016
• Cancel the unbilled cost of collection as soon as the restitution amount is billed.
• Make the necessary payment adjustments for restitution payments during the
probation, parole, or diversion period.
• Prepare a memorandum to Investigations indicating whether restitution was or was
not satised when the taxpayer’s probation, parole, or diversion ended.
• Provide Investigations quarterly reports on active restitution cases.
Document in ACMS/IRIS:
• Receipt of the restitution order from Investigations and the terms of the restitution.
• Receipt and adjustment of restitution payments.
• Whether restitution is or is not satised when the probation period ended.
• Actions taken if restitution payments are not made.
• Contacts made with the assigned probation or parole ofcer, County’s Revenue
Department, Investigations, FOD, or BTFD.
CSB, Specialized Audit Section’s Responsibilities:
Initiate RTC section 6829 dual determinations for sales and use tax liabilities in cases
where a responsible person was ordered to pay restitution on behalf of a business that was
terminated. The request to issue an RTC section 6829 dual determination will be forwarded
by CSB to the Audit Determination and Refund Section for processing.
Coordinate with the impacted program area to create arbitrary accounts for corporate ofcers
or other persons who are ordered to pay restitution by the court when an RTC section 6829
dual determination cannot be established.
Coordinate with the impacted program area to create arbitrary accounts for individual
partners affected by the Revised Uniform Partnership Act where the court ordered the
individual to pay restitution.
Cashier Section’s Responsibilities:
Receive the payments and identifying documentation directly from the taxpayer or county.
The check will be processed and the amount keyed into IRIS.
Any supporting documentation along with a copy of the payment will be forwarded to CSB,
Liens and Specialized Collection Section, to determine the proper payment application.
Special Taxes and Fees Account Billings
Upon completion of the prosecution an account is created. The Return Processing Branch
(RPB) will receive the referral memo from Investigations. RPB will review the court case
provided by Investigations and request an account to be created (if needed) by the Registration
Section. RPB also determines the amount to be billed including any penalties or interest
and establishes a billing on the account pursuant to RTC sections 30483 or 60709. Since
the restitution is considered “nal” by court decree, the billing created in IRIS is considered
‘nal’ and collectable when the restitution is established on CDTFA records.
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October 2016
The court-ordered restitution is applicable to Taxable Activity Types (TATs) CR, CP, LR(Q),
LD(Q), and LW(Q). RPB will establish the bill using the following information;
• Difference type EAB (external agency billings
• Difference activity type COR (court-ordered restitution)
• Notice type DER (demand court-ordered restitution
• FO type OTB (one time billing)
A statement will then be sent to the taxpayer at their listed address by rst class U.S. Mail.
Once the billing is established in IRIS, it will migrate to ACMS and be routed to the collector
as directed by ACMS routing rules.
Collections:
RTC sections 7157 (sales and use tax), 8407 (motor vehicle fuel taxes), 30483 (cigarette and
tobacco products taxes), and 60709 (diesel fuel taxes) allow restitution orders, or any other
amounts imposed by a court of competent jurisdiction, for criminal offenses upon a person
or any other entity. These amounts are due and payable to the CDTFA and may be collected
by the CDTFA in any manner provided by law for the collection of a delinquent tax liability.
The following points apply to restitutions and amounts due before, on, or after January 1,
2012:
• They are treated as nal and due;
• Refund or credit is not allowed;
• Interest may accrue on amounts due;
• They are not subject to statute of limitations;
• State tax lien may be led.
FOD collection staff should work directly with Investigations staff to set the taxpayer on a
monthly payment plan equal to the total restitution/cost of investigations awarded divided by
the length of probation, parole, or diversion. An exception will be made for cases where the
payment plan has been set by the court or where the taxpayer has submitted documentation
supporting a nancial hardship, in which case a review of the nancial documents will be
used to set the monthly payment amount. (See CPPM section 770.000.) If notied by CSB,
collection action should be taken if the taxpayer is in default of the probation, parole or
diversion terms.
The CDTFA may consider offer in compromise requests submitted by taxpayers owing court-
ordered restitution, provided the amount of the offer includes the unpaid restitution amount.
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October 2016
RESTITUTION ORDER TO FEDERAL AGENCY
In cases where a taxpayer is ordered to make restitution payments to a federal agency, a
case referral should be submitted to Investigations with the following:
• Investigations’ restitution summary form, and
• Copies of Investigations’ executive summary (when applicable) and all court documents
detailing the sentencing, restitution, terms, and requirements during the probation
period.
After Investigations reviews the referral, they will forward it to CSB to consult with the
Litigation Bureau to determine if collection action may be taken.
Compliance Policy and Procedures Manual
July 2009
FIELD CALLS 749.000
GENERAL 749.010
For compliance purposes, there are seven primary reasons to make a eld call:
1. To reinstate an account after revocation of the permit or license.
2. To obtain payment and/or delinquent tax returns.
3. To verify that the business is operating or closed.
4. To gather collection and skip-tracing leads.
5. To gather evidence for prosecution.
6. To maintain a physical presence in the business community.
7. To conduct certain non-collection related activities, such as permit inspections
pertaining to swap meets.
In addition to the seven reasons above, there are other reasons to make eld calls such as
witnessing the destruction of alcoholic beverages or conducting an investigation for city or
county annexation purposes (an annexation investigation may be necessary when a city
or county incorporates territory into its existing geographic area. When this occurs, the
businesses within that area will need to have the tax area code changed.) Although the
majority of compliance eld calls are oriented toward reinstating accounts and collecting
money, all eld calls require advance planning and should never occur without proper
preparation.
Before making a eld call, the collector should have a plan of action and be completely familiar
with the taxpayer’s account information, account history, and the requirements the taxpayer
must meet in order to reinstate the permit or license, if a revocation exists. In addition, the
collector should be prepared to collect all amounts owed by the taxpayer, ensure all tax/
fee returns that are due from the taxpayer are led and paid, and provide the taxpayer with
any necessary documents to complete the assignment.
For each eld call, the collector should have a primary plan and some contingency plans. For
example, a eld call reveals that the business location is vacant. In this case, the primary
plan to reinstate the taxpayer’s account must be altered and the contingency of talking to the
nearby business neighbors, visiting the taxpayer’s home address, contacting the landlord,
or another alternative plan put into action.
The collector will normally schedule a number of eld calls on the same day and should
map out the business locations to be visited. Clustering the eld calls together allows the
collector to minimize travel time. Mapping requires the use of a Thomas Guide map book
or similar resource, such as MapQuest. If the vehicle taken to the eld is equipped with an
onboard navigation system, the route to the various businesses can be preprogrammed to
provide the most economical route.
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December 2009
CONDUCTING FIELD CALLS 749.020
The following tips will help to insure successful eld calls:
1. Present yourself professionally by dressing and behaving professionally. By doing
so, you demonstrate that you take your position as a representative of the CDTFA
seriously and create an atmosphere of respect and credibility with the taxpayer.
2. Before leaving the ofce, you must know your reason(s) for meeting with the taxpayer,
have reviewed the case history, mapped out your route, and ensured that you have all
the information necessary to complete your assignment. Some recommended items
to bring with you on a eld call include:
a. State of California identication card and business cards.
b. Receipt book.
c. Cell phone.
d. Copy of the revocation notice.
e. Extra tax/fee return forms.
f. Applications for the taxpayer to obtain a permit or license.
g. Pertinent regulations or publications.
h. Envelopes, notepad, and tape (for taping notices to the door when necessary).
i. Calculator.
j. Thomas Guide or electronic navigation system.
k. Coins for parking meters.
l. CDTFA–945, Receipt for Books and Records of Account.
m. Counterfeit bill detection pen.
n. Security deposit documents
3. Obtain all tax/fee returns, payments, or other information that will clear the
assignment. If this cannot be accomplished during the eld call, document the
attempt to obtain this information and take appropriate action to prompt a response
from the taxpayer, or to clear the assignment.
4. While in the eld, safeguard the security of all CDTFA property, including equipment,
work papers, receipt books and payments.
5. Upon returning to the ofce, complete Form CDTFA-609, Tax Representative Daily
Report.
Compliance Policy and Procedures Manual
May 2023
REQUEST FOR ANOTHER OFFICE TO PERFORM FIELD INVESTIGATION 749.023
When a eld investigation is needed and the location of the taxpayer falls outside the
jurisdiction of the responsible collector’s ofce, a request can be made for a collector in
another ofce to perform a eld investigation.
The responsible collector initiates the request by creating a Request for Field Ofce
Investigation case in the system. The supervisor reviews the request and if not approved,
the supervisor enters notes and sends back to the collector. If the supervisor approves, the
case is forwarded to the Compliance Principal. The Compliance Principal reviews the request
and if approved, forwards the request to the Compliance Principal in the receiving ofce and
sends a bookmark in the system to notify the receiving ofce that the assignment is being
sent. The case is then assigned to a collector in the receiving ofce.
The collector in the receiving ofce must enter investigation notes in the case to keep all persons
involved apprised of the status and send information about the status of the investigation
to the responsible collector within 30 days from the date the request is rst received, and
every 30 days thereafter. While the responsible collector will be provided the status of the
investigation every 30 days, they should intermittently follow up with the receiving ofce as
appropriate considering the urgency, complexity, or difculty of the investigation.
The requesting ofce collector remains responsible for the account, while the receiving ofce
is responsible for the Field Ofce Investigation case. Therefore, it is imperative that both
ofces monitor the status of the case. When the investigation is completed, the information
will be documented in the case, the responsible collector notied, and the case completed
in the system.
REPORTING SUSPECTED SALES OF COUNTERFEIT GOODS 749.025
This section outlines procedures for team members to follow when they encounter a person
or business that appears to be selling counterfeit goods during an audit, eld call, or visit
to a business. Pursuant to Revenue and Taxation Code sections 6007 and 6009.2, when a
person is convicted of trafcking counterfeit goods, all of their sales and purchases of those
goods are considered taxable. CDTFA may bill the convicted seller for unpaid sales or use
tax within one year after the last day of the calendar month following the date of conviction.
Procedure for Reporting Suspected Counterfeit Goods
When a team member encounters a person or a business who appears to be selling counterfeit
goods, they must report the suspected activity to the Tax Recovery in the Underground
Economy (TRUE) task force by completing the Report a Crime electronic form available at
this link: https://oag.ca.gov/bi/true. Team members must select the Report a Crime button
on the website and complete all four pages of the form. On the fourth page, at the bottom,
select “Other. Please describe your relationship or association to the suspect” box and identify
themselves as a CDTFA employee. TRUE will use this information to bill the counterfeit goods
trafckers for the unpaid sales or use tax once they are convicted.
NOTE: No condential or investigative information should be submitted on the
electronic Report a Crime form on the TRUE website. This includes any information
obtained through our own investigation or on CDTFA’s systems. Any requests for
information from outside of the Department must be referred to the Disclosure Ofce
for a response.
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May 2023
Procedure for Reporting Convicted Trafckers of Counterfeit Goods
When CDTFA receives information that a person was convicted of trafcking counterfeit goods
(for instance, through news media) they must send a referral directly to the Investigations
Section. A Referral to Investigations case should be created in the system. In a New Manager,
select Search, Case Search and Add, then lter for Referral to Investigations. This can be
done whether there is a customer in the system or not. In addition, team members should
address an email referencing the referral case to the Investigations Section Administrator,
with the email subject as “Counterfeit Use Tax Billing Per Conviction under PC 350(a)(2)”
and include, at a minimum:
1. Team member’s name and contact information,
2. Any available pertinent information about the convicted trafcker (such as taxpayer’s
name, business DBA, permit information), and
3. The source of the information.
DESTRUCTION REQUESTS FOR SPOILED BEER OR WINE 749.027
All Beer Manufacturer (ABM), Winegrower (AWG), and Beer and Wine Importer (ABW)
accounts are allowed an alcoholic beverage tax exemption or credit for spoiled beer or wine
destroyed under the supervision of a CDTFA representative after approval is received from
CDTFA (Revenue and Taxation Code section 32176). An exemption or credit may be taken
for the following:
• An exemption on spoiled beer or wine that has not yet been sold in California, or
• A credit on tax-paid beer or wine that was sold in California, subsequently spoiled,
and then returned to the taxpayer.
For all ABM, AWG, and ABW accounts, supervision of the destruction of beer or wine is as
follows:
• 0-20,000
1
gallons: Written approval with supporting documentation
• Over 20,000 gallons: In-person supervision
Processing the taxpayer’s request
A taxpayer must receive written authorization from the Business Tax and Fee Division’s
Return Processing Branch (RPB) prior to destroying the beer or wine to claim the exemption
or credit. To receive authorization, the taxpayer must complete Sections I and II of the
CDTFA-775, Approval Request and Declaration of Destruction for Spoiled Beer or Wine and
email it to RPB at [email protected] for approval.
RPB will:
• Review the request,
• Determine the type of supervision to be administered,
• If approved, complete Sections III and IV (if in-person supervision is required) of the
CDTFA-775 (Note: if the amount is over 20,000 gallons, a team member from the
ofce closest to the taxpayer shall witness the destruction and complete Section IV,
as outlined below),
• Add comments in CROS listing the approval, date, amounts, type of supervision, date
of last approved destruction (if any), and
• Upload the approved CDTFA-775 to the taxpayer’s online services prole.
1 Pursuant to Regulation 2552, ABW accounts destroying “small quantities” of beer or wine (as
dened) do not require supervision, only prior written approval.
Compliance Policy and Procedures Manual
April 2022
Amounts under 20,000 gallons: Written approval with supporting documentation
Requests to destroy amounts under 20,000 gallons require supporting documentation from
the taxpayer. The taxpayer, or their representative, shall receive the approved CDTFA-775
via the online services portal, destroy the designated beer or wine, complete Section V of the
CDTFA-775, and upload the form along with supporting documentation when ling their
return.
Supporting documentation includes, but is not limited to:
• Third-party destruction facility’s afdavits or invoices,
• Third-party hauling service’s manifests or bills of lading for delivery to third-party
destruction facility,
• Notice of Intent approved by/provided to US Department of the Treasury, Alcohol and
Tobacco Tax and Trade Bureau (TTB),
• TTB audit report (only request when the taxpayer does not have any other supporting
documentation),
• Pictures or video of the destruction, or
• Any other supporting documentation that CDTFA deems appropriate.
If a completed CDTFA-775 is not uploaded, supporting documentation is not provided, or
destruction occurred prior to approval, the exemption or credit may be disallowed, and a
billing may be issued for the additional tax and interest amount in question.
Note: According to Regulation 2552, Spoiled Beer and Wine, ABW accounts destroying small
quantities of beer or wine do not require supervision, only prior written approval. Therefore,
these requests will not require supporting documentation. For purposes of Regulation 2552,
small quantities mean 2,500 gallons or less of beer, 2,500 gallons or less of still wine, and
1,500 gallons or less of champagne or sparkling wine by volume.
Amounts over 20,000 gallons: In-person supervision
All requests for the destruction of more than 20,000 gallons of beer or wine require supervision
by a CDTFA team member. Team members must contact the taxpayer and coordinate how
and when the supervision will take place. In certain cases, upon management approval, team
members may witness the destruction of beer or wine virtually through the use of video-
conferencing (for example, MS Teams, Zoom, etc.). Factors to consider when determining
if video-conferencing is appropriate may include: a COVID-19 outbreak at the taxpayer’s
facility, the product being destroyed (e.g. alcohol types, the number and size of containers,
etc.), the distance between the facility and the closest CDTFA ofce, etc. In general, team
members must be able to fulll the same responsibilities as they would supervising in-
person destruction as outlined below. Also, the use of written approval with supporting
documentation may be used in lieu of in-person supervision upon management approval
(following the same procedures for written authorization as outlined above), taking into
consideration the taxpayer’s past reporting and audit history.
Collections
April 2022
For requests requiring in-person supervision:
• RPB team members will conduct in-person visits or may reach out to the Field
Operations Division (FOD) or the Motor Carrier Ofce (MCO) to conduct the visit by
uploading the CDTFA-775 in CROS, creating the appropriate case (when available
in CROS), and assigning it to the ofce’s compliance principal. The responsible in-
person supervision territories by area are as follows:
Responsible Area Responsible In-Person Supervision Territories
RPB ≤ 50 miles of Sacramento
MCO ≤ 50 miles of Banning, Blythe, or Riverside
FOD All other locations outside of the above-mentioned
areas
• If FOD or MCO is to conduct the visit, RPB will complete Section III of the CDTFA-775
and forward the form to the responsible ofce.
◦ Responsibilities of team members supervising destruction in-person:
▪ Contact the person listed in Section II of the CDTFA-775 within 12 business
days of CDTFA’s receipt of the request, schedule an appointment, and advise
the taxpayer to keep like alcohol types grouped together during the destruction
to help expedite verication.
▪ While supervising in-person destruction:
» Observe general business operations,
» Count the product and verify the information that was listed on the
CDTFA-775 (i.e., alcohol types, the number and size of containers, etc.) ,
make edits to quantity listed if needed, and
» Observe the counted product is destroyed.
▪ After verication, complete and sign Section IV of the CDTFA-775 and document
the eld visit in CROS by entering a note on the Period Springboard (or on the
Account Springboard if the period is unknown) indicating the destruction was
supervised, and email a copy to RPB at [email protected].
• RPB will upload the completed CDTFA-775 to the taxpayer’s online services portal.
• The taxpayer or their representative will complete Section V of the CDTFA-775
and upload the form when ling their return.
• RPB will review the attachments on the Return Springboard in CROS, conrm the
CDTFA-775 is completed and uploaded, and verify the amount reported on the
respective lines of the return.
Compliance Policy and Procedures Manual
December 2009
FIELD CALLS — SPECIAL EVENTS 749.030
RTC section 6073 provides that the CDTFA may:
1. Require the operator of a swap meet, ea market, or special event to verify that any
person desiring to engage in or conduct business as a seller on premises owned or
operated by the operator holds a valid seller’s permit.
2. Obtain a written statement from any seller not holding a seller’s permit that he or
she is not offering for sale any item the sale of which is subject to sales or use tax or
that he or she is otherwise not required to hold a valid seller’s permit.
3. No more than three times a year, require an operator to submit a list of vendors
conducting business on its premises as a seller.
4. Impose a ne not to exceed $1,000 for each offense on any operator of a swap meet,
ea market or special event who refuses or fails to comply with the provisions of RTC
section 6073.
It is often desirable to conduct a “permit inspection” of these types of special events. Prior
to making a eld call for this purpose, the collector should:
1. Contact the event operator and obtain a list of event participants and the booth or
space number for each participant.
2. Check the names of the participants against registration information in the system
and verify that the permit is valid, active and in good standing.
3. Identify the participants who do not hold a valid seller’s permit and return the list to
the event operator. Advise the operator that the identied participants will need to
meet with you prior to opening their booth on the rst day of the special event.
4. Make a eld call to the special event on the rst day to obtain compliance from those
participants who did not resolve the situation prior to the start of the event.
Collections
March 2014
CATERING TRUCKS AND THEIR SUPPLIERS 749.035
The CDTFA may, by written notice, require any person making sales to operators of catering
trucks operated out of that person’s facility, who resell the property in the regular course
of business, to:
1. Obtain evidence the operator is a holder of a valid seller’s permit.
2. Submit a list of all operators on le, who purchase goods from that person, not more
than three times each year. Each list shall:
a. Be provided to the CDTFA within 30 days of the CDTFA’s request.
b. Contain names and seller’s permit numbers of operators with valid seller’s permits.
c. Contain names, address and telephone numbers of operators who did not provide
a valid seller’s permit.
3. Promptly notify the CDTFA if a new purchasing operator does not provide evidence
of a valid seller’s permit within 30 days from rst purchase.
Persons required, but who fail to do any of the above actions, may be subject to a
penalty not to exceed $500 for each failure.
Persons making sales to operators who do not have seller’s permits, or whose permit has
been revoked, shall report and pay the tax on property as if the property were sold at retail
at the time of sale. RTC section 6074 does not relieve the operator of the catering truck from
his or her obligations as a seller.
Field Ofce Responsibility
As part of an ongoing compliance program, the following procedures are recommended:
d. Periodically identify and contact catering commissaries (houses) to advise them of the
requirements of this legislation.
e. Use CDTFA-570-A, Notice of Revocation to Principal’s Suppliers, to notify the suppliers
of the catering truck operator when the operator’s seller’s permit is revoked. Upon
reinstatement of the seller’s permit, CDTFA-570-B, Notice of Reinstatement to Principal
Suppliers, must be sent to inform suppliers that the permit is valid and a resale
certicate from the operator may be accepted (See CPPM 751.140).
f. Issue a request to each house for a listing of mobile truck caterers (operators)
purchasing from them. The law does not specify the format in which the list should
be supplied (e.g., alphabetically). Attempt to secure the list in a format that will
minimize the time expended in verication by using CDTFA-12, Request for Listing
of Catering Truck Operators.
7. When the list is received:
a. Verify information where seller’s permit numbers are provided.
b. Contact any operators without valid seller’s permits to apply for a seller’s permit
immediately, following the normal procedures for non-permitted sellers.
c. The following guidelines should be used to determine whether a catering truck
driver is an independent contractor or an employee of the catering house. Indicators
of employee status are:
1. The driver’s contract with the house does not identify the driver as an
independent contractor.
2. The driver receives a salary or commission from the house and the house
withholds taxes and social security payments, and carries unemployment or
worker’s compensation on the drivers.
Compliance Policy and Procedures Manual
March 2014
3. The house retains complete control over the detail of work performance (e.g.
pricing, purchasing, etc.).
4. Drivers must account to houses for all receipts.
5. For income tax purposes, the house reports gross truck sales as their income
and the driver reports as an employee.
d. Indicators of independent contractor status are:
1. The contract between the catering house and driver species that the driver
is an independent contractor.
2. The driver does not receive a salary from the house, nor does the house
withhold social security payments, unemployment or worker’s compensation.
3. The catering truck drivers are not required to purchase all food and supplies
from the catering house leasing the truck.
4. No accounting is made by the driver to the house for sales. The net prot
from their sales is their income.
5. For federal income tax purposes, the driver prepares a Schedule C “Prot or
Loss from Business.”
8. When the list is not received within the specied time:
a. Send the CDTFA-12 again, using certied mail.
b. If the house fails to comply with provisions outlined in RTC section 6074(a), send
CDTFA-13, Follow-up for Listing of Catering Truck Operators, using certied mail.
c. If no response, create a compliance assessment in the online system to apply the
$500 penalty as provided by Section 6074.
d. After the determination is issued and/or collected, issue another request for the
list, using certied mail. If cooperation is still not obtained, repeat the process of
assessing and collecting the penalty until compliance is obtained.
The list request procedure should be repeated as deemed necessary to encourage compliance
but no more than three times in a calendar year. Staff may also consider, if appropriate,
requesting a subpoena for the records. For further information regarding subpoena requests,
see CPPM section 774.010.
Collections
May 2022
DISHONORED PAYMENTS 750.000
DISHONORED PAYMENTS - GENERAL 750.010
Processing dishonored checks, credit cards, EFT transactions, etc., is a priority for both
headquarters and eld ofces so that monies due to the State of California are promptly
collected. Close examination of potential collection cases and prompt, rm action by the
collector when the rst offense occurs will tend to reduce the number of dishonored payments
submitted by taxpayers.
Payment by personal check should not be accepted to replace a payment previously
dishonored by a nancial institution. The taxpayer must replace the dishonored payment in
full using certied funds, including penalty and interest. If it is apparent that the payment
was made knowingly from an account with insufcient funds or a closed account, a payment
plan should not be accepted.
Team members should be aware that a demand billing or Statement of Account prepared
due to a dishonored payment may not be a complete statement of the taxpayer’s liability
because non-nal items are billed separately from nal items.
CANCELLATION OF CHARGES DUE TO BANK ERRORS 750.030
When it is determined that a nancial institution dishonored a taxpayer’s payment in error,
the penalty and interest charges assessed on the account will be canceled. For sales and use
tax accounts, letters from nancial institutions acknowledging errors should be promptly
forwarded to the Return Analysis Unit for adjustment. For Consumer Use Tax Section accounts
and special taxes and fees accounts, the responsible ofce will review all bank letters for those
accounts and make the appropriate adjustments.
If a check is dishonored because of insufcient funds and the taxpayer requests relief from
penalty due to extenuating circumstances, they should be directed to request relief of penalty
through the CDTFA website (see CPPM section 535.055).
LEGAL COPIES OF DISHONORED CHECKS 750.040
When a check is dishonored, the nancial institution will return a “legal copy” of the check
to headquarters Cashier Section. The legal copy of a dishonored check is treated the same
as a dishonored paper check. The legal copies and dishonored paper checks are stored with
the dishonored reports for a minimum of 90 days before being condentially destroyed.
Compliance Policy and Procedures Manual
May 2022
DISHONORED PAYMENT DISPUTED 750.045
If the taxpayer alleges that the bank honored the returned check, the following procedure will
clear the taxpayer’s account:
1. Obtain a copy of the front and back of the original check showing the cashier’s batch
number and date.
2. If it is conrmed that the payment was posted to an incorrect account number, initiate
the transfer of funds in the system, or if unable to do so, contact the appropriate
program area.
a. For sales and use tax accounts, a request must be sent to the BTFD-RAU Electronic
Maintenance mailbox to have the payment moved to the correct account. Team
members must complete a CDTFA–523, Tax Return and/or Account Adjustment
Notice, and either upload it to the CRM tab for both accounts, or send as an
attachment in the request email.
b. For special taxes and fees accounts, team members should email an Action Request
(email template provided by Return Processing Branch) to BTFD-RPB Action
Requests mailbox to have the payment moved to the correct account.
3. If a team member is unable to locate the payment in the system, they should obtain a
copy of the entire bank statement showing the taxpayer’s checking account was debited
for the correct amount, and a copy of the subsequent bank statement to make sure the
amount has not been credited back to the taxpayer’s account. Circle the appropriate
check number and amount on the bank statement(s) and forward the copy of the bank
statement(s) to the Cashier Section in headquarters along with the copy of the check.
Collections
January 2020
REVOCATION 751.000
GENERAL 751.010
Revenue and Taxation Code (RTC) section 6070, and similar statutes for some special taxes
and fees programs, provide the conditions for revocation of a permit. Before revoking a
permit or license, the California Department of Tax and Fee Administration (CDTFA) must
notify the taxpayer in writing that action against the permit or license is contemplated and
give the taxpayer 10 days to show cause why the permit or license should not be revoked
for the specied cause. For sales and use tax accounts, a CDTFA-431-S1, Immediate Action
Required – Your Seller’s Permit May Be Cancelled, is mailed to the taxpayer for this purpose.
For special taxes and fees accounts, the form series CDTFA-431 includes the Notice to
Appear, which is mailed to the taxpayer for this purpose. For both “periodic” and “cause”
delinquencies, the system generates the CDTFA-431 and it is mailed to the taxpayer from
headquarters.
The CDTFA-431 forms serve as a notice that the permit or license may be cancelled and a
request for the taxpayer to appear for a “hearing” in a CDTFA ofce at a specied date and
time to address the citation of its permit or license. If the taxpayer clears the cause of the
citation prior to the hearing date, the hearing is no longer necessary. If the taxpayer does
not clear the cause of the citation on or before the date specied, or fails to appear for the
hearing, the permit or license is revoked 60 days after the mailing date of the CDTFA-431.
The CDTFA–433–S, Notice of Revocation (Seller), or appropriate revocation form for other tax
and fee programs, is mailed to the taxpayer.
If the cause of revocation is cleared in its entirety on or before the effective date of revocation,
the CDTFA–433, Notice of Revocation, will not be mailed. However, if returns or payments
have not posted to the taxpayer’s account on or prior to the revocation date, the taxpayer
will be mailed a CDTFA–433. If this should happen, the collector should note in the system
the reason why the revocation is inoperative and provide the taxpayer with a CDTFA–16,
Cancellation of Revocation.
REASONS FOR REVOCATIONS 751.020
The CDTFA may revoke a permit or license for violation of any provision of the applicable
law. Some of the reasons for revoking a permit or license are:
1. Failure to le and pay tax return(s) or schedule(s).
2. Failure to pay a balance.
3. Failure to post required security, replace security, or post additional security.
4. Failure to keep or make available proper records.
5. Failure to surrender permit for cancellation when not actively engaged in business
as a seller of tangible personal property.
6. Failure to comply with any provision of the applicable law.
Compliance Policy and Procedures Manual
January 2020
INITIATION OF REVOCATION ACTION 751.030
When a taxpayer fails to le a return, the revocation is an automated process. If the sole
cause for the delinquency is failure to le a tax return, the revocation will be cancelled when
the tax return is led on or before the revocation date, with or without payment.
For a “cause” delinquency, i.e., any cause other than failure to le a return (such as failure
to post security, failure to comply, etc.), the revocation process is manually initiated by the
responsible collector.
CONDUCTING THE HEARING 751.050
Hearing notices require the taxpayer to appear for a hearing in a eld ofce, or headquarters
for some special taxes and fees accounts, to show cause why the permit or license should
not be revoked for the cause specied in the notice.
The responsibility for conducting the hearings is delegated to the Tax Compliance Supervisors
or their representatives.
EFFECTIVE DATE OF REVOCATIONS 751.060
Revocations are effective on the dates specied on the TPB Calendar of Notices. The TPB
Calendar of Notices button can be found on the CDTFA’s intranet under the BTFD tab, TPB
subtab, on the right side of the page. Where an effective revocation date is not shown, the
effective date of revocation is 60 days following the mailing date of the hearing notice. (RTC
section 7098 and equivalent special taxes and fees statutes).
EFFECT OF REVOCATION 751.070
Upon service of the revocation notice in person or by mail, all of the rights or privileges
granted under a particular law are revoked or suspended until the license or permit is
properly reinstated. Operation of the business after revocation of the permit or license is a
misdemeanor. Taxpayers or ofcers of a corporation who continue operating the business
after revocation of the permit or license may be subject to prosecution, punishable as provided
in RTC section 7153 and equivalent special taxes and fees statutes.
In addition, revocation of the seller’s permit of a motor vehicle dealer also affects the dealer’s
status with DMV. Upon revocation of a dealer’s seller’s permit, under California Vehicle Code
sections 11518(e), 11617(a)(6) and 11721(f), the dealer’s license is automatically canceled as
well. Sales and use tax accounts requiring a dealer license include, but are not limited to,
accounts with NAICS codes 441110 (new motor vehicle dealers), 441210 (automobile trailer
dealers), 441120 (used automotive dealers), 441222 (boat dealers), 441221 (motorcycle
dealers), and 423100 (wholesalers).
When in contact with a delinquent taxpayer with a valid dealer’s license, the taxpayer must
be informed that, upon revocation of the seller’s permit, the motor vehicle dealer’s license
is automatically canceled too. Notes regarding the conversation should be entered in the
system. Additionally, a CDTFA-78-A, DMV License Cancellation Warning Letter, must be sent
to the taxpayer at least 15 days prior to contacting DMV. The taxpayer should be advised
that once the DMV dealer’s license is canceled, it cannot be reinstated. If canceled, the
taxpayer must apply for a new dealer license and go through the process of qualifying for a
new license, including posting a new bond.
When a taxpayer with a valid dealer license fails to pay the self-assessed delinquent sales
and use tax liability, the seller’s permit should be cited for failure to pay. In addition, if a
security deposit requirement is not met, the account may be cited for revocation for failure
to post security. If the taxpayer does not clear the citation and the seller’s permit becomes
revoked, all conditions for reinstatement must be met prior to reinstating the seller’s permit.
Collections
January 2020
REVOCATIONS — INITIAL CLEARING PROCESS 751.075
Working a revoked account begins with contacting the taxpayer by telephone to:
1. Discuss the consequences of operating with a revoked permit or license,
2. State the requirements to reinstate the permit or license, and
3. Obtain a commitment to promptly reinstate and comply with applicable tax law.
If the taxpayer is contacted but fails to reinstate or perform as promised, the collector should
telephone the taxpayer again. For sales and use tax accounts, a CDTFA–433-RP, Notice of
Revocation – Reinstate Permit Online, may be sent. However, if the taxpayer has a history
of not responding to this type of action, it may be more productive to proceed with active
collection methods.
If there is no contact with the taxpayer on the rst call, the collector should make additional
telephone calls to the business, to the residence, or to any other leads where the taxpayer
might be reached. Calling at irregular hours may be required to reach a taxpayer(s) who are
not available during normal business hours.
If telephone contact and attempts to reach the taxpayer(s) through the mail are unsuccessful,
the case should be considered for a eld call. Normally, only cases requiring personal
contact warrant eld work. However, if there is an existing assignment on an account that
is currently being handled in the eld, or if the taxpayer’s history indicates that notication
by telephone and mail will be unproductive, the revoked account should be scheduled for a
eld call at the earliest opportunity.
REVOCATIONS — FIELD CALLS 751.076
CPPM section 749.000 covered some of the basics of making effective eld calls. It is essential
to prepare before making any eld call, but even more so when working a revoked account.
Operating without a valid permit or license is a misdemeanor and the account cannot be
“partially” reinstated. The taxpayer’s revoked account can only be reinstated through full
compliance with all the conditions imposed upon the taxpayer by the CDTFA.
When working to reinstate a revoked account, devise a step-by-step plan when performing
the initial case evaluation. For example, such a plan might look like the following:
Account appears in the worklist on 01/01/XX:
1. Review the cause for the revocation, the account history, and determine what is needed
to reinstate the permit or license.
2. Make phone calls to the business location, the residence(s) of owners, partners,
ofcers, nearby neighbors or businesses, personal references, landlord, etc., and note
the results of the telephone calls in the case notes.
3. On 01/05/XX, mail a CDTFA–465, Notice to Withhold, or CDTFA–425–LA, Notice of
Levy, to nancial institutions if taxpayer has not responded to telephone calls.
4. If appropriate, request liens to be led with the Secretary of State and appropriate
counties where the taxpayer resides or has real property.
5. If appropriate, send a CDTFA-570-A, Notice of Revocation to Principal’s Suppliers, to
the suppliers of the business. This letter serves as notication that the taxpayer’s
seller’s permit is revoked and the supplier may not take a resale certicate from the
taxpayer for purchases until the permit is reinstated.
Compliance Policy and Procedures Manual
January 2020
6. On 01/15/XX, conduct a eld call if the above measures are unsuccessful. Personally
serve the taxpayer with a copy of the CDTFA–433–S, Notice of Permit Cancellation, and
remove the permit or license from the taxpayer’s premises. Advise the taxpayer of the
penalties for operating with a revoked permit or license and gather any information that
might assist in compelling the taxpayer to comply. Ensure that a change of ownership
has not occurred. If the business is under new ownership or is not operating, close
out the account in the system to clear the revocation.
7. Obtain payment in full and reinstate the account. If payment in full is not possible,
obtain a commitment from the taxpayer to enter into a short-term payment plan.
8. If reinstatement does not appear forthcoming and a taxpayer continues to operate
without a valid permit, the purchase of an item from the taxpayer’s business may be
made to obtain evidence of sales after revocation. If State funds are used to make the
evidence purchase, or the employee is reimbursed by the State for the purchase, the
evidence must be handled in the following manner:
• In most cases, the receipt is used as the evidence and not the item itself. The item
purchased should be photographed and the receipt and photograph should be
scanned and retained with the other documentary evidence to be used in support
of a potential prosecution.
• Once the items of evidence are no longer needed, a CDTFA employee must destroy
the evidence while a supervisor or manager witnesses, documents, and retains
documentation of the destruction. The destruction should result in the item(s) no
longer being edible or usable. For example, soda should be poured down a sink
drain, cigarettes should be crushed and thrown away, and items not suitable for
pouring down the drain should be appropriately disposed of in a trash receptacle.
• The supervisor or manager should document the destruction in the system.
The list of actions above outlines a very basic plan for working a revocation and illustrates
only a portion of the collection activities that may need to be taken to obtain compliance. Often
a plan will not survive rst contact with the taxpayer and will need to be adjusted according
to the circumstances. However, having a plan allows the collector to make appropriate and
timely follow up calls and actions and, should the need arise to have the case transferred to
another person, acts as a map for the person receiving the case to follow.
Collections
REFERRAL FOR FIELD OFFICE INVESTIGATION –
REVOKED SALES AND USE TAX ACCOUNTS 751.078
If a hearing, eld call or other eld investigation is required for an account with a physical
location near another Field Operations Division (FOD) ofce, a collector can make a referral
request to that ofce. However, prior to making a referral, all reasonable attempts to clear
the revocation should be made.
The responsible collector maintains ownership of the revoked account while the referral
request is in process. The request should include evidence that the taxpayer is still operating
their business.
Prior to making a request for a eld ofce investigation by another ofce, the collector must
get approval from a supervisor in their ofce. If approved, the supervisor will stage the case
forward to “Refer Investigation” and assign it to the Compliance Principal of the receiving
ofce indicating that a revoked account is being referred. Any original documents that need
to be mailed to the taxpayer and/or headquarters will be mailed by the receiving ofce when
applicable. Requesting a referral without following these procedures will cause the receiving
ofce to return the assignment and any documents to the originating ofce. All documents
will be returned to the originating ofce after the receiving ofce completes the assignment
or determines it cannot complete the assignment.
Field Call:
1. The collector creates the Request for Field Ofce Investigation Case to be forwarded
to the FOD Supervisor for review/approval.
2. The FOD Supervisor stages the Request for Field Ofce Investigation Case to “Refer
Investigation” and changes the owner of the case to the Compliance Principal of the
receiving ofce.
3. The receiving ofce Compliance Principal will assign a collector to complete the eld
investigation and stage the case forward.
Hearing:
1. The FOD Supervisor should contact the Compliance Principal of the receiving ofce.
2. The Compliance Principal will assign a hearing ofcer.
3. The responsible collector will prepare the hearing package or le for the assigned
hearing ofcer.
4. The assigned hearing ofcer will meet with the taxpayer and prepare the Report of
Discussion.
January 2020
Compliance Policy and Procedures Manual
January 2020
PROSECUTIONS, OPERATING AFTER REVOCATION 751.080
When all other remedies have been exhausted, aid of the court may be required to bring
about compliance. For additional information on prosecutions, see the Compliance Policy
and Management Guidelines.
CONDITIONS OF REINSTATEMENT 751.090
To reinstate a revoked account, the taxpayer must clear the cause for revocation by:
1. Filing all delinquent returns and paying the taxes/fees, penalty, interest, and Collection
Cost Recovery Fees (CRF) due.
2. Paying all delinquent balances due according to the records of the CDTFA, or entering
into a payment plan (see CPPM section 751.115).
3. Posting required or additional security. Arrangements to post the security deposit in
installments may be accepted in lieu of requiring full payment of the security, at the
responsible ofce’s discretion.
4. Paying the applicable amount of the reinstatement fee and completing all required
forms.
5. Clearing any other causes for revocation of the permit or license.
The taxpayer may be requested to comply with any other provisions of the laws or regulations
such as keeping adequate records or reporting tax liability according to prescribed rules.
If the revocation is to be cleared on the basis of entering into a payment agreement,
supervisory approval and a substantial initial payment should be obtained. The amount of
the payment and terms of the agreement should be documented on a CDTFA–407, Payment
Plan Agreement. (See CPPM section 770.000.) Unless payment and acceptable arrangements
are received, the account should remain revoked.
If the taxpayer les bankruptcy, the account will be reinstated without any of the above
conditions being met. A CDTFA–16, Cancellation of Revocation, will be prepared and the
bankruptcy information will be added to the account by the responsible ofce. A bankruptcy
indicator on the account does not restrict efforts to clear delinquent periods, as long as the
efforts are restricted to passive collection actions only.
After reinstatement, if the taxpayer fails or refuses to respond to any demand for compliance
with the law or regulations, revocation proceedings should again be instituted. The show-
cause portion of the CDTFA–433, must indicate the particular cause(s) for which the permit
or license is proposed to be revoked.
REINSTATEMENTS AFTER REVOCATION— FEES 751.100
To reinstate a revoked permit or license, a reinstatement fee may be required.
Note: For sales and use tax accounts, the responsible collector must determine the number
of active business locations, which may be different from the number of active locations
shown in the online system, and collect the fee per location. A fee is not collected for any
business locations that are not active at the time of reinstatement.
Collections
August 2022
The following table shows the types of accounts that can be revoked and the amount of the
reinstatement fee, if any.
Account Type Reinstatement
Fee per Account/
Location
Sales and Use Tax $100
Alcoholic Beverage Common Carrier Report (ACC) $0
Tobacco Products Distributor (TPD) $0
Tobacco Products Manufacturer/ Importer (TMI) $0
Aircraft Jet Fuel Dealer (AJF) $50
Alternative Fuel User (AUT) $50
Cigarette Distributor Report (CCD) $0
Cigarette Wholesalers Report (CCW) $0
Diesel Fuel Exempt Bus Operator (DBE) $50
Diesel Fuel Supplier (DDF) $50
Alternative Fuel Exempt Bus (EBO) $50
IFTA Carrier Return (IFT) $50
Diesel Fuel Interstate User (IUF) $50
Petroleum Common Carrier Report (PCC) $50
Petroleum Terminal Operator Report (POT) $50
Motor Vehicle Fuel Supplier (SMF) $50
Petroleum Train Operator Report (TRF) $50
Alternative Fuel Vendor (UFV) $50
REINSTATEMENT OF ACCOUNTS WITH PAYMENT PLANS 751.115
Taxpayers have the option to pay in full or request a payment plan to reinstate their revoked
accounts. Before approving the CDTFA-407, Payment Plan Agreement, collectors should
investigate the nancial condition of the taxpayer. Investigation of the nancial condition of
the taxpayer is not required if the terms of the payment plan meet the auto approval criteria,
with the exception of the revoked account status. Other situations where investigation of
the nancial condition may not be required are subject to supervisory discretion. With the
supervisor’s approval, collectors will reinstate the account if the taxpayer meets all conditions
listed below:
1. Files all delinquent returns,
2. Completes a CDTFA-407, Payment Plan Agreement,
3. Provides nancial documents (bank statement, credit card statement, payroll stub,
etc.) if requested (see CPPM section 770.13), and,
4. Pays the reinstatement fee.
The payment plan will terminate and the revocation action will be initiated, if the taxpayer
fails to make payments and/or fails to le and pay all future returns. The responsible
collector may initiate the “Cause Del Process” to restart the revocation cycle. Instructions to
initiate the “Cause Del Process” can be found in the Help Manager under the “Add a Cause
Delinquency” topic. This payment plan option for reinstatement will not be available for
revoked accounts with a fraud audit or jeopardy determinations.
Compliance Policy and Procedures Manual
January 2020
PAYMENTS RECEIVED DURING REVOCATION 751.120
While the revocation is in force, the responsible collector should attempt to obtain cash, cashier’s
check, money order, or other certied funds in payment of liabilities and reinstatement fee(s).
However, Government Code section 6157 requires the CDTFA to accept personal checks if the
person issuing the check furnishes proof of California residence and the check is drawn on a
California banking institution, except where the taxpayer has previously given the CDTFA a
check that was dishonored by the banking institution upon deposit.
If the taxpayer insists on paying with a personal or business check and does not have a
history of returned checks, the check will be accepted. A compliance supervisor may accept,
or refuse, a personal check when both of the following occur:
1. The taxpayer’s account is revoked.
2. Within the preceding 36 months the taxpayer paid the CDTFA using a check that was
subsequently dishonored by the bank.
If a personal or business check necessary to clear a revocation has been mailed to
headquarters, the taxpayer normally should not be required to stop payment on the check
and pay in certied funds. Such a delay could result in the assessment of additional penalty
and interest charges (see CPPM section 510.150).
If the taxpayer submits the reinstatement fee but the other requirements to reinstate the
account are not met, the reinstatement fee is recorded in the system. This action does not
reinstate the permit; it merely shows that the reinstatement fee is paid, but the account
retains its revoked status.
INOPERATIVE REVOCATIONS 751.130
If a taxpayer’s account is shown as revoked in the system, but it is determined that the
taxpayer cleared the cause(s) prior to the effective date, the collector will cancel the action
and notify the taxpayer using a CDTFA–16, Cancellation of Revocation.
A revocation for failure to le and pay a return is considered inoperative only if:
1. The tax return(s) are led on or before the effective date of the revocation.
2. The person has terminated his/her operations before the effective date of revocation.
In this case, the online closeout process will clear the revocation from the CDTFA’s
records.
3. The business address was changed and the notice of revocation was mailed to the
former address, provided the CDTFA received notice of the move prior to the effective
date of revocation. If the CDTFA did not receive notice of the move prior to the
effective date of revocation, then the revocation is operative and the conditions of
reinstatement must be met. A letter informing the CDTFA of the address change, a
notice from the Post Ofce,, and tax or fee returns with the address crossed out and
the forwarding address inserted are all valid forms of notication that a change of
address has occurred.
4. The CDTFA is notied, or discovers, that the taxpayer led for bankruptcy protection.
Collections
January 2020
REVOCATION AFTER A SELLER’S PERMIT HAS BEEN ISSUED WHEN
TAXPAYER HAS LIABILITY UNDER ANOTHER SELLER’S PERMIT 751.135
Pursuant to RTC section 6070.5, Authorization to refuse issuance of permit, the CDTFA may
refuse to issue a seller’s permit to any person submitting an application if the person has an
outstanding nal (i.e., “due and payable”) sales and use tax liability. Also, the CDTFA may
refuse to issue a seller’s permit when the person applying for the permit is not a natural
person (i.e., a corporation or Limited Liability Company (LLC)) and is controlled by a person
with an outstanding nal liability (see Regulation 1699(g)(3)). However, a seller’s permit will
be issued when the person with the outstanding nal liability enters into a payment plan
and is in full compliance with the terms of the plan, or has an accepted Offer in Compromise
(OIC) and is in full compliance with the terms of the OIC agreement.
The online registration system automatically validates the applicant and if they have an
outstanding nal liability and are not in a payment plan, the application will be put on hold
for the collector to review. There are no provisions in RTC section 6070.5 that allow the
CDTFA to close or cancel a seller’s permit after it has been issued. However, a permit may
be revoked under RTC section 6070, Revocation of permit, when they are able to show that
a person with an active seller’s permit has failed to comply with provisions of the Sales and
Use Tax Law, rule, or regulation.
Effective January 1, 2014, the Declaration of Intent (DI) screen, which appears at the onset
of the registration process, includes the following declarations of true statements that the
applicant must accept before they are issued a seller’s permit:
As I am registering for a sales and use tax permit;
• I declare that either I currently do not have an outstanding nal liability for sales and
use tax with the CDTFA under a different account, either open or closed; or, if I do have
an outstanding liability, I am currently in a payment plan and in full compliance with
the terms of the plan
• I further declare that, if the person applying for the permit is a partnership, corporation,
LLP, or LLC, that none of the listed partners, ofcers, or members has an outstanding
nal liability for sales and use tax with the CDTFA under a different account, either open
or closed; or, if they do have an outstanding liability, they are currently in a payment
plan and in full compliance with the terms of the plan.
An applicant who accepts the DI will continue through the registration process to obtain
their seller’s permit. However, an applicant who declines the DI will receive an error message.
If a seller’s permit is issued to a person or entity and the CDTFA later determines that at the
time of application, the person falsely accepted the DI as a true statement when the person
falls within the provisions of section 6070.5, they are in violation of RTC section 6066. In
this situation, the collector must review the existing permit(s) to verify that the person does
not have an active payment plan or OIC or otherwise does not come within the provisions
of section 6070.5. If the person does not have a payment plan or OIC, then the collector
should contact the person with the outstanding nal sales and use tax liability and attempt
to gain payment in full or negotiate a payment plan. When a person has multiple accounts
with outstanding nal liabilities, it will be at the discretion of the Compliance Principal or
their designee to determine if a payment plan is required for each sales and use tax account.
Compliance Policy and Procedures Manual
January 2020
When the person does not enter into a payment plan or is not accepted into an OIC, or
fails to comply with the terms of the plan or OIC agreement, the revocation process will be
initiated as follows:
1. Initiate a “Cause” delinquency for Failure to Comply,
2. Add Account Characteristic Code (ACC) 42 to the account, and
3. Add a comment in the system.
When the taxpayer fails to contact the CDTFA during the “Cause” delinquency cycle, the
system will automatically generate a CDTFA-433-S, Notice of Permit Cancellation (Revocation),
and subsequently revoke the permit.
To help differentiate accounts that have a “Cause” delinquency resulting from a violation of
RTC section 6066 because the person falsely accepted the DI as a true statement when the
person was, in fact, a person coming within the provisions of section 6070.5, Authorization
to refuse issuance of permit, from other accounts with a different “Cause” delinquency, the
collector must also add the ACC 42, Permit Refusal per AB 1307. In addition, a comment must
be added on the account(s) with the outstanding nal liability for tracking purposes in the
system. The comment must specify the seller’s permit(s) with the outstanding nal liability,
the seller’s permit with the “Cause” delinquency, and the reason for the delinquency. If the
account goes into an active revocation status, all conditions for reinstatement must be met
prior to reinstating the seller’s permit.
Payment Plans and Offers in Compromise
If the person enters into a payment plan for the outstanding nal liability, or is accepted
into the Offer in Compromise (OIC) program, the seller’s permit will be issued. If the person
enters into a payment plan, the collector must send the taxpayer a CDTFA-407-A, Payment
Plan – Agreement Proposal Letter. The form has language to inform the person entering into
a payment plan that if the plan is terminated, the CDTFA may revoke their active seller’s
permit. Requests for OIC will be processed in accordance with existing policy. However, if
the OIC is not accepted, the CDTFA may revoke the person’s active seller’s permit.
Collections
FORM LETTERS TO SUPPLIERS OF PERSONS WITH REVOKED SELLER’S
PERMITS AND SWAP MEET OPERATORS 751.140
The CDTFA–570–A, Notice of Revocation to Principal’s Suppliers, advises the supplier that a
taxpayer’s seller’s permit has been revoked and a resale certicate may no longer be accepted
from the specied taxpayer. The letter is particularly useful when dealing with revoked service
stations, bars, restaurants, hotels, franchised businesses (fast foods, convenience stores,
etc.) and other sellers having only one or a limited number of principal suppliers. This letter
should only be sent to principal suppliers of the specied taxpayer. This letter should not
be sent to a taxpayer’s competitor unless there is evidence that the competitor is a principal
supplier. Upon receipt of this letter, a supplier must begin collecting tax reimbursement from
the indicated taxpayer. Some suppliers will cease making sales to the taxpayer altogether,
thus persuading the taxpayer to reinstate.
The CDTFA–570–B, Notice of Reinstatement to Principal’s Suppliers, is mailed when the
reinstatement is completed. The CDTFA–570–B references the CDTFA–570–A and advises
the supplier they may again accept a resale certicate from the specied taxpayer. It is
extremely important that the CDTFA–570–B is mailed to the suppliers promptly when the
revocation is cleared.
To notify swap meet and special event operators that a taxpayer does not hold a valid seller’s
permit, a CDTFA-1584, Notication to Operator of Invalid Permit, should be sent.
These form letters should be used in lieu of any forms created by eld ofces of the same
nature.
January 2020
Compliance Policy and Procedures Manual
June 2009
NOTICE TO WITHHOLD 752.000
GENERAL 752.010
Despite the title, the CDTFA–465, Notice of Withhold, is not an earnings withholding order
for taxes (see CPPM 755.010). The Notice to Withhold is used to prevent the transfer of a
taxpayer’s assets when those assets are under the control, or in the possession, of another
person and the use of a Notice of Levy is not warranted. The Notice to Withhold attaches only
the taxpayer’s assets that are in another person’s possession at the time of service and has
no effect on assets that later come into the other person’s control.
Any person who receives a Notice to Withhold and subsequently transfers or disposes of the
taxpayer’s assets during the effective period of the notice, without rst receiving consent from
the California Department of Tax and Fee Administration (CDTFA), may be held personally
liable up to the value of the assets transferred. However, the CDTFA can impose personal
liability on the transferor only if the liability is not collectable solely because of the transfer
or disposal of the assets.
The Notice of Withhold is not to be used routinely as the rst step in the collection process.
Collection staff should use the notice only after the taxpayer is given an opportunity to pay
voluntarily but does not do so, or to stop the transfer of assets when the transfer would
jeopardize the CDTFA’s collection efforts.
SERVICE OF NOTICE — CDTFA–465 752.020
A Notice to Withhold may be served upon a person within three years from the date the
liability became nal or within ten years from the last recording of an abstract or a lien.
The service may be made by rst class mail, however, if staff determines that it is in the
state’s best interest, service may be made in person or by certied or registered mail. When
service is accomplished in person, a signed copy of the notice should be obtained from the
recipient at the time of the service. At the same time, an effort should be made to obtain
a report of the assets of the taxpayer being held pursuant to the notice. Depending upon
the type of organization served or the type of assets being held, it is not always possible to
obtain an immediate report of the assets. Therefore, appropriate follow-up is necessary to
ensure that the recipient provides a report, regardless of the method chosen for serving the
Notice of Withhold.
RELEASE OF NOTICES TO WITHHOLD AND LEVY 752.025
A CDTFA–465–F, Authorization to Release Notice of Withhold, is used to release both a Notice
of Withhold and a Notice of Levy, except in cases where it is necessary to release the asset(s)
of a partnership account. In this situation, print a copy of the original document, stamp
the upper-right corner of the notice with the release stamp, complete the blanks (including
“authorized signature”) and prepare a photocopy for each of the partner’s being served. Since
this form is used to release both the Notice of Withhold and the Notice of Levy, be sure to
select the appropriate form when preparing to print a CDTFA–465–F.
Collections
July 2009
REFUSAL OF PERSONAL SERVICE OF THE CDTFA–465 752.030
If the person served with a Notice to Withhold refuses to acknowledge service, a notation
indicating the refusal should be made on the CDTFA–465. The date and time of service
should be shown along with the name of the person with whom the notice was left. If a
person refuses to accept personal service of a Notice to Withhold, an attempt should be made
to have the notice served, either by certied or registered mail.
If this service is also refused, a Notice of Levy should be issued if the assets are in the form
of money. If the assets are not money, a warrant should be obtained from the Collections
Support Bureau so that the sheriff, marshal, constable or California Highway Patrol can
conscate the identied assets from the person in control or possession of the assets.
REPORT OF ASSETS HELD 752.040
After effective service is made, or when a report is received that assets are being held, the
taxpayer should be contacted immediately and arrangements made for payment of the liability
or to have the withheld assets released to the CDTFA.
Collection staff should use the levy or warrant process if the taxpayer is unwilling to make
payment or to have the assets released to the CDTFA.
ASSETS TO BE HELD BY A PERSON SERVED A CDTFA–465 752.070
A person served with a Notice to Withhold, other than a bank, is required to hold all of the
assets belonging to the taxpayer over which control is exercised, regardless of their value or
form and regardless of the amount set forth on the notice. Banks, federal and state savings
and loan associations, and federal and state credit unions are required to hold up to two
times the amount, including penalty and interest, shown on the CDTFA–465 with respect
to deposits, credits or personal property in their possession or under their control.
To avoid placing an undue hardship on the taxpayer, collection staff may consider issuing
an order authorizing the release of excess assets when the value of assets held exceeds the
amount of the liability. Before authorizing the release of excess assets, it is rst necessary to
determine the amount of retained assets that will pay the total liability plus any costs that
might develop if it becomes necessary to use warrant procedures. Releasing excess assets
as described is normally applicable only when the person is withholding money, rather than
non-money assets.
SERVICE OF THE CDTFA–465 ON JOINT BANK ACCOUNTS 752.080
Under RTC section 6702, the CDTFA–465 may be served on a bank, state or federal savings
and loan association, or a state or federal credit union, where a delinquent taxpayer holds
an account jointly with another person. When the CDTFA has served a nancial institution
with a Notice to Withhold on a jointly held account, the nancial institution is required to
mail a notice to each person named on the account that indicates the amount and reason for
the withhold. If, after receiving a response to the CDTFA–465 from the nancial institution,
there is uncertainty as to the extent of the taxpayer’s interest in the account, a Notice of
Levy should be served (See CPPM 753.010).
EFFECTIVE PERIOD OF THE CDTFA–465 752.090
The effective period of a Notice of Withhold is 60 days from the date of service unless released
sooner by the CDTFA. When it is necessary to require the person to withhold in excess of the
60-day period, a new Notice to Withhold must be served prior to the expiration of the original
notice. Service more than one time should occur infrequently since the Notice of Withhold is
used for collection purposes.
Compliance Policy and Procedures Manual
July 2009
SERVICE OF THE CDTFA–465 ON EMPLOYERS 752.095
A Notice of Withhold may not be served on employers to reach salaries, wages or commissions
owed to the taxpayer. Salaries, wages or commissions must be garnished using a CDTFA–
425–E, Earnings Withholding Order for Taxes.
SERVICE OF THE CDTFA–465 CREATES NO LIEN 752.100
Service of the Notice to Withhold does not create a lien upon the withheld assets. To create
a lien, a Notice of Levy or a levy under a warrant is necessary. As long as the assets are
held pursuant to the Notice of Withhold, they are subject to the liens of other creditors who
might levy under a Writ of Execution and thereby assert priority over the CDTFA’s withhold.
Therefore, a Notice of Levy should be promptly served to seize the assets and/or perfect the
CDTFA’s lien.
SERVICE OF THE CDTFA–465 TO REACH RESERVE ACCOUNTS 752.110
If service of a Notice to Withhold upon a bank or other depository institution reveals a reserve
account against which there is a contingent liability, issue a Notice of Levy. A contingent
liability is one which is difcult to quantify, or which may or may not come to pass, e.g.,
payments that may be awarded pending the outcome of a lawsuit. Usually, considerable
time is required for the elimination of the contingent liability and other creditors can levy
under a Writ of Execution during this period. Therefore, the Notice of Levy procedure should
be used to establish a lien rather than repeatedly renewing the withhold period using the
CDTFA–465.
OFFICE CONTROLS — CDTFA–465 752.130
Each ofce should establish proper controls over the use of the Notice to Withhold. All
employees must clearly understand who is authorized to sign and approve the use of the
CDTFA–465 and those persons so authorized should have a thorough understanding of
the situations and circumstances when utilization is proper. After service has been made,
the person sending the notice has the responsibility for maintaining a follow up and taking
appropriate follow up action to bring the matter to a successful conclusion.
Collections
July 2009
WARRANTS AND LEVIES 753.000
GENERAL 753.010
Use of a warrant is one of the California Department of Tax and Fee Administration (CDTFA)’s
most effective collection remedies. Warrants should be used with proper discretion and
without unreasonable restrictions that might tend to discourage their use. There are many
times when the use of a warrant or a notice of levy is necessary. When the use of these tools
is indicated, there should be no hesitancy because of possible unpleasant reactions from the
taxpayer. In practically all cases where the warrant or notice of levy is used, the taxpayer
will have had an opportunity to clear the liability but failed to do so.
A warrant is a judicial writ authorizing an ofcer to make a seizure or to execute a judgment
and is used to conscate property in accordance with a legal judgment. The CDTFA may issue
warrants to enforce liens and to collect amounts due. Warrants may be issued at any time
within three years from the date on which the liability became nal, or within ten years after
the last recording of an abstract or lien (see RTC section 6776 and chart in CPPM 757.020).
Before requesting a warrant, the case must be evaluated to ensure that such action will
produce sufcient money to cover all costs and leave enough to pay the liability. Rather
than using a warrant, a CDTFA–425–LA, Notice of Levy, is used to seize money, or right to
money, held or controlled by the tax debtor or by a third party.
With the exception of wage levies (also known as Earnings Withholding Orders), a warrant
to levy on tangible personal property is made by a sheriff, marshal, constable or ofcer of
the California Highway Patrol (CHP). Upon receipt of the warrant, an ofcer is required to
promptly serve it upon the taxpayer and take possession of the available assets according to
the instructions that accompany the warrant. The ofcer will take possession and arrange
for sale to the highest bidder at public auction. After deducting his fees, expenses and
commissions from the proceeds of the sale, he will remit the remainder to the CDTFA to
credit the taxpayer’s account.
Before requesting a warrant to levy on personal property, the CDTFA must determine if the
taxpayer is the legal owner of the property. Legal ownership can often be determined by
examination of nancing statements (Forms UCC–1 and UCC–3) led with the Secretary of
State. If nancing statements are on le, the secured party should be contacted to see what
amount, if any, remains due.
Sometimes a warrant is issued upon property in which a third party has an interest and the
third party les a claim objecting to the seizure. Unless the amount of the claim is posted
with the levying ofcer, or the levying ofcer is notied that the CDTFA opposes the validity
of the third party claim, the levying ofcer must release the property to the claimant within
ve days after the claim is led. (See CPPM 753.210.)
If it is in the best interest of the CDTFA to pay off a third party claim and seize the property,
a request for funds to pay off the amount due will be sent to the Collections Support Bureau
(CSB) when the warrant is requested. These requests should be made only when the third
party claim is relatively small in relation to the taxpayer’s equity in the personal property.
Compliance Policy and Procedures Manual
August 2022
WARRANTS 753.015
Team members may request the issuance of a Warrant – Keeper, Warrant – Seizure, or
Warrant - Till-Tap by creating a case in the system. By virtue of a warrant:
1. A law enforcement representative (keeper) may be placed on the premises of a
delinquent taxpayer for the purpose of taking possession of personal property. This
procedure is most frequently used for, but is not restricted to, situations where the
taxpayer is still operating a business. The ofcer may be instructed to levy upon the
furniture, xtures, and equipment owned by the taxpayer, the stock in trade, and
cash in the register or on business premises. A keeper will remain on the business
premises during the hours specied on the warrant. Requesting a “keeper” warrant
requires CDTFA to pay advance fees to the law enforcement agency to which the
warrant request is directed. (See section 753.050)
2. A law enforcement ofcer of the local county sheriff or California Highway Patrol (CHP)
can be instructed to enter a business for the purpose of taking possession of the cash
in the cash register(s) on the business premises. This procedure is commonly referred
to as a “till-tap.” No payment of advance fees is necessary when requesting a till-tap.
3. A warrant may be issued to levy upon motor vehicles. There is no requirement that
the legal owner’s interest in the automobiles be recorded. The ownership of motor
vehicles must be registered with the Department of Motor Vehicles (DMV) and any
changes in the registered or legal ownership must be promptly reported to DMV.
When consideration is given to levying upon a motor vehicle, DMV’s records must
be checked to determine the ownership. If DMV records show a legal owner other
than the taxpayer, a warrant will not be issued. On rare occasions, however, as in
the case of a “nearly clear” motor vehicle, arrangements can be made to provide the
levying ofcer with sufcient advance fees to allow him to pay off the small interest
of a legal owner. If such a course is anticipated, Collections Support Bureau (CSB)
must be advised of the exact amount required to determine whether this course of
action is advisable.
4. A levy pursuant to a warrant may be placed upon real property when the liability is
$5,000 or more. Before any levy is made on real property, the extent of the interest of
the taxpayer must rst be established. The real property records should be searched
to determine:
a. The manner in which title is shown.
b. Trust deeds or mortgages against the property.
c. If there are any other encumbrances such as liens, judgments, and attachments
against the property.
Collections
August 2022
5. These encumbrances must be recorded prior to the date on which CDTFA’s lien
certicate was recorded to have priority over CDTFA’s lien. This search should also
disclose whether the property is subject to a declaration of homestead. As a matter of
policy, CDTFA will not levy and sell a taxpayer’s principal residence. In considering
a warrant to levy on real property, the following steps must be taken:
a. The fair market value of the property must be determined by a personal appraisal
or by a qualied realtor familiar with the subject property.
b. All title encumbrances, including the homestead exemption, must be deducted
from the fair market value and the taxpayer’s interest in the remainder must be
established pursuant to the manner in which title to the real property is vested,
i.e., sole owner, joint tenancy, etc.
c. The anticipated amount received from the forced sale of the real property is
calculated to ensure that taking such action is practical. A comprehensive report
and recommendation should be submitted to CSB for a decision.
Additional information regarding the seizure and sale of real property can be found in section
CPPM section 757.150.
KEEPER WARRANTS 753.018
If directed in the warrant instructions, levying ofcers may place a “keeper” on the premises of
an operating business for the purpose of taking possession of personal property or collecting
incoming receipts while allowing the business to operate. When deciding to request a keeper
warrant, the responsible collector should keep in mind that it may become necessary to
eventually sell the taxpayer’s property. The keeper’s function is to preserve the property
and prevent its disposal pending clearance of the liability or public sale of the property.
The anticipated daily receipts from the business or potential realized gain from the sale of
taxpayer’s property should exceed the daily costs paid for the keeper.
INTEREST ACCRUALS ON COLLECTIONS BY WARRANT 753.020
Since the ofcer serving the warrant and making collection is acting in the capacity of an
agent of CDTFA, the date payment is received by the ofcer is considered to be the effective
date of payment. Interest accruals, therefore, will depend upon the date the ofcer receives
the funds and not on the date they are remitted to CDTFA.
WARRANT REQUEST AUTHORITY — TILL-TAPS AND KEEPERS 753.025
A supervisor must approve all requests to issue till-tap or keeper warrants and will ensure
that both of the following items have been addressed:
1. The business is actively operating and is of a type (generally cash-based) that will
support the keeper or till-tap. Note: a keeper warrant may be ordered on a closed out
permit as long as it is to be installed at the same owner’s active business location,
which may have a different account number.
2. The average daily sales are enough to realistically expect payment above and beyond
the fees associated with service of the warrant.
3. If the business is a cannabis business, the supervisor must coordinate with the
Cannabis and Sales Suppression Section (CSSS) to have a warrant issued. CSSS will
coordinate with the CHP and will request the warrant through CSB.
Compliance Policy and Procedures Manual
August 2022
—
When the responsible collector determines that a keeper or till-tap warrant is appropriate,
a warrant case must be created in the system and staged to the collector’s supervisor for
approval. If approved, the supervisor will stage the case to CSB Review for further processing.
Till-Taps - Use of the California Highway Patrol
Requesting the California Highway Patrol (CHP) to serve a till-tap warrant can be costly.
Therefore, team members are encouraged to utilize the local county sheriff instead of CHP
whenever possible. However, using the sheriff instead of CHP is dependent upon the area
for service and whether CHP can more quickly or efciently serve the till-tap warrant in
comparison to the sheriff.
There are eight CHP divisions that process and serve CDTFA till-tap warrants. The division
area and contact information can be found on the CHP website on the Find an Ofce tab.
When requesting a till-tap to be served by CHP, the correct CHP division address must be
entered on the warrant to ensure that it is mailed to the proper CHP division for service. If
the taxpayer is located in a city not shown in a division, CSB will contact CHP to determine
which CHP division will serve the warrant.
The request for a warrant must include:
1. The address for service of the till-tap.
2. The type of business.
3. The normal business hours and preferred hours of service.
4. The specic number of days CHP must go to the business location.
Since a till-tap may not be successful in obtaining payment in full, limiting the number of
days CHP must go to the business location will allow compliance team members to:
1. Assess the effectiveness of the till-tap warrant and determine if more days should be
requested, or
2. Consider other collection remedies.
Prior to preparing the warrant, CSB will contact the appropriate CHP division and request an
estimated cost to process the till-tap. This cost will then be entered as the Cost of Collection
(COC) difference in the system. In some cases where CHP cannot provide an estimated cost,
CSB will enter $999 for the COC. Once the actual cost of collection has been determined,
the COC difference will be adjusted accordingly. For that reason, compliance team members
should take notice that the COC difference in the system may not be exact, and the cost will
be adjusted upon receipt of the billing from CHP. Compliance team members should contact
CSB to determine if the COC is correct and resolve any issues concerning an outstanding
COC.
Collections
August 2022
ISSUANCE OF WARRANTS AND INSTRUCTIONS 753.030
All warrants, except those on wages, are issued by CSB upon request from team members.
Requests will be reviewed by CSB to determine whether the use of a warrant is appropriate.
Factors that will be considered are legality of action, anticipated results, and costs compared
to amount expected to be collected.
The CSB will prepare the warrant, and the instructions to the levying ofcer. If additional
assets are located, or the instructions are inadequate, administrators or persons who have
been delegated authority will amend or supplement the instructions as necessary. In no case,
however, will the period or amounts shown on the warrant be altered; in these instances,
new warrants will be requested from CSB.
ADVANCE PAYMENT OF FEES AND EXPENSES 753.050
CDTFA is authorized to make advance payments of fees and expenses, other than fees and
expenses incurred under the Cigarette and Tobacco Products Tax Law. That law provides
for payment of fees and expenses upon completion of the services by the levying ofcer.
When an advance payment is necessary and a warrant request is transmitted to CSB,
the entity to which it should be paid must be indicated. The collector will determine the
amount of advance fees required and, in most cases, CSB will send the warrant and warrant
instructions to the requesting ofce along with a check covering the advance fees. At times
however, the warrant and instructions are sent directly to the law enforcement agency, with
copies provided to the collector that made the request.
When CDTFA issues a warrant for collection to law enforcement entities, the Accounting
Section prepares a check for advance fees, made payable to the law enforcement entity. The
advance fees are drawn from CDTFA’s Revolving Fund.
Upon receipt of payment, compliance team members will rst apply the money to the cost
of collection (COC) bill items in the system. Any amount remaining after these costs have
been paid in full will be applied to the liability indicated on the warrant.
Warrant Logs
Field ofces are required to maintain a log for all outstanding warrants and costs of collection
requested from CSB. The CDTFA-418, Warrant Log, may be used unless a COC tracking log
tailored for the eld ofce is used.
Team members must ensure that all unused advance fees, and any funds collected as a
result of the warrant, are returned to CDTFA along with the original warrant. The compliance
supervisor responsible for approving requests for fees and warrants should review the Warrant
Log on a monthly basis. This ensures that team members are following up for the return of
the advance fees and the original warrant and reconciling the COC bill items in the system.
Unused Cost of Collection Fees
There may be instances where the warrant is canceled. In this situation, the sheriff returns
the unused advance fees. Team members will return the warrant and the unused fees back
to CSB. CSB will forward the unused advance fees check back to the Accounting Section for
further handling. The unused COC fees are not the taxpayer’s money and team members
should not apply the funds to the taxpayer’s liability.
Compliance Policy and Procedures Manual
August 2022
STATEMENT OF COSTS REQUIRED 753.052
Whenever CDTFA is required to pay the costs of a levy for which no reimbursement was
received as a result of the levy, a statement of charges is required. The statement must be
submitted by the levying ofcer in triplicate and should be forwarded through the originating
ofce to CSB for approval and referral to the Accounting Ofce for payment, if not already
paid in advance. No payment will be made until the statement detailing the items in triplicate
has been received. A statement is not necessary if an advance payment was , and full
reimbursement is received as a result of the levy.
COSTS AS AN OBLIGATION OF THE TAXPAYER 753.054
The advance payment, and any costs incurred for a warrant, becomes the obligation of the
taxpayer and should be collected by the ofcer making the levy. Whenever costs are incurred
through a levy from which no satisfaction is obtained, whether an advance was made or
costs were later billed to CDTFA, the amount of the costs should be added to the tax liability
and collected along with the tax when collection becomes possible.
LEVYING OFFICER’S RETURN OF WARRANT 753.056
Within 60 days after making a levy pursuant to a warrant, the levying ofcer must make a
report of any action taken and/or the results of the warrant. The warrant should be returned
to CDTFA with a report on the response from the person upon whom the levy was made,
along with a statement on the amount collected, less costs and fees, and the net amount
paid. If the warrant resulted in no collection, the ofcer must include that in their report
and, if costs were incurred by CDTFA, a statement in triplicate must be submitted to CSB
for transmittal to the Cashier Unit in Headquarters. (The Cashiering Manual contains the
procedures for reimbursement of advanced warrant fees by levying ofcers.)
CANCELLATION OF WARRANT SERVICE BY LEVYING OFFICER 753.058
In rare instances, CDTFA may cancel or withdraw the warrant for collection before the law
enforcement agency has served the document to the taxpayer. Withdrawals or cancellation
of warrants must be made only when careful examination of the circumstances dictates
that the cancellation is proper such as when the taxpayer les bankruptcy before service is
made, a payment to clear the liability is made prior to service, death of a taxpayer, etc. In
these situations, a telephone cancellation followed immediately by written conrmation to
the law enforcement agency, with a copy to CSB, is proper. Cancellation of a warrant may
only be made by authorized persons.
Collections
August 2022
CIGARETTE AND TOBACCO PRODUCTS TAX LAW WARRANTS — NO ADVANCE
FEES 753.060
Since the Cigarette and Tobacco Products Tax Law does not provide for advance payment
of fees and expenses, the ofcer who will serve the levy should be contacted to determine if
the levy can be made without an advance payment. If arrangements cannot be made, CSB
should be notied. CSB will then determine whether the matter should be referred to the
Attorney General for action against the taxpayer.
MOTOR VEHICLE WARRANT PROCEDURE — PROTECTIVE BIDS 753.070
The Department of General Services (DGS) has authorized the Attorney General (AG) to bid
upon and purchase motor vehicles at a public sale conducted pursuant to CDTFA warrant.
In order to avoid the possibility of a motor vehicle being sold for an unreasonably low price,
CDTFA may enter a “protective” bid. The AG will designate a CDTFA employee as the AG’s
special representative to make the bid and CSB will coordinate this procedure. The maximum
protective bid shall not exceed two-thirds of the low “as is” Kelly Blue Book value of the
vehicle, or the amount of the tax, including all costs of levy, whichever is the lesser.
The responsible ofce will furnish CSB with all pertinent information regarding an anticipated
public sale. The information should include, but is not limited to:
1. Estimated value of the vehicle and amount of proposed bid.
2. All facts regarding third party claims.
3. Name of CDTFA employee who will represent the AG in making the bid.
4. Date of expected sale.
Upon reasonable prior notice, vehicles may be delivered to state garages maintained in
Sacramento, San Francisco, Fresno, Los Angeles, and San Diego. As a successful bidder, the
special representative will take possession of and deliver the vehicle to the nearest installation
of DGS. CSB will notify DGS of all facts concerning the purchase and proposed resale of the
vehicle and DGS will handle the storage and resale of the vehicle.
The responsible ofce must furnish the Accounting Section, with an itemized statement of
expenditures in triplicate (letter form), including the amount bid for the motor vehicle. Upon
proper notice, the Accounting Section will:
1. Issue a check for the law enforcement agency’s fees.
2. Obtain an advance from the State Controller in the amount needed for the revolving
fund to credit the taxpayer’s account with the amount of the bid, less expenses.
3. Prepare a revolving fund check for the credit of the taxpayer’s account and transmit
the check to the Cashier Unit at Headquarters through CSB.
When a motor vehicle purchased by CDTFA through bid-in procedures is subsequently resold
by DGS, the proceeds from the sale that are transmitted to CDTFA will be distributed as
follows:
1. The revolving fund will be reimbursed for all funds advanced.
2. The remaining funds will be transferred to the general fund.
Compliance Policy and Procedures Manual
July 2009
FRAUDULENT CONVEYANCES 753.095
Generally, a fraudulent conveyance is a transfer of a property interest that is made for the
purpose of preventing creditors from obtaining the asset(s) in satisfaction of claim(s).
To establish a fraudulent conveyance, one or more of the following elements must be
substantiated:
1. Fraudulent intent. This is actual intent, as distinguished from the intent presumed
in law, to hinder, delay or defraud creditors. An example of fraudulent intent is when
corporate assets are transferred to the ofcers of the corporation, or their relatives
or other persons associated with the corporation, to prevent creditors from obtaining
the assets in satisfaction of claims. (Civil Code section 3439.04).
2. Insolvency. Every conveyance made and every obligation incurred by a person which
is or will be thereby rendered insolvent is fraudulent as to creditors without regard to
the actual intent if the conveyance is made or the obligation is incurred without fair
consideration (Civil Code section 3439.05). Fair consideration is given for property
conveyed when a fair equivalent value is received in good faith in exchange for such
property (also see below).
3. Lack of Fair Consideration. Every conveyance made without fair consideration is
fraudulent when the person making the conveyance of property either:
a. “Intended to incur, or believed or reasonably should have believed he or she would
incur, debts beyond his or her ability to pay as they became due” (Civil Code
section 3439.04.)
b. Is engaged in a transaction or business for which the remaining capital is
unreasonably small (Civil Code section 3439.04).
4. Bulk Transfers. Any bulk transfer, such as a sale of a business, is fraudulent and void
against any creditor of the transferor unless the transferee gives notice of the transfer
in any recognized legal publication in the manner provided by Uniform Commercial
Code section 6105 (see also UCC section 6105).
The supporting documentation for establishing a fraudulent conveyance should include a
description of the property transferred and the name and address of the transferee. The
transferee may be served with a notice of levy and/or a summons in a creditor’s suit under
Code of Civil Procedures section 708.210, et seq.
Collections
July 2009
NOMINEE LIENS 753.100
There are three situations when either real or personal property not in the name of the
taxpayer are subject to levy, lien, or some other enforcement procedure. These situations are:
1. Liability of the community property for debts of either spouse.
2. Property that was subjected to a lien when owned by the taxpayer.
3. Property that the taxpayer has fraudulently conveyed.
The last situation is where a nominee lien could be used.
A nominee is a person in whose name property is titled but who is not the actual owner. A
nominee lien is an instrument recorded against certain property to allege the property is
being held by another, the “nominee,” for the benet and use of the taxpayer. The nominee,
as recorded owner, has mere color of title while the taxpayer holds the equitable title. Filing
a nominee lien gives notice that property is held by a nominee but really belongs to the
taxpayer.
The ling of a nominee lien is proper procedure when a nominee third party holds title to
the property as the result of a fraudulent conveyance by a delinquent taxpayer, or in cases
where the circumstances of the transfer are similar to those of a fraudulent conveyance.
The nominee lien is also used when the transferee is merely the alter ego of the taxpayer.
The ling of a nominee Notice of Tax Lien gives the transferee and potential purchasers of
a specic property notice that the CDTFA asserts a lien on that property on the basis of
the fraudulent transfer, and establishes the priority of the state’s lien under Government
Code section 7171. Without the ling of a nominee Notice of Tax Lien, the state could lose
priority if other lienors described in Government Code section 7170 (mechanics, judgment
lien creditors, etc.) perfect their interests before the nominee lien is recorded.
The nominee lien procedure is easier to accomplish than a suit to set aside a fraudulent
transfer or suit to establish transferee liability. The nominee lien enables the state to more
securely encumber property of the taxpayer standing in the name of a third party.
The lien compels the taxpayer to take the action to remove the resulting cloud on the title
of its property rather than the CDTFA having to initiate action to set aside a fraudulent
conveyance. A cause of action with respect to a fraudulent transfer is subject to the provisions
of Civil Code section 3439.09.
Compliance Policy and Procedures Manual
July 2009
EVIDENCE TO SUPPORT NOMINEE LIENS 753.110
To determine whether a conveyance is fraudulent involves the consideration of various
elements and factors, such as the:
1. Intent of the parties.
2. Financial conditions of the transfer.
3. Consideration, or lack of consideration, for the transfer.
4. Relationship of the parties.
Regarding intent of the parties, and the nancial conditions and considerations of the
transfer, see Civil Code sections 3439.04 and 3439.05 respectively.
Indications of intent (to be considered in combination with 2 and 4 above as strong
evidence of fraudulent intent) include:
1. Concealment or disappearance of the taxpayer.
2. Efforts to hide the facts of the transfer from creditors.
3. Secrecy surrounding the transfer.
4. Transfer of all the taxpayer’s property.
5. Reservation of some benet to the taxpayer.
6. Reliance by the taxpayer upon the transferred property for future support.
Actual intent to defraud must be proved by clear and convincing evidence, but circumstantial
evidence often sufces to constitute such proof.
Regarding the nancial conditions of the transfer, Civil Code section 3439.04 provides that
every conveyance made and every obligation incurred by a person who is, or will be, thereby
rendered insolvent is fraudulent as to creditors without regard to the actual intent if the
conveyance is made or the obligation is incurred without fair consideration. Therefore, close
scrutiny of the relationship of the parties is required where the transferee is closely related
to, or controlled by, the transferor or debtor.
NOMINEE LIEN APPROVAL 753.120
In each case, a memorandum must be sent by the Administrator, through the CSB, to the
legal staff for review and approval prior to the CSB forwarding the nominee Notice of Tax Lien
for recordation. Do not send the memorandum directly to the Legal Division.
The memorandum should:
1. Outline the facts of the case.
2. List all criteria upon which the staff is relying to assert that the person who holds
title is merely a nominee of the taxpayer.
3. Include copies of relevant documents.
4. Include a property address and parcel number or property legal description.
Collections
August 2022
CHECKLIST FOR MAKING A NOMINEE LIEN REQUEST 753.130
1. Determine that the real property on which a nominee lien is desired is not currently
deeded to the taxpayer.
2. Document the date of the transfer (copy of current deed).
3. Document the date the taxpayer rst became aware of the pending tax liability.
4. Obtain copies of grant deeds, quit claim deeds, and deeds of trust in the chain of title
from taxpayer forward (attach to request).
5. Obtain current county assessor’s property tax assessment and parcel number.
6. If property was never titled in taxpayer, obtain the documentation to validate the
request (attach to request).
7. Document all facts that support the case, for example, relationship, consideration or
lack of consideration.
LEVY POLICY 753.200
A CDTFA-425-LA, Notice of Levy, is a collection tool used when a taxpayer has not voluntarily
resolved a liability after it becomes due and payable. The levy is used to collect the taxpayer’s
interest in or right to money controlled by the taxpayer or a third party. Funds held in a joint
bank account by parties who are married to each other or are registered domestic partners
are presumed to be community property under Probate Code section 5305(a), and subject
to levy.
Levies are most commonly served on nancial institutions (banks), but can also be served
on merchant credit card processors, stock trading companies, third parties (e.g., to attach
the taxpayer’s commissions), tenants (to attach rents payable), or third-party customers
(for accounts payable). The money remitted to the California Department of Tax and Fee
Administration (CDTFA) pursuant to a levy represents money the entity owes and would
have otherwise paid to the taxpayer.
Levies may be automatically generated prior to the account being assigned to a specic
collector. The voucher for payment on automated levies will have the return address for
the ofce of control, whereas payment vouchers for levies sent on accounts assigned to a
collector will have the name and ofce address of the collector.
The levy should be approved by the Administrator or a designee. The designee may be at the
level of Business Taxes Representative (BTR) after 6 months of work experience as a BTR,
or Tax Technician III (TT III) after completing probation as a TT III. Generally, TT IIIs work
routine accounts with thresholds below $5,000. If, after successfully completing probation,
a TT III promotes to a BTR, the 6-month work experience requirement may be waived.
Supervisors are responsible for conrming that probation and work experience requirements
are satised before granting levy authority to BTRs and TT IIIs. Collectors who have not met
the requirement must get approval to send levies from a supervisor or lead (Business Taxes
Compliance Specialist or Business Taxes Specialist I/II). The supervisor or lead must add
notes in the system that the levy is approved.
Levies, whether generated automatically or manually, will be printed and mailed from
Headquarters and do not require a wet signature. However, manually created levies can be
printed locally.
Compliance Policy and Procedures Manual
January 2020
With the exception of a taxpayer’s interest in a decedent’s estate, a levy notice will only be
used to levy money or right to money held or controlled by the taxpayer or by a third party.
Warrants will continue to be requested for keepers or to reach any assets other than money
or right to money (excepting wages). An addressed envelope should be included with the levy
notice to ensure the reply is directed to the correct CDTFA ofce.
Notice to Withhold form CDTFA–465 may be used for any reason where use of the levy notice
is not desired (see CPPM 752.000).
Levies should not be sent to multiple nancial institutions at one time if there is no evidence
indicating they have assets of the taxpayer. This style of collection is not permissible. Through
investigation and skip tracing, collectors must work to identify nancial institutions and/or
third-party sources that may be holding assets belonging to the taxpayer before sending a
levy. In addition, the nancial institution will be allowed time to respond to an outstanding
levy prior to issuing another levy to the same nancial institution, unless there is a valid
business reason to levy again.
The taxpayer’s social security number must be deleted from all copies of the Notice of Levy
when the levy is being sent to entities other than nancial institutions if the social security
number has not been automatically masked by the system. The exception to this rule is
when a levy is sent to a credit card (merchant card) processor. Social security numbers may
be included on levies sent to credit card processors even though they are not included in
the legal denition of nancial institutions.
Revenue and Taxation Code (RTC) section 6703, equivalent special taxes and fees statutes,
and related sections of the Code of Civil Procedures (CCP) authorize the CDTFA to use levies
to take possession of tangible personal property in possession or under the control of a
taxpayer, when served personally or by rst class mail. This includes seizing money held or
controlled by the taxpayer or by a third party (e.g., an employee), sometimes referred to as
a till tap levy. The collector will take the CDTFA-425-LA generated from the system when
making a eld call to the business to personally serve the till tap levy. However, in the event
of non-compliance with the till tap levy, a warrant may still be necessary (see CPPM section
753.025).
When a collector is uncertain whether the taxpayer or their employee is operating the
business, two CDTFA-425-LA forms should be generated from the system. One should be
addressed to the taxpayer and the other to the employee of the taxpayer. The taxpayer’s name
and business address will be entered on both copies of the levy, but “Employee of” should
be entered in the attention line for a till tap levy being addressed to the taxpayer’s employee.
The CDTFA-425-LA addressed to the employee must contain the following modications
before nalization:
• The till tap blurb is added on the levy.
• The following blurb is added: “You are notied in the capacity of a person in possession
of monies owed to tax debtor.”
• The taxpayer’s social security number is deleted.
All monies collected from a till tap levy must be converted to a money order or cashier’s check
payable to the CDTFA before collectors return to the ofce. See CPPM section 705.000 for
additional information regarding processing funds received during a eld call.
Collections
February 2022
NOTICE OF LEVY 753.205
The Notice of Levy contains two copies of the levy. The rst copy is sent to the entity being
levied upon (e.g., bank, credit card processor), also known as the “garnishee.” The second
copy is sent directly to the taxpayer within 10 business days after the rst copy is sent.
Generally, levies to garnishees and taxpayer copies are automatically printed and mailed
from Headquarters unless the collector chooses to print and mail them directly from their
ofce. The taxpayer’s copies include relevant information concerning the levy. Levies may
be served either by mail or in person, but not electronically.
Taxpayers are entitled to various exemptions provided in the United States Code and in the
California codes, primarily the Code of Civil Procedure (CCP). Per CCP section 700.010, the
CDTFA-425, Exemptions from the Enforcement of Judgments, must accompany the copy of
the levy notice sent to the taxpayer. The CDTFA-425 must also be sent to the spouse when
sending a levy to attach community property belonging to the spouse.
CCP section 700.010 also requires that the CDTFA-425-L3, Notice of Levy - Information
Sheet, be included with the copy of the levy sent to both the taxpayer and the garnishee. The
CDTFA-425-L3 must also be sent to the spouse when sending a levy to attach community
property belonging to the spouse.
The CDTFA-425-L3 includes an Information Sheet, an Exemption Claim Form, and an
Individual Financial Statement (CDTFA-403-E). For additional information on claims of
exemption, see CPPM section 753.260. For information regarding third-party claims, see
CPPM section 753.210.
Generally, a nancial institution served with a levy will hold levied funds for ten days from
the date it receives the levy before remitting the funds to CDTFA. The taxpayer’s copy of the
levy, including the CDTFA-425, Exemptions from the Enforcement of Judgments, the CDTFA-
425-L3, Notice of Levy – Information Sheet, and the CDTFA-403-E, Individual Financial
Statement, is mailed to the taxpayer within ten business days after the levy has been mailed
to the garnishee. This period will allow time for the nancial institution, including banks
with a centralized levy processing system, to receive and process the CDTFA levy.
Per CCP section 703.520, the taxpayer has ten days from the date of receipt of the Notice of
Levy to le a claim of exemption with the ofce that issued the levy. If the taxpayer contacts
the responsible ofce and asserts that they qualify for an exemption from enforcement of the
levy, the collector will provide the taxpayer with an additional three days to le the claim of
exemption. The collector should request the nancial institution place a hold on any funds
captured for an additional three days.
CCP section 684.115 requires nancial institutions with more than nine California branches
to designate one or more in-state central levy processing centers and authorizes those
with nine or fewer California branches to do the same. Financial institutions must submit
their central levy processing center address to the Department of Financial Protection and
Innovation (DFPI) where these addresses will be available to the public.
Levies must be sent to the designated central processing center for them considered valid.
If a nancial institution fails to designate a central levy processing center, each branch of
that institution located in California is deemed to be a central location. Also, CDTFA remains
authorized, pursuant to RTC section 6703 and equivalent special taxes and fees statutes,
to direct the levy to a nancial institution’s out-of-state processing branch. If the collector
fails to send the levy to the properly designated central levy processing center when one is
established, the nancial institution will have the discretion to either accept or reject the levy.
Compliance Policy and Procedures Manual
February 2022
A directory of the central processing locations for nancial institutions is regularly
updated in the system. When preparing a levy to be mailed to a nancial institution that
does not have a central processing center listed in the system, refer to DFPI’s website,
www.dfpi.ca.gov, under Locations for Service of Legal Process, which is located under the Laws
and Regulations link, to determine if a central levy processing center has been designated
to ensure proper service.
Generally, the notice of levy may not be used to levy wages or the taxpayer’s assets located
outside of California, held by out-of-state entities. However, if the taxpayer resides or otherwise
has nexus in California, or the entity holding the taxpayer’s asset has nexus in California,
a levy may be enforceable to attach the asset (see Compliance Policy and Management
Guidelines for additional information on out-of-state levies).
The levy creates a lien for a period of two years on all property described in the notice that is
held at the time of service, and the person in possession or control of the property is required
to deliver it to the levying ofcer. (See CPPM section 753.250).
In addition, RTC section 6703 and equivalent special taxes and fees statutes provide for
a continuous levy. The Notice of Levy is effective until the amount specied in the notice,
including accrued interest, has been paid in full, unless the levy is withdrawn, or until one
year from the date the notice is received, whichever occurs rst. There are two limitations
to the continuous levy:
1. The continuous levy is applicable to sales or use tax liabilities and some special taxes
and fees programs; check each specic law.
2. Funds in a deposit account, as dened by Uniform Commercial Code section 9102,
are not subject to a continuous levy. This section denes “deposit account” as a
demand, time savings, passbook or like account maintained with a bank, savings and
loan association, credit union, or like organization other than accounts evidenced by
a negotiable certicate of deposit. Therefore, only the funds available in the deposit
account when the levy notice is served on a nancial institution are subject to withhold
and subsequent payment to CDTFA.
Collections
July 2016
THIRD-PARTY CLAIMS 753.210
A third party may claim ownership or the right to possession of levied property pursuant
to CCP section 688.030. Third parties claiming ownership or security interests may le a
third-party claim on the property seized by the CDTFA following the service of a warrant
or a notice of levy. A third-party claimant should le its third-party claim with the CDTFA
ofce that issued the Notice of Levy.
Third parties affected by a CDTFA levy may not have received a copy of the Notice of Levy and
the accompanying information. When collection staff receives inquiries from third parties,
staff should immediately provide a copy of the CDTFA-425-L3, instruct the third party on
how to le the claim, and stress that the claim must be received by CDTFA prior to any levied
funds being deposited by the CDTFA. If a third-party claim is received after the CDTFA has
deposited the funds, CDTFA staff should advise the claimant that the only recourse available
is to follow the claim for refund process.
The levying ofce is responsible for advising the third-party claimant of all the requirements
for a valid claim and determining whether a third-party claim conforms to the requirements
of CCP section 720.130. The levying ofce is also responsible for analyzing the claim and,
when appropriate, releasing the third-party property that was levied in error.
The third-party claim must be signed under penalty of perjury and contain all of the following:
1. The name of the third-party and an address in this state where service by mail may
be made upon the third-party.
2. A description of the property in which an interest is claimed.
3. A description of the ownership interest claimed, including a statement of the facts
upon which the claim is based.
4. An estimate of the market value of the interest claimed.
The Exemption Claim Form on the back of the CDTFA-425-L3 may be used to le a third-
party claim (see CPPM section 753.265). Copies of supporting documentation should be
attached to the third-party claim. However, documentation need not be provided in order
for a third-party claim to be valid.
All third-party claims conforming to CCP section 720.130 which cannot be resolved by the
ofce or unit that initiated the levy should immediately be referred to the Litigation Bureau
in the CDTFA’s Legal Division, using the following procedures:
1. Notication of receipt of a third-party claim is to be sent via email to the Assistant
Chief Counsel of the Litigation Bureau with copies to the appropriate program area
division Deputy Director, Administrator, Compliance Principal, and the Collections
Support Bureau (CSB).
2. The third-party claim along with documentation, if any, is to be immediately scanned
and sent by email or faxed to the Assistant Chief Counsel of the Litigation Bureau
and the hard copy will be sent by inter-ofce mail to the Litigation Bureau. The hard
copy must include:
a. A copy of the warrant or notice of levy, including all spousal blurbs or afdavits.
b. A brief summary of action taken to levy on the property. The summary should
include any known information regarding the relationship between the tax debtor
and the third-party, any information substantiating the tax debtor’s ownership of
the property, and any other information that may assist the Litigation Bureau in
evaluating the third-party claim.
Compliance Policy and Procedures Manual
August 2022
The attorney in the Litigation Bureau that is assigned to the case will promptly determine if a
third-party claim legal proceeding should be initiated, or if the third-party claim is justied.
If the litigation attorney determines the claim is justied, or other circumstances warrant the
levy’s release, the litigation attorney will advise the collector to release the levy. Otherwise,
the litigation attorney will request CSB to prepare the referral for the ofce of the Attorney
General for commencement of a third-party claim legal proceeding.
SERVICE OF CDTFA–425–L4 TO REACH COMMUNITY
INTEREST OF TAXPAYER IN SPOUSE’S ACCOUNT 753.220
RTC section 6703 and equivalent special taxes and fees statutes authorize the CDTFA to
serve a Notice of Levy on a third-party holding property belonging to a taxpayer. Funds held
in a joint bank account are presumed to be community property (Probate Code § 5305(a))
and funds in some bank accounts in the name of the taxpayer’s spouse may be subject to
levy as community property. To reach community property interests, collectors must attach
a spousal afdavit (CDTFA-425-L4) to the Notice of Levy.
Family Code section 910 provides:
“(a) Except as otherwise expressly provided by statute, the community estate is liable
for a debt incurred by either spouse before or during marriage, regardless of which
spouse has the management and control of the property and regardless of whether
one or both spouses are parties to the debt or to a judgment for the debt.
(b) “During marriage” for purposes of this section does not include the period after the
date of separation, as dened in Section 70, and before a judgment of dissolution of
marriage or legal separation of the parties.”
Family Code section 911 provides:
“(a) The earnings of a married person during marriage are not liable for a debt incurred
by the person’s spouse before marriage. After the earnings of the married person are
paid, they remain not liable so long as they are held in a deposit account in which the
person’s spouse has no right of withdrawal and are uncommingled with other property
in the community estate, except property insignicant in amount.
(b) As used in this section:
(1) “Deposit account” has the meaning prescribed in paragraph (29) of subdivision (a)
of Section 9102 of the Commercial Code.
(2) “Earnings” means compensation for personal services performed, whether as an
employee or otherwise.”
Collections
August 2022
Before a levy for community property is sent, a thorough investigation must be done to
determine whether the funds of the non-debtor spouse or registered domestic partner are
community property. The ndings of this investigation should be documented in the system.
Various resources are available to assist in establishing community property interests,
including:
• Income tax returns led jointly within the last two years
• County marriage license information/marriage certicate
• County family court index cases involving dissolution of marriage or legal separation
• Dissolution of the marriage/divorce decree
• Legal separation agreement
• Prenuptial agreement establishing sole and separate property
• Loan application showing marital status
• Evidence of living apart (lease agreement)
• Insurance policy (auto, property, and life insurance)
• Copies of checks to verify names on an account
• Information obtained and documented in the system from the taxpayer or a third
party regarding marital status
While all of these sources are not required or may not be available prior to sending the levy
for community property, it is the responsibility of the assigned collector to determine that
sufcient evidence has been obtained. In addition to verifying the spouse/domestic partner
information, a current address should be documented to ensure the spouse/domestic partner
receives a copy of the levy, copy of the CDTFA-425, and a copy of the CDTFA-425-L3.
The following community property blurb should be included on the CDTFA-425-LA when
levying a joint account held in the names of the taxpayer and the taxpayer’s spouse/registered
domestic partner, or when the intent is to reach the community property interest that the
taxpayer may hold in an account in the name of the spouse/registered domestic partner:
“Service of this Notice also intended to reach any and all community property interest
of defendant in any account held in the name of the spouse/registered domestic
partner, (Spouse Name), SSN (Spouse SSN). (Cal. Family Code section 910[a]).”
For privacy protection purposes, the social security numbers included in the “Identication
of Tax Debtor” area of the levy are automatically censored in the system on the taxpayer’s
copy of the Notice of Levy.
Because the community property blurb contains the social security number of the spouse/
registered domestic partner, it should be entered in the “Identication of Tax Debtor” area
of the levy. Do not enter the blurb within the “Property to be levied upon is described as:”
area of the levy because the social security number will not be censored.
If the entity is a partnership, ensure only the name of the partner for whom community
property interest applies is listed in the “Identication of Tax Debtor” area of the levy.
If a warrant is required to levy on a community property asset, send the Collections Support
Bureau (CSB) a request through the system and include the name and social security number
of the spouse or registered domestic partner. Additional information on how to request this
can be found in the Help Manager by searching “Request for a Warrant on a Collection Case.
Compliance Policy and Procedures Manual
COMMUNITY PROPERTY AND SEPARATE PROPERTY 753.230
Family Code section 760 provides that all property, real or personal, wherever situated,
acquired by a married person during the marriage while domiciled in this state is community
property. In addition, under Family Code section 761, community property transferred into
a revocable trust during the marriage remains community property as long as the rights and
interest of the property held in trust require the consent of both spouses.
The most common types of community property are:
1. Earnings of either spouse.
2. Personal injury damages for:
a. The wrongful death of, or injuries to, a child. NOTE: The recovery of the wrongful
death of a spouse belongs to heirs, and is not community property [Fiske v. Wilke,67
C.A.2d 440,444(1945).].
b. A Workman’s Compensation award.
3. The proceeds of community property and proceeds of earnings, including pension
and retirement benets.
4. A proportionate share of the prots of a separate property business to which a spouse
contributes labor or skills.
5. A loan on personal credit. NOTE: Money borrowed on the credit of separate property
is separate property. An example of this is when separate property is used as security
(mortgaged) so that money can be borrowed.
Separate property includes the following:
f. Property owned by either spouse before marriage.
g. Property acquired during marriage by gift, devise, bequest, or descent.
h. The rents, issues and prots of separate property.
i. Property acquired during marriage with the proceeds of separate property.
j. Personal injury damages acquired from an inter-spousal action.
k. Earnings of a spouse and the minor children living with, or in the custody of, the
spouse, after the date of separation of the spouses. (Family Code section 771)
July 2009
Collections
LIABILITY OF SEPARATE AND COMMUNITY PROPERTY FOR DEBT 753.240
In general, community property is liable for a debt incurred by either spouse before or during
marriage. The following approach should be applied to any community property question:
1. Determine whether the property to be secured is community property, the separate
property of the taxpayer, or the separate property of the taxpayer’s spouse.
2. Determine whether the taxpayer or spouse incurred the debt.
3. Determine if the debt was incurred before, during, or after the marriage.
The earnings of a married person during marriage are community property and a married
person is liable for the debts incurred by the person’s spouse during marriage. However, for
debts incurred by the person’s spouse prior to marriage, the earnings can be reached after
they are deposited in an account in which the person’s spouse has a right of withdrawal or
are commingled with other community property.
Debt incurred by a person after the dissolution of marriage is his or her own. Separate property
of the taxpayer, and property received in the division of property at dissolution of marriage
that was community property during the marriage, is liable for a debt or debts incurred by
the person before or during marriage, even if the debt was assigned to the person’s spouse
for payment. Such property is not liable for a debt or debts incurred by the person’s spouse
before or during marriage unless the debt was assigned for payment by the person in the
division of the property. (This does not affect the liability of property for the satisfaction of
a lien on the property.)
FAILURE OF GARNISHEE TO DELIVER 753.245
Although an ofcer who makes a levy to reach personal property belonging to the taxpayer
will demand that the property be delivered to the levying ofcer, the levying ofcer is under
no obligation to take any further action to press the garnishee for delivery.
If the garnishee fails to deliver, the responsibility for taking further action rests with the
CDTFA. In these cases, staff should contact the person and attempt to have delivery made
to the ofcer or, where appropriate, directly to the CDTFA. If the garnishee refuses to make
the delivery voluntarily, the only recourse available is to le an action (creditor’s suit) for
delivery or for damages if the property has been disposed of. A prompt report should be
made to the CSB when a situation of this type develops.
NOTICE OF LEVY TO CREATE A LIEN 753.250
Situations exist in which the taxpayer has an interest in personal property held by another
person but against which there is a contingent liability, or for some other reason the property
cannot be turned over to the levying ofcer. For example, a reserve account with a bank or
nance company, against which there remains unpaid installment contracts on merchandise
sold while the person was in business and where a number of months or even years are
required before the contracts will pay off.
In such a situation, a Notice of Levy should be sent to the bank or nance company in order
to perfect a lien upon the reserve account as protection against other executing creditors.
Code of Civil Procedures (CCP) section 697.710 provides that liens created by levies of this
type are valid for two years from the date appearing on the levy document. The lien may
be extended by making a renewal levy before the expiration of the two-year period. The
holder of the reserve account or property should be contacted from time to time regarding
the status of the matter. (Liens created by levy on a judgment debtor’s interest in personal
property of a decedent’s estate are valid for one year after the decree distributing the interest
has become nal. (CCP section 700.200.)
January 2020
Compliance Policy and Procedures Manual
July 2009
LEVY ON PROPERTY SUBJECT TO FEDERAL LIENS 753.253
When the Federal Government issues an assessment, a lien is created on all property, real
and personal, belonging to the person against whom the assessment is made. The CDTFA’s
assessment lien has equal priority, based on time of assessment. As far as the effect of the
federal lien against money is concerned, CDTFA levies can be made upon the holder of funds
and collection made, if the holder is unaware of the existence of the federal lien at the time
the funds are paid over. The federal authorities can intervene and assert their priority at
any time before the funds come into the possession of the CDTFA.
LEVY ON PERSONAL PROPERTY LOCATED IN A PRIVATE PLACE 753.255
CCP section 699.030 provides a mechanism whereby the CDTFA may apply to the court for
an order directing the levying ofcer to seize property in a private place such as a garage,
store and lock facility (mini storage), etc. An important feature of this code section is that
the CDTFA is allowed to apply for a court order to seize the property in a private place “ex
parte.” Ex Parte is dened as:
On one side only; by or for one party; done for, in behalf of, or on the application of,
one party only. A judicial proceeding, order, injunction, etc., is said to be “ex parte”
when it is taken or granted at the instance and for the benet of one party only, and
without notice to, or contestation by, any person adversely interested.
If it appears that the taxpayer will remove the property in question if given advance
notication, and the judge concurs, the order to seize the property will be granted without
notication to the taxpayer.
This procedure requires an Attorney General referral and a declaration by the person
investigating the case. Documentation for requesting a levy ex parte is sent to the CSB for
referral to the Attorney General. A sample declaration follows.
Collections
July 2009
Sample Ex Parte Application for Levy
EDMUND G. BROWN, JR., Attorney General
of the State of California
NANCY A. BENINATI
Deputy Attorney General
1515 Clay Street, Suite 2000
P.O. Box 70550
Oakland, California 94612
Telephone: (510) XXX XXXX
Attorneys for Applicant California
Department of Tax and Fee Administration
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF [Name]
California Department of
, )
Tax and Fee Administration )
Plainti, )
v.
[Name 1] – and [Name 2] )
Defendants )
No.
Tax and Fee Administration
DIRECTING SEIZURE OF PROPERTY
IN A PRIVATE PLACE
(Code of Civ. Proc. section 699.030)
Introduction
The California Department of Tax and Fee Administration (CDTFA) applies ex parte
pursuant to Code of Civil Procedure section 699.030 for an order directing the
California State Police or any other California law enforcement agency to seize
certain vehicles owned by respondents [Name 1] and [Name 2] in satisfaction of
their outstanding tax liability.
The application is made ex parte because, if given notice, respondents may
removethevehicles.Anexparteapplicationisspecicallyauthorizedby
section 699.030.
Argument
The following are the facts and legal principles on which the application is
based:
1. Respondents, [Name 1] and [Name 2] owe, but refuse to pay, their sales tax
liability of $325,873.90 for the period July 1, 19XX to June 30, 19XX;
2. The CDTFA’s numerous attempts to obtain voluntary payment from respondents
have been unsuccessful;
Compliance Policy and Procedures Manual
July 2009
3. According to DMV records respondents are the individual or joint owners of
the following vehicles:
YEAR MAKE LICENSE NO VEHICLE I.D.
NO.
1985 –– Motorhome 1RCVXXX 1FDEE14FOFHC3XXXX
1983 –– Pickup PADMXXX 1FTHF47613DPAXXXX
1984 –– –– PADMXXX WDBDB66A9EA06XXX
1956 –– Pickup 1G90XXX F10D4R4XXXX
1947 –– Pickup 427XXX 71GC35XXXX
1951 –– House Car 2AEMXXX 4392XXXX
1957 –– House Car 2AEMXXX TGH31XXXX
1985 –– Pickup 2P87XXX 1FDKF5634FBP7XXXX
1978 –– –– MYTXXX 6L47S8Q97XXXX
These vehicles have been observed parked at respondents’ residence XXXX ––
Court, Beantown or according to information received by the CDTFA may be
parked either in a garage adjacent to the above address or stored at –– ––
Mini Storage, XXXXX –– ––, ––, in room numbers 52, 90, 126, 164, 174, 175,
176, 177, 231 and 300.
4. The CDTFA has issued respondents a warrant for the collection of the tax.
The CDTFA is authorized to issue such a warrant, which has the same force
andeectasawritofexecution.(Rev.&TaxCodesection6703);
5. A state agency which may lawfully issue a warrant may use any of the
remedies available to a judgment creditor, including those set forth in
Code of Civil Procedure section 699.030. (Code of Civ. Proc. section
688.020);
6. A judgment creditor may apply ex parte for an order directing the seizure
of property in a private place. (Code of Civ. Proc. section 699.030.)
Conclusion
For the reasons set forth above, this Court should issue an order directing
the California Highway Patrol or any other California law enforcement
ocialtoseizerespondent’sautomobilesfromtheirresidenceorstorage
areas.
DATED: December 31, 1988
EDMUND G. BROWN, JR., Attorney General
of the State of California
NANCY A. BENINATI
Deputy Attorney General
Attorneys for Applicant
California Department of Tax and Fee Administration
Collections
April 2022
RELEASE AFTER LEVY 753.257
In some instances, a levy may need to be modied or released. Other than the authority of the
Taxpayers’ Rights Advocate to release a levy as set forth in RTC section 7094 and equivalent
special taxes and fees statutes (see CPPM section 155.022), the ofce serving the levy retains
the responsibility for determining if it should be released or modied. If the taxpayer who
has been served a levy contacts an ofce that did not issue the levy, the contacted ofce will
assist the taxpayer in contacting the responsible ofce. If the taxpayer physically goes into a
CDTFA ofce other than the ofce that served the levy, the contacted ofce will immediately
notify the ofce responsible for the levy and both ofces will attempt to resolve the account
while the taxpayer is present in the ofce. The collector who issued the levy, or a collection
supervisor will determine if it is appropriate to release or modify the levy.
The levy(s) must be released if the taxpayer pays the liability in full with certied funds
(cashier’s check or money order). The taxpayer may make this payment in cash if they have
received an exemption from the “no cash” policy.
The following examples illustrate other situations where CDTFA will release or modify a levy.
This list is not all-inclusive and requests to release or modify the levy should be reviewed
on a case-by-case basis.
• The levy is served during a bankruptcy while the automatic stay is in effect or after
a bankruptcy where the liability is subject to discharge.
• Levied funds are exempt pursuant to the United States Code or the California Code
of Civil Procedures as notated on the CDTFA-425, Exemption from the Enforcement
of Judgements.
• Delinquent or amended returns have been accepted and processed that will reduce
or eliminate the liability.
• The liability that remains due is less than the amount of the levy.
• CDTFA determines that the funds attached by the levy are not the taxpayer’s funds
and are not community property.
• CDTFA erroneously served a levy upon a corporate ofcer’s personal bank account
for a corporate liability and a dual determination has not yet been billed.
• CDTFA determines that the levy is creating a signicant nancial hardship for the
taxpayer.
• It is determined that the levy was issued after the date of a taxpayer’s death. However,
if the levy was issued prior to, but remained pending as of the date of the taxpayer’s
death, it continues to be enforceable.
When CDTFA determines a levy should be released or modied, the CDTFA-465-F, Release/
Modify Notice of Levy, is generated in the system and sent to the garnishee.
Although a levy is generally released by sending the CDTFA-465-F, there may be situations
requiring the use of a photocopy of the original Notice of Levy. In this case, the levy release
information is stamped on the front of the document. The original stamped document is
then sent to the garnishee and a copy is sent to the taxpayer.
In all cases, the reason for the levy release shall be documented in the system.
Compliance Policy and Procedures Manual
July 2016
CLAIMS OF FINANCIAL HARDSHIP 753.259
The collector is responsible for reviewing any claims of nancial hardship. The collector
must take into consideration the taxpayer’s health and welfare if the taxpayer claims that
the levy will create irreparable harm. The outcome of the collector’s analysis of the taxpayer’s
nancial condition may require the levy to be modied. Early resolution affords the taxpayer
an opportunity to make other arrangements to resolve their liability, such as entering into
a payment plan with the CDTFA.
A completed CDTFA-403-E, Individual Financial Statement, along with supporting
documentation must be submitted by the taxpayer to determine whether a modication of
the levy is appropriate. The collector must promptly evaluate the nancial statement and
documentation submitted by the taxpayer before modifying the levy. Analysis of the nancial
information will disclose the taxpayer’s complete nancial condition and provide a basis to
make a decision whether the levy should be modied to a lesser amount or released.
If the collector recommends that the levy be modied, the collector will obtain the approval
from the supervisor who is delegated the responsibility to review the nancial documentation.
If possible, the reviewing supervisor should not be the assigned collector’s direct supervisor.
The decision should be clearly documented in the system. In addition, the collector will also
enter notes in the system concerning the asset information based on the collector’s ndings.
However, if the review of the taxpayer’s nancial condition reveals there are sufcient assets
such that the amount held pursuant to the levy does not create a signicant hardship, the
collector will inform the taxpayer that the levy will not be modied or released, and will enter
notes in the system.
Pursuant to RTC section 7094 and equivalent special taxes and fees statutes, the Taxpayers’
Rights Advocate (TRA) has the authority to release any levy, or order the return of levied
funds up to $2,300 received within the last 90 days upon the TRA’s nding that the action
threatens the health or welfare of the taxpayer or the taxpayer’s spouse or family (see CPPM
section 155.022).
Collections
January 2020
EXEMPTIONS AVAILABLE TO TAXPAYERS 753.260
Code of Civil Procedure (CCP) sections 703.010 through 704.210 allow taxpayers to claim
their property is exempt from levy. The taxpayer’s copy of the Notice of Levy includes a
CDTFA-425, Exemptions from the Enforcement of Judgments, a CDTFA-425-L3, Notice of
Levy – Information Sheet, and a CDTFA-403-E, Individual Financial Statement. Exemption
claims must be made within ten days after the date the taxpayer was served a copy of the levy.
The following table summarizes amounts exempt from levy under CCP sections 704.010 to
704.100, effective April 1, 2019. These amounts are adjusted every three years as provided by
CCP section 703.150. (A table of current dollar amounts of exemptions from the enforcement
of judgments, form EJ-156, is available at www.courts.ca.gov.)
CCP
Section
Type of Taxpayer Property Exemption
Amount
704.010 Motor vehicle $3,325
704.030 Material for the repair or maintenance of a residence $3,500
704.040 Jewelry, heirlooms, art $8,725
704.060 Personal property used in taxpayer’s or taxpayer’s spouse’s
business or profession
$8,725
704.060 Commercial motor vehicle used in taxpayer’s or taxpayer’s
spouse’s business or profession
$4,850
704.060 Personal property used in taxpayer’s and spouse’s common
business (co-ownership) or profession
$17,450
704.060 Commercial motor vehicle used in taxpayer’s and spouse’s
common business (co-ownership) or profession
$9,700
704.080 Deposit account with direct payment of social security
benets with one depositor as payee
$3,500
704.080 Deposit account with direct payment of social security
benets with two or more depositors as payee
$5,250
704.080 Deposit account with direct payment of public benets with
one depositor as payee
$1,750
704.080 Deposit account with direct payment of public benets with
two or more depositors as payee
$2,600
704.090 Inmate trust account (spouse also entitled to exemption) $1.750
704.090 Levy of funds on inmate trust account per a restitution order $325
704.100 Non-mature life insurance or annuity policies, excluding the
loan value (spouse also entitled to exemption)
$13,975
As explained in CCP section 704.080, certain types of property are not subject to levy and a
Claim of Exemption does not need to be led for them. Included in this category are “social
security benets” and “public benets.” The amounts listed in the above table for social
security and public benets are automatically exempted from the enforcement of judgments
(levies), provided the benets are directly deposited by the government or its agent.
Compliance Policy and Procedures Manual
January 2020
Social Security and Public Benets Directly Deposited
Within ten days, the nancial institution shall provide the levying ofcer with a written notice
stating that the deposit amount is one in which payments of social security benets or public
benets are directly deposited by the government or its agent, and whether there are funds
in the deposit account that exceed the automatic exemption. If so, it is the responsibility of
the collector to determine whether the excess funds are social security or public benets. The
collector should contact the taxpayer immediately and request the last three bank statements
for the account and information regarding the deposit amounts of the benets. The collector
may also request income tax information through the data warehouse in the system or the
External Access Tracking (EAT) resource person (see CPPM section 720.030) to determine if
all or most of the taxpayer’s income is from social security or public benets. The collector
should examine all information available for an indication there is another source of deposits
into the account (e.g., wages from a spouse, rental property income not yet levied).
If the collector determines that the excess funds are not social security or public benets or
otherwise exempt from levy, a court hearing is required to reach the excess funds. Because
CCP section 704.080 states that an afdavit must be led with the court within ve days
of the date that the notice was received from the nancial institution, the collector should
immediately refer the matter to his or her immediate supervisor, who will refer the claim to
the Litigation Bureau of the CDTFA’s Legal Division as follows:
1. Notication of receipt of the social security or public benets information from the
nancial institution should be sent via email to the Assistant Chief Counsel of the
Litigation Bureau with a copy to the Deputy Director, Administrator, and Compliance
Principal.
2. The information from the nancial institution must be immediately faxed or scanned
and emailed to the Assistant Chief Counsel of the Litigation Bureau.
3. A copy of the warrant or notice of levy, including afdavits, and a brief summary of
action taken to levy on the property should be forwarded to the Litigation Bureau.
The summary should include any known information that may assist the Litigation
Bureau in evaluating the claim.
4. Hard copies of the documents must follow via inter-ofce mail to the Litigation Bureau.
5. If the excess funds are determined to be social security or public benets or otherwise
exempt, a CDTFA-465-F, Release/Modify Notice of Levy must be promptly sent to the
nancial institution to release the funds.
Collections
January 2020
CLAIMS OF EXEMPTION 753.265
If the taxpayer claims that he or she is entitled to an exemption under sections of the Civil
Code of Procedure (CCP) or United States Code (including as a third party), the collector
will instruct the taxpayer to le a claim of exemption by completing the Exemption Claim
Form provided with their copy of the Notice of Levy and, if the applicable statute requires
it, submitting a completed CDTFA-403-E, Individual Financial Statement. Pursuant to CCP
section 703.520, the claim must be made within ten days after the notice of levy was served
on the taxpayer. The “date of service” is considered to be the date the notice of levy is placed
into the mail.
The taxpayer, or a person acting on behalf of the taxpayer, may le a claim of exemption. In
cases of community property, a taxpayer’s spouse may also le a claim of exemption. While
these forms are included with the taxpayer’s copy of the levy, the taxpayer may also obtain
an Exemption Claim Form and current dollar amounts of exemptions from enforcement of
judgments online at www.courts.ca.gov/forms (see CPPM section 753.260).
A claim of exemption must conform to the provisions of CCP section 703.520. For a claim
to be valid it must be led timely, be executed under oath (signed under penalty of perjury)
and include all of the following:
• The name of the claimant and the mailing address where the notice of our opposition
to the claim can be mailed;
• The name and last known address of the taxpayer (judgment debtor) if the claimant
is not the taxpayer (judgment debtor);
• A description of the property claimed to be exempt. If an exemption is claimed pursuant
to CCP section 704.010 (motor vehicles) or 704.060 (tools), the claimant shall describe
all other property of the same type (including exempt proceeds of property of the
same type) owned by the taxpayer alone or in combination with others on the date
of levy and identify the property, whether or not levied upon, to which the exemption
is to be applied. If the claimed exemption is under CCP section 704.100 (insurance
policies), the claimant shall state the nature and amount of all other property of the
same type owned by the taxpayer or the taxpayer’s spouse alone, or in combination
with others, on the date of levy;
• A nancial statement if required by CCP section 703.530. The nancial statement
must show that the levied property is necessary for the support of the taxpayer, their
spouse, and their dependents. The nancial statement must include all sources and
amount of earnings and assets of the taxpayer, their spouse, and their dependents.
It must also show their outstanding obligations. The nancial statement must be
signed under penalty of perjury.
• A citation of the statute upon which the claim is based; and
• A statement of facts necessary to support the claim.
If the taxpayer contacts the CDTFA and claims an exemption within the ten days but has
not led an exemption request, collectors will provide the taxpayer an additional three days
for the taxpayer to le the exemption. Collectors will contact the bank to hold the funds an
additional three days pending a review of any potential led claim of exemption.
Compliance Policy and Procedures Manual
January 2020
If a claimant les a timely (within the ten days) claim of exemption, but the funds have
already been received, collectors will commence an expedited review of the claim of exemption.
Collectors will inform the taxpayer that if the claim of exemption is found to be valid, the
taxpayer will need to login to their Online Services account and submit a claim for refund or
complete a CDTFA-101, Claim for Refund or Credit to allow the CDTFA to return the funds.
In this case, if the claim of exemption is accepted, a request for expedited processing of the
claim for refund will accompany the request. If the claim of exemption is not timely and led
after the CDTFA received the levied funds, collectors are not obligated to review the claim
of exemption and the claimant’s only recourse is to le a claim for refund with the CDTFA.
If there is not enough evidence to support the claim, the collector must decide whether
ling a notice of opposition to the claim is in the best interest of the CDTFA. Pursuant to
CCP section 703.550, a notice of opposition must be led with the court within ten days
after service of the claim of exemption. Therefore, if the claim is to be opposed, the collector
must immediately refer the claim to his or her supervisor, who will refer it to the Litigation
Bureau as follows:
1. Notication of receipt of a claim of exemption should be sent via email to the Assistant
Chief Counsel of the Litigation Bureau with a copy to the program area Deputy Director,
Administrator, and Compliance Principal.
2. The exemption claim along with documentation, if any, must be immediately faxed or
scanned and emailed to the Assistant Chief Counsel of the Litigation Bureau.
3. Hard copies of the document(s) must follow via inter-ofce mail to the Litigation
Bureau.
If the notice of opposition is not led within the ten-day period, the funds claimed as exempt
must be released by the responsible collector. If a valid claim is received after the nancial
institution has sent the money to the CDTFA, the taxpayer should be advised to le a claim
for refund. As with any other collection activity, these actions should be documented in the
system.
Collections
January 2018
If there is not enough evidence to support the claim, the collector must decide whether
ling a notice of opposition to the claim is in the best interest of the CDTFA. Pursuant to
CCP section 703.550, a notice of opposition must be led with the court within ten days
after service of the claim of exemption. Therefore, if the claim is to be opposed, the collector
must immediately refer the claim to his or her immediate supervisor, who will refer it to the
Litigation Bureau as follows:
1. Notication of receipt of a claim of exemption should be sent via email to the Assistant
Chief Counsel of the Litigation Bureau with a copy to the program area Deputy Director,
Administrator, and Compliance Principal.
2. The exemption claim along with documentation, if any, must be immediately faxed or
scanned and emailed to the Assistant Chief Counsel of the Litigation Bureau.
3. Hard copies of the document(s) must follow via inter-ofce mail to the Litigation
Bureau.
If the notice of opposition is not led within the ten-day period, the funds claimed as exempt
must be released by the responsible collector. If a valid claim is received after the nancial
institution has sent the money to CDTFA, the taxpayer should be advised to le a claim for
refund.
As with any other collection activity, these actions should be documented in ACMS.
GENERAL PROBLEMS IN CONNECTION WITH LEVIES 753.270
As stated previously, RTC section 6703 and similar statutes for special taxes and fees
programs authorize the California Department of Tax and Fee Administration (CDTFA) to
serve a Notice of Levy on persons having in their possession any credits or other personal
property belonging to a taxpayer that is indebted to the CDTFA. In the case of a nancial
institution, the notice shall state the amount due from the taxpayer and shall be delivered or
mailed to the branch or ofce of the nancial institution where the credits or other property
is held, unless another branch or ofce is designated by the nancial institution to receive
the notice.
By only sending levies to nancial institutions where there is an indication the taxpayer has
assets, and by allowing a nancial institution time to respond to an outstanding levy prior
to issuing another levy (unless there is a valid business reason to levy again which should
be documented in the case notes), the occurrence of over collecting by the CDTFA will be
reduced. In the event the CDTFA over collects by issuing multiple levies, staff must take
appropriate action to remedy the situation by:
1. Returning the check to the nancial institution along with a modied levy, if the
remaining balance due is less than the amount of the check received.
2. Returning the check to the nancial institution with an explanation that the levied
amount has been satised, if that is the case.
3. Contacting the nancial institution to request that a stop payment be placed on the
levy check, if the CDTFA has recently deposited the levy check.
4. Contacting the nancial institution to request that they waive any levy processing fee
charged to the taxpayer in connection with the levy that caused the over collection. If
the nancial institution declines to waive the charge, staff must advise the taxpayer
they may le a claim for reimbursement of the bank charge (see CPPM section 155.025).
If none of the above actions is possible, the taxpayer should le a claim for refund. Staff
should follow the guidelines in CPPM 707.040, Refunds of Excess or Erroneous Amounts
Received, when the taxpayer is instructed to le a claim for refund.
Compliance Policy and Procedures Manual
July 2016
The manner in which assets are levied may vary. Therefore, the problems that can arise
in connection with serving levies may also vary. For this reason, to describe all of these
situations and attempt to set forth instructions covering all possible contingencies is not
practical. When unusual situations arise, staff is expected to use sound judgment in handling
the matter and, when necessary, obtain supervisory approval to contact CSB for assistance
with resolution.
Generally, a levy is in order when an entity that is indebted to the taxpayer has possession
of, or control over, assets belonging to the taxpayer, or when personal property, owned free
and clear by the taxpayer, has been located. Whenever a levy is made, the person requesting
the levy should always be prepared to carry the action through to a sale of the property levied
upon or, in the case of money, to seize all of the funds available or a sufcient amount to
clear the liability plus costs.
Although proper discretion must be used in deciding whether to levy, there should be no
hesitancy about using this collection tool when necessary. The levy procedure is extremely
effective and will frequently result in immediate payment. Even when payment is not
immediate, the levy process provides the state with protection against the taxpayer’s other
creditors. Failure to make use of levies at the proper time often results in loss of revenue
to the state.
Claim for Reimbursement of Bank or Third-Party Charges
Under Revenue and Taxation Code (RTC) section 7096 and equivalent special taxes and
fees statutes, a taxpayer may le a claim for reimbursement of bank charges and any other
reasonable third-party charges or fees incurred by the taxpayer as a direct result of an
erroneous levy or notice to withhold, erroneous processing action, or erroneous collection
action by the CDTFA. Bank charges include a nancial institution’s customary processing
fees and charges for overdrafts and non-sufcient funds that are a direct consequence of
the erroneous levy, erroneous processing action, or erroneous collection action. Third-party
charges are fees charged by payees, such as retailers, utility companies or service providers,
for returned checks or dishonored electronic payments. The charges subject to reimbursement
are those paid by the taxpayer and not waived or reimbursed by the nancial institution or
third party. These claims must be led in writing within 90 days from the date the bank or
third-party charges were incurred by the taxpayer.
Please see CPPM section 155.025 for procedures for claims for reimbursement of bank or
third-party charges.
CALIFORNIA RIGHT TO PRIVACY ACT 753.280
The California Right to Privacy Act restricts state agencies from obtaining certain information
from banks and other nancial institutions in regard to taxpayer’s affairs, unless the agency
has prior written permission from the taxpayer. (See CPPM 135.070). The Collections Support
Bureau should be consulted whenever questions arise on this topic.
Collections
April 2017
WAGE GARNISHMENTS 755.000
GENERAL 755.010
The state is the levying ofcer for wage garnishments (Code of Civil Procedure (CCP)
section 706.074). Earnings owed to a taxpayer by his or her employer are only reachable by:
1. Earnings Withholding Order for Taxes (EWOT), (CDTFA–425–E).
2. Jeopardy Earnings Withholding Order for Taxes (CDTFA–425–E).
EWOTs may only be served on out-of-state employers in certain circumstances (see CPPM
section 731.025). Following is a description of each of these instruments, as well as
instructions for their use.
Receipt of an EWOT generally requires the employer to begin withholding earnings on the
rst workday occurring ten or more days after service of the EWOT. Under CCP section
706.074 and USC Title 15, section 1673(a), the maximum amount that may be withheld
from the aggregate disposable earnings of an individual for any workweek is the lesser of:
1. Twenty-ve percent (25%) of weekly disposable earnings, or
2. The amount of weekly disposable earnings that exceed 30 times the federal minimum
hourly wage in effect at the time the earnings are payable. The EWOT contains
instructions for the employer which includes a table to determine the amount to
withhold.
The EWOT remains in effect until the total amount indicated in the EWOT is paid or the
EWOT is withdrawn. If the taxpayer terminates his or her employment, the EWOT continues
in effect for one year after such termination. If employment resumes (with the same employer)
within the year following termination, the EWOT remains in effect.
Priority
Priority for Earnings Withholding Orders is as follows:
1. Court Order Assigning Salary/Wages (for support), and Earnings Withholding Order
(EWO) for Support
2. Earnings Withholding Order for Taxes
3. Earnings Withholding Order
An EWO served by court order takes precedence over other wage garnishments. However, if
a residual amount of the maximum available amount of disposable earnings remains after
the employer withholds the amounts required by the court-ordered EWO, the CDTFA’s EWOT
may capture the remaining residual amount.
Regarding EWOTs for taxes or fees, the rule is “rst in time is rst in right.” Only one EWOT
for taxes or fees may be in effect at any given time. If an employer is withholding under a
prior EWOT for taxes or fees, any subsequent EWOT for taxes or fees is ineffective and must
be withdrawn immediately until the prior EWOT has been satised or withdrawn. This is
true even if the prior EWOT for taxes or fees was modied to require less than the amount
allowed under the law.
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Service
Service of an EWOT may be made by rst class mail or in person by any CDTFA employee.
The follow-up will be set in such a way as to ensure:
1. The employer responds within 15 days of service, as required by law.
2. The employer remits amounts withheld from the employee’s earnings. At any time after
service of the EWOT, the employee/taxpayer/feepayer may request an administrative
hearing for reconsideration or modication of the amount to be withheld by the
employer.
Administrative Hearing
If the taxpayer requests an administrative hearing, the taxpayer should complete a nancial
statement prior to the hearing. Along with providing the taxpayer with a CDTFA–403–E,
Individual Financial Statement, the CDTFA, no less than seven days before the hearing, must
advise the taxpayer of the time, place and date of the hearing. The taxpayer should present
his or her completed nancial statement to the hearing ofcer for review on or before the
date set for the hearing.
If the person requesting a hearing refuses to furnish a nancial statement, the person is
required to disclose the information at the hearing. The EWOT should not be modied or
released, if the person does not disclose the requested nancial information.
Hearings shall be informal and the hearing ofcer should be the lowest supervisory level.
The hearing ofcer should not be the immediate supervisor of the employee who served the
EWOT.
The hearing ofcer must issue his or her written decision within 15 days after the request
for reconsideration is received by the CDTFA. If the hearing ofcer determines that all or a
part of the amount withheld is necessary for the support of the taxpayer’s family, the EWOT
may be modied. The employer should be sent a CDTFA-425-M, Modication of Order to
Withhold Taxes, containing either:
1. A new withhold amount, or
2. Notication that the EWOT is withdrawn.
Attempt to Evade by Employer
Code of Civil Procedure (CCP) section 706.153 states that if an employer is deferring or
accelerating an employee’s earnings in an attempt to defeat or diminish the CDTFA’s rights
under the EWOT, the CDTFA may bring civil action against the employer. In these cases,
notify the Collections Support Bureau (CSB) so action to recover from the employer may be
initiated.
The CDTFA is authorized to hold a taxpayer’s employer liable for earnings the employer
withheld pursuant to an EWOT, but failed to remit to the CDTFA.
The taxpayer must provide substantiating evidence (e.g., payroll documentation) to the
CDTFA identifying amounts withheld as the result of a wage garnishment that were not
remitted to the CDTFA. Prior to holding an employer personally liable, the CDTFA must
provide written notication to the employer regarding the missing payments and allow 15
days for the employer to remit payment. Should the employer fail to remit payment for the
withheld amounts, the CDTFA will issue a tax or fee determination against the employer.
Collections
April 2017
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The tax or fee determination issued against the employer will include the amount of the
withheld payments the employer failed to remit and will be billed as a tax or fee liability,
regardless of the composition of the taxpayer’s liability. For example, the missing wage
garnishment payments will be billed to the employer as a tax or fee liability even if the
taxpayer’s account balance is only comprised of penalty and/or interest amounts. If several
wage garnishment payments were not remitted by the employer, they can be billed as one
tax or fee liability with interest accruing on the entire amount billed from the date the rst
unremitted payment was withheld from the taxpayer’s earnings. (A determination can
be issued against an employer up to seven years from the date the rst unremitted wage
garnishment payment was withheld from a taxpayer.) As with other tax or fee determinations,
a 10% nality penalty will accrue if the liability is not paid prior to the nality date. The same
appeal rights available for other determinations issued by the CDTFA apply to determinations
issued to employers under Revenue Taxation Code (RTC) section 6704 and applicable RTC
sections for the various special taxes and fees programs.
Immediately upon an employer’s liability becoming due and payable (i.e., a “nal liability”),
an adjustment will be made to the taxpayer’s account, whether or not payment from the
employer has been received. In essence, RTC section 6704 and applicable special taxes and
fees statutes allow the CDTFA to shift the liability (for the amount of the unremitted wage
garnishment payments) from the taxpayer to the employer.
The employer will be held liable for the amounts as if it were a tax or fee liability, and all
remedies available to the CDTFA in collecting tax or fee liabilities are also available in
collecting liabilities created under RTC section 6704 and applicable RTC sections for the
various special taxes and fees programs.
Instances involving these RTC sections are rare; however, when they do arise, staff should
investigate them thoroughly. The starting point of the investigation should involve obtaining
documentation identifying the amounts the employer withheld but failed to remit to the
CDTFA. In most cases, taxpayers can provide this information by submitting copies of
their paycheck stubs. Should these documents be unavailable, or if they do not provide
the necessary information, other substantiating evidence provided by the taxpayer such
as documentation identifying amounts withheld from the taxpayer’s earnings may also be
considered. If the taxpayer is unable to provide sufcient documentation, staff will inform
the taxpayer the request cannot be processed. In these instances, no further action by staff
is required.
Payment Verication
Upon receipt of the documentation, staff should review the taxpayer’s account information in
the online system to verify the payments have not been previously applied to the taxpayer’s
account. If the payments cannot be located, staff should contact the taxpayer’s employer by
telephone to rule out the possibility of errors being made by the employer or the CDTFA. For
example, the employer may have referenced an incorrect account number on the payments
or may have directed the payments to another agency (e.g., Franchise Tax Board, Internal
Revenue Service) in error. Likewise, the CDTFA may have made errors in processing the
payments, causing them to be applied to an incorrect account.
Compliance Policy and Procedures Manual
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In situations where the payments are found to have been applied to an incorrect account
(either through the CDTFA’s or the employer’s error), staff should move the payments to the
taxpayer’s account. If staff is unable to move the payments, Return Analysis Unit (RAU),
Return Processing Branch (RPB), or Motor Carrier Ofce (MCO) staff should be contacted
for assistance. After the misapplied payments have been moved to the taxpayer’s account,
collection staff should generate a Statement of Account in the online system and provide it
to the taxpayer.
If the employer remitted the payments to another agency in error, the taxpayer should be
instructed to contact the other agency to resolve the situation. The CDTFA will not request
payment from the employer or hold the employer liable in these situations. If the EWOT is
still in effect, staff should ensure the employer is aware of the correct CDTFA address where
future wage garnishment payments should be directed.
Request Payment from Employer
When staff has conrmed the CDTFA has not received the withheld amounts, the employer
will be requested to immediately remit payment for the missing amounts. The CDTFA is
required to provide the employer with a written request for payment for the unremitted
amounts prior to holding the employer personally liable. Staff should mail a CDTFA-425-EM
to the employer. When generating this letter, a taxpayer copy is also created and should be
mailed to the taxpayer.
The CDTFA-425-EM identies the amount withheld from the taxpayer’s earnings as a result
of the wage garnishment along with the total amount actually received by the CDTFA.
Further, this letter requires the employer to provide payment of the unremitted amounts
within 15 days to avoid being held personally liable. While the CDTFA is required to provide
the employer 15 days to respond, in some instances it may be appropriate to allow the
employer additional time.
If the employer sends the payment, it should be applied to the taxpayer’s account. Once
the payment has been processed, staff should generate a Statement of Account and provide
it to the taxpayer. No further action against the employer should be necessary. However,
if the wage garnishment is still in effect, staff may need to review the taxpayer’s account
periodically to ensure all future wage garnishment payments are received from the employer.
If the response received from the employer indicates that payment for the identied amounts
was previously remitted to the CDTFA, staff may need to contact the employer by telephone
to rule out the possibility that the employer actually remitted payment to the CDTFA (and
the payment was applied to an incorrect account) or remitted payment to another agency
in error.
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Holding Employer Liable
If the employer does not respond to letter CDTFA-425-EM, or if the response does not provide
information necessary to conrm payments were remitted, staff will request that the employer
be held liable. To accomplish this, staff will prepare a memorandum to CSB detailing the
situation and requesting a determination be established and billed against the employer.
The memorandum must include the following information:
1. Taxpayer‘s name and CDTFA account number.
2. Employer’s name, mailing and business addresses, and CDTFA account number (if
applicable).
3. Date the EWOT was issued and the employer’s response to the order.
4. Amounts withheld from the taxpayer’s earnings which were not received by the CDTFA,
including the dates each amount was withheld (if available).
5. Summary of staff’s investigation, including the results of reviewing the taxpayer’s
account information in the online system and contacting the employer.
6. Statement indicating the date letter CDTFA-425-EM was mailed to the employer and
the employer’s response.
7. Copies of all pertinent documents (e.g., employer’s response to earnings withholding
order and payment documentation provided by taxpayer).
The Administrator or Compliance Principal must approve the request prior to sending it to
CSB. A copy of the approved request should be retained in the taxpayer’s collection notes.
Taxpayer’s/Feepayer’s Liability
Staff must not require payment from a taxpayer for any amounts withheld but not remitted
by the employer (i.e., amounts included in the request sent to CSB). Once the employer’s
determination is nal, Petitions Section, RPB or MCO staff will perform the necessary
adjustment to reduce the liability on the taxpayer’s account.
Responsible Ofce
The responsible collector of the taxpayer’s liability is also responsible for collection of the
employer’s liability, regardless of where the employer is located. However, if liabilities existed
on the employer’s account prior to the billing of the determination, the ofce of control for
that account is responsible for collection of all the employer’s liabilities.
The ofce initiating the determination against the employer will be responsible for assisting
the Petitions Section or ADAB in the event the employer les a petition for redetermination.
Compliance Policy and Procedures Manual
E
Collections Support Bureau Responsibilities
Staff in CSB is responsible for reviewing the collector’s request to ensure all necessary
information is provided. If there are any questions regarding the request, CSB staff should
contact the person who prepared the request. In the event the request is incomplete and
cannot be processed, it should be returned to the requestor along with a clear explanation
of why the request has been denied.
CSB staff will handle complete requests by verifying the employer has an active sales tax or
special tax and fee account. If the employer does not have an active account, CSB staff will
establish an arbitrary account using the information provided in the request.
CSB staff will add comments to the taxpayer’s and employer’s accounts in the online system.
The comments will include a cross-reference of the related account number and will include
a brief description of how the accounts are related to each other. CSB staff will then contact
a supervisor and provide him or her with all documentation pertaining to the request.
Return Analysis Unit (RAU), Return Processing Branch (RPB), or Motor Carrier Ofce
(MCO) Responsibilities
Staff in RAU, RPB, or MCO will create and bill determinations issued under RTC section
6704 and applicable RTC sections for various special tax and fee programs. However, RAU,
RPB, and MCO will not be responsible for assisting with petitions for redetermination.
The primary/secondary liability functionality available in the online system (used to link
liabilities on two or more accounts) cannot be used for cases involving section 6704 and
applicable RTC sections for various special tax and fee programs. The inability to use this
existing functionality stems from the fact that section 6704 and applicable RTC sections for
the various special taxes and fee programs require the taxpayer’s account to be adjusted
when the determination issued to the employer is nal. Adjustment of the taxpayer’s account
is not dependent upon receiving payment from the employer. Therefore, for sales and use
tax liabilities RAU staff must manually input local and district tax allocation information on
the employer’s account (based upon the local and district tax allocation on the taxpayer’s
account).
April 2017
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RAU, RPB and MCO staff will:
1. Create a One-Time (OTM) Financial Obligation (FO) on the employer’s account provided
by CSB, using the REV FM screen. The revenue and payment due dates for the FO
are the same date, the earliest date on which the employer rst withheld amounts
from the taxpayer’s earnings.
2. Input revenue information on the REV RE screen for the one-time FO. For sales and
use tax, the district and local tax allocation found on the taxpayer’s account must be
duplicated on the employer’s revenue information to ensure payments received from
the employer are correctly allocated according to the taxpayer’s business location(s).
RAU staff may need the assistance of Local Revenue Branch staff to duplicate local
tax allocation information.
3. Accept the revenue as “primary revenue” using the “EWOT” difference adjustment
reason code.
4. Create the employer’s notice of determination using the DIF NN screen. Sales and use
tax accounts will include Bill Note #138 which references the taxpayer’s name, CDTFA
account number, and mentions RTC section 6704. This bill note also references the
date on which the CDTFA notied the employer in writing of the missing payments
(CDTFA-425-EM) and identies the telephone number of the CDTFA ofce the employer
should contact for assistance. Staff will also include Bill Note #999 (free form text) to
identify the wage garnishment payments (dates and amounts) the billing represents.
Special tax and fee accounts will include Bill Note #999 to identify taxpayer’s name,
CDTFA account number, relevant RTC section, date on which the CDTFA notied the
employer in writing of the missing payments (CDTFA-425-EM), the telephone number
of the CDTFA ofce the employer should contact for assistance and identify the wage
garnishment payments (dates and amounts) the billing represents.
RAU staff will create a manual assignment in the online system on the employer’s account
for the Petitions Section. The assignment is created on the employer’s account since Petitions
staff will need to ensure the employer’s determination is nal prior to adjusting the liability
on the taxpayer’s account. Staff in the Petitions Section, RPB or MCO will be responsible for
adjusting the taxpayer’s account once the determination issued against the employer is nal.
After displaying the difference detail (DIF DD) of the employer’s determination, RAU staff
will press the F24-ASC key and navigate to the Maintain Task (ASC MT) screen to input the
necessary assignment information:
1. Business Action Code = “EWOADJ”
2. Due Date = 60 days after the date of the employer’s determination
3. Ofce = “PETITION”
4. Workgroup = “ADJ/SPEC”
5. Role = “RED&ADJ”
6. Task Notes identifying the taxpayer’s name and account number
RAU staff should forward all documentation pertaining to the determination to the employer’s
le in the Taxpayer Records Unit for sales and use tax accounts. RPB or MCO staff will
maintain all documentation for special tax and fee accounts in their respective taxpayer les.
April 2017
Compliance Policy and Procedures Manual
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Petitions Section and Appeals and Data Analysis Branch (ADAB) Responsibilities
An employer who disagrees with a determination resulting from RTC section 6704 and
applicable RTC sections for the various special tax and fee programs will have 30 days from
the date of the Notice of Determination to le a petition for redetermination. Petitions Section/
ADAB staff is responsible for handling the employer’s petition by following existing appeals
procedures. If necessary, the ofce that initiated the determination will provide assistance
to Petitions Section/ADAB staff.
Petitions Section/ADAB staff will perform the adjustment to the taxpayer’s account once the
employer’s determination is nal. Staff should access their Assignment Control assignments
(Business Action Code, “EWOADJ”) on (or shortly after) their due dates, which is initially
set at 60 days after the employer’s Notice of Determination is generated. The assignment is
linked to the employer’s account since a review of the determination is necessary to conrm
it is nal prior to performing the adjustment on the taxpayer’s account.
In the event the determination has been petitioned, Petition Section staff will modify the
due date of the assignment (allowing 30, 60, or 90 days depending upon the situation) for
follow-up at a later date. Petition Section staff should also modify the assignment due date
(60 days) once a Notice of Redetermination has been issued.
Upon conrming the employer’s determination is nal, Petition Section and ADAB staff will
perform the adjustment of the taxpayer’s account using the Adjustment Type code “EWOT”
on the DIF LA screen (legal adjustment). When performing these adjustments, staff must
be aware:
1. The adjustment is only for the total amount of the unremitted wage garnishment
payments billed to the employer. The adjustment amount excludes any interest and
penalty amounts the employer’s determination may include.
2. The effective date of the adjustment is the same as the effective date of the employer’s
liability (see the period date for the employer’s liability on the DIF DA screen).
3. The adjustment should rst be made to the portion of the taxpayer’s liability before
adjusting any collection cost recovery fees, interest or penalty amounts.
Once the adjustment has been completed, Petitions Section or ADAB staff will generate a
statement of account for the taxpayer. Staff will include Bill Note #999 (free form text) to
provide an explanation of the adjustment performed.
April 2017
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Spouse’s Wages
CCP section 706.109 prohibits the CDTFA from attempting to reach the wages of a tax/fee
debtor’s spouse without rst obtaining a court order. This CCP section states:
“An earnings withholding order may not be issued against the earnings of the spouse
of the judgment debtor except by court order upon noticed motion.”
If staff decides to pursue collection of amounts due by serving an EWOT on wages of a
judgment debtor’s spouse, the case must be referred to CSB. This will be done only when
there is no possibility of a dual and there is a substantial liability (over $2,000). CSB will
prepare a referral and coordinate the case with the Attorney General. These cases, once
referred, are entered in LGL AG in IRIS using Legal Type Code “EWOT.”
Because of the time, cost and lengthy delays which may occur in the process, it is vital that
as much information as possible, for the period when the liability was incurred and also for
the current period, be obtained and listed substantially in the format shown in the following
sample memorandum. This will assist CSB in preparing the referral.
April 2017
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Memorandum Requesting Spousal EWOT
California Department of Tax and Fee Administration
M e m o r a n d u m
To: Supervisor of Collections Support Bureau Date:
From: (Responsible Collector)
Subject: Attorney General Referral
ThisisarequesttoreferacasetotheAttorneyGeneral’sOceto
obtain a court order for issuance of an Earnings Withholding Order on
Wages of the tax/fee debtor’s spouse.
Account Number —
Name of Tax/Fee Debtor SS#
Name of Spouse SS#
Employer: Name:
Address:
Amount of Liability:
Married and Living together? Yes______ No
1
________
Evidence of marital status (check all that are appropriate)
Evidence
For Current
Period Yes/No —
Attached(√)
For Period Liability
Incurred Yes/No —
Attached(√)
Filed Joint income tax returns(s)
for years:
Real Property search shows joint
ownership
Joint ownership of vehicles
County report shows married status
Tax/Fee debtor states he/she is
married
Spouse states he/she is married to
Tax/Fee debtor
Lease or rental of residence shows
he/she is married
Bankruptcyledbytax/feedebtor
and spouse
Comments:
1 If the answer is no, wages are separate property and not subject to levy
for debts of the community. DO NOT REFER.
April 2017
Collections
JEOPARDY EARNINGS WITHHOLDING ORDER FOR TAXES 755.030
A jeopardy EWOT will only be used when, in the opinion of the levying ofce, the CDTFA’s
interest will be jeopardized because of the ten day delay between service and actual
withholding. As an example: On January 5, 1990, the responsible collector discovers that a
taxpayer has terminated his or her employment and will receive his nal paycheck on January
10, 1990. The only way to reach that paycheck is to serve a jeopardy EWOT because a non-
jeopardy EWOT will not reach any earnings due to the taxpayer within ten days of service.
For all jeopardy EWOTs, the word “Jeopardy” will be prominently entered on the face of all
copies of the CDTFA–425–E, Earnings Withholding Order for Taxes. Other provisions applying
to non-jeopardy EWOTs apply equally to a Jeopardy EWOT.
In certain rare circumstances, the levying ofcer may wish to attach more than 25% of the
taxpayer’s disposable income. The TEO requires that the employer hold all earnings owing to
the employee, unless a lesser amount is specied on the form. Since the Collections Support
Bureau (CSB) and the Attorney General’s Ofce must become involved, this can be a costly,
time consuming process. Therefore, before staff proceeds, the matter should be discussed
with the CSB.
When notied that this action is proper, the levying ofce will serve a TEO on the employer.
The TEO expires 15 days after service, unless extended by a court of record in the county
where the taxpayer was last known to reside. The levying ofce will immediately send a copy
of the TEO and a report to the CSB requesting the ling of an Application for Issuance of
Earnings Withholding Order for Taxes with a court in the taxpayer’s last known county of
residence. Copies of the TEO and report will also be sent to the ofce of the Attorney General
nearest the court where the application is to be led.
The CSB will coordinate the case with the Attorney General’s Ofce and prepare a referral.
The Attorney General’s Ofce will prepare the Application for the Order and a declaration
that the taxpayer was served with:
1. A copy of the application.
2. Notice informing the taxpayer of the purpose of the application.
3. Informing the taxpayer of his or her right to appear at the court hearing on the
application.
The court will set the matter for hearing. At least ten days before the date set for hearing,
the clerk of the court will send the tax debtor a notice indicating the time and place for the
hearing. If, after the hearing, the Attorney General is successful on the CDTFA’s behalf, the
court will issue the Earnings Withholding Order for Taxes, requiring the employer to withhold
and pay overall earnings other than that amount proved exempt, but in no event less than
25%. Follow-up on payments remitted by the employer, under court service of the EWOT,
will be set in the same manner as follow-up would be set if service were made by the CDTFA.
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EARNINGS WITHHOLD ORDERS AGAINST U.S. POSTAL EMPLOYEES 755.050
The Postal Service has one designated Authorized Agent to receive postal employee wage
garnishment orders under 5 U.S. Code §5520a. This federal law supersedes state law with
regard to service of garnishment process. Accordingly, regardless of state law, legal process
must be sent directly to, or served in person upon, the Authorized Agent named in these
regulations. There will be only one agent for receipt of process for all garnishments of an
employee’s pay arising under state law. Other Postal Service employees are not authorized
to receive process, nor are they permitted to transmit process to the Authorized Agent.
The Authorized Agent for service of EWOT’s directed to the wages of Postal Service employees
and employees of the Postal Rate Commission (employees) is:
PAYROLL BENEFITS BRANCH
INVOLUNTARY DEDUCTIONS UNIT
2825 LONE OAK PARKWAY
EAGAN, MN 55121–9650
Service of the EWOT on the Authorized Agent shall be made by certied or registered mail
with return receipt requested at the above address.
EARNINGS WITHHOLD ORDERS AGAINST FEDERAL EMPLOYEES 755.060
The Hatch Act provides for the garnishment of most federal employee wages in the same
manner and to the same extent as if the federal agency were a private person.
However, federal regulations regarding the involuntary allotment of active duty military pay
restricts the use of an EWOT to civilian federal employees. The involuntary allotment of
active duty military pay involves an entirely separate application process outlined at section
755.070.
Federal Law Provisions
The following are pertinent points of the federal law allowing such garnishments. For the
full text of federal wage garnishment provisions, see Exhibit A.
“Agency” means every agency of the federal government. “Legal process” means any writ,
order, summons, or other similar process in the nature of garnishment that is issued by a
court of competent jurisdiction within any state, territory, or possession of the United States,
or an authorized ofcial pursuant to state or local law.
Service of the EWOT
Service of the garnishment may be accomplished by certied or registered mail, return receipt
requested, or by personal service on the appropriate agent designated for service of process
or the head of such agency, if no agent has been designated. The person served with the
garnishment shall respond within 30 days after the date effective service is made.
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For example, the Department of Defense has given notice that all wage garnishments for
Department of Defense civilian employees, with certain exceptions, should be submitted
to the Defense Finance and Accounting Service — Cleveland Center, Ofce of General
Counsel, Code L, 1240 East 9th Street, P.O. Box 998002, Cleveland OH, 44199–8002. For
the exceptions (see Exhibit B.)
In addition, the law requires that we adequately identify the tax/fee debtor. The OPM
regulations state that we should provide name, address, social security number, date of birth,
ofcial duty station or worksite, and component of the agency for which the tax/fee debtor
works. However, some of the larger federal agencies have stated that our normal practice of
providing name, address, and social security number is sufcient to identify the tax debtor.
July 2009
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EXHIBIT A
5 USCS §5520a. Garnishment of pay
“(a) For purposes of this section--
“(1) ‘agency’ means each agency of the Federal Government, including--
“(A)anexecutiveagency,exceptfortheGeneralAccountingOce
[GovernmentAccountabilityOce];
“(B) the United States Postal Service and the Postal Rate Commission
[Postal Regulatory Commission];
“(C) any agency of the judicial branch of the Government; and
“(D) any agency of the legislative branch of the Government, including
theGeneralAccountingOce[GovernmentAccountabilityOce],each
oceofaMemberofCongress,acommitteeoftheCongress,orother
oceoftheCongress;
“(2) ‘employee’ means an employee of an agency (including a Member of Congress
asdenedundersection2106)[5USCS§2106]);
“(3) ‘legal process’ means any writ, order, summons, or other similar process
in the nature of garnishment, that--
“(A) is issued by a court of competent jurisdiction within any State,
territory, or possession of the United States, or an authorized
ocialpursuanttoanorderofsuchacourtorpursuanttoStateor
local law; and
“(B) orders the employing agency of such employee to withhold an amount
from the pay of such employee, and make a payment of such withholding
toanotherperson,foraspecicallydescribedsatisfactionofa
legal debt of the employee, or recovery of attorney’s fees, interest,
or court costs; and
“(4) ‘pay’ means--
“(A) basic pay, premium pay paid under subchapter V [5 USCS §§ 5541
et seq.], any payment received under subchapter VI, VII, VIII [5
USCS §§ 5591 et seq.], severance and back pay paid under subchapter
IX [5 USCS §§ 5591 et seq.], sick pay, incentive pay, and any other
compensation paid or payable for personal services, whether such
compensation is denominated as wages, salary, commission, bonus pay
or otherwise; and
“(B) does not include awards for making suggestions.
“(b) Subject to the provisions of this section and the provisions of section
303 of the Consumer Credit Protection Act (15 U.S.C. 1673) pay from an agency
to an employee is subject to legal process in the same manner and to the same
extent as if the agency were a private person.
“(c)(1) Service of legal process to which an agency is subject under this
sectionmaybeaccomplishedbycertiedorregisteredmail;returnreceipt
requested, or by personal service, upon--
“(A) the appropriate agent designated for receipt of such service or
process pursuant to the regulations issued under this section; or
“(B) the head of such agency, if no agent has been so designated.
“(2) Such legal process shall be accompanied by sucient information to
permitpromptidenticationoftheemployeeandthepaymentsinvolved.
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“(d) Whenever any person, who is designated by law or regulation to accept
service of process to which an agency is subject under this section, is
eectivelyservedwithanysuchprocessorwithinterrogatories,suchperson
shall respond thereto within thirty days (or within such longer period as may
beprescribedbyapplicableStatelaw)afterthedateeectiveservicethereof
ismade,andshall,assoonaspossiblebutnotlaterthanfteendaysafter
thedateeectiveserviceismade,sendwrittennoticethatsuchprocesshas
beensoserved(togetherwithacopythereof)totheaectedemployeeathis
or her duty station or last-known home address.
“(e) No employee whose duties include responding to interrogatories pursuant
to requirements imposed by this section shall be subject to any disciplinary
action or civil or criminal liability or penalty for, or on account of, any
disclosure of information made by such employee in connection with the carrying
out of any such employee’s duties which pertain directly or indirectly to the
answering of any such interrogatory.
“(f)Agenciesaectedbylegalprocessunderthissectionshallnotberequired
to vary their normal pay and disbursement cycles in order to comply with any
such legal process.
“(g)NeithertheUnitedStates,anagency,noranydisbursingocershallbe
liable with respect to any payment made from payments due or payable to an
employee pursuant to legal process regular on its face, provided such payment
is made in accordance with this section and the regulations issued to carry
out this section. In determining the amount of any payment due from, or
payable by, an agency to an employee, there shall be excluded those amounts
which would be excluded under section 462(g) of the Social Security Act
(42 U.S.C. 662(g)).
“(h)
(1) Subject to the provisions of paragraph (2), if any agency is served
under this section with more than one legal process with respect to the
same payments due or payable to an employee, then such payments shall be
available, subject to section 303 of the Consumer Credit Protection Act
(15 U.S.C. 1673), to satisfy such processes in priority based on the time
ofservice,withanysuchprocessbeingsatisedoutofsuchamountsas
remain after satisfaction of all such processes which have been previously
served.
“(2) A legal process to which an agency is subject under sections 459 of the
Social Security Act (42 U.S.C. 659) for the enforcement of the employee’s
legal obligation to provide child support or make alimony payments, shall
have priority over any legal process to which an agency is subject under
this section.
“(i) The provisions of this section shall not modify or supersede the provisions
of sections 459 of the Social Security Act (42 U.S.C. 659) concerning legal
process brought for the enforcement of an individual’s legal obligations to
provide child support or make alimony payments.
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“(j)
(1) Regulations implementing the provisions of this section shall be
promulgated--
“(A) by the President or his designee for each executive agency,
except with regard to employees of the United States Postal Service,
the President or, at his discretion, the Postmaster General shall
promulgate such regulations;
“(B) jointly by the President pro tempore of the Senate and the
Speaker of the House of Representatives; or their designee, for the
legislative branch of the Government; and
“(C) by the Chief Justice of the United States or his designee for the
judicial branch of the Government.
“(2) Such regulations shall provide that an agency’s administrative costs in
executing a garnishment action may be added to the garnishment, and that
theagencymayretaincostsrecoveredasosettingcollections.
“(k)
(1) No later than 180 days after the date of the enactment of this Act
[enacted Oct. 6, 1993], the Secretaries of the Executive departments
concerned shall promulgate regulations to carry out the purposes of this
section with regard to members of the uniformed services.
“(2) Such regulations shall include provisions for--
“(A) the involuntary allotment of the pay of a member of the uniformed
services for indebtedness owed a third party as determined by
thenaljudgmentofacourtofcompetentjurisdiction,andas
further determined by competent military or executive authority, as
appropriate, to be in compliance with procedural requirements of the
Servicemembers Civil Relief Act (50 App. U.S.C. 501 et seq.); and
“(B) consideration for the absence of a member of the uniformed service
from an appearance in a judicial proceeding resulting from the
exigencies of military duty.
“(3) The Secretaries of the Executive departments concerned shall promulgate
regulations under this subsection that are, as far as practicable, uniform
for all of the uniformed services. The Secretary of Defense shall consult
with the Secretary of Homeland Security with regard to the promulgation
ofsuchregulationthatmightaectmembersoftheCoastGuardwhenthe
Coast Guard is operating as a service in the Navy.”
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EXHIBIT B
The Defense Finance and Accounting Service (DFAS) has given notice that all garnishments
authorized under 5 U.S. Code §5520a for all Department of Defense Civilian Employees,
except those noted below, shall be submitted to the Defense Finance and Accounting Service
— Cleveland Center, Ofce of General Counsel, Code L, 1240 East 9th Street, P.O. Box
998002, Cleveland, OH 44199–8002.
For requests that apply to civilian employees
of the Army Corps of Engineers, the National
Security Agency, the Defense Intelligence
Agency, and non-appropriated fund civilian
employees of the Air Force, contact the
following ofces:
For civilian employees of the Army, Navy,
and Marine Corps who are employed
outside the United States, contact the
following ofces:
Army Corps of Engineers
U.S. Army Corps of Engineers, Omaha District
Central Payroll Ofce, Attn: Garnishments
P.O. Box 1439 DTS
Omaha, NE 68101–1439
Army Civilian Employees Europe
266th Theater Finance Command
ATTN: AEUCF–CPF
APO New York 09007–0137
National Security Agency
General Counsel, National Security Agency
Central Security Service
9800 Savage Road, Ft. G.
Meade, MD 20755–6000
Army NAF Civilian Employees in Japan
Commander, US Army Finance and Accounting
Ofce, Japan
Unit 45005 ATTN: APAJ–RM–FA–E–CP
APO AP 96343–0087
Defense Intelligence Agency
Ofce of General Counsel, Defense Intelligence Agency
Pentagon, 2E238
Washington, DC 20340–1029
Army Civilian Employees in Korea
175th Finance and Accounting Ofce, Korea
Unit 15300, ATTN: EAFC–FO (Civilian Pay)
APO AP 96205–0073
Air Force Non-Appropriated Fund Employees
Ofce of General Counsel, Air Force Services Agency
10100 Reunion Place, Suite 503
San Antonio, TX 78216–4138
Army Civilian Employees in Panama
DCSRM Finance and Accounting Ofce,
Unit 7153, ATTN: SORM–FAP–C
APO AA 34004–5000
Navy and Marine Corps Civilian Employees
Overseas
Director of the Ofce of Civilian Personnel
Management
Ofce of the General Counsel, Navy Department
800 N. Quincy St.
Arlington, VA 22203–1998
The Defense Finance and Accounting Service (DFAS) has given notice that all garnishments
authorized under 5 U.S. Code §5520a for all Department of Defense Civilian Employees,
except those noted below, shall be submitted to the Defense Finance and Accounting Service
— Cleveland Center, Ofce of General Counsel, Code L, 1240 East 9th Street, P.O. Box
998002, Cleveland, OH 44199–8002.
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Compliance Policy and Procedures Manual
INVOLUNTARY ALLOTMENT OF ACTIVE DUTY MILITARY PAY 755.070
The process for implementing an involuntary allotment of pay for active duty military
personnel is somewhat encumbered by the Servicemember’s Civil Relief Act, 50 USCS App
§ 501 et seq., which requires that certain afdavits must accompany the application form
supplied by Department of Defense (DOD). Therefore, the following guidelines and procedures
have been established:
1. Involuntary allotment may only be pursued if the delinquent balance is equal to or
greater than $5,000.00 and the member is on active duty in California. If the member
is on active duty and currently stationed outside California, the delinquent balance
must be equal to or greater than $10,000.00.
2. Complete the latest version of DD Form 2653, Involuntary Allotment Application,
and send to the CSB. The DD Form 2653 is available on the Executive Services
Directorate website (www.esd.whs.mil/) by entering the form number into the search
eld. (Complete only front Section I — Identication, Parts 1., 2., and 3.c.)
3. The CSB will review the application and, if approved, prepare a Certicate of
Delinquency to be led by the Legal Division with a Request for Judgment in the ofce
of the County Clerk of Sacramento County. In addition to the Certicate of Delinquency,
the Request for Judgment must be accompanied by an afdavit stating whether or
not the defendant is in military service and containing supporting information. If the
defendant’s military status is unknown, the afdavit must state that the defendant’s
military status is not known.
4. The afdavit must also state that the court should appoint an attorney to represent
the member/defendant prior to issuing a default judgment. If the judge decides that
appointing an attorney for the member/defendant is not necessary or would serve no
pur pose and a default judgment is issued, there is compliance with the Ser vicemembers’
Civil Relief Act and the judgment should so state. A certied copy of the judgment
should then be attached to the completed Involuntary Allotment Application.
5. The CSB will submit the original and three copies of the Involuntary Allotment
Application and all supporting documents to the Legal Division. After review and
approval of the Involuntary Allotment Application, the Legal Division will prepare and
submit the Request for Judgment. Once the judgment has been issued, The Legal
Division will send the entire package via certied mail to the appropriate federal
agency according to the instructions on DD Form 2653, (see Exhibit D.)
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EXHIBIT D
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NOTICES OF STATE TAX LIENS,
ABSTRACTS OF JUDGMENT AND LIENS 757.000
GENERAL 757.010
Under Government Code section 7150, et seq., on the day a tax becomes due and payable
but remains unpaid, a perfected and enforceable state tax lien is created for the amount
due plus penalties, interest and costs, under the following laws:
Sales and Use Tax, section 6757
Motor Vehicle Fuel Tax, section 7872
Use Fuel Tax, section 8996
Cigarette and Tobacco Products Tax, section 30322
Alcoholic Beverage Tax, section 32363
Emergency Telephone Users Surcharge, section 41124.1
Energy Resources Surcharge, section 40158
Hazardous Substance Tax, section 43413
Integrated Waste Management Fee, section 45451
Oil Spill Response, Prevention, and Administration Fee, section 46421
Underground Storage Tank Maintenance Fee, section 50123
Fee Collection Procedures, section 55141
1
Diesel Fuel Tax Law, section 60445
Government Code section 7170 states, “a state tax lien attaches to all property and rights to
property whether real or personal, tangible or intangible, including all after-acquired property
and rights to property belonging to the taxpayer and located in this state.”
The lien is in force for ten years and may be extended by re-recording the lien with any
county recorder’s ofce or re-recording a Notice of State Tax Lien with the ofce of the of the
Secretary of State within the ten-year period.
The lien attaches to all property of a tax debtor by operation of law; nothing needs to be done
to perfect the lien. However, Government Code section 7171 requires the following action
in order for a lien to be valid against specic interests in the same property:
As to real property, a Notice of State Tax Lien must be recorded in each county where
the taxpayer’s real property is located prior to the time that the four classes of persons
listed in Section 7170(b) perfect their right, title, or interest in the property, in order
for the lien to be valid against the property.
As to personal property, a Notice of State Tax Lien must be led with the Secretary of
State. The prior ling of a Notice of State Tax Lien with the Secretary of State defeats
the claims of three classes of persons listed in Section 7170 (c), but cannot defeat the
claims of numerous other classes of persons listed in the section.
1
The fees and taxes collected pursuant to the Fee Collection Procedures Law include the following
programs: California Tire Fee, Cannabis Tax, Covered Electronic Waste Recycling Fee, Lead-Acid
Battery Fees, Marine Invasive Species Fee, Natural Gas Surcharge, Prepaid Mobile Telephony Services
Surcharge, Water Rights Fee, and Lumber Products Assessment.
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November 2019
An additional method of recording a lien against real property under the Sales and Use
Tax Law, the Alcoholic Beverage Tax Law, and the Timber Yield Tax Law, is to follow the
summary judgment procedure of RTC sections 6736, 32361, and 38521 respectively, and
record an abstract of judgment in any county where the person owns or may be expected
to own real property.
The abstract of judgment has the force, effect, and priority of a judgment lien and is effective
for ten years from the time of ling with the county clerk for recordation unless sooner released
by the California Department of Tax and Fee Administration (CDTFA). The time limit for
requesting summary judgment is within three years after an amount becomes delinquent.
RTC section 6702 requires that a CDTFA–465, Notice of Withhold, must be issued not later
than:
1. Three years from the date a payment becomes delinquent.
2. Within ten years after the last recording of an abstract of judgment or the recording
or ling of a Notice of State Tax Lien.
RTC section 6776 and equivalent special taxes and fees statutes stipulate that all warrants
be handled in the same manner, i.e., issued within three years from the date of delinquency
or within ten years from the last lien recordation date. A certicate of lien (Notice of State
Tax Lien) may be led or recorded in any county or with the Secretary of State at any time
during the ten-year automatic or statutory lien period established by RTC section 6757 and
equivalent special taxes and fees statutes, following the date of delinquency.
In order for the CDTFA to take court action against a debtor, such as an Attorney General
referral for an out-of-state judgment, the lien must have been led or recorded within three
years from the delinquency date (see RTC Sec. 6711 and equivalent special taxes and fees
statutes). For this reason, current policy requires that liens are led or recorded within this
three-year period. Liens may be renewed twice, each for ten-year terms, after the initial
ten-year lien period has expired (see Government Code section 7172). The chart in CPPM
757.020 provides a quick reference for the time periods within which all of these summary
procedures may be used.
According to the CDTFA’s Legal Division, the three-year restriction does not apply to the
issuance of levies pursuant to RTC 6703 and equivalent special taxes and fees statutes, as
long as the statutory lien from the operation of law (RTC section 6757 and equivalent special
taxes and fees statutes) is in place.
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November 2019
LIMITATION PERIODS FOR SUMMARY PROCEDURES 757.020
Revenue Law Period Within Which
Notice to Withhold
May be Used
Period Within Which
Warrant May be Used
Effective Period of
Liens and Abstracts
• Sales and Use
Tax
• All Special Taxes
and Fees Programs
After a
determination is
nal and remains
unpaid but not later
than three years
after the payment
became delinquent,
or within ten years
after the last lien
recording.
Reference RTC 6702
While an amount is
delinquent but not
later than three years
after the delinquency
date of the payment, or
within ten years after
the last lien recording.
Reference RTC 6776
Ten years
(Renewable)
Reference RTC 6757
and Gov. Code 7172
TYPE OF RECORDATION ALLOWED BY STATUTE 757.030
REVENUE LAW
NOTICE OF STATE
TAX LIEN
ABSTRACT OF JUDGMENT
Sales and Use Tax Allowed Allowed
Alcoholic Beverage Tax Allowed Allowed
Timber Yield Tax Allowed
Allowed
All Other Special Taxes and
Fees Programs
Allowed Not Allowed
RESPONSIBILITY FOR RECORDING AND FILING LIENS 757.040
Generally, the Collections Support Bureau (CSB) is responsible for preparing the Notice of
State Tax Lien or the abstract of judgment, forwarding these documents to the appropriate
county recorder or to the ofce of the Secretary of State, and mailing a copy to the taxpayer.
However, under certain circumstances, liens may be automatically led (see CPPM section
757.062).
EXTENSIONS OF LIENS 757.050
The original lien may be extended by recording a new notice or abstract of judgment in any
county or, if a statewide personal property lien was previously acquired and is to be extended,
by ling an extension notice with the ofce of the Secretary of State. The new recording or
ling must be made prior to expiration of the original lien. The responsibility for ling a lien
extension, as well as the original ling of a lien, lies with the CSB.
POLICY AND MINIMUM AMOUNTS — NOTICE OF STATE TAX LIEN 757.060
Filing a lien protects the state’s interest in a taxpayer’s assets. The use of the Notice of State
Tax Lien is an effective collection tool that often results in payment of accounts that would
have been difcult, if not impossible, to collect.
Taxpayers should be advised that a lien may be led and its effects (decreases credit rating
and attaches to property currently owned and later acquired). With the exception of a
jeopardy lien, a tax lien should not be led unless there have been documented efforts made
to contact the taxpayer by phone and in writing.
Compliance Policy and Procedures Manual
Per statute, a lien can be led 30 days after the taxpayer is advised in writing that a lien
may be led. Generally, CDTFA policy is to wait 180 days after the demand date to le a
lien. However, a lien may be led 30 days after the demand date if there is a valid reason
for such action. Supervisory approval of all lien requests initiated prior to the expiration of
the 180 days is required and must be documented in the system.
In most cases, a Notice of State Tax Lien is led for accounts with delinquent amounts
of $2,000 or more in the appropriate county or counties. Generally, a lien is not led for
liabilities that do not include a tax or fee because an adjustment or request for relief may be
pending, but it can be done if the total amount due is greater than $2,000 and verication
is made that there are no adjustments or requests for relief pending.
A lien will be led:
1. 180 days after an amount, if sufcient, becomes delinquent on a determination or
redetermination,
2. 180 days after issuance of a billing for an amount due on a return led without
payment, with a partial payment, or for penalty and interest because of late payment, or
3. 180 days after a successor’s billing is issued.
A lien should not be led after 180 days if any of the following conditions exist:
1. There are outstanding levies. Exceptions to this can occur. For example, the taxpayer
has a large balance due and outstanding levies are generating minimal payments. If
payment in full is not anticipated and additional collection action is warranted, it is
appropriate to le a lien. In addition, if a levy is sent to secure some assets that may
not be liquidated until sometime in the future or that may have a secured interest
against them, ling a lien is appropriate.
2. Payments are being received per a payment plan and nancial documentation indicates
a lien is not necessary to secure the state’s interest.
3. The payment plan will satisfy the liability within one year and the taxpayer has not
been a previous collection problem.
4. If the taxpayer has been extended additional time to pay.
If it is determined that a lien is necessary, a thorough search for real property should be
completed to ensure that liens are led in the appropriate county or counties specic to
each taxpayer.
To prevent erroneous lings, liens should be led in counties where the taxpayer resides,
where the business or taxpayer is/was located, and where property is owned or may have
previously been owned. If it is determined that a state tax lien should be led, the collector
must:
1. Investigate sources such as income tax returns, CoreLogic, and other information
documented in case notes to obtain county-specic information.
2. Document in the system, a real property summary to include all actions regarding
property searches or other methods used to determine whether the taxpayer owns,
has owned, or may own real property, specically noting each county.
3. Document in the system the county or counties to be included in the lien ling and
specically state why each county is included in the request.
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August 2022
NOTE: Accounts on a payment plan are not subject to the 180-day policy, and liens should
not be requested 180 days after the liability is established for accounts in payment plans.
Rather, the process to initiate a lien request on an account in a payment plan begins when
the liability becomes 30 months old. The 30 months are counted from the date the liability
becomes due and payable as long as 30 days have lapsed from the issue date of a demand
notice. When this occurs, the collector will send the taxpayer CDTFA–407–L, Notice of Intent
to Lien, and then must wait 45 days after sending the CDTFA–407–L before initiating the
lien request. A lien will be led after the collection item becomes aged 30 months unless
payment in full is expected within 30 days.
Liens should not be led, and the account should be placed into sundry withhold status or
a Stop Lien indicator should be added (see CPPM section 757.062), in any of the following
situations:
1. The action violates the automatic stay afforded by the Bankruptcy Code.
2. The liability has been discharged in bankruptcy.
3. A bankruptcy case was recently led, and the system has not yet been updated.
4. An Offer-in-Compromise is pending and the Offer-in-Compromise Section was not
previously advised.
5. The action violates an Indian tribe’s sovereign immunity (see Business Taxes Law
Guide Annotation 170.0002.750, (8/22/96)).
6. The taxpayer is in escrow and the information indicates the escrow will pay in full
the entire outstanding liability.
7. The taxpayer has paid the liability in the ofce and the lien is about to be issued.
For delinquent amounts exceeding $2,000, a lien will also be led with the ofce of the
California Secretary of State. Collections Support Bureau (CSB) will le the lien:
1. Upon receipt of a request for such action by the collector.
2. If CSB’s review of the le indicates such action is appropriate.
A lien must be led with the ofce of the Secretary of State for all referrals to the Attorney
General for Intervenor Actions (see CPPM 757.130, Lien on Cause of Action).
RTC section 7097 and similar statutes for the special taxes and fees programs require that
CDTFA give notice to the taxpayer that a lien may be led at least 30 days prior to ling or
recording a lien. This notication is routinely included on the demand billing, which is sent
to the taxpayer approximately 15 days after the liability becomes nal.
If it becomes necessary to record or le a lien before the 180-day period expires, or if the lien
covering real property should be extended to other counties, a request should be forwarded
to CSB by the referring ofce. The collector sends a Request an Early Lien work item to their
supervisor for approval. The supervisor must add an approval note to the work item and
then unassign it so the work item will be routed to the appropriate CSB work queue. The
request for issuing an early lien should contain a reason for the action. The reason, as well
as the request, must be documented in the system and have received supervisory approval.
Compliance Policy and Procedures Manual
August 2022
If a taxpayer has a multiple-location business, the referring ofce should request CSB to
record liens in any county in which real property is found. If no real property is found, a
lien will be recorded only in the county where the “master” business location is located. If
an out-of-state taxpayer qualies for a lien but owns no California property, a real property
lien should be requested to be led in Sacramento County.
For taxpayers who le bankruptcy, liens cannot be led until after the automatic stay has
been lifted. Post-petition liens on pre-petition liabilities will only be led where:
1. The debtor led for bankruptcy relief and the liability was not discharged.
2. The bankruptcy case was dismissed.
In limited circumstances, CDTFA may be required to le an abstract of judgment rather than
ling a lien. Current policy dictates that the ling of an abstract of judgment is limited to
renewing a previously recorded abstract prior to its expiration date. This procedure is mainly
used for extending the period of the lien acquired by recording of the original abstract. CSB
is responsible for the timely renewal of abstracts.
AUTOMATED LIENS 757.062
The system features an auto-lien function. Automated liens are led 180 days after the Notice
of Demand for Payment is mailed on the initial nalized debt that exceeds $2,000. Liens
will be led in the counties associated with the taxpayer’s California address or property
assets identied in a collection case, or if there is no identiable address in California, the
lien is led in Sacramento County. A lien will also be led with the California Secretary of
State for delinquent amounts exceeding $2,000. The automated lien amount will include
any additional debts nalized during those 180 days for which 30 days have lapsed from
the issue date of a Demand Notice (RTC section 7097).
Liens will not automatically be led on accounts on a payment plan if the payment plan is less
than 30 months old and will satisfy the liability within 36 months of the liability being nal.
If the auto-lien function is turned on and it is determined that a lien should not be led,
the collector should initiate a Stop Lien indicator to prevent the lien from being led. See
CPPM section 757.060 for details on when liens should not be led.
Stop Lien indicators are alerts placed on an account or a period of liability by a user or the
system. Indicators, in general, can perform or prevent an action, or can be informational
only. The following are the Stop Lien indicators:
• Stop Lien Automatic Add – stops new automatic liens being added to a collection case.
• Stop Lien Extension – prevents ling a lien extension.
• Stop Lien Manual Add – prevents users from staging a new manual lien.
• Stop Lien Release – stops the lien from being released.
• Stop Lien Activities – stops all lien activity whether it is automatic or manual.
Once an indicator has been added, the collector cannot delete it. The indicator must be
“ceased” so that it no longer affects the collection case to which it is applied. It is important
to remember to “cease” indicators when appropriate since they can impact system processes.
Collectors and supervisors with edit access have the ability to add/cease the indicators listed
above. Indicators can be ceased immediately by leaving the current date in the Thru eld
or can be ceased on a date in the future. However, it is not possible to cease an indicator
retroactively.
Collections
UNITED STATES COAST GUARDS LIENS 757.065
Liens led with the United States Coast Guard (USCG) must be timely and meet the provisions
contained in U.S. Code Title 46, section 31343. Based upon this section, the Notice of Claim
of Lien expires three years after the date the state tax lien was established, which is reected
on the Notice of State Tax Lien in the column identied as the “Assessment” date. USCG
Documentation Center will return CDTFA requests unrecorded if the assessment date is
over three years old.
The collector must determine the names and mailing addresses of all lien holders and
mortgagees of a vessel before requesting a USCG lien. These names and addresses should
be entered in the system. Lien holder and mortgagee information is obtained by reviewing
the USCG vessel abstract on le for all vessel use tax accounts. For sales tax accounts, the
collector should contact the Use Tax Collections Bureau (UTCB) for instructions on how to
order the abstracts, or related documents, from the USCG. If mailing address information
on the abstract is incomplete or missing, a copy of the lien/mortgage document should be
ordered from the USCG. If no lien holder or mortgagee exists, the collector should make a
note in the system.
When requesting a USCG lien, the collector will add a work item for CSB and assign it to
their supervisor for approval. The supervisor must add an approval note to the work item and
then unassign it so the work item will be routed to the appropriate CSB work queue. Under
U.S. Code Title 46, CDTFA is required to include a signed declaration with the taxpayer’s
name and account number, vessel name and documentation number, and the lien holder
or mortgagee’s name(s) and address(es) with the USCG lien request. The declaration and
lien must be signed by the same person. Section 31343 also requires CDTFA to mail copies
of the signed declaration and the lien document to each lien holder and mortgagee that has
been identied. The collector must enter notes in the system when the copies have been sent.
REVOCABLE TRUST LIENS 757.066
A settlor (also known as a “donor” or “trustor”) is one who creates a trust by giving real or
personal property “in trust” to another (the trustee) for the benet of a third person (the
beneciary).
Assets of a revocable trust are subject to the claims of creditors of the settlor(s) of the trust,
during the settlor(s) lifetime. Conversely, the settlor of a revocable trust is liable for the debts
of his or her revocable trust.
A Notice of State Tax Lien against a revocable trust should contain the name of the living
settlor(s). A Notice of State Tax Lien against a settlor should contain the name of the trust.
To request a lien against the revocable trust or a settlor, the collector will add a work item for
CSB and assign it to their supervisor for approval. The work item must include the settlor(s)
name and current address, and documentation that the trust is revocable. The supervisor
must add an approval note to the work item and then unassign it so the work item will be
routed to the appropriate CSB work queue. The collector must enter notes in the system
after supervisory approval.
August 2022
Compliance Policy and Procedures Manual
November 2019
PRIORITY OF LIENS 757.080
A lien on real and personal property is created as a result of a delinquent tax liability. A tax
lien on real property may be perfected by:
1. Recording a notice of state tax lien with an ofce of the county recorder.
2. Filing an abstract in a county recorder’s ofce.
A lien on personal property is perfected by ling a notice of state tax lien with the ofce of
the Secretary of State.
HOMESTEAD EXEMPTIONS 757.100
A person or married couple is limited to claiming a single homestead exemption at a time.
Homestead exemptions protect a portion of the homestead from forced sale. The amount of
the homestead exemption is one of the following:
One hundred seventy-ve thousand dollars ($175,000) if the tax debtor or spouse is 65
years of age or older or; 55 years of age or older with a gross annual income of not more
than $25,000 (single) or $35,000 (married); or is unable to be employed due to a physical
or mental disability
1. One hundred thousand dollars ($100,000) for the head of a family
2. Seventy-ve thousand ($75,000) for any other person.
(See Code of Civil Procedure (CCP) sections 704.720, 704.730, 704.950, 704.960 and
704.965.)
DECLARED HOMESTEAD 757.110
A dwelling in which an owner or owner’s spouse resides may be selected as a declared
homestead by recording a homestead declaration. (CCP section 704.910 et seq.)
If a declared homestead is voluntarily sold, the proceeds are exempt in the amount of the
exemption for 6 months after the date of the sale; (CCP section 704.960), if the owner invests
the proceeds in a new homestead declaration. In such case, the homestead declaration has
the same effect as if it had been recorded at the time the prior homestead declaration was
recorded.
On and after July 1, 1983, a state tax lien attaches to a dwelling regardless of the prior
recording of a homestead declaration. (Government Code section 7170.) Therefore, if a
delinquent taxpayer’s le indicated the CDTFA’s lien was led prior to July 1, 1983, on
previously homesteaded property, a new lien should be requested.
Additionally, the responsible collector should be alert to any oversight by title companies in
not recognizing the CDTFA’s lien. If an escrow company does not notify the CDTFA of the
sale in escrow and the escrow company releases all funds, the escrow and title companies
may be held liable for payment of the liability.
Collections
July 2009
Whether or not a homestead declaration is recorded, Code of Civil Procedure sections
704.710, et seq., provide for a homestead exemption for dwellings in the same amounts as
outlined in CPPM 757.100. Unlike the declared homestead, this exemption also applies to
mobilehomes and boats in which the debtor resides. Proceeds from involuntary transfers of
a dwelling (execution sale, or condemnation for public use, insurance proceeds from damage
or destruction of the homestead) are exempt in the amount of the homestead exemption
for six months after the debtor receives the proceeds. The proceeds are not exempt if the
debtor or debtor’s spouse applies the homestead exemption to another property within the
six-month period. Proceeds from the voluntary sale of the dwelling are not exempt.
LIEN ON CAUSE OF ACTION 757.130
In cases where a delinquent taxpayer either les a civil action against another person to
recover a sum of money or is the defendant in the action and les a cross-complaint, there
is a possibility for the CDTFA to place a lien on the cause of action and any judgment
subsequently recovered by the taxpayer. To accomplish this, the matter must be referred to
the CSB with all of the details, so appropriate action can be taken before judgment is entered.
No case should be considered for a lien on cause of action if the liability is less than $500.
If the lien on cause of action is successful, a lien will be granted, which will attach to the
judgment rendered in favor of the plaintiff if the plaintiff prevails in the suit. The lien on the
cause of action has priority as of the date that it is led in the civil action. If the attorney
representing the taxpayer has a written fee agreement that provides that the taxpayer grants
the attorney a lien on any proceeds of the lawsuit to pay the attorney fees and costs incurred
in the lawsuit, the attorney has a lien as of the date that agreement is executed. In most cases,
the written fee agreement will create a lien senior to the CDTFA’s, entitling the attorney to
offset all attorney fees and costs (Cetenko v. United California Bank (1982) 30 Cal.3d 528).
Compliance Policy and Procedures Manual
July 2009
LIEN ON CAUSE OF ACTION — INFORMATION NECESSARY FOR 757.140
If a civil action is led by a delinquent taxpayer to recover money, and the taxpayer owes the
CDTFA $500 or more, the CDTFA–708, Request for Notice of Lien on Cause of Action, should
be completed and forwarded to the CSB. When the tax debtor is the defendant in the case,
only forward a CDTFA–708 if a cross complaint is led.
When preparing the CDTFA–708, Item 1 {DAG}(Deputy Attorney General), should be left
blank. Items 2 through 10, listed below, must be accurately completed.
Item 2 Court.
Item 3 Case name (always give complete title of case per court records).
Item 4 Case number.
Item 5 Taxpayer (complete name or names).
Item 6, 7, & 8 Total unpaid amount and interest information.
Item 9 Parties to serve (include the name and address of the attorneys for all parties.
If no attorneys are known, give the name and address of the party to which
notice may be given. If substitute attorneys are listed in court records, show
their names and addresses).
Item 10 Nature of suit and cross complaint.
Since the Attorney General must give notice of the state’s lien to all parties in the action,
these matters must be promptly reported to the CSB.
COLLECTION ACTION TO CONTINUE 757.150
Requesting a lien on cause of action should be considered as one of the cumulative remedies
to be used while other collection actions continue. The fact that a taxpayer who has led a
civil action is also making installment payments to the CDTFA, or has promised to make
full payment at some future date, should not be reason to refrain from attempting to create
a lien on cause of action.
REPORTS TO THE RESPONSIBLE OFFICE 757.160
After the Attorney General has completed his/her action and notication has been received
by the CSB on the results of the Attorney General’s efforts, the information will be passed
on to the ofce responsible for the account. Regardless of whether the Attorney General was
successful or not, other efforts to collect should continue.
ACTION WHEN FULL PAYMENT RECEIVED 757.170
If full payment is received on an account that has been referred to the Attorney General,
whether before or after a lien has been granted, a report of the collection will be forwarded
promptly to the CSB so the information can be conveyed to the Attorney General.
RESPONSIBLE COLLECTOR FOLLOW-UP 757.180
As frequently as deemed necessary, the responsible collector should follow-up on these
cases. Court records should be checked or the attorneys should be contacted. Any signicant
changes in the case should be promptly reported to the CSB. Keeping abreast of the current
status of a case is important since the action of the Attorney General consists only of obtaining
the lien and not of maintaining a follow up or taking further collection action.
Collections
November 2019
RELEASES, PARTIAL RELEASES
AND SUBORDINATION OF LIENS 761.000
GENERAL 761.010
At any time and under any of the laws it administers, the California Department of Tax and
Fee Administration (CDTFA) may release all or part of a taxpayer’s real property from the
effect of a lien or liens it led on the taxpayer’s property. The CDTFA may also subordinate
its lien or liens to other liens or encumbrances if:
1. It is determined the amount due is sufciently secured by a lien or other property.
2. Collection of the amount due will not be jeopardized by subordinating the lien.
Full lien releases are furnished to taxpayers only after full payment has been made or, if
amounts are still due, they may be furnished to escrow agents or title companies along with
a statement of payment and conditional release requirements, which must be met prior to
the use of the release. All full releases are prepared and mailed by the Collections Support
Bureau (CSB). Lien releases may also be issued if it is in the best interest of the state or to
facilitate payment.
ROUTINE RELEASES OF LIENS 761.020
Government Code section 7174(c)(2) requires the CDTFA, not later than 40 days after the
liability has been satised, to do one of the following:
1. Record a certicate of release in the ofce of the county recorder where the notice of
state tax lien is recorded, or
2. Deposit in the mail or otherwise deliver to the taxpayer a certicate of release.
Therefore, in compliance with section 7174(c)(2), liens automatically enter the “Lien Release”
state in the system after 40 days from the date of payment.
Lien releases should be requested when it is determined that the liability secured by a lien
has been paid in full. In all cases where it is determined that the liability was paid in full or
abated prior to the lien recording, a “free” release of lien will be requested. A free release of
lien allows the taxpayer to have the lien removed from ofcial records without paying a fee.
REQUESTS FOR RELEASES OF LIENS 761.030
When a taxpayer requests a release of lien, proof of payment such as copies of canceled
checks (both sides) must be provided for payments made by personal check within the last
30 days. If the lien recording information is not available in the system, the taxpayer should
be advised that a release cannot be issued until the recording date becomes available. If a
release is required sooner, CLEAR can be used to obtain the recording information. If the
recording information is not available through CLEAR, the taxpayer should be advised that
they can obtain a copy of the recorded lien from their respective county recorder (this is more
applicable in larger counties where it takes longer for the CDTFA to receive the recorded lien).
Compliance Policy and Procedures Manual
August 2022
Requests for releases to be mailed to escrow agents, title companies, or the taxpayer to enable
the conveyance of property, will be handled as expeditiously as possible. If the request is
received by a eld ofce, it will be forwarded to the CSB within one day. When requests are
received in the CSB, whether from a eld ofce or directly from the taxpayer or its agent,
the release should be mailed within one day.
If the release mailed to an escrow agent or title company requires payment be made prior
to its use, the CSB will maintain a proper follow-up to ensure payment is received and any
overpayment is returned. When the liability is paid, a lien release is sent directly to the
county recorder. Title companies and escrow agents who record releases without making
payment in violation of the CDTFA’s written instructions become liable for the amount they
failed to pay.
PAYMENTS BY PERSONAL CHECK — RELEASE OF LIEN 761.040
Upon payment of a liability by personal check, the 40-day period required by Government
Code section 7174(c)(2) in which to issue a lien release will be observed. This period allows
time for the personal check to be processed through the banking system and prevents a
lien release from being issued if the taxpayer’s account does not have sufcient funds. In
instances where the taxpayer is requesting a release prior to the 40-day period expiring, he
or she should be advised that a lien release will not be furnished unless the taxpayer can
present for examination the cancelled check used in making the payment. If the release is
to be delivered to the taxpayer at the time payment is made, such payment must be in cash,
money order, certied check or cashier’s check. Company checks of escrow agents or title
companies are also acceptable.
PAYMENTS BY CREDIT CARD – RELEASE OF LIEN 761.045
Credit card payments will be treated as cash payments for the purpose of lien releases.
Prior to releasing a lien for a liability paid by credit card, the payment must be veried in
the system.
RELEASE OF LIENS ERRONEOUSLY RECORDED 761.050
CDTFA is responsible for releasing liens acquired through erroneous recording of certicates
or abstracts. A lien is considered to be led in error when any of the following occur:
• The recording took place after payment in full was received for all affected periods,
with all payments effective prior to the recording date.
• All periods or bill items on the recorded lien were subsequently adjusted to zero due
to the determination that there was no ling requirement or there was no tax due
during the originally assessed period.
• The recording was led using an incorrect name, entity name, FEIN, SSN, corporation
number, or LLC number.
• The underlying liability secured by the lien was determined to have been billed in error.
• The recording was led contrary to the restrictions described in CPPM section 757.060.
Collections
August 2022
If a lien was erroneously recorded, the collector must immediately notify CSB by adding a
CSB – Miscellaneous Lien Request work item from the Customer springboard. The notes
should clearly request a free release of lien, explain why the lien was recorded in error, and
include all related details. All relevant documentation should be added as an attachment in
the system. If the request is urgent, the collector must immediately inform CSB of the new
work item by sending an email to the CSB inbox at [email protected].
The CSB will send a free release to the customer and the entity recording the lien as soon as
possible, but no later than seven days, after the determination and the receipt of erroneous
lien recording information. The release must contain a statement that the lien was led
in error. In the event the erroneous lien is obstructing a lawful transaction, the CSB must
immediately issue a free release of lien to the customer and the entity recording the lien.
When CDTFA releases an erroneously led lien, notice of the release should be mailed to
the customer and, upon the customer’s request, a copy must be mailed to the major credit
reporting companies in the county where the lien was led.
SUBORDINATION OF LIENS 761.060
Subordination of real property liens are usually requested for the purpose of:
1. Acquiring property on which a trust deed is to be executed, which is to become a
rst lien.
2. For the purpose of placing a new encumbrance on property that already stands in
the taxpayer’s name.
Subordination of a lien should not be issued merely as a convenience to the taxpayer or
without proper investigation to determine the merits of the request. In most cases, the
position of the state will not be worsened by issuing a subordination since property is to be
acquired or presently owned property will be retained.
In cases of renancing currently owned property, the taxpayer will have money coming to
them at the close of escrow. In these cases, a subordination of lien will not be given unless
there are extenuating circumstances or unless the taxpayer has agreed to have the surplus
funds from the escrow remitted directly to the CDTFA.
In all cases where a subordination of a lien is requested, the collector will send a written
recommendation, including supporting reasons, to the CSB, accompanied by the taxpayer’s
written request stating the reason the subordination is desired. The following will also be
forwarded:
Compliance Policy and Procedures Manual
November 2019
1. The date and amount of the deed of trust to be executed.
2. The names of the parties executing the deed of trust as those names will appear on
the instrument.
3. The name of the trustee.
4. The name of the party in whose favor (beneciary) the deed of trust will be executed.
5. Copy of the preliminary title report.
6. The legal description of the property as it will appear on the deed of trust (required
only if this description is different than the description contained in the preliminary
title report).
7. Schedule of proposed disbursement of funds by the escrow holder.
8. Printout of a real property search report (CoreLogic, CLEAR, Westlaw, etc.).
9. Lender’s appraisal report or statement of property value.
Each request will require a thorough investigation to assemble all of the required facts
in order to make a decision. In every case where the taxpayer has the ability to pay, no
subordination will be issued.
PARTIAL RELEASES OF LIENS 761.070
A partial release of lien, when recorded, has the effect of removing a lien from the particular
real property described in the partial release, while allowing the lien’s effect on other real
property in which the taxpayer has an interest to remain undisturbed. Partial releases are
given at the discretion of the CDTFA and their issuance is not mandatory. Releases of this
type are usually requested in those cases where the taxpayer does not have available funds
to pay the amount due, but does own more than one parcel of real estate, and is selling at
least one, but not all parcels of property owned.
Also, a partial release of lien might be requested when the taxpayer is selling his/her only
parcel of real property and the surplus funds are insufcient to pay the entire tax liability.
In this case, the taxpayer must agree to have the surplus money from the sale remitted
directly to the CDTFA in exchange for issuing a partial release of lien.
Partial releases are given only when such action will not jeopardize collection of the remainder
of the account or where the lien on other property provides adequate security. When a partial
release of lien is issued, all amounts that would normally be paid to the taxpayer in excess
of the amounts due prior lien holders plus the costs of the sale will be paid directly to the
CDTFA.
All requests for partial releases shall be transmitted to the CSB. In order for the CSB to
consider the request properly, the following is required:
1. Cover memo including recommendation and reasons in support of recommendation.
2. Taxpayer’s or escrow’s written request stating the reason the partial release is desired.
3. Lender’s appraisal report or statement of market value.
4. Copy of preliminary title report.
5. Schedule of proposed disbursement of funds by the escrow agent.
6. Printout of a real property search report (CoreLogic, CLEAR, Westlaw, etc.).
Every request for a partial release of lien requires thorough investigation. In every case where
the taxpayer has the ability to pay in full, no partial release of lien will be issued.
Collections
November 2019
RELEASE OF LIENS WHEN CDTFA RECORDS ARE DESTROYED 761.080
It is not unusual for the CDTFA to receive requests for a release of lien in cases where
records have been destroyed. When a request is received, the Taxpayer Records Unit should
be contacted to determine if they have the necessary records. If the Taxpayer Records Unit’s
records have been destroyed, responsible ofces should secure, either from the escrow agent,
title company, or from the ofce of the county recorder, all of the data necessary for the
preparation of the release. This information should then be promptly forwarded to the CSB
along with the request for the release. The required information is as follows:
1. Certicate number.
2. Name of person or persons against whom recorded, including dba, if any.
3. Amount of certicate.
4. County in which recorded.
5. Date, book, and page of recording.
In every case where a request for a release is received and records are destroyed, it must
denitely be ascertained that the certicate for which a release is requested was recorded
by the CDTFA. Failure to do so will result in unnecessary work, as well as delay for the
taxpayer, if it is later discovered the certicate was recorded by another agency.
LIENS AFFECTING PERSONS OTHER THAN TAXPAYERS 761.090
On occasion, a person with the same or very similar name as a CDTFA taxpayer may be
affected by a CDTFA lien. The person generally becomes aware of the lien when it appears
on a credit report or title report. Such persons will likely contact the CDTFA to request
assistance in resolving the problem.
When this situation arises, the rst step is to verify the person is not the taxpayer being
sought. To verify that the person contacting the CDTFA is not the taxpayer in question,
require the person to appear in one of the CDTFA’s eld ofces. The following information
is required for proper identication:
1. His or her driver license or veriable picture ID, such as from a place of employment.
2. Social security card.
3. Copies of other documents that show the social security number (e.g., payroll
documents, income tax returns).
If the above documents do not conclusively demonstrate that the person is not the taxpayer
in question, other evidence must be submitted. The collector responsible for the account
has the latitude and responsibility to work with the person to determine the acceptable
documentation verifying that he or she is not the taxpayer in question.
Compliance Policy and Procedures Manual
November 2019
Once the above documentation is obtained, the collector should photocopy the documents
and prepare a cover memo and recommendation that includes:
1. The person’s name.
2. The person’s mailing address.
3. The person’s telephone number.
4. A brief description of how the person discovered the error (e.g., credit report, title
report).
5. Any other supporting documents.
The memo and the photocopies of the documents should then be sent to the CSB where a
notarized letter (“wrong person” letter) will be prepared stating that the indicated person
is not the correct taxpayer. A cover letter is sent to the person with this notarized letter
suggesting that the person provide the notarized letter to credit reporting companies and
others who may question the lien. The letter should mitigate any future concerns or issues
regarding the lien.
Collections
July 2015
DETERMINATIONS AND ALTER EGO 764.000
DEFICIENCY DETERMINATIONS 764.010
RTC sections 6511 and 6481 for sales and use tax, and similar statutes for special taxes
and fees programs, provide that if a person fails to le a return the California Department
of Tax and Fee Administration (CDTFA) shall make an estimate of the amount of tax due,
or if the CDTFA is not satised with the return(s) led, it may compute and determine the
amount that is required to be paid. The CDTFA may compute this amount based on the
facts contained in the return(s), or any information in its possession or that may come into
its possession. One or more deciency determinations may be made for the amount due for
one or for more than one period.
Deciency determinations are subject to interest and penalties. Penalties are described in
the Revenue and Taxation Code as follows:
Section 6484* 10 percent penalty for negligence or intentional disregard of this part
or authorized rules or regulations.
Section 6485* 25 percent penalty for fraud or intent to evade this part or authorized
rules and regulations.
Section 6485.1 50 percent penalty for purchasing and registering a vehicle, vessel or
aircraft outside the State of California for the purpose of evading the
payment of taxes due under this part.
Section 6511 10 percent penalty for failure to le a return.
Section 6597 40 percent penalty for collecting but not timely remitting sales tax
reimbursement or use tax.
Section 6565* 10 percent penalty if the determination is not paid when due and payable.
*Similar Sections for special taxes and fees programs
The CDTFA must provide written notice of a determination to the tax or fee payer (taxpayer)
or other responsible person. “Written notice” means that the Notice of Determination must
fairly apprise the taxpayer of the nature of the liability covered. The Notice of Determination
is sent via U.S. mail to the person’s address as it appears in the records of the CDTFA.
Service of the notice is complete at the time of the deposit of the notice in the United States
Post Ofce, or a mailbox, sub-post ofce, substation or mail chute or other facility regularly
maintained or provided by the United States Postal Service, without extension of time for
any reason.
In lieu of mailing, a Notice of Determination may be served personally by delivering it to
the person to be served. Notice is complete at the time of delivery. Personal service to a
corporation may be made by delivery of a Notice of Determination to any person designated
in the Code of Civil Procedure to be served for the corporation with summons and complaint
in a civil action.
Any person against whom a determination is made, or any person directly interested, may
le a written petition for redetermination within 30 days from the service of the notice. If a
petition for redetermination is not led within the 30-day period, the determination becomes
nal. All determinations made under the above sections are due and payable at the time when
they become nal. If any amount of the determination is not paid when due and payable
(nal), a “nality” penalty of 10 percent shall be applied to the remaining unpaid tax or fee
portion of the determination.
Compliance Policy and Procedures Manual
April 2022
Notices of Determination issued to corporations, LLCs, and LLPs will also include a note to
educate and remind principals they may be personally liable and responsible for tax, interest,
and penalties owed by the business under RTC section 6829 if the business terminates,
dissolves or is abandoned.
JEOPARDY DETERMINATIONS 764.020
A jeopardy determination is issued when collection of the amount due is jeopardized by
delay. The request for a jeopardy determination must receive approval and signature by an
administrator or any person delegated this authority. A notice of jeopardy determination
looks identical to a deciency determination notice with the following exceptions: “Jeopardy
Notice of Determination” is printed on the face of the document, contains a bill note with
amount determined to be immediately due and payable, and states the amount of security
the taxpayer must deposit with CDTFA for the petition for redetermination of the jeopardy
determination to be considered.
A jeopardy determination may be issued:
1. For self-assessed, self-declared, or CDTFA-assessed liabilities.
2. For the same liability included in a non-nal determination, even if the non-nal
determination is in petition status.
3. For determinations issued to “Unlicensed Persons” under the Cigarette and Tobacco
Products Tax Law, the Diesel Fuel Tax Law, or the Motor Vehicle Fuel Tax Law.
The recommendation for a jeopardy determination must set forth the reason(s) why delay
will result in jeopardizing collection. To request a jeopardy determination, team members
must prepare a memo that includes the following:
1. The taxpayer’s name and address,
2. The source and status of the underlying liability,
3. The taxpayer’s overall nancial condition, including a list of all known assets and
liabilities,
4. The amount of equity available for a lien or levy,
5. The taxpayer’s present and future income potential, including the taxpayer’s ability
to earn wages or pay the liability if there is no jeopardy determination,
6. Which county or counties in which a Notice of State Tax Lien is to be led,
7. Whether or not a lien is to be recorded with Secretary of State,
8. Whether or not a warrant is being requested, which must include the name of the
person to whom the warrant is to be sent, the asset(s) to be levied upon, and the
amount of advance fees that may be required, and
9. Documentary evidence in support of a jeopardy determination.
Note: Under the Cigarette and Tobacco Products Tax Law, Diesel Fuel Tax Law, and Motor
Vehicle Fuel Tax Law, billings to “Unlicensed Persons” are required to be issued as a jeopardy
determination; therefore, the memo requesting approval does not need to include information
on the taxpayer’s overall nancial condition and their present and future income potential.
Collections
April 2022
For sales and use tax, the original request for a jeopardy determination is routed to the Field
Operations Division (FOD) Deputy Director (or designee) for approval. Jeopardy determination
requests for special taxes and fees accounts are routed to the Audit and Carrier Bureau
(ACB) Chief (or designee) for approval. If the request for a jeopardy determination is approved,
the FOD Deputy Director (or designee) or the ACB Chief (or designee) will notify Collections
Support Bureau (CSB) to proceed with any actions requested in the memo (for example,
ling liens, issuing till tap or keeper warrants).
As a guide to determine whether to request a jeopardy determination, the following are some
examples of when a jeopardy determination may be warranted:
1. Taxpayer is obviously dissipating their assets.
2. Taxpayer is placing assets in the names of other persons for purposes of concealment.
3. Taxpayer’s assets are being attached by creditors, or are in imminent danger of
attachment.
4. There is a pending sale of property which represents the last remaining assets and,
without the funds from such sale, collection is doubtful.
5. There is evidence the taxpayer intends to le a petition in bankruptcy or make an
assignment for benet of creditors.
6. There is evidence creditors intend to le an involuntary petition in bankruptcy against
the taxpayer.
7. Investigation reveals the business is easily shut down or relocated because the only
assets are limited inventory and cash.
8. The business is operating in violation of local and/or state laws and is imminent danger
of being shut down and all assets seized by law enforcement or regulatory agencies.
Determinations of this type are:
i. Due and payable immediately.
j. Exempt from the following provisions of the Taxpayers’ Bill of Rights:
a. RTC section 7094 (or similar section for special taxes and fees), except that the
Taxpayers’ Rights Advocate may exercise their authority under these statutes if
the ultimate collection of the amount due is no longer in jeopardy.
b. RTC section 7097(a) (or similar section for special taxes and fees).
k. Subject to the use of all collection remedies as of the date they are served, either
personally or by mail.
Similar to deciency determinations, any person against whom a jeopardy determination
is issued has the right to petition for redetermination. However, in the case of a
jeopardy determination the petition for redetermination must be led within 10 days
following the issuance of the Notice of Jeopardy Determination. Within the same 10-
day period, the person must post such security as may be deemed necessary by CDTFA
(see CPPM 445.000 et seq.). If the jeopardy determination remains unpaid 10 days from
the date of issuance and a petition for redetermination has not been led, an additional 10
percent penalty will be added, except when a jeopardy determination is made against an
existing self-assessed or CDTFA-assessed nal liability that has already been assessed the
10 percent penalty.
Compliance Policy and Procedures Manual
November 2016
A jeopardy determination is, in itself, an indication that collection will be jeopardized by
delay. Therefore, the ofce responsible for the account must give priority to their collection
efforts, making full and prompt use of appropriate collection remedies, which may include
the seizure of a taxpayer’s personal property. If personal property is seized, the sale of the
property must be delayed until an administrative hearing is either granted or denied. If the
taxpayer does not request an administrative hearing, a 30-day period must elapse between
the date of service of the jeopardy determination and the date of sale of seized assets.
DUAL DETERMINATIONS — GENERAL 764.030
A “dual determination” is a determination made against a person for a tax liability that
is also the obligation of another person. Dual determinations may be based upon the full
amount of tax owed by the other person or for a portion thereof, depending on the specic
circumstances. The liability may be based upon either self-assessed or CDTFA–assessed tax.
Some examples of circumstances where a dual determination may be issued include the
following:
• More than one determination may be issued when there is doubt as to the true
ownership of a business or when the true ownership cannot be established.
Determinations for the same liability are made against each of the entities that
investigation discloses could have operated the business and incurred the liability.
• Dual determinations are also issued whenever a person holding a permit or license
sells the business or otherwise changes the ownership without notication to the
CDTFA, allowing the succeeding entity to continue the business using the permit or
license issued to the original operator (see CPPM section 734.000).
• Dual determinations may be issued when a purchaser of a business or stock of goods
fails to withhold a sufcient amount of the purchase price to cover the tax liability of
the seller (see CPPM section 732.000).
• Dual determinations may be issued against corporate ofcers for an unpaid tax liability
incurred while the corporation is suspended (Sales and Use Tax accounts only, see
CPPM section 764.060).
• In certain circumstances, a dual determination for personal liability may be issued
against a corporate ofcer, or shareholder, or any responsible person under RTC
section 6829 (Sales and Use Tax accounts only, see CPPM section 764.080).
Regardless of how many additional entities or persons have been issued a dual determination
for the original liability, the liability is posted to the accounts receivable only one time.
The collector in the ofce responsible for collection of the account has the responsibility
of fully substantiating a dual determination case and bringing it to the attention of the
appropriate section so a dual determination may be issued. For Sales and Use Tax accounts,
the Collections Support Bureau (CSB) or Audit Determination and Refund Section (ADRS)
will review the information provided by staff and determine whether sufcient documentation
has been provided to support the issuance of a dual determination.
DUAL DETERMINATIONS — STATUTORY PROVISIONS 764.040
Dual determinations may be issued against a dualee for some or all of the unpaid liabilities
of the primary taxpayer for any periods for which the statute of limitations have not expired.
Collections
May 2023
DUAL DETERMINATIONS — PENALTY 764.050
When a dual determination is issued against a dualee (secondary account), all penalties
assessed to the primary account included in the periods of liability subject to the dual
determination will be included in the determination assessed against the dualee, including
any nality penalty assessed to the primary account. However, if the dualed liability is not
paid before its nality date, it does not accrue an additional nality penalty. Additionally, if
relief of penalty is granted under the primary account for periods that have been assessed
to a dualee, the liability assessed to the dualee will be reduced by the same amount.
DUAL DETERMINATION INITIATED FROM AN AUDIT 764.055
When an auditor determines that a dual determination may be appropriate, the audit team
must work with the compliance team. The audit supervisor noties the compliance team via
the Audit Case Assistance work item. The work item must include:
• Type of dual determination to be issued (Successor, Predecessor, Suspended
Corporation, Responsible Person Liability, or Questionable Ownership)
• Name and TIN if the dualee is already registered
• If dualee is not registered, request the compliance team register the dualee and link
the dualee to the account being audited (must include dualee’s name, address, and
other identication information obtained during the audit).
The Compliance Principal, or designee, assigns the work item to a compliance team member
to potentially register the dualee and create the Dual/Secondary Billing case once the audit
is complete. The team member must discuss with their supervisor, providing that sufcient
evidence exists for a Dual/Secondary Billing, before the Customer is linked in the system
with their social security number. This will prevent the system from retrieving any Federal
Tax Information (FTI) that is not authorized for business purposes. If there is any doubt
as to whether the Dual/Secondary Billing case will be billed, the Customer should not be
linked with any social security information.
The collector drafts the dual memo with both team members (compliance and audit) ensuring
the memo is complete and accurate. It is imperative that, during the audit, the auditor
obtains the documentation necessary to complete the dual billing.
For responsible person liability (RTC section 6829), the collector may have to perform further
investigation to complete and prepare the dual memorandum. If the business is already closed,
the auditor must inform the compliance team once the audit is assigned, as the statute of
limitations for RTC section 6829 dual determinations is based on the date CDTFA obtains
actual knowledge, through its audit or compliance activities, or by written communication
by the business or its representative, of the termination, dissolution, or abandonment of
the business. If necessary, to avoid expiration of the statute of limitations, the audit billing
may need to be expedited.
For all other audits with dual determinations, auditors must inform the collector once the
audit is posted and billed so the collector can create and complete the Dual/Secondary Billing
case to issue the dual billing. See the CPPM section 295.091 for guidelines on registering
a customer for a dual determination. For more information on audit procedures, see Audit
Manual section 0209.00.
Compliance Policy and Procedures Manual
July 2015
DUAL DETERMINATION AGAINST CORPORATE OFFICERS SUSPENDED
CORPORATION 764.060
Sales and Use Tax Regulation 1702.6 provides for the personal liability of:
1. A corporate ofcer or shareholder with control over operations or management of a
closely held corporation during a time in which the corporation’s powers, rights, and
privileges are suspended.
2. Any responsible person who fails to pay or to cause to be paid any taxes due from a
closely held corporation during a time in which the corporation’s powers, rights, and
privileges are suspended.
Personal liability shall extend to the unpaid tax, interest and penalties regardless of the basis
for the suspension of the corporation’s powers, rights, and privileges. However, personal
liability under this regulation applies only when the CDTFA establishes that, during the
period of suspension, the corporation:
1. Sold tangible personal property in the conduct of its business and collected sales tax
reimbursement on the selling price (whether separately itemized or included in the
selling price) and failed to remit such tax when due, or
2. Collected use tax and failed to report and pay the tax, or
3. Consumed tangible personal property and failed to pay the applicable tax to the seller
or the CDTFA.
When the evidence shows that tax reimbursement was the normal operating procedure of the
corporation, a dual determination may be issued against the corporate ofcers of a suspended
corporation. However, any liability determined against the corporate ofcer(s) must have been
incurred by the corporation during the period during which it was suspended. Photocopies
of evidence examined (if available) substantiating such procedures must be attached to the
request to issue a dual determination.
Certain audit liabilities are subject to corporate suspension duals, depending on the basis for
the audit. If the basis is underreported sales, and it is the normal operating procedure of the
corporation to collect sales tax, then it can be inferred that the corporation reimbursed itself
for the audited taxable measure. If the basis for the audit is disallowed sales for resale or
disallowed sales in interstate commerce, it cannot be assumed that the corporation received
reimbursement for the audited taxable measure. In this case, the audit measure may need
to be separated into liabilities which are subject to dual determination and liabilities which
are not.
A suspended corporation remains liable for the unpaid tax, interest, and penalties incurred
during the period in which its corporate powers, rights, and privileges were suspended,
without regard to any personal liability determined against corporate ofcers or shareholders.
Collections
764.060
“Responsible Person” means any ofcer or shareholder who is charged with the responsibility
for ling returns or payment of tax or who has a duty to act for the closely held corporation
in complying with any provision of the Sales and Use Tax Law and who derives a direct
nancial benet from the failure to pay the tax liability.
“Closely held” corporation means one in which ownership is concentrated in one individual,
one family, or a small number of individuals and the majority stockholders manage the
business.
“Control over operations and management” means the power to manage or affect day-to-day
operations of the business.
PROCEDURES TO ESTABLISH A CORPORATE SUSPENSION DUAL
DETERMINATION 764.070
A corporate suspension dual may be established even if the seller’s permit is still active.
Complete each of the following steps before submitting a request for a dual determination
to ADRS:
1. Establish that the corporation has been/was suspended by accessing Secretary of State
(SOS) corporate information in the system or the SOS website. Relevant information
that can be obtained through the Secretary of State includes FTB ling history, the
Federal Employer Identication Number (FEIN), the Corporate Number, the date of
incorporation, the date of suspension (if any) and the ling and payment history for
the corporation’s income taxes.
2. Establish that the statute of limitations has not expired for the liability in question.
3. Establish that the liability to be assessed against the corporate ofcers was incurred
by the corporation during the suspension period.
4. Establish that the corporation is a closely held corporation by showing that:
a. The ownership is concentrated in one person, a family, or a small group of
individuals.
b. The majority stockholders also managed the business.
c. The corporate minutes are inadequate.
5. Establish that the corporation received tax reimbursement. This can be determined
in a number of ways:
a. Review previous sales tax returns for line 9 entries (sales tax included on line
1). Copies of prior tax returns can be ordered from the Taxpayer Records Unit if
necessary, or the information can be printed from the system.
b. Review the audit comments on previous audits, including the CDTFA–1296,
Account Update Information.
c. Send a CDTFA–1508, Dual Determination Information Request (Offer) to each of the
former corporate ofcers. A current statement of corporate ofcers can be obtained
from the Secretary of State.
d. Send a CDTFA–1509, Dual Determination Information Request (Employee), to a
few ex-employees of the corporation. A list of employees can be obtained from an
external access request for payroll tax return data reported to EDD.
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Compliance Policy and Procedures Manual
e. Send a CDTFA–1510, Dual Determination — Customer Affidavit, to any
previous customers of the corporation. Customers can be found from
previous audits, bankruptcy mailing matrices or contact with ex-employees.
If investigation does not reveal whether or not sales tax reimbursement was
collected on the transaction for which the tax was due, a dual determination may
be issued against the corporate ofcers only if there is evidence showing that
the corporation’s normal operating procedure was to include or add sales tax
reimbursement. If it is known, or there is a strong presumption as in the case of
disallowed deductions, that sales tax reimbursement was not collected, we should
not include such sales in the dual determination. Transactions included under
the “normal operating procedure” rationale that are later discovered not to include
tax reimbursement must be deleted from the determination.
6. Ascertain the responsible individual who is charged with the ling and paying of taxes
and other liabilities, or supervision of such employees, by:
a. Reviewing the information in the le and in collection notes.
b. Contacting ex-employees of the corporation and asking them to complete a
CDTFA–1509.
c. Contacting responsible corporate ofcers and other corporate ofcers and asking
them to voluntarily complete a CDTFA–1508.
d. Checking audit comments for any mention of responsible corporate ofcers,
including the CDTFA–1296.
e. Checking previous sales tax returns and ordering corporate income tax returns.
f. Checking copies of previous checks used to pay sales tax returns for signatures.
g. If the corporation led bankruptcy, checking the bankruptcy court le for a
“Statement of Financial Affairs.” This statement can provide a wealth of information
including references to payments to corporate ofcers and major creditors in the
period prior to the bankruptcy petition, and it is signed under penalty of perjury
by the responsible ofcer.
h. Considering a subpoena of bank records to determine who signed checks. This
tool is effective, but it is costly and time consuming. Given the added expense of
a subpoena, other elements of the dual should be veried rst.
7. Prepare an interofce memorandum requesting a corporate ofcer dual determination
and send it to ADRS along with documentation of the above items.
WHEN A CORPORATE SUSPENSION DUAL DETERMINATION SHOULD BE
ISSUED 764.072
Corporate suspension dual determinations under Regulation 1702.6 should only be issued
if the corporation’s seller’s permit is still active with no near-term expectation of being closed
out (e.g., the corporation remains suspended but is solvent and capable of revival).
Additionally, for reporting periods during which the corporation was suspended, corporate
suspension dual determinations should only be pursued within three years of the suspension
date or three years from the date of the liability, whichever is later. Approval of all corporate
suspension dual determinations should be made by the Assistant Chief of Field Operations
or section supervisor prior to the request being forwarded to ADRS for billing.
If the corporation’s seller’s permit is closed, only a dual determination under Revenue and
Taxation Code section 6829 should be considered.
August 2016
Collections
PERMIT OF A SUSPENDED CORPORATION 764.074
If a corporation is suspended by the Franchise Tax Board (FTB) or Secretary of State (SOS),
the corporation’s seller’s permit should remain active until it has been determined that
the corporation is no longer doing business. Staff should not close out the corporation’s
seller’s permit and issue a new permit to an individual or a partnership solely because the
corporation is suspended.
DUAL DETERMINATIONS UNDER RTC SECTION 6829
STATUTORY PROVISIONS 764.080
Revenue and Taxation Code (RTC) section 6829 and Regulation 1702.5 set forth the
requirements for holding a responsible person personally liable for unpaid sales and use
tax, interest, and penalties owed by a corporation, partnership, limited partnership, limited
liability partnership or limited liability company (entity). To issue a Notice of Determination
(NOD) for personal liability under RTC section 6829, each of the following four elements
must be satised:
1. Termination (see CPPM 764.120) - Personal liability can only be imposed if there
is a termination, dissolution, or abandonment of the business of an entity (RTC
section 6829(a), Regulation 1702.5(a)). Termination of an entity’s business includes
discontinuance or cessation of business activities (Regulation 1702.5(b)(3)).
2. Sales Tax Reimbursement and Use Tax (see CPPM 764.130) - Personal liability
can only be imposed if CDTFA establishes that, while the person was a responsible
person, the entity:
a. Sold tangible personal property in the conduct of its business and collected sales
tax reimbursement on the selling price (whether separately itemized or included
in the selling price) and failed to remit such tax when due; or
b. Consumed tangible personal property and failed to pay the applicable tax to the
seller or CDTFA, or
c. Included use tax on the billing and collected the use tax or issued a receipt for use
tax and failed to report and pay the tax (RTC section 6829(c), Regulation 1702.5(a)).
3. Responsible Person(s) (see CPPM 764.140) - Personal liability can be imposed only on
a responsible person (RTC section 6829(a)). “Responsible person” means any ofcer,
member, manager, employee, director, shareholder, partner, or other person having
control or supervision of, or who is charged with the responsibility for, the ling of
returns or the payment of tax or who has a duty to act for the entity in complying
with any provision of the SUT Law (RTC section 6829(a), Regulation 1702.5(b)(1)).
Additionally, the responsible person shall be liable only for transactions where the
taxes became due during the periods they had the control, supervision, responsibility,
or duty to act for the entity, plus the interest and penalties on those taxes (RTC
section 6829(b)).
4. Willfulness (see CPPM 764.150) - Personal liability can be imposed on a responsible
person only if the person willfully failed to pay or to cause to be paid taxes due from
the entity (RTC section 6829(a), Regulation 1702.5(a)). “Willfully fails to pay or to
cause to be paid” means that the failure was the result of an intentional, conscious,
and voluntary course of action (RTC section 6829(d), Regulation 1702.5(b)(2)), and
this failure may be willful even though such failure was not done with a bad purpose
or evil motive (Regulation 1702.5(b)(2)).
Accordingly, if these four elements are not established, then an NOD for personal liability
under RTC section 6829 cannot be issued.
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Compliance Policy and Procedures Manual
RTC SECTION 6829 OVERVIEW OF PROCESS 764.090
Once an entity’s permit is closed in the system and the closed entity has an outstanding
liability, the collector works the account to obtain payment for the entity’s outstanding
liability.
Upon reviewing the case notes and le material, the collector contacts ofcers/members/
partners/potential responsible persons of the closed entity to request that the entity pay the
outstanding liability in full or enter into a payment agreement. The collector must determine
and document in the system the date of knowledge of the termination (see CPPM section
764.100) immediately upon close out of the account to ensure that a dual determination, if
applicable, may be issued within the statute of limitations.
The collector must discuss RTC section 6829 and its implications with respect to personal
liability should the outstanding liability of the entity remain unpaid with all ofcers/members/
partners/potential responsible persons. The effort to speak with all potential responsible
persons must be documented in the system. To expedite payment of the closed entity’s
liability, the collector also determines if there are any outstanding assets of the closed entity
that can be used to pay down the liability. The collector determines whether other avenues
of collection are available and whether these avenues have already been investigated (e.g.,
successor liability). Note that before and after a dual determination is issued pursuant to
section 6829, collection efforts against the closed entity should continue to be pursued.
The collector reviews the evidence obtained and gathers additional evidence to determine
whether one or more dual determinations under RTC section 6829 are warranted. If the
evidence supports a nding that it is more likely than not that all four requisite elements
of RTC section 6829 have been established (i.e., termination, sales tax reimbursement/
use tax liability, responsible person, and willfulness), the collector prepares a request for a
dual determination. The evidence must be summarized in a memo and include supporting
documentation. The memo, supporting documentation, and completed CDTFA-1512, Dual
Liability Billing Worksheet, must be attached to the case in the system.
A designated reviewer at the level of Business Taxes Specialist I (BTS I) or above is then
assigned to review the request. If the reviewer concurs that, based on the existing evidence,
the four requisite elements have been established, the reviewer enters an approval note,
creates the dual billing case and stages the case to Supervisor Approval. If not approved,
the reviewer enters a note and returns the case to the collector for further consideration
and research.
After review by the designated reviewer and the case staged to Supervisor Approval, the
second level approver, Business Taxes Administrator I (BTA I) or above, reviews the dual case.
If the supervisor approves the dual, the supervisor enters a note, completes the Supervisor
Approval work item, and sends the CDTFA-1515, Notice of Proposed Determination, to each
potential responsible person (see CPPM section 764.170). If the supervisor does not approve
the dual, they will add a note that it is not approved and return the case to the collector for
additional work.
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Collections
The CDTFA-1515 letter allows a potential responsible person who receives it an additional 15
days to provide evidence that may warrant further investigation as to whether one or more of
the requisite elements could potentially be disproved for any of the reporting periods at issue.
If the CDTFA-1515 is sent and fewer than 15 days is provided, the supervisor must enter an
explanation in the notes (for example, that the statute of limitations is approaching). In the
case that fewer than 15 days is provided, additional attempts to contact the responsible person
should be made to advise that they may continue to provide records even after the billing
date to support their position that they were not responsible, but should also be advised of
the procedures for ling a petition for redetermination once the Notice of Determination has
been issued.
If a potential responsible person responds to a CDTFA-1515, after any additional investigation
that is warranted is completed, and if one or more of the requisite elements have been
successfully disproved for any of the reporting periods at issue, the request for the dual
determination is modied or withdrawn, as appropriate.
If, after additional investigation and taking into account any evidence received in response to
the CDTFA-1515, the reviewer believes the totality of the evidence still supports a nding that,
for any of the reporting periods still at issue, it is still more likely than not that all four of the
requisite elements have been established, the request for the dual determination is revised, as
needed, and nalized. If the potential responsible person does not respond to the CDTFA-1515
or responds and no information is brought forth for consideration, the NOD is automatically
generated 30 days after the CDTFA-1515 is printed. The NOD can also be staged manually
15 days after the CDTFA-1515 is printed if warranted. In the event the NOD is not issued,
the collector is required to send a CDTFA-1516, Cancellation of Proposed Determination, to
the responsible person(s).
An RTC section 6829 dual determination should still be investigated and billed in cases where
the closed entity’s liability is non-nal (i.e., the entity led a timely petition). However, when the
closed entity’s underlying liability is non-nal, collection efforts against the responsible person
will be suspended until the entity’s liability is nal. Additionally, if during the investigative
process, the collector discovers situations involving bankruptcy, assignment for the benet of
creditors, receivership, or probate, they should consult with the Collections Support Bureau
(CSB) for guidance (see also CPPM section 740.000).
STATUTE OF LIMITATIONS FOR RTC SECTION 6829 DUAL
DETERMINATIONS 764.100
Under RTC section 6829, an NOD must be mailed within three years after the last day of the
calendar month following the quarterly period in which CDTFA obtains actual knowledge,
through its audit or compliance activities, or by written communication by the entity or its
representative, of the termination, dissolution, or abandonment of the entity’s business
activities, or, within eight years after the last day of the calendar month following the quarterly
period in which the entity’s business activities were terminated, dissolved, or abandoned,
whichever period expires earlier.
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Compliance Policy and Procedures Manual
The collector cannot rely solely on the cease date as shown in CDTFA’s electronic records
as the date that CDTFA obtained actual knowledge of the termination, dissolution, or
abandonment of the entity’s business activities (closeout). The following sources, although
not exhaustive, should be reviewed to determine CDTFA’s date of knowledge (DOK) of the
closeout:
1. System notes.
2. Audit information on CRM Notes and CRM Attachments from the Audit springboard.
3. Documents the system or in Documentum for the following:
a. Hardcopy returns where the entity may have indicated when the business closed
(for lers who did not le online).
b. Correspondence from the entity or a CDTFA-65, Notice of Closeout.
4. Successor’s application for a seller’s permit to determine whether the successor
indicated it had purchased the business.
5. PACER for any relevant bankruptcy or legal lings of the entity where CDTFA was
properly noticed as a creditor.
The statute of limitations can be determined once the DOK of the closeout is determined. Most
commonly, the statute of limitations is three years after the last day of the calendar month
following the quarterly period in which CDTFA obtained actual knowledge of the closeout
of the entity’s business activities. For example, if the DOK of the closeout is identied as
5/12/22, then the statute of limitations would expire on 7/31/25. If the DOK of the closeout
is determined to be 10/5/22, then the statute of limitations would expire on 1/31/26.
ESTABLISHING AN RTC SECTION 6829 DUAL DETERMINATION –
GENERAL 764.110
When investigating whether a dual determination under RTC section 6829 is warranted, the
investigation of the case should focus on answering the following questions:
1. Were the entity’s business activities terminated, dissolved, or abandoned?
2. For the period(s) of liability, who was responsible for sales and use tax matters while
the sales occurred and when the taxes became due?
3. Is there evidence of sales tax reimbursement collected but not remitted? Is there
evidence of the collection of use tax and the failure to report and pay the tax? Is there
evidence of the consumption of tangible personal property and the failure to pay the
applicable tax?
4. Is there evidence of willfulness?
All information and documentation received throughout the investigation should be retained
and all relevant documentation must be included in the dual determination request submitted
by the collector. This includes information and documentation obtained from the potential
responsible person as well as evidence that appears to be contradictory or exonerating in
nature. Unhelpful or irrelevant documents should not be included in the request but should
be retained in case the documents need to be considered later.
These investigations are ndings of fact for each of the four elements and not all investigations
will include/result in the same types of evidence. However, all evidence included in the dual
determination request must support a nding that it is more likely than not that all four
requisite elements for holding a responsible person personally liable under RTC section
6829 have been met.
May 2023
Collections
May 2023
s
The following actions, although not exhaustive, will assist the collector in obtaining payment
for the entity’s outstanding liability and starting their investigation of whether an RTC section
6829 dual determination is warranted (not all actions are required and depend on the nature
of the business and what evidence is already available in CDTFA records, including the Data
Warehouse):
1. Contact and interview ofcers/members/partners/potential responsible persons
found in the system and make them aware of the entity’s outstanding liability. When
discussing the entity’s outstanding liability with these persons, the collector should
request that the entity pay the outstanding liability or enter into a payment agreement.
2. Discuss RTC section 6829 and its implications with respect to personal liability for the
entity’s outstanding liability with ofcers/members/partners/potential responsible
persons.
3. Determine if there are assets of the entity that can be used to reduce or pay the liability
in full (liquor license, vehicles, vessels, machinery and equipment, funds in a bank
account, deposits with creditors, etc.).
4. Determine whether there is a successor and request a dual billing if appropriate.
5. Determine if the entity has been merged or converted into another entity. If there is
a conversion or merger, see CPPM 726.033 for more information on how to proceed.
6. If the entity does not pay the outstanding liability and does not enter into a payment
agreement, collection action should be initiated against the entity (le liens, clear
delinquencies, send levies, place withhold on Alcoholic Beverage Control (ABC) liquor
license, etc.).
7. Apply liquid security or make demand on Surety Bond if appropriate (see CPPM
735.035).
8. Send relevant questionnaires to ofcers/members/partners, employees, CPAs,
landlords, suppliers, creditors, and any other person or entity that may have
information about the operation of the business (e.g., CDTFA-1508, Dual Determination
- Responsible Person Questionnaire, CDTFA-1509, Dual Determination - Business
Operations Questionnaire, CDTFA-1510, Dual Determination – Customer Afdavit, or
CDTFA-1511, Dual Determination - Creditor/Supplier/ Landlord). These questionnaires
may be used for purposes of determining the four elements of an RTC section 6829
dual determination (see CPPM 764.120, 764.130, 764.140, and 764.150).
9. Request, record, and retain EDD information pertaining to wages reportedly paid to
employees, names of the employees, and those listed as contacts for the entity with
EDD. Such information may be used for purposes of determining who the corporate
ofcers are and whether the entity made payments to creditors other than CDTFA
during the periods at issue (see CPPM 764.150).
10. Request, record, and retain DMV information for the entity’s account to determine the
vehicles currently or previously owned and whether there are collection opportunities
available.
11. Request, record, and retain CLEAR public record reports on the entity and on the
ofcers/members/partners listed. The reports provide current and historic public
record information on individuals and businesses including addresses, telephone
numbers, asset information, Uniform Commercial Code (UCC) lings and court
lings. Take any necessary actions based upon information contained in the reports
(e.g., collection efforts on the entity’s assets or an RTC section 6829 investigation for
ofcers/members/partners listed).
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12. Request, record, and retain information obtained from Documentum.
13. Audit work papers in CRM notes and CRM attachments from the Audit springboard
(if applicable).
14. Request, record, and retain state income tax returns for the entity and ofcers/
members/partners for purposes of revealing titles and ownership interest in the entity.
In addition, the tax returns provide information regarding the entity’s purchases
and expenditures during the year (e.g., cost of goods sold, wages, rent, repairs and
maintenance, advertising, etc.).
15. Review, record, and retain any relevant information from PACER for the entity and
ofcers/members/partners/potential responsible persons for useful information (e.g.,
bankruptcy lings or civil lings by the entity or potential responsible persons).
ESTABLISHING THE ELEMENTS OF AN RTC SECTION 6829 DUAL
DETERMINATION - TERMINATION, DISSOLUTION, OR ABANDONMENT 764.120
The Department must establish that the entity’s business has been terminated, dissolved,
or abandoned. Termination of an entity’s business includes discontinuance or cessation
of business activities. “Business activities” refers to the activities for which the entity was
required to hold a seller’s permit or certicate of registration for the collection of use tax.
There is no requirement that the entity itself cease to exist or even cease doing business in
some other manner or in some other state.
Various sources should be used to verify that the entity’s business activities have been
terminated, dissolved, or abandoned. Generally, more than one piece of evidence may be
necessary to establish this element. All available evidence should be considered; however,
certain sources will generally be given more weight than other sources. Sources that are
generally entitled to greater weight are in bold. Sources include, but are not limited to:
1. System notes.
2. CDTFA-65, Notice of Closeout
3. Statement of Financial Affairs for Corporate and Personal Bankruptcy ling
(from PACER).
4. Interviews with ofcers/members/employees/potential responsible persons.
5. Information/documentation provided by suppliers, creditors, or landlord.
6. Information/documentation provided by neighboring businesses.
7. Information/documentation provided by the successor.
8. Bank statements.
9. Audit information in CRM Notes and CRM Attachments from the Audit
springboard.
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ESTABLISHING THE ELEMENTS OF AN RTC SECTION 6829 DUAL
DETERMINATION – SALES TAX REIMBURSEMENT AND
USE TAX LIABILITY 764.130
The Department must establish that, while the person was a responsible person, the
entity sold tangible personal property in the conduct of its business and collected sales tax
reimbursement on the selling price (whether separately itemized or included in the selling
price) and failed to remit such tax when due; or consumed tangible personal property and
failed to pay the applicable tax to the seller or CDTFA, or included use tax on the billing
and collected the use tax or issued a receipt for use tax and failed to report and pay the tax.
For purposes of sales tax reimbursement and use tax collection, the Department has the
burden to establish that it was the general business practice of the entity to collect sales tax
reimbursement or use tax during the time that the person was a responsible person.
Various sources should be used to verify the collection of sales tax reimbursement or use
tax due on the consumption of tangible personal property without the payment of use tax.
Generally, more than one piece of evidence will be necessary to establish this element,
although multiple pieces of evidence from one of the following sources may be sufcient (for
example, questionnaires or afdavits from separate parties). All available evidence should be
considered although some sources will generally be given more weight than other sources.
Sources that are generally entitled to greater weight are in bold.
Sales Tax Reimbursement and Use Tax Collection – Sources include, but are not limited to:
1. System notes for statements made by ofcers/members/ partners/employees/
potential responsible persons that sales tax reimbursement or use tax was collected.
System notes may provide information regarding other persons to contact that are
knowledgeable about the entity’s sales and use tax matters. (Depending on the
circumstances, a comment from the responsible party with information about how
sales tax was collected and recorded, if particularly detailed, may be sufcient for
billing purposes.)
2. Sales and use tax returns should be analyzed to determine if a line 9 deduction
(sales tax (if any) included on line 1) has been taken. Review all sales and use tax
returns (or return information) for the periods of liability to see if the returns had a
line 9 deduction (sales tax included in line 1 gross sales). If returns are not available
for the periods of liability, the collector may review returns led prior to or subsequent
to the periods of liability to determine if it was normal operating procedure for the
entity to collect sales tax reimbursement.
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May 2023
3. Audit notes or documentation for existing or prior audits, re-audits, and petition
materials of the entity for information about whether the entity collected sales
tax reimbursement or use tax. If the entity’s unpaid liability is the result of an audit,
ensure that the audit is thoroughly reviewed and that the auditor is consulted when it is
unclear whether an audit item includes sales tax reimbursement or use tax collection.
(See CRM Notes in the Audit springboard.) However, there is no requirement that the
audit was conducted on an actual basis to establish that sales tax reimbursement
or use tax was collected. Audits based on samples, mark-ups, or other accepted
methodologies are adequate to establish that sales tax reimbursement or use tax was
collected if there is sufcient information to establish that it was the entity’s practice
to collect the applicable tax on all taxable sales. If, after fully investigating the matter,
substantial uncertainty exists with respect to whether an audit item includes evidence
of sales tax reimbursement or use tax collection, the benet of the doubt should be
given to the potential responsible person. Audit documentation may also include
receipts or invoices which may show that sales tax reimbursement or use tax
was added to the selling price. An auditor may complete a CDTFA-1296, Account
Update Information, which may indicate whether sales tax reimbursement was included
or added to the selling price.
4. Receipts and invoices in Documentum.
5. CDTFA-1508, Dual Determination – Responsible Person Questionnaire completed by
the former corporate ofcers/members/partners. The source(s) and details provided
may make this strong evidence.
6. CDTFA-1509, Dual Determination – Business Operations Questionnaire completed by
employees, bookkeepers and CPAs or any other person that the investigator believes
through a review of the case notes and interviews with ofcers/members/partners
may have had knowledge of the business operation. The source(s), number, and details
provided may make this strong evidence.
7. CDTFA-1510, Dual Determination – Customer Afdavit completed by customers of the
entity. Customers can be found from previous audits, bankruptcy mailing matrices,
contact with ex-employees, or internet sources.
8. Information from the landlord. The landlord may have direct knowledge of whether
the entity added sales tax reimbursement to or collected use tax on its sales.
The landlord may have documents that support sales tax reimbursement or use
tax collection, such as abandoned records, receipts, menus, advertisements,
ledgers, etc.
9. An entity’s online menus, website, online Shopping Cart, or customer reviews on
online review forums (for example, Yelp) may provide information that sales tax
reimbursement or use tax was collected on taxable sales.
10. Advertisements, menus, brochures, price listings, or sales contracts.
11. Merchant credit card processor records may reveal charges that appear to include
the base charge plus tax.
12. The entity’s books and records and ledgers.
13. City business license applications may ask whether sales tax reimbursement will be
collected.
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14. Businesses that are a franchise may provide information as to whether the cash
registers are programmed to charge sales tax reimbursement on taxable sales,
or may have records available to support that sales tax reimbursement or use
tax was added to or included in the selling price.
15. If the Tax Investigations and Inspections Bureau has conducted an investigation
on the entity, the collector can request access to the records under their control.
Receipts or invoices that support the collection of sales tax reimbursement or
use tax may be available.
16. Tax advice letters issued to the entity that explain the application of the SUT Law to
the entity’s facts when the request for advice stated that sales tax reimbursement or
use tax was collected.
Use Tax Liability for Self-Consumption of Tangible Personal Property – Sources include,
but are not limited to:
1. Sales and use tax returns should be analyzed to determine if the entity reported
purchases subject to use tax on Line 2 of the returns.
2. Audits, re-audits, and petition materials of the entity that disclose use tax
liabilities for consumption of tangible personal property.
ESTABLISHING THE ELEMENTS OF AN RTC SECTION 6829
DUAL DETERMINATION – RESPONSIBLE PERSON 764.140
The Department must establish that the person to be dualed is a responsible person. A
responsible person is any person having control or supervision of, or who is charged with
the responsibility for, the ling of returns or the payment of tax or who has a duty to act for
the entity in complying with any provision of the SUT Law. However, it does not include any
person who would otherwise qualify but is serving in that capacity as an unpaid volunteer
for a non-prot organization.
A responsible person may be personally liable for taxes that became due during the reporting
period(s) in which he or she had the control, supervision, responsibility, or duty to act
for the entity, plus interest and penalties on those taxes. Such liabilities may arise from
unpaid or partially paid sales and use tax returns or prepayments, audits, and compliance
assessments. The responsible person is also personally liable for taxes that become due
after the entity closes. Therefore, in instances where the entity closes prior to the due date
of the nal quarter, the responsible person is responsible for the payment of the nal return.
However, a responsible person is not liable for a liability owed by an entity that is the result
of a successor billing issued to that entity.
A responsible person is personally liable only for liabilities arising from taxable sales and
uses that occurred while the person was a responsible person. As such, when the sales
and use tax liability is determined by an audit of the entity, liability can be imposed on a
responsible person only with respect to the taxable sales or uses that occurred while the
person was a responsible person. When a person is a responsible person for a partial period
(e.g., the person became a responsible person in the middle of a quarter), a proration must
be made with respect to the tax, interest and penalties on those taxes. For example, for a
sales-tax-related liability for an entity that ceased business operations on 10/15/22, if a
person was only a responsible person for the period 5/15/22 through 7/31/22, and provided
all the other requisite elements were established, the Department could only issue a dual
determination to this person for the period 5/15/22 through 6/30/22.
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May 2023
The fact that a person possesses a title such as corporate ofcer, partner, or member, in and
of itself, is not grounds for holding the person personally liable. RTC section 6829 is meant
to cut through the organizational form of the corporation or other type of entity and impose
liability upon those persons actually responsible for the entity’s compliance with the sales
and use tax laws. The mechanical duties of signing checks and preparing sales and use tax
returns may not alone be determinative. As a result, investigation into determining whether
a person is a responsible person is a fact-nding mission whereby the collector exhausts
resources available to them in order to determine whether the person was more likely than
not responsible for the entity’s sales and use tax compliance for the reporting period(s) in
question. The most compelling evidence is often obtained from corporate ofcers/members/
partners and other individuals having direct involvement in the day-to-day operations of the
entity’s business. For this reason, contact with such individuals is imperative to gaining a
full understanding of the circumstances that led to the taxes not being paid.
Various sources should be used to determine if a person is a responsible person. Generally,
more than one piece of evidence will be necessary to establish this element. Therefore, all
available evidence should be considered; however, certain sources will generally be given
more weight than other sources. Sources that are generally entitled to greater weight are in
bold. Sources include, but are not limited to:
1. Notes in the system (including, but not limited to, notes on Account, Customer, Audit,
and Collection springboards) documenting conversations regarding repayment of the
entity’s outstanding liabilities and who the team member spoke with. In particular,
system notes that indicate the speaker, or some other person, was a person
responsible for the entity’s sales and use tax compliance.
2. Signed sales and use tax returns and prepayment forms. If the sales and use tax
returns and prepayment forms are signed by a Paid Preparer, then attempts should
be made to contact the Paid Preparer in an effort to determine who was responsible
for the non-payment of tax.
3. Signed CDTFA-555-EFT, Authorization Agreement for Electronic Funds Transfer (EFT).
4. Seller’s Permit Application, which lists persons in an ofcer/member capacity.
The signature on the application should also be considered. Note: the list of ofcers
on the seller’s permit application may be outdated, with different ofcers in place
during the periods of liability.
5. Person that signed or appears on the entity’s lease agreement.
6. Person that signs checks issued on behalf of the entity or person listed on the nancial
institution’s signature card as an authorized signor.
7. Testimony and afdavits provided by a bookkeeper, CPA, landlord, employees,
creditors, suppliers, corporate ofcers/members identifying who is a responsible
person. Testimony and afdavits signed under penalty of perjury should be given
greater weight than answers to a questionnaire. Care must be taken in relying on
testimony and afdavits, keeping in mind the possible conicting interests of those
responding to questionnaires. Questionnaires include:
a. Dual Determination – Responsible Person Questionnaire (CDTFA-1508)
b. Dual Determination – Business Operations Questionnaire (CDTFA-1509)
c. Dual Determination – Customer Afdavit (CDTFA-1510)
d. Dual Determination – Creditor/Supplier/Landlord (CDTFA-1511)
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8. Audit information in CRM Notes revealing who the audit was discussed with. Even
if the audit is for a different period, the CRM Notes and CRM Attachments viewable
from the Audit springboard can provide valuable information regarding a person’s
responsibilities within the entity. When Notes are added in the Audit springboard, they
default to “private,” so they are only visible in the Audit springboard. CRM Attachments
from the Audit springboard can include vendor surveys, bank statements, Federal
Income Tax Returns (FITR), Secretary of State (SOS) documents, CDTFA-80RU, Record
Update, and CDTFA-1296, Account Update Information, which may show issues with
ownership.
9. Audit CDTFA-836-A, Report of Discussion of Audit Findings, including the
Audit Disagreement Case, revealing who the Audit Principal or supervisor had
conversations with regarding the taxpayer’s contentions with the audit ndings.
10. Petition records pertaining to audits that include documents and materials as
to who discussions were with regarding the audit and/or audit contentions.
11. Signed CDTFA-122, Waiver of Limitation.
12. Personal bankruptcy lings of potential responsible persons. Potential responsible
persons may report an entity’s tax liability in their personal bankruptcy.
13. Signed entity bankruptcy lings.
14. SOS Articles of Incorporation, Statement of Ofcers or Statement of Information which
list ofcers/members.
15. Corporate minutes and bylaws identifying corporate ofcers’ duties.
16. Internet search for the entity or the entity’s website.
17. ABC Liquor License (website and le information).
18. CLEAR public record reports naming the person representing the entity. Lawsuits
involving the entity should be reviewed.
19. Better Business Bureau complaints naming the person representing the entity.
20. UCC lings revealing who signed the documents.
21. EDD ofcer data revealing the person authorized to act for the entity.
22. EDD tax returns and checks revealing who signed returns and checks.
23. Corporate and individual income tax returns revealing ownership interest in the entity
and any titles.
24. Collection information regarding who the collector had discussions or other
communications with regarding the entity’s outstanding liability.
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ESTABLISHING THE ELEMENTS OF AN RTC SECTION 6829 DUAL
DETERMINATION – WILLFULNESS 764.150
CDTFA must establish that the responsible person willfully failed to pay or to cause to be
paid the taxes due from the entity. The failure must be the result of an intentional, conscious,
and voluntary course of action. The failure may be willful even without a bad purpose or
motive. To prove willfulness, there must be evidence of all of the following:
1. On or after the date the taxes came due, the responsible person had knowledge that
the taxes were due but not being paid. The collector may obtain evidence that shows
the responsible person had actual knowledge of the tax liability. In cases where
the collector does not have evidence of actual knowledge, other evidence, including
circumstantial evidence, can be used to show that it is more likely than not that the
responsible person knew of the liability (e.g., under the circumstances, the responsible
person must have known of the tax liability).
2. The responsible person had the authority to pay the taxes or to cause them to be
paid both on the date they came due and when the person had actual knowledge
that taxes were due but not paid. Whether a responsible person ever signed checks
or even had check signing authority is not dispositive on this element. The crucial
question is whether the person had the authority to pay the taxes or direct someone
else to pay them. A person who is unable to act on their own in making the decision
to pay or not pay the taxes without obtaining approval from another person, does
not have the requisite authority, but a person who can direct or give permission to
another does have such authority.
3. Along with such knowledge and authority, when the person had actual knowledge
that taxes were due but not paid, the responsible person had the ability to pay the
taxes but chose not to. The ability to pay may be shown by, among other evidence,
the collection of sales tax reimbursement or use tax that was not remitted. The ability
to pay may also be shown by payments made to other creditors during or after the
relevant periods of liability. The collector does not have to establish that the actual
amount of taxes owed was available on a specic day, but must show in general,
that funds were available and not paid to CDTFA.
Additionally, while the assessment of a fraud or negligence penalty may be an indication that
the responsible person willfully failed to pay or cause to be paid the entity’s tax liability, it
is not required to determine willfulness. The particular facts leading to the assessment of
the penalty should be examined to determine if they indicate that the responsible person
was willful.
Various sources should be used to determine if a responsible person willfully failed to pay or
to cause to be paid the taxes due from the entity. Generally, more than one piece of evidence
will be necessary to establish each of the three parts of this element. Therefore, all available
evidence should be considered; however, certain sources will generally be given more weight
than other sources. Sources that are generally entitled to greater weight are in bold.
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Willfulness – Evidence of Knowledge – Sources include, but are not limited to:
1. All documented conversations, including emails, with responsible persons or other
ofcers, partners, members, or employees in system notes.
2. All signed sales and use tax returns and prepayment forms, in particular, those
returns signed by the responsible person.
3. Signed checks to CDTFA during or after liability periods, in particular, those signed
by the responsible person.
4. Testimony and afdavits provided by a bookkeeper, CPA, employee, corporate
ofcer/member/partner/responsible person indicating who, within the entity,
was aware of the entity’s tax liability or potential liability. This may include
information obtained from:
a. Dual Determination – Responsible Person Questionnaire (CDTFA-1508)
b. Dual Determination – Business Operations Questionnaire (CDTFA-1509)
5. Audit information on CRM Notes from the Audit springboard revealing with whom the
audit was discussed, in particular if it was discussed with the responsible person.
When Notes are added in the Audit springboard, they default to “private,” so they are
only visible in the Audit springboard.
6. Audit information in CRM Attachments (Audit springboard), which may include vendor
surveys, bank statements, SOS documents, completed CDTFA-80RU, Record Update,
and CDTFA-1296, Account Update Information forms.
7. Audit verication comments on the Audit springboard (Working Papers tab, select the
Summary link, then select the Verication tab and view both Required Comments
and Other Comments).
8. Signed CDTFA-122, Waiver of Limitation (used to extend the three-year statute
of limitations for periods included in an audit).
9. Audit CDTFA-836, Report of Discussion of Audit Findings, including the Audit
Disagreement Case, revealing who was in discussions with the Audit Principal
or supervisor regarding the taxpayer’s contentions with the audit ndings.
10. Notes in the system (including, but not limited to, notes on Account, Customer, or
Collection springboards) that indicate who was involved in the day-to-day operation of
the entity. (When notes are added in the Audit springboard, they default to “private”
so they are only visible in the Audit springboard and not on the Customer or Account
springboards.)
11. Bankruptcy documents which reveal a responsible person led a personal
bankruptcy and reported the entity’s tax liability on the Statement of Financial
Affairs.
12. Petition records revealing who petitioned the entity’s audit liability.
13. Records pertaining to investigations of other possible responsible persons within
the entity for the same liability. This includes all information gathered in these
investigations including, but not limited to afdavits, questionnaires, letters,
emails, and other documentation.
14. System records including, but not limited to letters, emails, and other communications
with the responsible person or other persons associated with the entity.
15. Tax advice letters issued to the entity that explain the application of the SUT Law to
the entity’s facts.
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16. Signed BOE-571-L, Business Property Statement, led with County Assessor’s Ofce,
which identies acquisitions of supplies, machinery, equipment, and ofce furniture.
The form provides a notication to the signer that California use tax is imposed on
consumers of tangible personal property that is used, consumed, given away or stored
in this state and that businesses must report and pay use tax on items purchased
from out-of-state vendors not required to collect California tax on their sales.
Willfulness – Evidence of Authority – Sources include, but are not limited to:
1. All documented conversations, including emails, with ofcers, partners, members,
responsible persons, or other employees in CDTFA records.
2. Testimony and afdavits provided by a bookkeeper, CPA, employee, corporate
ofcer/member/partner/responsible person. This may include information obtained
from:
a. Dual Determination – Responsible Person Questionnaire (CDTFA-1508)
b. Dual Determination – Business Operations Questionnaire (CDTFA-1509)
3. Signed sales and use tax returns and prepayment forms.
4. Signed checks to CDTFA and creditors during or after liability periods.
5. Corporate Minutes and By-laws identifying corporate ofcers’ duties.
6. SOS Articles of Incorporation, Statement of Ofcers or Statement of Information which
list ofcers/members. While a person’s title does not establish their actual authority,
it is evidence that should be considered.
7. Audit information on CRM Notes on the Audit springboard revealing with whom the
audit was discussed. When Notes are added in the Audit springboard, they default
to “private,” so they are only visible in the Audit springboard.
8. Audit information in CRM Attachments from the Audit springboard.
9. Audit verication comments on the Audit springboard (Working Papers tab, select the
Summary link, then select the Verication tab and view both Required Comments
and Other Comments).
10. Notes from Account, Customer, or Collection springboards that indicate who was
involved in the day-to-day operations of the entity and which persons directed
payments of creditors.
11. Signed CDTFA-122, Waiver of Limitation (used to extend the three-year statute
of limitations for periods included in an audit).
12. Audit CDTFA-836-A, Report of Discussion of Audit Findings, including the Audit
Disagreement Case, revealing who was in discussions with the Audit Principal
or supervisor regarding the taxpayer’s contentions with the audit ndings.
13. Petition records revealing who petitioned the entity’s audit liability.
14. Records pertaining to investigations of other possible responsible persons within the
entity for the same liability. This includes all information gathered in the investigation
including, but not limited to afdavits, questionnaires, letters, emails, and other
documentation.
15. System records including, but not limited to, letters, emails and other communications
with the responsible person or other persons associated with the entity.
16. Bankruptcy lings by the entity.
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Willfulness – Evidence that the Responsible Person had the Ability to Pay the Taxes
but Chose Not To – Sources include, but are not limited to:
1. Evidence that sales tax reimbursement or use tax was collected but not paid to CDTFA.
2. Payments made to the entity’s landlord during or after the periods of liability.
3. Payments made to the entity’s creditors and suppliers during or after the periods
of liability.
4. Wages paid to employees during or after the periods of liability.
5. Bank statements.
6. Payment of the entity’s state income taxes during or after the periods of liability.
7. The entity’s income tax returns led during or after the periods of liability reecting
debts paid including but not limited to ofcer compensation, wages, expenses, etc.
8. Bankruptcy lings. Bankruptcy lings may indicate payments made during the
liability period and payments made after the ling.
9. In limited circumstances (e.g., when there is minimal evidence of actual payments),
the collector may obtain evidence to show that the entity’s business continued for
a sustained period of time after the entity incurred the tax liability. Evidence of the
entity’s sustained business operation after the taxes became due may be indicative of
payment of the entity’s necessary operating expenses, including rent, inventory and
supply expenses, and utilities, until the entity ceased business operations. However,
every effort should be made to establish that actual payments were made to other
creditors.
Pro Rata Defense – Rebuttal of Willfulness
In certain limited circumstances, a responsible person is regarded as not willful in failing to
pay or cause to be paid the taxes due from the entity when pro rata payments were made on
an entity’s liability after the liability was nal. For these purposes, pro rata payments means
that all creditors were paid proportionately and that no creditor was given any preference
over the other (i.e., CDTFA received its “fair share”).
First, the collector must determine whether a pro rata analysis is applicable. A pro rata
analysis is only applicable when the request for a dual determination only includes taxes
owed from either of the following two types of liabilities:
1. A nal CDTFA-assessed liability that is not established on an actual basis; or
2. A self-assessed use tax liability resulting from the entity’s consumption of tangible
personal property without the payment of tax.
Second, if a pro rata analysis is applicable, for purposes of a CDTFA-assessed liability, the
collector must make the following determinations:
1. No negligence or fraud penalty was imposed as a result of the taxpayer’s recording
or reporting of the transactions at issue; and
2. The responsible person can credibly represent that the person did not knowingly
collect and fail to remit the sales tax reimbursement or use tax on these transactions.
Compliance Policy and Procedures Manual
If the collector determines that any of the above items are not satised, relief due to the entity
making pro rata payments is not applicable to the responsible person. In the event that a
pro rata defense might be applicable, then this should be communicated to the responsible
person no later than the issuance of the CDTFA-1515 so that the responsible person might
be afforded the opportunity to present evidence of pro rata payments.
When a responsible person asserts a pro rata defense and provides evidence to support the
defense, the collector must review the evidence and determine whether the entity made pro
rata payments to CDTFA after the liability was nal. In doing so, the collector must determine
the amount of funds available when the liability was nal and thereafter, and determine if,
from the amount of funds available, the entity paid CDTFA its pro rata share of the available
funds in order to satisfy, in part, the outstanding liability. In other words, the responsible
person must demonstrate that, based upon all available funds, no creditor was preferred
over another. Bank statements may assist in making these determinations.
GUIDELINES FOR PREPARING A DUAL REQUEST 764.160
The responsible collector will investigate and prepare the RTC section 6829 request for a dual
determination. The designated reviewer must approve the request for a dual determination.
If approved, the request is assigned to the supervisor or designee (BTA I or above) for review
and approval (see CPPM section 764.090 for details regarding the process).
The request for a dual determination includes:
1. A memorandum addressed to the approver (BTA I or above),
2. A CDTFA-1512, Dual Liability Billing Worksheet, located on CDTFA’s intranet site,
3. Copies of all relevant documentation and information gathered during the investigation,
and
4. A copy of the CDTFA-1515, Notice of Proposed Determination.
Memorandum - The following specic information must be included in the memorandum
and its addendum:
1. Background or Synopsis – A paragraph that explains the source of the underlying
liability which includes the name of the entity that incurred the liability, the start
and end date of the entity’s business, and the sources and periods of liability due.
This paragraph should also include the name(s) of the responsible person(s) and the
period(s) of liability that the responsible person(s) is being held personally liable for.
All periods of liability that the responsible person is not being held personally liable for
must be identied followed by an explanation as to why. An example of a liability that a
responsible person is not personally liable for is the Collection Cost Recovery Fee (CRF).
When the entity’s underlying liability is non-nal (e.g., the entity led a timely petition),
the memorandum must include a request that the responsible person’s liability be
placed into a Sundry Withhold status (i.e., no collection efforts are pursued) pending
the outcome of the appeal for the underlying entity’s liability.
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764.160
2. Four Elements of RTC Section 6829 Personal Liability – A section for each of the
four elements of RTC section 6829 personal liability. Each section should describe
how the evidence gathered supports a nding that the element is met and list all
sources (including relevant dates, amounts, etc. from those sources) used to establish
the element. If the collector is requesting that more than one person be issued a dual
determination, they should include a separate discussion/list of sources for each
person in the sections discussing responsible person and willfulness. If the limited
circumstances for a potential pro rata defense exist, the collector should include a
separate discussion as to why this defense is not available to the person in question.
The collector should also include a discussion of, and a list of, any relevant evidence or
documentation that appears contradictory or exonerating in nature. The request should
explain that, notwithstanding this contradictory or exonerating evidence, the totality of the
evidence supports a nding that it is more likely than not that each element has been met.
Notice of Proposed Determination – Include a paragraph that states whether a response
was received to the CDTFA-1515, Notice of Proposed Determination (see CPPM section
764.170). The paragraph should include a summary of the potential responsible
person’s contentions, if any, and an analysis of the contentions
3. Statute of Limitations – A paragraph explaining the date of knowledge (DOK) of the
closeout and when the statute of limitations expires.
4. CDTFA-1512, Dual Billing Worksheet - A form CDTFA-1512, Dual Liability Billing
Worksheet, identifying the primary account, dual account number(s), the responsible
person(s), liability period(s), and the names and addresses for the copies (i.e., cc’s).
CDTFA-1515 NOTICE OF PROPOSED DETERMINATION 764.170
Except in limited circumstances (e.g., a jeopardy determination) approved by the assigned
CEA or their designee, it is required that a CDTFA-1515, Notice of Proposed Determination
(letter), be sent to the responsible person(s) after the request for a dual determination has
been prepared and approved by the designated supervisor (see CPPM section 764.090 for
details regarding the process). The letter informs the responsible person prior to the issuance
of the NOD for the proposed liability of: (1) the proposed basis for holding the potential
responsible person personally liable; and (2) the opportunity for the potential responsible
person to submit evidence that may disprove any of the requisite elements for liability. The
letter also generally provides notice that, if CDTFA does not hear from the person within 15
calendar days, an NOD will be issued to the person in the amount stated. The letter states
that, upon request, copies of the documentation referenced in the letter will be provided.
May 2023
Compliance Policy and Procedures Manual
May 2023
REDACTION GUIDELINES FOR RTC SECTION 6829
DUAL DETERMINATIONS 764.175
A person who is potentially responsible for a tax liability under RTC section 6829 may request
from CDTFA documentation that supports their personal liability. Such request can be made
at any time, either before or after the CDTFA-1515, Notice of Proposed Determination, is issued
to this person. Before providing the requested documentation to this person, CDTFA must
redact any personal information pertaining to a third party. A third party is any individual
other than the person requesting the documentation. However, information regarding the
requesting person is subject to disclosure and no redaction is required.
Examples of third-party personal information that must be redacted include:
• Social Security numbers
• Home addresses
• Personal phone/fax numbers
• Personal email addresses
• References to relation to other business/employment
• Personal nancial institution account numbers
• Education
• Medical information
• Health insurance information
• Driver’s license numbers or California identication card numbers
• Dates of birth
Third-party personal information may be found in the following documents:
• Dual determination request memo (third-party information may be in the “Address
Where Dual Determinations Should Be Mailed” section)
• System notes (all springboards)
• CDTFA-1508 (S1B), Dual Determination – Responsible Person Questionnaire
• CDTFA-1509 (S1B), Dual Determination – Business Operations Questionnaire
• Seller’s permit application
• Copies of bank statements or checks from a personal bank account
• Payment plan agreements
• Individual income tax returns
• DMV documents provided by the Data Analysis Section (DAS) or Consumer Use Tax
Section (CUTS)
• Information gathered from third-party accounts
Please note this list is not all inclusive. All documents must be reviewed for third-party
information. When there are DMV documents not received from DAS or CUTS, contact the
Disclosure Ofce at 916-445-2918 for additional guidance.
In addition, when representing the Department in an appeals conference, team members
should follow the redaction guidelines and document in the le any information provided
verbally during an appeals conference.
Collections
DISPROVING PERSONAL LIABILITY PRIOR TO NOD 764.180
At any time throughout the investigation process and prior to the issuance of an NOD,
any evidence that a potential responsible person provides in an effort to disprove they are
personally liable should be reviewed by team members in the responsible ofce and its merit
weighed against the totality of the evidence gathered. As stated in the CDTFA-1515, the
following are examples of material/documentation that may be provided for review:
• Evidence that the potential responsible person resigned or was red from their position
of authority before the relevant taxes became due.
• Emails, letters or correspondence demonstrating the potential responsible person took
direction from someone else and was unable to act on their own in making decisions.
• Evidence supporting that the funds of the entity were attached by a third party on or
before the date the taxes came due, that the entity had no funds or control of funds
after that time, and that the entity made good faith efforts to have the taxes paid by
the third party.
• Evidence of criminal charges against an employee of the entity who embezzled funds
from the entity, preventing the payment of its taxes.
CONFERENCE 764.185
The person representing FOD at an appeals conference for RTC section 6829 and Corporate
Suspension dual determinations appeals shall have a classication of BTS I or BTA I, or
above. If deemed appropriate, the dual writer and collector most familiar with the case may
also attend the conference with the BTS I or BTA I.
May 2023
Compliance Policy and Procedures Manual
CORPORATION AS ALTER EGO 764.190
When the shareholders are merely the “alter ego” (other self) of the corporation, the courts
can treat the body of shareholders and the corporation as synonymous rather than as
separate entities and hold the individual shareholders personally liable for the corporate
obligations as a matter of equity. Collection via the alter ego approach is pursued by court
action against the “alter ego” of the corporation (rather than by a dual determination process)
in those cases involving “closely-held” corporations and statutory “close” corporations having
no shareholder’s agreement or acting contrary to such agreement. Since the burden of proof
rests with the CDTFA to prove the alter ego theory, thorough investigations are necessary
to uncover the required evidence.
If collection from a closely held corporation appears unlikely and the liability is $5,000 or
more, the alter ego approach may be used to pursue collection from individuals through
court action. Due to the expense of the court system and the difculty in proving that alter
ego exists, this action is employed as a last resort.
The control of the corporation by an individual, group or other person for the purpose of
working a fraud on the creditors is an important element necessary to establish the alter
ego theory. When attempting to establish alter ego, the following factors are essential before
the corporation can be disregarded and others held liable:
1. Inadequate nancing of the corporation.
2. Lack of corporate records.
3. Commingling of funds and collection of corporate funds to be used for the purposes
of those controlling the corporation.
Examples of information to be secured are:
1. Has the corporation been suspended for nonpayment of franchise taxes?
2. Has a full set of records been set up and followed for the corporation, including
records showing the issuance of stock? The corporate records to be considered are
its records on issuance of capital stock, correspondence, bank accounts, payrolls,
licenses, sales and purchase orders.
3. Has there been a commingling of corporate and personal funds? If the principals
have commingled the corporate funds with their own funds, this is an indication the
corporate ofcers are disregarding the corporate entity.
4. What is the capitalization of the corporation? Inadequate capitalization may be
considered as a factor determining whether the corporate entity should be disregarded.
5. Have the minute books been maintained and are the corporate meetings being held
with reasonable regularity?
In all cases where the possibility of asserting the alter ego theory exists, staff responsible
for the account will forward comprehensive reports to the CSB for review and decision as
to further action.
July 2009
Collections
ALTER EGO AND DUAL DETERMINATIONS — FIELD PROCEDURES 764.200
If a corporation appears to be having nancial problems, alternate methods of collection
may be considered as described in the following ve steps:
Step One
Ensure that the following conditions are met:
1. Collection from the corporation appears unlikely or is in jeopardy.
2. The liability to be assessed is $5,000 or more for alter ego and $500 or more for other
collection alternatives (can be a lesser amount, if a reasonable possibility of collection
from persons associated with the corporation exists and approval is obtained from
the Administrator).
Step Two
If the conditions in step one are met, information obtained from the Secretary of State’s ofce
must be examined to determine the following:
1. Is the entity actually incorporated or registered as a foreign corporation with the
California Secretary of State?
2. Is the corporation now, or was it during the period of liability, suspended by the
Franchise Tax Board or Secretary of State?
3. Are the currently listed corporate ofcer(s) of record the same one(s) as those during the
period for which a dual determination is contemplated? If they are the same persons,
a dual determination may be issued against the corporate ofcers, provided the
conditions listed in CPPM 764.070 are met. One exception exists for this requirement.
If, at the time the audit determination became nal the corporation was intact and
had more than sufcient funds available but chose to pay other creditors instead of
paying the audit liability, the responsible person may be held liable, even though he
or she was not a responsible person during the audit period.
4. Who controlled the corporation when the business terminated and when the liabilities
were incurred? If the other conditions in CPPM 764.090 are met, and the individuals
were associated with the corporation and responsible for tax matters during the period
to be dualed, then a dual determination may be issued against the corporation and
the responsible individuals.
5. Was the corporation active when an alter ego situation was suspected? In the case
of an alter ego situation, both qualifying elements must be documented (unity of
interest and fraud or inequity).
If the entity is not incorporated in California or elsewhere, then the liability falls on the
person(s) who operated the business.
July 2009
Compliance Policy and Procedures Manual
Step Three
If none of the above collection alternatives mentioned in step two can be pursued, proceed
as follows to determine whether any of the remaining noted collection alternatives can be
pursued:
1. When a tax liability is determined against the successor, ascertain whether the
predecessor failed to notify the CDTFA of a change in ownership. If notication was
not made, a dual determination should be issued against the predecessor, as indicated
in CPPM 734.000 et seq.
2. Determine from reviewing the records whether any other alternative methods of
collection of corporate liability against individuals can be used including fraudulent
conveyances (CPPM 753.095), unpaid loans (CPPM 726.045), or unlawful distributions
(CPPM 726.050). If any of these collection methods are viable, obtain complete
documentation for the appropriate action.
Step Four
If the liability to be included in the dual consists of self-declared tax and/or prior audit
determination:
1. For suspended corporations, complete an interoffice memo requesting a dual
determination and send it with supporting documentation to the CSB.
2. For duals under RTC section 6829 or court actions for alter ego, complete an interofce
memo requesting a dual determination and send it to ADRS along with any information
on the individual’s involvement in the business. ADRS will review for self-declared
tax and include any that falls within the allowable billing period. Attach a copy of
CDTFA–414, Transcript of Return Filed – Sales and Use Tax, if applicable.
Step Five
If the liability to be included in the dual is a combination of self-declared tax and/or prior
audit determination and liability from an audit in process:
1. Follow STEP FOUR (1) and (2) above.
2. ADRS will process the duals for the liability resulting from the current audit and
the CSB will process the duals resulting from self-declared and/or prior audit
determination.
All requests must be approved by the Compliance Principal or Principal Auditor prior to
sending them to Headquarters. The supervisors of the CSB and ADRS will review for approval
all requests that will be billed by their respective section. Incomplete requests, or rejected
requests, will be returned to the requester, giving the reason for return or rejection.
July 2009
Collections
ALCOHOLIC BEVERAGE LICENSE
SUSPENSIONS AND TRANSFERS 765.000
SUSPENSION OF ALCOHOLIC BEVERAGE
LICENSE FOR FAILURE TO FILE OR PAY SALES & USE TAXES 765.005
Business and Professions Code (BPC) section 24205 provides for the automatic suspension
of any alcoholic beverage license issued by the Department of Alcoholic Beverage Control
(ABC) when:
1. The taxpayer fails to pay taxes or penalties due under the Sales and Use Tax law and
that liability arises in whole or in part from the exercise of the privilege of an alcoholic
beverage license, or
2. The taxpayer fails to pay any taxes or penalties due under the Alcoholic Beverage
Tax Law, and
3. The taxpayer is at least 3 months delinquent in the payment of either the sales and
use, or alcoholic beverage taxes or penalties listed above.
Staff must verify that the name of the licensee who holds the alcoholic beverage license (ABC
license) for a specic business location matches the name and location of the California
Department of Tax and Fee Administration (CDTFA) permit holder before requesting a
suspension of the license. Staff can use the ABC License Query System on the website www.
abc.ca.gov to nd the name and business location of the licensee.
If the registration information of ABC and CDTFA do not match, staff may not request
suspension of the license. Staff must investigate the discrepancy and determine the true
ownership or location of the business. If the investigation supports a questionable ownership
dual determination, a request for a dual billing against the ABC licensee with supporting
documentation and supervisory approval should be sent to the Collections Support Bureau
(CSB). If staff’s investigation reveals that CDTFA’s registration is correct, staff should contact
the local ABC ofce to request they investigate a possible “undisclosed ownership” issue or
to get the correct entity licensed.
When the individual licensees are married or in a registered domestic partnership, ABC will
make an exception and allow the suspension of a license even if the names do not match.
ABC will allow a suspension of an ABC license when the seller’s permit and the suspension
request only list one tax debtor and the liquor license is held in the name of the tax debtor
and his or her spouse or registered domestic partner. Conversely, ABC will also allow a
suspension when the seller’s permit and the suspension request is in the name of a husband
and wife or registered domestic partnership and the liquor license is held in the name of
only one of the spouses or partners. This exception also applies to ABC license transfer
withholds (see CPPM section 765.040).
Taxpayers who have entered into an approved payment plan and are current with their
payments should not be considered candidates for suspension of their ABC license.
ACMS contains two warning letters for use in cases where the potential to request suspension
of an ABC license exists. The rst letter, CDTFA–1495, ABC Suspension — Preliminary Notice,
Delinquency, is designed to be used once an account is roughly 2 1/2 months delinquent in
the ling or payment of a return or prepayment (calculated from the due date of the return/
prepayment). This letter warns the taxpayer of the potential consequences for not ling
and paying the delinquent return/prepayment or not paying the delinquent balance. The
CDTFA-1495 should be mailed to the mailing address of record. In the case of tax return
delinquencies, the taxpayer will be mailed a delinquency citation notice which also contains
a warning that the taxpayer’s liquor license may be suspended.
February 2016
Compliance Policy and Procedures Manual
February 2016
The second letter, CDTFA–1497, ABC Suspension — Final Notice, Delinquency, must be mailed
to the mailing address of record prior to suspending the ABC license. The taxpayer must be
delinquent in the ling or payment of a return or prepayment for three full calendar months
(calculated from the due date of the return/prepayment) before the CDTFA–1497 can be
mailed. This nal letter affords the taxpayer 14 calendar days to comply before suspension
occurs.
After the 14-day period has expired, if the taxpayer has not led and paid the delinquent
return/prepayment, paid the delinquent account balance, or commenced a satisfactory
payment plan, a CDTFA–200-A, Special Operations Action Request, should be completed and
sent to the CSB for processing. The CSB will verify that:
1. Both the CDTFA–1495 and CDTFA–1497 have been sent to the taxpayer.
2. 14 days have elapsed since the CDTFA-1497 was mailed.
3. The taxpayer has not led and paid the delinquent return/prepayment, paid their
delinquent account balance, or commenced with a payment plan.
The CSB will forward a CDTFA–1499, ABC Suspension Request, to ABC requesting the
suspension of the ABC license until further notice. (Note: If the taxpayer complies before
the CSB issues the CDTFA–1499, staff must notify the CSB immediately.)
Once a month, ABC processes CDTFA suspension requests by issuing a Notice of Suspension
to the ABC licensee with the effective date of the suspension. The CSB receives a copy of the
notice and will note the suspension date in the appropriate ACMS account. The suspension
status can be conrmed on ABC’s website. BPC section 24205 provides that reinstatement
of the liquor license should only be allowed when the taxpayer is current in ling and paying
all delinquent sales and use taxes.
Once the taxpayer has led and paid all delinquent sales and use tax returns, the collector
assigned to the account will complete a CDTFA–1500, ABC Suspension Release, available in
ACMS. Staff will scan the form and email it as a PDF le attachment to ABC’s headquarters
in Sacramento using the email address [email protected]. Copies do not need to be
sent by mail or fax to ABC’s headquarters or to local ofces. The CDTFA-1500 noties ABC
that the taxpayer’s liquor license should be reinstated. ABC will process the release requests
it receives by email and update its website within two business days.
SUSPENSION OF ALCOHOLIC BEVERAGE LICENSE
FOR FAILURE TO RENEW A SURETY BOND 765.006
BPC section 24205 provides that the liquor license of a taxpayer shall be automatically
suspended upon cancellation of its sales and use tax bond, or if that bond becomes void or
unenforceable for any reason.
However, this procedure is not to be used when the CDTFA is making an initial demand
for security. ACMS contains two warning letters for use when requesting an ABC license
suspension for the above reasons. A CDTFA–1496, ABC Suspension — Preliminary Notice,
Security, should be used when the taxpayer has not replaced a bond that was cancelled,
became void or unenforceable, or when the taxpayer is delinquent in renewing or replacing
the bond for approximately 2 1/2 months. This letter warns of the potential consequences
of an automatic suspension of its ABC license for not providing a valid surety bond.
Collections
February 2016
The CDTFA–1498, ABC Suspension — Final Notice, Security, should be mailed to the taxpayer
approximately two weeks after the rst letter or when a taxpayer is delinquent in renewing
or replacing the surety bond for three full calendar months. A CDTFA–1498 letter should
always be mailed to the mailing address of record prior to suspension of the ABC license.
This letter affords the taxpayer 14 calendar days to comply before suspension.
Once the 14-day period has expired, and the taxpayer has not provided a valid surety bond
replacement or commenced with a satisfactory payment plan to replace the bond, a CDTFA–
200–A, Special Operations Action Request, should be completed and forwarded to the CSB
for processing. The CSB will verify that:
1. Both the CDTFA–1496 and CDTFA–1498 have been sent to the taxpayer.
2. 14 days have elapsed since the CDTFA-1498 was mailed.
3. The taxpayer is currently three full calendar months delinquent in the renewal or
replacement of the surety bond.
The CSB will forward a CDTFA–1499, ABC Suspension Request, to ABC requesting that the
ABC license be suspended until further notice. (NOTE: If the taxpayer complies prior to
issuance of the CDTFA–1499, staff must notify the CSB immediately.)
BPC section 24205 expressly provides the license shall be automatically reinstated if the
taxpayer les a valid bond, or pays his or her delinquent taxes or penalties, as the case may
be. Once the seller has provided a valid surety bond and has paid all delinquent taxes or
penalties, a release letter (CDTFA–1500, ABC Suspension Release) should be scanned and
sent as a PDF le attachment to ABC’s headquarters in Sacramento using the email address
[email protected]. No copies should be mailed or faxed to ABC’s headquarters or to
local ofces. This letter will notify ABC that the taxpayer’s liquor license should be reinstated.
ABC will process the release requests it receives by email and update its website within two
business days.
WITHHOLD OF TRANSFER — ALCOHOLIC BEVERAGE LICENSE 765.010
BPC section 24049 provides that the transfer of any alcoholic beverage license may be refused
if the applicant is delinquent in the payment of any taxes due under:
1. The Alcoholic Beverage Tax Law,
2. The Sales and Use Tax Law,
3. The Personal Income Tax Law,
4. The Bank and Corporation Law,
5. Revenue and Taxation Code (RTC) section 134, dening unsecured property, when
such tax liability arises in full or in part out of the exercise of the privilege of an
alcoholic beverage license, or
6. The Unemployment Insurance Code, when such liability arises out of the conduct of
a business licensed by the ABC.
Compliance Policy and Procedures Manual
This allows the CDTFA, through an arrangement with ABC, to request placement of a
withhold against a liquor license transfer when the applicant is delinquent under any of the
laws mentioned above.
For the purpose of these withholds and in cases of transfers, the applicant is deemed to
be the transferor of the liquor license. ABC will not accept a withhold on a temporary or
pending license of a transferee.
TYPES OF LIQUOR LICENSES SUBJECT TO WITHHOLD 765.020
“Limited” liquor licenses are those licenses that are restricted. This type of license is issued
based on the population of the county in which the business premises are located. Those that
lend themselves to withhold procedures are listed by the following ABC Tax Control Codes:
20 Off-sale beer and wine affected by the moratorium (see listing in CPPM 767.110).)
21 Off-Sale General
47 On-Sale General Eating Place
48 On-Sale General Public Premises
49 On-Sale General Seasonal
57 Special On-Sale General
75 Brewpub-Restaurant
In transferring a limited liquor license for a purchase price or consideration, an escrow
must be established, with the following exceptions:
1. Any transfer of a liquor license made by an executor, administrator, guardian,
conservator, trustee, receiver, assignor, or duciary who has been approved or
authorized by ABC is considered to be the same as an escrow agent for the purpose of
receiving withholds and release letters. Escrows are not required on premise transfers
when ownership of the license remains the same.
2. Many types of licenses are excluded from the withhold procedure, as there is no
requirement that escrow information be furnished to ABC. These license codes include:
20 Off-Sale beer and wine (not affected by the moratorium)
40 On-Sale Beer
41 On-Sale Beer and Wine
51 Club (worth a maximum of $350)
FORM LETTERS USED IN THE WITHHOLD PROCESS 765.030
CDTFA–871, Request for Transfer of Liquor License To Be Withheld, is sent to ABC by CSB
to request a withhold on the transfer of a liquor license.
CDTFA–872, Release of Hold Against ABC License, is used by CDTFA to notify ABC to release
a withhold placed against the transfer of a liquor license.
CDTFA–872–DEM, Demand for Release of Hold on Liquor License Transfer, is used to inform
the escrow agent of the payment required prior to the transfer of the liquor license. If a
demand needs to be made to the escrow agent because of a liability against an account, the
CDTFA–872-DEM is sent to the escrow holder, the buyer, and the seller of the liquor license.
After all liabilities against an account have been paid in full, compliance team members will
forward the CDTFA–872 to ABC to allow for the transfer of the liquor license. If ABC does
not approve the transfer, escrow cannot close and CDTFA should not release its withhold.
January 2023
Collections
January 2023
When CDTFA team members send the CDTFA-872 to ABC to release the withhold, the form
should be scanned and emailed as a PDF le attachment to ABC headquarters in Sacramento
using the email address [email protected]. No copies should be mailed or faxed to
ABC’s headquarters or to local ofces. ABC will process requests received by email within
two business days. For expedited requests, team members must contact a Business Taxes
Compliance Specialist (BTCS) in CSB after emailing the release request to ABC. CSB can
be reached by phone at 916-309-5650. The BTCS in CSB will contact ABC to expedite the
release.
TRANSFER WITHHOLD REQUESTS 765.040
BPC section 24049 provides CDTFA the authority to refuse the transfer of an ABC license
if the applicant is delinquent in the payment of any sales and use taxes due. BPC section
24040 states that each ABC license shall be issued to a specic person for a specic business
location.
Compliance team members and CSB team members share responsibility with respect to
placing holds against the transfer of certain types of liquor licenses. The notication of a
pending license transfer may come from the taxpayer or escrow company to a eld ofce, or
from daily ABC licensing reports obtained by CSB.
On a daily basis, CSB retrieves a licensing report of new ABC applications and identies the
ofce responsible for the applicant’s business location. These reports are disseminated to
Compliance Principals. The reports can assist team members in identifying permit issues,
transfers involving an account with a delinquency or liability, or possible sale of a business.
A liquor license withhold may only be requested if the licensee matches the permit holder,
with the exception of spouses and registered domestic partners (see CPPM section 765.005).
A withhold may be requested if:
1. There is a reporting delinquency, or
2. A nal or non-nal liability exists.
When CSB determines that a withhold should be placed on a liquor license, the CSB team
member will immediately send a CDTFA–871, Request for Transfer of Liquor License To Be
Withheld, to ABC headquarters in Sacramento as a PDF le attachment using the email
address [email protected], with a copy to the taxpayer.
The system should automatically create an “ABC Withhold” work item 90 days from the date
the collection case was created (unless the account is closed, in that case it is seven days).
When team members determine that a withhold on the transfer of the liquor license should
be placed, team members will notify CSB by creating an “ABC Withhold” work item in the
system, if a work item has not already been created, changing the owner to “unassigned”. If
notication is made by telephone, team members should also create a work item to ensure
the request is documented in the system. The ABC license number should be added as an
ID type at the account level in the system before the work item is requested. The request
should reference the liquor license number(s) being withheld.
Compliance Policy and Procedures Manual
January 2023
DEMAND AND RELEASE PROCEDURE FOR ALCOHOLIC BEVERAGE LICENSE
WITHHOLDS 765.050
Upon receipt of the CDTFA–871, Request for Transfer of Liquor License To Be Withheld, ABC
will send CSB a copy of a notice to transfer the license and CSB will forward this information
to the responsible ofce. Because a liquor license can transfer no earlier than 30 days from
date of application to the date of transfer, team members must make every effort to:
1. Clear all delinquent periods.
2. Search for related accounts that may be involved. Note that a withhold may only be
placed for liabilities associated with use of the ABC license for a specic business. If
there are taxes/fees owed under another account held by the same taxpayer, a Notice
of Levy may be sent for any additional funds that may be held in the escrow account.
3. Review the bill item stages tab in the system to identify pending Collection Cost
Recovery Fees that may be assessed prior to payment being received so that those
amounts can be included in the CDTFA-872-DEM, Demand for Release of Hold on
Liquor License Transfer.
4. Once a nal or non-nal liability is determined, send the CDTFA-872-DEM, to the
escrow holder. The buyer and sellers should also be sent a copy of the CDTFA-872-
DEM. The CDTFA-872 should be held pending payment of the demand or CDTFA’s
prorated share of the selling price with the other tax agencies.
If a demand is not sent to the escrow holder within 30 days, ABC may allow the license to
transfer without payment.
When the escrow holder is able to disburse funds, payment will be made to CDTFA pursuant
to the CDTFA-872-DEM instructions. Once payment is received, team members can send
the CDTFA-872 to ABC. When team members send the CDTFA-872 to ABC to release the
withhold, the form should be emailed to ABC headquarters in Sacramento as a PDF le
attachment using the email address [email protected]. No copies should be mailed
or faxed to ABC’s headquarters or to local ofces. ABC will process requests received by
email within two business days.
For expedited requests, team members must contact CSB after emailing the release request
to ABC. CSB can be reached by phone at 916-309-5650 and a BTCS can provide assistance.
The BTCS in CSB will then call ABC to expedite the release. ABC headquarters will only
accept a withhold or release request by telephone when a license transfer is pending.
Collections
January 2023
FOLLOW UP REQUIRED ON WITHHOLDS 765.060
Each ofce is responsible for following up on its liquor license withholds. If an audit is
recommended, compliance team members will notify the audit team members immediately
so they can initiate the audit promptly or make the determination that no audit is necessary.
Under RTC section 6813, CDTFA may require the posting of a security deposit in order to
issue a Certicate of Tax Clearance that will allow the escrow to proceed with the transfer of
the business and the liquor license. When a license withhold cannot be placed because no
delinquencies exist with respect to reporting, or the account does not have a nal or non-
nal liability at the time the application for transfer is made, the provisions of RTC section
6813 should be considered to ensure payment of any anticipated audit or estimated liability.
If additional liabilities are found within the allotted time, or before all the escrow funds are
disbursed, an amended demand should be made on the escrow agent. The CDTFA-872-
DEM should be issued to secure the full purchase price of the license or the amount of the
anticipated liability, whichever is less.
MISCELLANEOUS INFORMATION — LIQUOR LICENSE WITHHOLD 765.070
BPC section 23959 states, “If an application is denied or withdrawn, one fourth of the license
fee paid, or not more than one hundred dollars ($100), shall be deposited in the Alcohol
Beverage Control Fund as provided in Section 25761. The balance of this amount shall be
credited on any taxes then due from the applicant under Part 14 (commencing with Section
32001) of Division 2 of the Revenue and Taxation Code or the Sales and Use Tax Law, and
the remaining portion shall be returned to the applicant.” ABC noties CSB when such fees
are available for a potential offset.
REMINDER FOR STAFF — LIQUOR LICENSE WITHHOLDS 765.080
The following information is included as guidelines for staff when considering placement of
a withhold against a liquor license.
1. Unless the account has a reporting delinquency, a non-nal liability, or a nal liability,
a withhold on the transfer of a license will not be placed.
2. Withholds are not placed against cancelled, pending, or revoked liquor licenses.
3. After considering all factors, including application of cash deposits, a withhold is not
to be requested on balances less than $100.
4. A withhold should not be requested when the name of the ABC licensee does not
match the name of the CDTFA permit holder, except in the cases of spouses and
registered domestic partners.
5. A withhold should not be requested unless all or part of the liability or delinquency
arose from the operation of a business requiring the holding of a liquor license.
6. No “rush” withhold on the transfer of a liquor license can be made unless there is an
application for the transfer on the license.
BANKRUPTCIES INVOLVING LIQUOR LICENSES 765.090
Normally, penalty and post-bankruptcy interest are charges that are not allowable in
bankruptcy claims. However, if the bankrupt was the holder of a liquor license that has been
sold by the bankruptcy trustee, a withhold will be placed against the license transfer and
will not be removed until the total liability, including all penalty and interest to the date of
payment, has been paid, regardless of the amount included in any bankruptcy priority claim
previously led. If the amount realized from the sale of the license is inadequate to pay the
total amount due, release of the withhold must be given on the basis of the sales price of
the license, rather than the amount of the tax liability. See 11 U.S.C. 326(a) to verify that
the proper procedures for reasonable compensation of the bankruptcy trustee were followed.
Compliance Policy and Procedures Manual
January 2023
ESCROWS 765.100
Under the withhold procedure, a claim is made directly upon funds held in escrow pending
transfer of the liquor license. Demand instructions (CDTFA–872-DEM, Demand for Release
of Hold on Liquor License Transfer) are sent directly to the escrow agent. Upon payment of
the demand, compliance team members will send the CDTFA–872, Release of Hold Against
ABC License, to ABC headquarters in Sacramento as a PDF le attachment using the email
address [email protected].
If escrow funds are inadequate to pay (in full) the claims of all agencies that have withholds
against the license transfer, compliance team members must contact CSB to arrange a pro-
ration of available funds. The information required includes the total selling price of the
license, amount of escrow fee, the name of any other agencies having claims in the escrow,
and the name and address of the escrow company.
PAYMENT PLANS — LIQUOR LICENSE WITHHOLDS 765.110
Under no circumstances should a payment plan be accepted when the debtor is the transferor.
The transferor is receiving a consideration for the sale of the license and the liability should
be paid out of the proceeds.
If the delinquent taxpayer is the transferee and an investigation discloses an inability to
pay the obligation, even though acquiring a license, a report and recommendation should
be forwarded to the CSB. In certain unusual situations of this kind, the acceptance of a
proposal for payment will be in order since the license represents an asset that might, at a
later date, be helpful in clearing the account. In such cases, a liquor license withhold will
not be removed unless a substantial initial payment has been received.
PAYMENT FOR RELEASE OF WITHHOLD - LIQUOR LICENSE 765.120
Payment by personal check should not be accepted to release a liquor license withhold. An
escrow check or a check from a source representing funds held in trust is acceptable.
Collections
January 2023
INTERNAL REVENUE SERVICE SEIZURE AND SALE — LIQUOR LICENSE 765.130
The Internal Revenue Service (IRS) can seize and sell the liquor license of any person who is
delinquent in the payment of federal taxes. To transfer the license once the license has been
sold, the IRS and the buyer must open an escrow account with a bona de escrow holder.
The transfer of the license must be processed through ABC. The buyer and the details of the
transfer must meet the same requirements as in any other liquor license transfer. Field ofces
will be notied via the CDTFA–871, Request for Transfer of Liquor License to be Withheld, of
these pending transfers in the same manner as in the transfer of other licenses.
When team members become aware that the IRS has seized the license, a withhold on the
transfer of the license will be requested when application for transfer is made, providing
a reporting delinquency or delinquent liability exists. After the responsible ofce receives
notication of the pending transfer, the CDTFA–872–DEM, Demand for Release of Hold on
Liquor License Transfer, is sent to the escrow holder. The demand or release forms are never
deposited with the IRS even though they may be requested.
ABC DAILY TRANSMITTALS 765.140
Each day, all ABC district and branch ofces type a transmittal that shows new liquor license
requests, transfer applications (including name and address of transferor and transferee),
and temporary applications. This information is sent to ABC Headquarters in Sacramento
for immediate forwarding to the CSB. Some CDTFA ofces formerly received copies of the
transmittals directly from their neighboring ABC district ofce. This no longer ofcially
occurs since the CSB forwards copies of the transmittals to responsible ofces when they
are received from ABC Headquarters.
ABC district/branch ofces are at the following locations:
Northern California Southern California
Fresno Bakerseld
Oakland El Monte
Sacramento Inglewood
San Francisco Long Beach
San Jose Los Angeles/Wilshire
Salinas Rancho Mirage
Santa Rosa San Bernardino
Eureka Indio
Stockton San Diego
Yuba City Santa Ana
Redding Santa Barbara
San Luis Obispo
Van Nuys
Compliance Policy and Procedures Manual
July 2016
CONTRACTOR LICENSE SUSPENSIONS 766.000
SUSPENSION OF CONTRACTOR’S LICENSE 766.005
Under Business & Professions Code (BPC) section 7145.5, the California Department of
Tax and Fee Administration (CDTFA) may request that the Contractors State License Board
(CSLB) either deny or suspend a taxpayer’s contractor license or application thereof, when
that taxpayer has outstanding nal tax or fee liabilities assessed by the CDTFA. This section
does not apply to any outstanding nal liability if the licensee has entered into a payment
plan for that liability with the CDTFA and is in compliance with the terms of that plan. Staff
may verify whether a taxpayer possesses a contractor license by visiting the Department of
Consumer Affairs, Contractors State License Board website at www.cslb.ca.gov, and clicking
on the Instant License Check icon.
When staff determines that a taxpayer’s liability is nal and the taxpayer possesses a
contractor license with the CSLB, before contacting the CSLB to request the license be denied
or suspended, staff must rst ensure all other forms of collection actions pertaining to the
taxpayer, such as issuing levies, sending notices to withhold, issuing wage garnishments,
issuing liens, and utilizing offsets, have been exhausted before contacting the CSLB to request
the license be denied or suspended. If the taxpayer has entered into a payment plan for a
nal liability with the CDTFA and is in compliance with the terms of that plan, staff shall not
make a request from CSLB to deny or suspend the license. It is CSLB’s policy to inform the
taxpayer (licensee) of the request from the CDTFA and to allow the licensee an additional 60
days to resolve the issue before the contractor license is indenitely denied or suspended.
Once the contractor license has been veried, staff will send the taxpayer (licensee) two
warning letters informing the taxpayer of the impending request to CSLB for denial or
suspension of his or her contractor license:
• CDTFA-1392-A, CSLB Suspension - Delinquency Warning First Notice,
• CDTFA-1392-B, CSLB Suspension - Warning Final Notice, respectively.
Staff must allow 14 calendar days between both warning letters. If the liability remains
unresolved after 14 calendar days from the date of the last warning letter, staff will send the
request, via the CDTFA-200-A, Special Operations Action Request, to the Collections Support
Bureau (MIC 55) for transmittal to the CSLB.
Staff should note that BPC section 7145.5(e) provides that the section does not apply if the
taxpayer (licensee) has entered into a payment plan with the CDTFA and is in compliance
with the terms of that plan for the liability owed. If the licensee’s license is suspended and
the licensee subsequently enters into a payment plan for an outstanding nal liability
or pays the liability in full and staff determines that the taxpayer is in compliance,
the responsible collector will send a CDTFA-1392-R, CLSB Suspension Release Notice,
directly to the CLSB’s Judgment Unit to rescind the original request and reinstate the
contractor license. The request can be sent via email directly to the CSLB Judgment Unit at
[email protected], or by calling 916-255-3970 for assistance.
Collections
July 2009
SEIZURE AND SALE 767.000
GENERAL 767.010
As discussed in CPPM 753.000, whenever a warrant is used, the possibility that the action
may result in an eventual sale of the taxpayer’s property must be considered. Although in
most cases seizure and sale of property is not necessary, this collection technique is commonly
employed when a liquor license is involved.
SEIZURE AND SALE OF LIQUOR LICENSE 767.020
The California Department of Tax and Fee Administration (CDTFA) may seize and sell the
liquor license of any off-sale or on-sale general licensee, or off-sale beer and wine licensee
who, upon termination of business, is delinquent in the payment of any taxes due under the
Sales and Use Tax Law. Seizure and sale of off-sale beer and wine licenses will be restricted
to those licenses issued for locations in moratorium counties and cities (see CPPM 767.110).
In order to seize and sell a liquor license, the licensee shall have either surrendered the
license to the Department of Alcoholic Beverage Control (ABC) or failed to pay the annual
renewal fee to the department.
Business and Professions Code section 23000, et seq., provides that a license may be
surrendered for a period of up to one year. Any license voluntarily surrendered shall be
revoked if, within one year, it is not:
1. Transferred to another person.
2. Transferred for use at another location.
3. The licensed activity is not resumed.
For good cause, ABC may extend the surrender period. The reason for the surrender, and
the expiration of the surrender period, are determined by ABC on a case-by-case basis.
No license is to be seized unless the intent is to immediately take the seized license to sale.
Generally, a license should not be seized until 15 to 20 days prior to the expiration of the
surrender period or the permanent revocation date because of nonpayment of the renewal
fees. If the taxpayer is in bankruptcy, the liquor license may not be seized until the trustee
abandons the license. Staff should send a letter to the trustee requesting to le a motion to
abandon the license and copies of the letter to the CSB and ABC.
Compliance Policy and Procedures Manual
July 2009
REVOCATION OF GENERAL ON-SALE AND OFF-SALE LICENSES
OR OFF-SALE BEER AND WINE — FAILURE TO PAY RENEWAL FEE 767.030
With the exception of a temporary license or a daily on-sale general license, Business and
Professions Code section 24048(d) provides that “Unless otherwise terminated, or unless
renewed pursuant to subdivision (b) or (c) [of section 24048], a license that is in effect on the
month posted on the license continues in effect through 2 a.m. of the 60th day following the
month posted on the license, at which time it is automatically canceled.” Licenses canceled
under section 24048(d) that are not reinstated during the 30 days immediately following the
cancellation date are automatically revoked on the 31st day. A permanently revoked license
cannot be revived. When this happens, the potential for selling the license and obtaining
full or partial payment to satisfy the taxpayer’s liability is lost.
The CSB will identify those licensees who have failed to renew their license. The responsible
ofce will follow these non-renewals by checking with ABC district ofces up to the 15th
day before the permanent revocation date of the license, at which point seizure of the liquor
license may be requested.
APPROVAL FOR SEIZURE AND SALE OF LIQUOR LICENSE 767.040
The seizure of a liquor license must be approved by the Administrator who will, once the
license is seized, appoint someone to conduct the sale (normally a Business Taxes Compliance
Specialist). The forms necessary to seize and sell a liquor license are all accessed through
ACMS. These forms are:
CDTFA–21 Liquor License — Notice of Sale.
CDTFA–22 Liquor License — Notice of Seizure.
CDTFA–23 Liquor License — Successful Bidder.
CDTFA–264 Declaration of Service by Mail.
To seize a liquor license, the license need not be physically seized; however, to the extent
possible, the license should be taken if the licensee willingly gives up possession. The
CDTFA–22 informs the licensee that the license will be offered for sale and the proceeds of
sale applied as payment of delinquent taxes.
The licensee is served the rst copy of the CDTFA–22, which is sent to the person’s last
known residence or business address in this state by United States mail, rst-class postage
prepaid. The second copy is mailed to the local ABC district ofce.
The licensee may redeem the license at any time prior to the date of sale of the license by the
CDTFA or the appropriate deadline, whichever occurs rst, by paying the renewal fee and
penalty. If the owner redeems the license, either by paying the fees to ABC or reimbursing
the CDTFA for fees advanced, the sale is canceled and the license seizure released. If the
licensee redeems the license and nds a buyer, the CDTFA will be paid through escrow. A
forced sale by the CDTFA may result in receiving less revenue for the license than a voluntary
sale would yield.
RENEWAL FEES — LIQUOR LICENSE 767.050
After seizing the liquor license, responsible ofce staff will request an advance with which to
pay the renewal fee and penalty and prevent the permanent revocation of the liquor license.
The request for an advance is routed to the CSB who will deliver the payment warrant to
ABC Headquarters for that purpose. The responsible ofce must ensure that Form ABC–292,
Application for Reinstatement, is completed (at the ABC district ofce) after payment of the
renewal fees. Staff should check the ABC web site for current annual renewal fees and
penalty amounts.
Collections
May 2016
NOTICE OF PUBLIC SALE OF LIQUOR LICENSE 767.060
The CDTFA–21, Liquor License — Notice of Sale, giving the time and place of sale, must be
fully completed and served on the licensee and given to interested bidders. The CDTFA–21
shall be sent in an envelope addressed to the person at his or her last known residence or
place of business in this state by United States mail, rst-class postage prepaid, at least 25
days (30 days for licensees residing out of state) before the date set for the sale. (RTC section
6797 and Code of Civil Procedure section 1013) The notice contains:
1. A description of the license.
2. A statement saying unless the renewal fees are paid on or before the date entered in
the CDTFA-21, the license will be sold in accordance with law and the notice.
3. The amount due (including interest, penalties, and costs).
4. The name of the delinquent licensee.
5. The conditions of sale.
6. The minimum acceptable bid.
A CDTFA–264, Declaration of Service By Mail, shall be executed upon the completion of
mailing by the person actually placing the notice in the mail. The declaration will be attached
to each copy of the CDTFA-21 and become a part of the sale le.
The CDTFA-21 shall be published in a newspaper of general circulation published in the
city in which the property is located, if in a city, or if not, in the judicial district, or if none,
in the county. A copy of the notice must be in the hands of the newspaper in time to permit
the newspaper to make the initial publication not less than twenty days before the date set
for sale. The notice must be printed once a week for three weeks and with at least ve days
between each printing.
The newspaper billing will be sent to the Accounting Services Section, in triplicate, together
with two copies of the notice and one copy of the afdavit of publication prepared by the
newspaper. The ofce holding the sale must ask the newspaper to prepare the afdavit
although, as a general rule, this is done as a matter of course. Publication costs should be
accumulated and reimbursed to the Accounting Services Section from the proceeds of sale.
The original afdavit of publication becomes a part of the sale le.
A notice to the general public of the time and place of sale shall also be made by posting the
notice in two public places in the county at least twenty days before the date of sale. The
outside or the public corridor of a building is considered a public place. The inside of a plate
glass window or a private corridor of a public building is not a public place. To attract the
maximum amount of prospective bidders and improve the probability of a successful sale,
the notice should be posted in four or ve places, including the location of the ABC ofce
that has jurisdiction over the license.
A declaration of the posting of notice will be executed by the person actually posting the
notice. The places of posting will be part of the declaration. This declaration will become
a part of the sale le.
Upon completion of the license transfer, a copy of all Liquor License — Notices of Sale,
newspaper announcements and bids should be compiled and sent to the Taxpayer Records
Unit for retention in Documentum.
Compliance Policy and Procedures Manual
May 2016
The CDTFA-21 will also be posted on the CDTFA’s public website for all liquor licenses being
seized and sold. The CDTFA-21 will be posted under the Special Notices section, under the
heading “Liquor Licenses for Sale by the CDTFA.” By posting this to the website, the CDTFA
will potentially attract more buyers for the liquor license and increase the potential for the
license selling at a greater amount, thus increasing the collected amount.
The following are procedures for posting the CDTFA-21 to the CDTFA’s public website:
1. The CDTFA-21 will be completed in the system.
2. Staff will notify the Liquor License Internet Coordinator (LLIC) in the Collections
Support Bureau regarding the CDTFA-21 to be posted by sending an email to
[email protected]. Include the account number, liquor license number,
and date of the CDTFA-21 in the request for posting to the LLIC.
3. The LLIC will make the CDTFA-21 document accessible to persons who are visually
impaired.
4. The LLIC will email the pdf les and webpage revisions to [email protected]
for posting to CDTFA’s public website.
5. Staff will email the LLIC for removal of the CDTFA-21 when the auction has been
completed or cancelled.
ADDITIONAL ADVERTISING 767.070
In counties where it has been difcult to sell licenses, staff should consider other sources
of letting potential bidders know of the pending sale. This might include sending a copy of
the CDTFA–21 to those local businesses that might want to upgrade their liquor license.
For Off-Sale General licenses, this would include those businesses coded as a Grocery Store
with Beer and Wine. For On-Sale General licenses, this would include Bars with only a Beer
and Wine license. Mailing labels for these establishments by business code can be obtained
by sending a request to the Technology Services Division.
Collections
July 2009
SALE OF LIQUOR LICENSE 767.080
The individual selected to conduct the sale will choose the site for the sale. In choosing the
site, consideration should be given to weather conditions, anticipated attendance, ease of
access, etc. Some typical locations would be the lobby of a state building, the front steps
of the City Hall, a state garage, the parking lot of a CDTFA eld ofce, or on the sidewalk
in front of the ofce. Some state buildings may have conference or court rooms available at
specied times.
The ofce responsible for the city or county area where the liquor license is seized is
responsible for conducting the sale. The provisions of CPPM 135.020 pertaining to conict
of interest issues will apply to the sale of the liquor license. For future reference, the person
responsible for the sale should prepare a list of names and addresses of all persons expressing
an interest in the sale.
A record should be kept of all costs attributable to the sale, such as long distance calls,
postage, notice of publication, renewal fees, etc. The individual additional expense items may
be listed on the CDTFA–21, if the responsible ofce desires. As noted before, the CDTFA–21
shall contain the minimum bid acceptable. The minimum bid will be based on the going
value of that type license in the county where issued and should not be less than 80% of
the market value.
The sale at public auction will be made at the precise time and place indicated in the notice.
The person conducting the sale will commence proceedings either by reading the Liquor
License — Notice of Sale in full or by otherwise indicating the purpose of the sale. In the
latter alternative, the person conducting the sale shall state that the sale is for unpaid sales
and use taxes and mention the following:
1. Total amount owed, including all incidental expenses.
2. Name of the licensee.
3. Type of liquor license being sold.
4. County in which the license was issued.
5. Minimum bid acceptable.
An announcement should be made that the sale is at public auction to the highest bidder for
cash in lawful money of the United States, the full bid price to be deposited with an escrow
holder within 48 hours, excluding weekends and holidays. After opening escrow, the buyer
is required to make application for transfer and pay transfer fees to the department. The
buyer is also required to pay all escrow fees.
Transfer of the license is contingent upon approval of the applicant by ABC. If, after opening
escrow and making application for license transfer, ABC nds the applicant to be unacceptable
as a license holder, the process to sell the license will start over, with prior costs included
in the Liquor License — Notice of Sale. ABC in Sacramento and its appropriate district ofce
will receive copies of all actions taken pursuant to Business and Professions Code section
24049.5, i.e., notices, letters, declarations, etc.
CONCLUSION OF SALE AND ESCROW — LIQUOR LICENSE 767.090
The buyer will be given written conrmation (CDTFA–23, Notice of Sale — Successful Bidder),
of the successful bid and notied (within 30 days) to le an application for license transfer,
and (within 48 hours) deposit with escrow an amount representing the full bid price of
the license. The buyer is responsible for notifying the CDTFA when escrow is opened. The
responsible ofce will then complete the escrow instructions.
Compliance Policy and Procedures Manual
May 2016
—
If there are other holds on the license, the proceeds of sale, less advances, must be prorated
with agencies authorized to place holds on the license. Otherwise, surplus funds, if any, will
be paid in the order of priority set forth in Business and Professions Code section 24074.
For this reason, it is imperative to establish a proper minimum acceptable bid.
Questions about the seizure and sale of liquor licenses should be referred to the CSB.
SEIZURE AND PUBLIC DRAWING OF ORIGINAL ISSUE
LIQUOR LICENSE 767.100
Newly issued general on-sale or off-sale licenses, or licenses that were previously transferred
between counties, cannot be transferred to another owner for a period of two years from the
date of the initial issuance or date of the inter-county transfer (Business and Professions
Code (BPC) 24070(c)). Exceptions to this provision exist when the owner of the license is
deceased, when the owner of the license is a corporation whose stock is publicly traded
on the New York Stock Exchange and is required by law to le periodic reports with the
Securities and Exchange Commission, or when the ABC determines that the transfer is
necessary to prevent undue hardship. Although we do not anticipate encountering any of
these exceptional situations, should you do so, you may email the Compliance Policy Unit
at [email protected] with any questions. Additionally, a license that was
transferred between counties within the last ve years cannot be sold for more than the
original fee paid for that license (BPC 24070(d)(1)). After these time constraints have passed,
there are no further price restrictions and the license may be sold at auction to the highest
bidder (BPC 24070(d)(2)).
When determining whether a license should be seized, collection staff must be aware of
when the license was initially issued as well as if the license has been transferred between
counties. Staff must take into consideration any price restrictions, as noted above, that may
apply in determining whether it is cost-effective to seize and sell a liquor license.
The CDTFA cannot accept bids at public auction that exceed the maximum allowable amount.
In these instances, the CDTFA may hold a public drawing in lieu of a public auction. The
forms necessary to conduct a public drawing for this purpose are not available as standard
forms. Sample letters follow this section. The Notice of Sale by Public Drawing shall be
advertised by following the procedures in CPPM 767.060.
The Notice of Sale and Entry Letter may be mailed to known interested participants, liquor
license brokers, and unsuccessful bidders of prior ABC drawings. Only one entry form
should be accepted from each corporation or each family unit (husband-wife, parent-child).
The lower portion of the Notice of Sale and Entry Letter should be severed, folded, and placed
in a container large enough to allow room for mixing or shaking before the drawing. Two
CDTFA employees should conduct the drawing. All entries should be drawn. The ranking
or order of drawing (i.e., 1, 2, 3, etc.) should be placed on the entry form and letter as the
control number.
The participant whose name is rst drawn, if not present at the drawing, should be notied
by telephone and sent a conrmation letter. If the rst drawing participant fails to open
escrow or complete the license transfer, the license should be offered to the next ranking
participant(s) until the sale is completed.
Collections
July 2009
Sample Notice of Sale by Public Drawing Letter
CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION
Notice of Sale by Public Drawing
Notice is hereby given that, pursuant to the authority of Section 24049.5 of the
Business and Professions Code, the California Department of Tax and Fee Administration
(CDTFA) will sell the following described liquor license, by public drawing on
__________________19__, at 10:00 A.M., at the CDTFA, _______________________.
Liquor License No. :
County in which issued:
Type of License:
Said liquor license was seized by the CDTFA to recover delinquent sales and use
taxes, interest and penalties incurred by ___________________________, a seller
within the meaning of the Sales and Use Tax law, to wit:
Tax $ ___
Interest $ _____ to _____
Penalty $ ___
Costs $ ___
TOTAL $ ___
Thelicensewillbeoeredforsalefor$_____________plusapplicablecoststothe
person whose name will be drawn at random from the names of all interested parties.
Prospective bidders should refer to Sections 701.510 to 701.680, inclusive, of the
CodeofCivilProcedureforprovisionsgoverningtheterms,conditions,eectof
the sale, and the liability of defaulting bidders. Names for the drawing will be
accepted in the name of the applicant(s) only and cannot be in the name of a nominee.
Drawing Entry forms are available from the above CDTFA oce. Transfer of said
license is contingent upon approval of the applicant by the Department of Alcoholic
Beverage Control in accordance with the laws, rules, and regulations administered
by that department. Within 48 hours of the sale, excluding weekends and holidays,
the successful buyer must open an escrow account with an escrow holder approved by
the CDTFA. The buyer will deposit in lawful money of the United States an amount
representing the full sale price of the license. Within 30 days of the opening of
the escrow, the buyer must apply for transfer of the license and pay transfer fees
to the Department of Alcoholic Beverage Control. Applicant must receive Department
of Alcoholic Beverage Control approval of transfer within 75 days from the date of
application, and the escrow must close within 120 days of opening, otherwise the
sale may be canceled. Buyer is to pay all escrow fees.
SALE PRICE OF LICENSE $
LICENSE SALE COSTS $
TOTAL SELLING PRICE $
The licensee may redeem the license at any time prior to the date of sale by
conforming to the requirements for reinstatement of a license pursuant to Sections
24048.1 or 24048.3, Business and Professions Code.
DATED:_________, 19______ CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION
Account No. BY:
cc:ABCDistrictOce,(address)
ABC Headquarters, 3927 Lennane Drive, Suite 100, Sacramento, CA 95834
Collections Support Bureau
Compliance Policy and Procedures Manual
July 2009
Sample Notice of Sale and Entry letter
NOTE: Use standard CDTFA letterhead for this letter.
Control No. ___________________
The California Department of Tax and Fee Administration will oer for sale, by
public drawing, to be held at 10:00 a.m. ____________________________ at
_______________________________ the following liquor license.
Liquor License No. ______________________
Issued in _______________________________
Type of License _________________________
Thelicensewillbeoeredforsaletotherstparticipantwhosenameisdrawn,at
random, from the names of all people interested in purchasing the license. If that
participant declines to purchase, or otherwise fails to comply with the conditions
setforthintheenclosedNoticeofSale,thelicensewillthenbeoeredtothe
next name drawn until sold.
To be eligible for the drawing complete the entry form below. Please note only
one entry will be accepted per corporation or family unit.
Sincerely,
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Entry for Liquor License Drawing
Name of Buyer(s):____________________________________________________________
(No Nominee Accepted)
Address:_____________________________________________________________________
City:_____________________________________ CA Zip Code____________________
Daytime Telephone No: (__________)__________________________________________
Control No. _______________________
Collections
July 2009
Sample Conrmation to Successful Drawing
Entrant Sale of Liquor License letter
NOTE: Use standard CDTFA letterhead for this letter.
CONFIRMATION TO SUCCESSFUL DRAWING
ENTRANT SALE OF LIQUOR LICENSE
RE: Public Sale of Liquor License
No:
Pleaseacceptthisletterasconrmationyournamewasdrawntopurchase
liquorlicense__________________________oeredforsalebypublicdrawing
on ________________________________, 19___. The liquor license transfer, as
stated in the Notice of Sale, is contingent on approval by the Department
of Alcoholic Beverage Control.
You are to open escrow with a CDTFA approved escrow company within 48 hours,
excluding weekends and holidays, and to deposit with escrow, as stated in
the notice, the full purchase price of the license, $____________. You are
also required to make application for transfer to the Department of Alcoholic
Beverage Control, _______________________,______________________________,
California.
You are responsible for payment of all escrow fees and to see that the escrow
holdernotiesthisoceoftheopeningoftheescrow.
Sincerely,
cc: ABCDistrictOce
ABC Headquarters, 3927 Lennane Drive, Suite 100, Sacramento CA 95834
Collections Support Bureau
CDTFA(City)Oce
Attachment: Notice of Sale
Compliance Policy and Procedures Manual
October 2017
LIQUOR LICENSE MORATORIUM CITIES AND COUNTIES 767.110
The number of off-sale beer and wine licenses (Type 20) is limited to one for each 2,500
people in a city or county, and the number of beer and wine licenses that can be issued
in a city or county in combination with off-sale general licenses is limited to one for each
1,250 people. (Business and Professions Code section 23817.5). Lists of counties and cities
with moratoriums on the issuance of beer and wine licenses are updated every ve years
by the Department of Alcoholic Beverage Control and can be found on their website, at
www.abc.ca.gov, by typing “moratorium” in the search eld.
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October 2016
SEIZURE AND SALE OF REAL PROPERTY 767.150
This is a step-by-step guide for the process of seizing and selling real property. A seizure
and sale may be considered whenever the total liability owed is $5,000 or more.
Step 1:
Using the RealQuest system or CLEAR, obtain a property information print out of each parcel
you are reviewing for potential seizure and sale. This document will provide you with the
following information:
1. Address: This will be used on the warrant to describe the property to be seized and
sold.
2. APN (Assessor’s Parcel Number) and County: This number will also be used in the
description of the property for the Court and the law enforcement department serving
the warrant.
3. How the Property is Deeded: In the case of joint tenants or tenants in common, the
CDTFA can only levy on the interest of the taxpayer per Code of Civil Procedure section
704.820. This means that the purchaser from the seizure and sale would become a
joint owner with the joint tenant remaining on the property title. Also, please note
that there are certain community property exemptions that might apply when the
spouse is not on the seller’s permit. The property is subject to community property
law and title would be vested with the community property spouse. See Code of Civil
Procedure section 703.110, Exemptions Applicable When Judgment Debtor Married.
4. Date and Instrument Number of the Last Sale: This information will be used to
research liens.
5. Land Use: It is not the policy of the CDTFA to seize and sell property used as the
primary residence of a taxpayer. Every warrant for a seizure and sale must specify
whether or not a dwelling exists on the property. If a dwelling does exist, an application
for “Order for Sale of a Dwelling” must be made with the Superior Court within twenty
(20) days of the date of the seizure and sale warrant. A request for referral to the
Attorney General to le the application must be sent to CSB with the warrant request.
See Code of Civil Procedure sections:
704.710 Dwelling Family Unit.
704.720 Exemption of Homestead.
704.730 Amount of Homestead.
704.740 General Requirement for Sale of Dwelling.
704.750 Application for Order for Sale of Dwelling.
704.760 Contents of Application.
In a forced sale, a homestead need not be recorded with the County Recorder’s Ofce
to be declared in effect. The judge decides the issue of homestead during the hearing
process on the Order for Sale of a Dwelling.
6. Original Mortgage Holder and Amount Financed: This will help to determine how
much money is owed on the property. This information may not always be available.
7. Current State of Property Taxes and Year of Delinquency: If the property is
delinquent for property taxes, there may be a seizure and sale process already in
motion. Check with the County Hall of Records to determine if a notice of sale has
been issued. You may send a levy to the County Property Tax Assessor’s Ofce for
any excess funds from their seizure and sale procedure.
Compliance Policy and Procedures Manual
October 2016
Step 2
Verify the CDTFA has led a lien and determine the date the lien was recorded. All liens
recorded both before and after the CDTFA’s lien must be reviewed to determine equity and
the potential for sale. This is the time to order a property prole on the subject property.
These reports are available from local title companies.
Step 3
Through the property prole or via a eld call to the local County Hall of Records, determine
all liens and encumbrances both superior and inferior to the CDTFA’s lien(s). As you review
the liens and encumbrances for the subject property, make a list of names and addresses
of all mortgage holders and judgment lien holders. This information will be vital when
attempting to determine equity.
Step 4
Determine Fair Market Value (FMV). How do you determine FMV? If possible, make a eld
call to the subject property to determine the current state of repair (condition) of the property.
Obtain prices of sales of similar property (comparables) in the area. This information can
be obtained via the property prole or by Internet search. This will enable you to make an
estimate of the FMV of the property.
For an exact FMV, have the property appraised by a real estate appraiser. However,
remember that there will be a cost for this service. To request funds for these costs, forward
a memorandum to CSB and a copy to the Accounting Section.
Step 5
Determine Equity of the Property. To determine the equity for the subject property, send
a letter to each judgment creditor, lien holder, and mortgage holder requesting the pay-off
balance (see sample letter at the end of this section). The courts require this information if
the property being sold is a “dwelling.” If the mortgage holder or lien holder will not respond,
a subpoena duces tecum may be needed. Refer to CPPM section 774.000 for information
on how to request a subpoena duces tecum. Remember that a separate subpoena will be
needed for each lien holder that will not respond to your request for pay-off information.
Step 6
Evaluate the information received. You should evaluate the information received at each
step. However, from Step 7 there will be costs to the state and litigation may be required.
Therefore, prior to going any further, meet with your supervisor and together evaluate the
information received to determine if the seizure and sale is cost efcient.
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October 2016
Step 7
Order Cost of Litigation Guarantee. What is a Cost of Litigation Guarantee? This is a title
report, which in addition to the title report, includes an attached schedule C. The schedule
C includes the name and address of each litigant required to be notied by the courts in
the sale. If the sale is of a “dwelling,” this is a required report [see Code of Civil Procedure
section 704.760 (c)]. This report protects the state against lawsuit if a party to the litigation
is overlooked. This report does not contain the pay-off amount for the liens. This report only
records the original lien amount led.
To determine the fee for a cost of litigation guarantee contact a local title company. For an
estimate of cost, the title company will need to know the amount of the CDTFA lien(s). Once
you have determined the cost, send your request via memorandum as follows: one copy to
CSB and one copy to the Accounting Section. Once the payment is authorized, go forward
with the Cost of Litigation Guarantee report.
Step 8
Determine fees for seizure and sale. Contact your local law enforcement ofce to determine
the amount of warrant fees needed to seize and conduct the sale. For total fees also include
the cost of the litigation guarantee.
Step 9
Complete CDTFA–200–W, Special Operations Warrant Request, to obtain a seizure and
sale warrant along with a request for Attorney General referral if the subject property is a
“dwelling.” The CDTFA–200–W must include a full legal description of the property to be
seized. It must also include the present address of the owner of the property. This is required
because the law enforcement ofcer must personally serve the owner of the property with
notication that the property has been seized.
Step 10
The law enforcement department will notify you, as the CDTFA’s representative, that the
property has been seized. If the property has a “dwelling,” the law enforcement department
will give you notice that you have twenty (20) days to obtain an “Order for Sale of Dwelling.”
It is at this time that the Attorney General process goes forward. Once the judge has issued
the order, the court will notify the law enforcement department to proceed with the sale and
any conditions for the sale, such as a homestead or minimum bid.
If no dwelling issue exists, the law enforcement department will proceed with the sale process
120 days after the levy notice is served on the judgment debtor for the interest in the real
property. For reference as to the process that the law enforcement department uses to sell
the subject property, see the following Code of Civil Procedure sections:
701.510 Sale of property levied upon.
701.520 Collection; Sale of collectible property.
701.530 Notice of sale of personal property.
701.540 Notice of sale of real property.
701.545 Period that must elapse before giving notice of sale.
701.547 Notice to prospective bidders.
701.550 Notice of sale to persons requesting notice.
701.555 Advertising of sale by judgment creditor or judgment debtor.
701.560 Effect of sale without required notice.
701.570 Place, time, and manner of sale.
701.580 Postponement of sale.
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July 2009
After the warrant is sent to the law enforcement department for seizure and sale, see the
following Code of Civil Procedure sections:
701.590 Manner of payment.
701.600 Defaulting bidder.
701.610 Persons ineligible to purchase.
701.620 Minimum bid.
701.630 Extinction of liens upon sale.
701.640 Interest acquired by purchaser.
701.650 Delivery of possession or of certicate of sale of personal property.
701.660 Deed of sale of real property.
701670 Contents of certicate or deed of sale.
701.680 Sale as absolute; Liability.
701.810 Distribution of proceeds of sale or collection.
701.820 Distribution of proceeds.
701.830 Procedure where conicting claims to proceeds.
Once the warrant goes to the law enforcement department, the responsibility for the sale
shifts to that agency. However, it is recommended that you remain knowledgeable of the
law enforcement department’s process.
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July 2009v
SAMPLE LETTER TO LIEN HOLDER
NOTE: Use standard CDTFA letterhead for this letter.
Date
(Company name or person’s name)
(Address)
(City, State Zip)
Re: Lien recorded in (________) County
Acct. No.: SR XX 99–999999
Taxpayer’s Name
Dear _______________:
The California Department of Tax and Fee Administration is seeking information
on the above referenced taxpayer. A search of the records for (_______________)
CountydisclosedliennumberXX–XXXXXledon(_____DATE_____) by you for a money
judgment. A copy is attached for your reference.
Government Code Section 15618 states, “The board may examine, as a board,
individually,orthroughitssta,thebooks,accounts,andpapersofallpersons
requiredtoreporttoit,orhavingknowledgeoftheaairsofthoserequiredso
to report.” The information requested below is required for tax administration
purposes only and will not be used for any other purpose.
Please provide the following information in regard to the subject lien:
Hastheabovereferencedlienbeensatised?
If yes, what date was the debt paid in full?
Ifno,whatisthepay-obalanceforthisdebt?
Thank you for your assistance in this matter. A postage-paid return envelope is
enclosed for your convenience. If you have any questions, please call me at (XXX)
XXX–XXXX.
Sincerely,
{Author’s Name)
[Working Title]
Compliance Policy and Procedures Manual
July 2009
TAXES COLLECTED BY OTHER AGENCIES 768.000
VEHICLE, VESSEL, OR MOBILEHOME USE TAX COLLECTIONS 768.020
Among other things, the California Department of Tax and Fee Administration (CDTFA)
is responsible for the collection of sales and use taxes and certain special taxes and fees.
However, other agencies may act for the CDTFA and collect the use tax on its behalf for certain
types of use tax transactions. This situation typically occurs when vehicles, undocumented
vessels, and mobilehomes are purchased from persons who are not authorized dealers,
manufacturers, dismantlers, or lessor-retailers.
Under Sales and Use Tax Regulation 1610, Vehicles, Vessels and Aircraft, certain exemptions
from use tax may apply to purchases of vehicles and undocumented vessels. If the use tax
is applicable, the Department of Motor Vehicles (DMV) collects the tax from the purchaser
based on the purchase price of the vehicle or undocumented vessel.
With certain exceptions listed in Sales and Use Tax Regulation 1610.2, Mobilehomes and
Commercial Coaches, purchasers of mobilehomes and commercial coaches required to be
registered annually under the Health and Safety Code shall pay tax to the Department of
Housing and Community Development (HCD) when making application for registration.
The CDTFA is responsible for collection of the use tax on purchases of other vessels and
vehicles (as dened in the Vehicle Code) and mobilehomes (as dened in the Health and
Safety Code) that are not registered or subject to identication with the DMV or HCD. (See
CPPM chapter 8, Use Tax.)
HCD provides the ownership and registration information for mobilehomes not registered with
DMV. Ownership information is led by license, serial or decal number, but is sometimes
also available by name and address of the owner.
A formal title search may be requested by completing Form No. HCD–491.1, which is available
from HCD’s web site located at www.hcd.ca.gov. In addition to providing the title report,
HCD will send notication of any title changes for the specied mobilehome that are led
during the subsequent 120 days.
MOBILEHOME DEALER REPORT OF SALE BOOKS 768.040
Mobilehome dealers are required to release their Report of Sale books to HCD upon closure
of the business. The CDTFA and HCD have established an agreement allowing for mutual
notication when a dealer terminates his or her business.
HCD will notify the CDTFA ofce that has jurisdiction over the dealer’s place of business when
HCD nds that a mobilehome dealer is out of business or has not renewed his or her dealer’s
license. If the CDTFA does not require the Report of Sale books, HCD will destroy them. If
the account is selected for audit, HCD will deliver them to the responsible CDTFA ofce. The
Report of Sale books will be returned to HCD at the following address upon completion of the
audit and after it is determined that there is no further need for the Report of Sale books:
Department of Housing and Community Development
Division of Codes and Standards
Occupational Licensing Section
PO Box 31
Sacramento CA 95812–0031
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July 2009
If HCD nds evidence of noncompliance when reviewing the dealer Report of Sale books, copies
of the Reports of Sale indicating noncompliance will be sent to the appropriate CDTFA ofce.
When the CDTFA closes the seller’s permit of a mobilehome dealer, it will contact the HCD
Sacramento Occupational Licensing Section at the following number: (916) 323–9803. If
Report of Sale books are required for examination or audit, they can be requested at this
time. The CDTFA will also provide the location of books and records if known, and the close
out date. If HCD has not already contacted the dealer, they will do so and thereafter either
deliver the Report of Sale books to the CDTFA, if requested, or destroy them.
To determine a dealer’s nancial stability and ensure subsequent public protection, the
CDTFA will notify HCD, at the above telephone number, when either of the following situations
arise on active mobilehome dealer accounts:
1. A mobilehome dealer has an outstanding liability that requires a eld assignment.
2. A mobilehome dealer is being audited and it appears that the dealer is nancially
troubled. Before contacting HCD and providing this information, the following
conditions must exist:
a. Based on the audit, it does not appear the business is properly nanced to clear
the probable liability.
b. There is factual information produced through the audit that the business is in
nancial trouble.
c. The Administrator approves the telephone call.
A notation that HCD has been contacted should be entered on the compliance or audit
assignment.
Compliance Policy and Procedures Manual
June 2021
PAYMENT PLANS 770.000
GENERAL 770.005
All collectors will collect amounts owed to the California Department of Tax and Fee
Administration (CDTFA) in a fair, efcient, and timely manner. When a collector contacts a
tax/fee payer for payment, he or she should request payment in full and should not solicit
the taxpayer to request a payment plan. However, when payment in full is not feasible,
accepting payments over time may be the best alternative. RTC section 6832
1
provides the
CDTFA discretionary authority to allow an installment payment agreement (payment plan)
in cases of nancial hardship. In such cases, allowing a payment plan may accommodate a
taxpayer’s economic realities while allowing the taxpayer to meet its obligation to the CDTFA.
Taxpayers may request a payment plan online via the CDTFA website or while in contact with
a collector. When a payment plan is requested online and meets certain criteria, it may be
approved automatically without any action by staff. When a payment plan is not automatically
approved, collectors will review the account history and the taxpayer’s nancial situation
to determine if a payment plan is appropriate and if so, the duration and payment amount.
ONLINE PAYMENT PLANS 770.010
When an online payment plan request is automatically approved, the required payments
will be automatically debited from the taxpayer’s bank account or charged to their credit
card (see CPPM section 770.022). The details of the payment agreement can be viewed in the
system. Except in certain circumstances outlined in this section, payment plans initiated by
the taxpayer through the CDTFA’s online services are generally auto approved if they meet
the following criteria:
• Outstanding balances less than $50,000 that will be paid in full within 24 months,
or
• Outstanding balances $50,000 and greater that will be paid in full within 12 months,
and
• Monthly payments are at least $10
Auto Approval of Online Payment Plans
A taxpayer can set up a payment plan online to include both nal and non-nal bill items.
When contacted by a taxpayer who meets the criteria for auto approval, the taxpayer should
be directed to apply online and the system should approve the plan without requiring the
taxpayer to provide nancial documentation.
1 RTC Section 6832 refers to Sales and Use Tax Law; similar provisions exist for special taxes and
fees.
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June 2021
Online payment plans will not be auto approved if any of the following exist on an account:
• An active bankruptcy
• Periods discharged from bankruptcy
• An outstanding delinquency
• A revoked license
• An active earnings withholding order for taxes (EWOT), levy, or notice to withhold
• An existing active payment plan
• A payment plan that was defaulted or terminated within the last 12 months
• An active keeper warrant or till-tap
• A dealer or liquor license cancellation/suspension
• Listed on the Top 500 Sales & Use Tax Delinquencies in California
• A jeopardy determination billed within the past 30 days
• An accepted and approved offer in compromise (OIC)
1
• The taxpayer is registered as a Receivership/Fiduciary
• Investigation Indicator
Online Logon Parameters
To request a payment plan online, taxpayers generally log in with their username and
password. If they do not log in with a username and password, they may use the Letter
ID from their payment voucher. If a Letter ID is used to establish the payment plan, it will
include only the periods of liability on the payment voucher.
Only taxpayers who log in with their username and password will have the ability to view
the total amount due, view the current status, and update bank information.
Taxpayers must enter the following information when requesting a payment plan:
• Name and phone number (non-logged in requests only),
• Payment amount (payment must be $10 or more),
• Frequency (weekly, biweekly, or monthly),
• First payment date (rst payment must be within 45 days of request), and
• Bank information (routing number, account type, and account number) or credit card
information.
The system provides a review screen for taxpayers to verify the information entered and
the terms of their proposed payment plan for accuracy. The taxpayer can edit or cancel the
request prior to submitting it. Once submitted, the taxpayer will be immediately advised if
the plan was approved or submitted for review. They will also be provided a conrmation
number. The conrmation number can be found on the Customer springboard “Online
Services” tab, “Processed” subtab.
1 Taxpayers with an OIC case under review may enroll in a payment plan.
Compliance Policy and Procedures Manual
June 2021
Payment plans that meet the criteria for auto approval will be immediately approved without
any action required by the collector. If a customer initiates a payment plan online, it is
created immediately with the rst payment defaulting to 5 days out, or up to 45 days if
the taxpayer chooses another date. For purposes of the Collection Cost Recovery Fee (CRF)
assessment, the effective date of the payment plan will be the date of the request.
The method in which the taxpayer requests the payment plan (logged in or non-logged in
user) and whether the payment plan is auto approved or approved after a collector’s review
determines which forms, if any, are required. When a payment plan is auto approved, an
approval message displays and no action is required by the collector. See CPPM section
770.012 for the required forms when the payment plan is not auto approved.
REVIEW OF THE REQUEST 770.012
When the payment plan is not automatically approved, a work item is created in the system.
The collector must evaluate the nancial ability of the taxpayer to determine if the request
for a payment plan is reasonable. Before accepting a payment plan, the collector will have
thoroughly investigated the nancial condition of the taxpayer and determined that a payment
plan is the most effective method available to collect the amount due.
The primary consideration to accept a payment plan is whether the plan is in the best interest
of the state. When it is not in the best interest of the state, the CDTFA is not required to
accept a taxpayer’s payment plan request. Collectors must review the taxpayer’s past payment
history, the merits of the proposal, and the viability of the business when determining whether
to accept the proposed payment plan. When reviewing a taxpayer’s past payment history,
the taxpayer’s record under related accounts as an individual, partner, or corporate ofcer
should also be considered. Although a taxpayer’s payment history may be unsatisfactory,
the responsible ofce has discretion to grant an exception. Collectors must document the
justication in the system. In addition, nancial documentation may be needed to determine
the nancial need for a payment plan, and to evaluate reasonable repayment terms.
If the taxpayer can pay the liability in full or has assets that can be liquidated or borrowed
against to pay the liability, he or she should be required to do so. Some examples of sources
to borrow from include:
• Lines of credit – secured and unsecured,
• Life insurance policies or retirement funds,
• Equity in real property interests,
• Equity in vehicles, vessels, or aircraft,
• Credit cards,
• Cash advances,
• Stock certicates or bond holdings, or
• Interests in certain estates or trusts.
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June 2021
By requiring the taxpayer to exhaust other means to pay off the existing liability, the CDTFA
is relieved of the burden of nancing the tax/fee debt. If the taxpayer can pay the liability
in full but refuses to do so, the collector should proceed with collection action. If borrowing
funds is not an option for the taxpayer, they should attempt to arrange with other creditors
to defer payments, or make smaller payments, and thus allow for the payment in full or the
ability to make larger payments towards the delinquent tax/fee liability.
Online Requests Requiring Collector Review
The system displays the terms of the proposal as submitted. The collector will review the
proposal and make the decision to accept or deny the request. If the proposal is acceptable,
the collector will send a CDTFA-407-CN, Conrmation/Online Payment, to the taxpayer,
which is available in the system. If the proposal is not acceptable, the collector must contact
the taxpayer to discuss acceptable terms.
Once new terms are agreed upon, the collector will deny the original request in the system
and have the taxpayer resubmit a new request online. If the taxpayer is not able to resubmit
the request online in a timely manner (i.e., in time for the rst payment to be processed, or
before a Collection Recovery Fee (CRF) is assessed), the original request should be modied
in the system.
The payment plan may be modied only after contact is made with the taxpayer and the terms
are negotiated. If the plan is modied or changed, a CDTFA-407 with the new payment plan
terms is sent to the taxpayer. Once the signed CDTFA-407 is received from the taxpayer, the
payment plan is modied by the collector in the Payment Plan springboard and it is sent to
the supervisor for approval.
Direct Contact from Taxpayer
Taxpayers may call a collector directly asking to set up a payment plan. The collector should
rst request that taxpayers pay their liability in full. Taxpayers who are unable to pay in full
should be directed to make their payment plan request online. For those taxpayers unable
to make their request online, collectors will evaluate the requested payment plan and if
accepted, must send the taxpayer a CDTFA-407 (available in the system) to complete and
return, ensuring that all terms of the agreement are documented on the CDTFA-407.
Before accepting a proposal for a payment plan that does not meet the criteria for auto
approval, the collector will have thoroughly investigated the nancial condition of the taxpayer
and determined that a payment plan is the appropriate method to collect the amount due.
Compliance Policy and Procedures Manual
February 2016
REQUESTING FINANCIAL INFORMATION 770.013
Documentation may be required to determine the taxpayer’s need for a payment plan
and nancial ability to meet its terms. When evaluating a taxpayer’s nancial situation,
the collector may require an individual to submit information as listed on the CDTFA-58,
Payment Plan – Need Information (Individual). A corporation or other entity type may be
required to submit information as listed on the CDTFA-60, Payment Plan – Need Information
(Non-Individual) Review. Such documentation may include:
• A CDTFA–403–E, Statement of Financial Condition,
• Bank statements (both personal and business),
• Merchant card statements,
• Income tax returns,
• Accounts receivable listings (including names, addresses, phones numbers, and
amounts owed),
• Income and expense (or prot and loss) statements,
• Balance sheets,
• Cash ow statements, and
• Other documentation relating to the taxpayer’s nances.
The collector should not make a blanket request for information, but should tailor the
requested documents to each taxpayer’s specic situation.
One example of documentation that may be requested, but should not be requested as a
matter of routine, is evidence of a loan in process or loan denial letter. While taxpayers
should be encouraged to seek other sources of funds to repay their tax debt, staff should
not request evidence of a loan in process or denial letter from taxpayers who do not have the
means to get a loan. This documentation should also not be requested from taxpayers who
meet the criteria for a payment plan without providing nancial documentation as outlined
in CPPM section 770.012.
Additional information and verication may be required as deemed necessary by the collector;
however, only documentation that provides nancial information may be requested. Staff
should not request any documents that do not provide nancial information (e.g., dual
questionnaires), and may not require such documents as a condition of acceptance of the
payment plan.
The collector should require the taxpayer to start making the proposed payments while
nancial information is compiled by the taxpayer and evaluated by the collector.
If the payment plan exceeds 2 months on an active account, the taxpayer may be required
to make weekly or monthly payments against anticipated liabilities for the upcoming periods
in addition to the payment plan payments. This requirement will ensure that the taxpayer
does not incur further debt with CDTFA and does not accrue further penalty for failure to
le, or to pay, a tax or fee return timely. Since payment plans with automatic debit payments
cannot accommodate unbilled future liabilities, these payments must be made separately
by the taxpayer.
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February 2016
ANALYZING FINANCIAL INFORMATION 770.014
The nancial information submitted in support of a payment plan request should indicate
how much money the taxpayer is able to pay in order to satisfy the liability in full, including
interest accruals, within the time frame specied. The taxpayer’s income should be compared
to his or her claimed expenses. If expenses exceed income, the taxpayer must provide an
explanation (i.e., what expenses are not currently being paid).
Evaluating a payment proposal for an active business can be less straightforward than a
proposal for a closed account where, for example, the source of income is wages and the only
expenses to consider are household expenses. In addition, active businesses owned by sole
proprietors or partnerships require a nancial review of both the individual owner(s) and the
business. For businesses owned by other entities (e.g., corporations, LLCs), the documentation
may consist of nancial statements and bank records. The following guidelines are based on
the Financial Analysis Handbook published by the Internal Revenue Service (IRS) and may
be helpful when analyzing a taxpayer’s nancial condition.
Determining Individual Income
Generally, all household income will be used to determine the taxpayer’s ability to pay. Income
consists of the following: wages, interest and dividends, net income from self-employment
or Schedule C of the Federal Income Tax Return Form 1040, net rental income, pensions,
child support, alimony, or other income (e.g. royalties, gambling winnings, payments from a
trust account). Income claimed on the CDTFA-403-E, Individual Financial Statement, should
be compared with bank statements, tax returns, and all other nancial documents. The
taxpayer should be asked to explain any differences noted by the collector.
Business Financial Statements
Many businesses employ accounting rms to maintain books and records or use over-the-
counter software programs. Because of the complexity of some business entities, reviewing
these records may be very important in determining the business’ ability to pay and the
true value of its assets.
When determining ability to pay, the income and expense information must reect a sufcient
time frame to accurately determine the monthly average that could be expected for the entire
year. Seasonal variations in business income must be considered, as well as extraordinary
events that can lead to excessive increases or decreases in income or expenses at a particular
time. Information provided on the CDTFA-403-E, as it pertains to income, assets, and
expenses, should match the information provided on other nancial statements, tax returns
and schedules, and other sources used to verify assets or encumbrances. Discrepancies
must be addressed and documented in the system.
Compliance Policy and Procedures Manual
February 2016
The following is a list of nancial statements and the information contained in them that
may be used to evaluate a payment proposal:
• Income Statement (Prot and Loss Statement)
The Income Statement (Prot and Loss Statement) shows a business’ revenue,
expenses, and prot during a given accounting period, usually either quarterly
or annually. Along with the balance sheet, the income statement is a tool used
to assess the health and prospects of a company. The income statement shows
revenue and expenses, including operating expenses, depreciation, income taxes,
and extraordinary items. Staff should be able to determine funds available for a
payment plan based on cash ow, prot margins, and other important indicators of
how the business is doing by reviewing the income statement.
• Balance Sheet
A business’ balance sheet is a snapshot of its nancial picture on a given day.
A balance sheet shows the nancial position of a company by indicating the
resources that it owns, the debts that it owes, and the amount of the owner’s
equity in the business. One side of the balance sheet totals up assets, moving from
the most liquid (cash) to least liquid (plant and equipment or goodwill). The other
side lists liabilities in order of immediacy or urgency. Remember that assets must
equal liabilities plus shareholder’s/owner’s equity. Although the balance sheet by
itself may not clearly show funds available for a payment plan, it should be used to
identify assets and other liabilities.
• Cash Flow Analysis
Staff may also request a cash ow analysis. This is often completed when
taxpayers seek loans or investors and may already be available for staff’s review.
Cash ow is net income minus preferred dividends plus depreciation (as given
in the income statement). Generally, depreciation charges are not considered an
allowable expense as they are not genuine bills that have to be paid. Cash ow
is the key to a company’s ability to cover debts and can be especially useful in
assessing businesses in capital-intensive industries where huge depreciation
charges can hide healthy prots. Cash ow projections are used by a business to
forecast future income to meet upcoming expenses. They are based on comparing
money owed to expected revenues. This information is useful when dealing with
a business that does not have the ability to pay in full within a short period of
time. This information will help determine if the business can remain current with
operating expenses and taxes, and also pay the delinquent taxes. The cash ow
analysis will help staff determine an appropriate and sustainable payment amount
based on revenue and expenses.
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February 2016
Analysis of income and expenses may identify many of the assets the taxpayer has available.
For example, rental income may identify real property or equipment owned. Expenses such as
taxes and licenses may indicate assets such as machinery and equipment. The IRS Financial
Analysis Handbook identies common sources of income, expenses, and assets that may be
listed on the taxpayer’s income tax return.
Determining Equity in Assets
To determine the equity in an asset, staff must determine its value, whether there are
encumbrances against it, and the priority of the Notice of State Tax Lien. Proper valuation
of an asset is necessary to determine whether it is a source for collection. Some assets
can be complex or difcult to value. The Fair Market Value (FMV) of an asset is the price
set between a willing and able buyer and seller in an arm’s length transaction where both
parties have full knowledge of the relevant facts. The FMV can be inuenced by market
conditions, age of the asset, condition of the asset, demand, and other factors. The Quick
Sale Value (QSV) of an asset is an estimate of the price a seller could get for the asset in
a situation where nancial pressures motivate the seller to sell in a short period of time,
usually 90 days or less. Generally, the QSV is calculated at 80% of the fair market value. A
higher or lower percentage may be appropriate depending on the type of asset and current
market conditions. Sources for determining FMV may also depend on the type of asset. For
vehicles, for example, there are several online tools available to help determine the value.
Once the equity in an asset is established, staff may determine the taxpayer has the ability
to pay the liability in full if they can liquidate, renance, or borrow against the asset. Taking
payments over time is not in the best interest of the state if the taxpayer’s nancial information
indicates an ability to pay their liability in full.
Compliance Policy and Procedures Manual
February 2016
ANALYZING EXPENSES FOR INDIVIDUALS 770.015
Allowable expenses are segregated into two categories: “necessary” and “conditional.”
Necessary expenses are those expenses that must be paid in order to support health, welfare,
and production of income. Conditional expenses are expenses that the taxpayer may be
allowed to continue paying if all of the taxpayer’s liability, including interest accruals, can
be paid during the stipulated time.
When analyzing the necessary and conditional expense allocations of the taxpayer, collectors
should use the Collection Financial Standards tables published by the IRS. These standards
are based on the Federal Bureau of Labor Statistics, Consumer Expenditure Survey.
These national standards serve as a guide for determining the average expense levels
applicable to a taxpayer who is applying for a payment plan. Whenever a taxpayer lists
an amount lower than the standard, collectors should use the actual gure given by the
taxpayer. Whenever the taxpayer lists an amount higher than the IRS standard and higher
than local averages, the collector should question the amount and determine if the claimed
amount is excessive.
Necessary Expenses
The rst category of expenses on the IRS’s Collection Financial Standards page is the
National Standards: Food, Clothing and Other Items, which has a table that provides a set
amount allowed depending upon the number of family members. The table lists the following
necessary expenses:
1. Food
2. Housekeeping supplies
3. Apparel and services
4. Personal care products and services
5. Miscellaneous - The miscellaneous allowance is for expenses a taxpayer may incur
that are not included in any other allowable living expense items, or for any portion
of expenses that exceed the standards.
In addition to the table of allowable living expenses for food, clothing, and other items, the
IRS website has links to tables for out-of-pocket health care expenses, housing and utilities,
and transportation. The table for housing and utilities is organized by state and, once the
collector clicks on the California link, by county. The transportation table has an allowance
for car ownership (limited to two cars) and is then segregated into operating cost by region.
Also listed is a nationwide allowance for public transportation.
Other expenses that do not appear in the IRS tables can be “necessary” if they meet the
necessary expense test (health, welfare, or production of income), but the amount of the
claimed expense must be reasonable. For example, childcare and dependent care services do
not have standardized costs, and the cost for these services can vary greatly depending on
a number of factors. The collector should analyze the cost for these types of expenses based
on the prevailing living standards where the taxpayer is incurring the expense. In addition,
the collector should use his or her best judgment and experience when determining if the
amount of the claimed expense is necessary and reasonable. Adequate documentation should
be provided when an expense falls into this category and the amount is questionable. The
taxpayer is responsible for determining the specic areas in its budget that can be modied
or eliminated in order to pay the tax liability.
Collections
July 2009
The following list describes some of the various types of expenses in the “other” category.
1. Accounting and legal fees are necessary only if they meet the necessary expense test.
Otherwise, accounting expenses and legal fees are conditional expenses, but they may
be allowed if the liability owed to the CDTFA can be paid in full, including projected
interest and penalty accruals, within three years.
2. Charitable contributions include donations to tax exempt organizations such as civic
groups, religious organizations, and medical services or associations. Contributions
to religious organizations as a condition of membership (tithing and educational
donations) should be allowed if the amount donated matches the amount required
by the organization.
3. Childcare costs, such as baby-sitting, daycare, nursery school, and preschool, can
vary greatly, and the collector must determine whether the cost appears reasonable
in relation to the type of care provided. If a portion of a childcare expense seems
excessive, the taxpayer should be required to provide an explanation or to submit
documentation to support the claimed amount.
4. Dependent care expenses for the elderly, handicapped, or inrm are necessary if the
taxpayer has no recourse except to pay the expense.
5. The cost of education is a necessary expense if it is required for a physically or mentally
challenged child, and no public education providing a similar service is available. If
childcare is provided by the educational institution and the cost for the childcare is
included as part of the educational expense, it should not also be included by the
taxpayer as an additional childcare expense. Where the charge for the childcare is
segregated from the charge for the educational expense, the childcare expense should
be claimed separately from the educational expense. The cost of education is also a
necessary expense if it is required as a condition of employment. Current licensure is
a requirement for many professionals in order for them to work. Therefore, continuing
education units for professionals such as attorneys, accountants, teachers, healthcare
workers, realtors, and other professions that are required to maintain a current license
are necessary expenses.
6. The cost incurred in obtaining medical insurance when a separate premium is paid,
or when the premium is taken as a deduction from the taxpayer’s wages, qualies as
a necessary expense. Medical and dental services, prescription drugs and medical
supplies, eyeglasses and contact lenses, and guide dogs for the visually impaired are
also necessary expenses.
7. Involuntary deductions such as Medicare, mandatory union dues, and wage
garnishments are necessary expenses. If the taxpayer has extra withholding taken
from net wages to offset future income tax liability, this may be allowed if the liability
owed to the CDTFA can be paid off within twelve months. Otherwise, the taxpayer
must make other arrangements or adjustments to eliminate the extra tax withholding.
The taxpayer must arrange for this increase in income to be paid to the CDTFA.
Compliance Policy and Procedures Manual
February 2016
8. The payment of insurance premiums for a life insurance policy is generally a necessary
expense. However, many insurance policies are also used as a vehicle for saving money
and the taxpayer may be able to borrow against these funds. For a life insurance
policy to be a necessary expense, the policy must be a term-life policy that is already
in effect at the time of the taxpayer is billed. Even for term-life policies, expensive
premiums must be justied. The collector should determine if the payoff of the policy is
high compared to the lifestyle of the beneciaries. For whole-life policies, the taxpayer
should be required to obtain a loan against the value, withdraw the cash value (if
it can be done without penalty) or suspend payments while the payment plan is in
progress (if allowable by the insurance company). If policy premium payments cannot
be suspended, the expense will be considered as conditional.
9. Payments to creditors may be necessary for secured or legally perfected debts. If the
claimed debt meets the necessary expense test, then payments to these creditors will
be allowed to continue; however, the taxpayer must substantiate that the payments
are being made regularly.
10. Current federal and state taxes that are withheld from wages, including FICA
withholding, are necessary expenses.
11. Minimum payments to creditors for unsecured debts (such as money due for credit
card purchases) will be allowed if the liability owed to the CDTFA, including projected
penalty and interest accruals, will be paid in full within three years. With the exception
of credit card minimum payments, payments on unsecured debts will not be allowed
if omitting them would permit the taxpayer to pay the liability in full within 90 days.
12. Miscellaneous expenses are expenses the taxpayer claims are necessary but that
CDTFA staff considers questionable. Examples include extracurricular activities for
children, monthly Christmas savings account deposits, and expenses for newspapers,
magazines, and trade publications. Allowing or disallowing these expenses is left to
the discretion of the collector or the collector’s supervisor.
Conditional Expenses
Conditional expenses are those that do not meet the necessary expense test but may be
allowable if the tax liability, penalty, and interest accruals are paid in full within the following
guidelines:
1. Three years. For substantiated conditional and excessive expenses to be allowed,
the tax debt must be paid in full within 3 years.
2. One year. If the tax liability cannot be paid in full within 3 years, conditional and
excessive expenses may be allowed if the taxpayer agrees to modify or eliminate the
expense within 12 months. This period may be adjusted from 1 to 12 months based
on the nature of the expense.
3. 90 days. Payments on unsecured debts, other than credit card debt, will not be
allowed if omitting these payments would permit the taxpayer to pay its tax liability
in full within 90 days. Minimum payments will be allowed on credit cards to preserve
a taxpayer’s credit rating.
Conditional expenses, and some necessary expenses (e.g., wage garnishments, child support
payments, and other court ordered payments), may have an expiration date. The responsible
collector should determine whether the expense will expire within the timeframe of the
payment plan. If the expense does end within the period of the payment plan, the collector
should require the additional available funds to be directed toward paying the CDTFA’s
liability and not paid to other creditors.
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March 2020
Examples of Conditional Expenses
The following conditional expense items do not constitute an exhaustive list of all the expenses
a taxpayer may have incurred. If a claimed expense is questionable, the collector should ask
for an explanation or documentation as the case requires.
1. Accounting and legal fees are necessary only if they meet the necessary expense test
(health and welfare or production of income). Other accounting expenses and legal
fees are conditional expenses.
2. An expense incurred for private education (unless it meets the criteria for a necessary
expense, as previously stated) is considered to be a conditional expense.
3. Housing costs other than for the taxpayer’s primary residence are conditional
expenses. Expenses to maintain a secondary dwelling that are not necessary for the
health, welfare, or production of income should be disallowed. If the taxpayer owns
the secondary dwelling, and if sufcient value in the property exists, the taxpayer
should attempt to borrow against the equity and pay off the liability. A state tax lien
subordination will generally be allowed in order to renance a home for purposes of
increasing the payments offered in the payment plan or for a lump-sum payment in
full from the renance.
4. Other expenses not associated with the maintenance of the primary residence are
considered conditional expenses. For example, pool and gardening services are
conditional expenses.
5. Transportation charges falling within the standards in the IRS tables are generally
allowable. Excess transportation charges and claimed expenses for more than one
vehicle must pass the necessary expense test. Expenses claimed for items such as
boats, motor homes, or extra vehicles must be substantiated. In addition:
a. In order to claim ownership costs as an allowable expense, the taxpayer must
provide documentation of a lease or loan on his or her vehicle, vessel, or aircraft.
b. Transportation costs such as gasoline, maintenance and repairs, vehicle
insurance, license and registration fees, towing charges, tolls, and automobile
service clubs may also qualify as allowable expenses as long as they are
necessary expenses.
Other transportation expenses such as fares for mass transit (buses, trains, ferry services,
taxis, airlines, and private school buses) are allowable provided they can be documented as
a requirement in the production of income, or they pass the necessary expense test.
ACCEPTING A PAYMENT PLAN 770.020
After the taxpayer’s documentation has been analyzed and the amount and frequency of
payments have been discussed and agreed to, the collector should direct the taxpayer to
use the CDTFA website and enter the agreement online. The collector will then approve the
online request and send a CDTFA-407-CN, Conrmation/Online Payment (see CPPM section
770.010). If the taxpayer is unable to submit the request online, the collector must send
the taxpayer a CDTFA–407, Payment Plan Agreement, and the cover letter, CDTFA–407–A.
These forms are available in the system and must be completed only for taxpayers that are
unable to submit their request online. All terms of the agreement must be documented on
the CDTFA-407.
Compliance Policy and Procedures Manual
March 2020
Payment Plans Requiring Use of the CDTFA-407 and CDTFA-407-A
When a payment plan has been agreed upon and the taxpayer is unable to make the
request online, the collector must send the taxpayer a CDTFA-407 and CDTFA-407-A. The
collector should complete all applicable sections of these forms prior to mailing them to
the taxpayer. All terms of the agreement must be documented on the CDTFA-407, and the
collector must discuss those terms with the taxpayer. Specically, the collector must explain
the circumstances under which a lien may be led, CRF fees may be assessed, or an FTB
refund may be offset. In addition, the collector must also explain that failure to comply with
the agreement will result in its termination.
The taxpayer must sign the CDTFA-407 indicating agreement with the terms. Payments
should be made by automatic debit (debit payments), and banking information must also
be completed on the form, as well as the bank account owner’s signature authorizing the
account to be debited. Debit payments are required in most circumstances (see CPPM 770.022
for information regarding the automatic debit requirement).
Payment plans are monitored by the system for appropriate taxpayer notications and
collector follow-ups. All payment plans consisting of three or more payments require
supervisory approval and the approval must be noted in the system. Single or two-part
payment plans with automatic debit payments also require supervisory approval.
Entering the Payment Plan in ACMS
Detailed instruction on entering payment plan information is available on CDTFA’s intranet
by selecting the ACMS heading under the Technology Services tab, and then selecting the
“Promise to Pay” link.
The collector must select one of two categories of payment plans, “Manual” or “Auto Pay.”
In a Manual payment plan, payments are initiated by the taxpayer. Manual payment plans
should generally only be used in situations where the taxpayer is unable to set up debit
payments from his or her bank account. For Manual payment plans entered into ACMS,
a reminder notice is automatically mailed to the taxpayer several days before the payment
due date. Note that when a payment plan is already in effect for the account, the collector
will not be able to input another payment plan in ACMS, and therefore a reminder notice
will not be sent, and the collector must monitor the payment plan manually. Auto Pay is
selected when payments will be automatically debited from the taxpayer’s bank account.
Under Auto Pay, the taxpayer will not receive a notice of the debit payment from CDTFA.
Liabilities Included in Payment Plan
The payment plan can be viewed from the Customer, Account, or Collection springboard.
The details of the payment plan are displayed on the Payment plan springboard.
For accounts in ACMS, the Take a Promise to Pay screen will automatically display all
unpaid, nal liabilities available for a payment plan. By default, all liabilities will be selected
for inclusion in the payment plan except those that are identied in IRIS as having been
discharged from bankruptcy (DFB Difference Status code). If a “Manual” payment plan is
selected, no modication can be made to liabilities included in the payment plan. If Auto
Pay is selected, ACMS will allow the liabilities and amounts included in the payment plan
to be modied, when necessary.
Liabilities included in an active payment plan are identied in IRIS with the Difference Status
code PRM. The PRM status code will automatically be removed from the liabilities when the
payment plan is no longer active (i.e., completed or terminated).
Collections
Review Date for accounts in ACMS
A review date can be selected for any payment plan with three or more payments. A review
date would be entered, for example, to schedule a date to contact the taxpayer for a review
of his or her nancial condition. A review date can be set for up to one year in the future.
When the review date is reached, the account will route to the Promise Review work state in
ACMS. While an account is in Promise Review, the payment plan remains in effect and debit
payments or payment reminder notices (for Manual payment plan) will continue. Regardless
of whether or not a review date is entered, the account will automatically route to Promise
Review once the account has been in the Promise to Pay state for 365 days. If the account
routes to a different state within that time the 365-time period starts over.
Payment Plan Statuses
The status of the payment plan indicates its current disposition. The following is a list of
statuses:
• Active – The payment plan is active and ongoing. Debit or credit card payments are
automatically initiated, or payment reminder notices are automatically sent.
• Cancelled – The payment plan has been cancelled.
• Collector Review – The payment plan is awaiting collector review.
• Defaulted – The payment plan is defaulted.
• In Grace – The payment plan termination warning letter is automatically created if
the plan was put into In Grace status by the system. Otherwise, the collector must
create the termination letter and mail to the taxpayer.
• Inactive – The payment plan had gone inactive.
• Paid in Full – All liabilities included in the payment plan have been paid in full.
• Pending Approval – The payment plan has been entered in the system, but is pending
approval.
• Rejected – The payment plan has been rejected.
• Request Additional Information – The payment plan is not yet approved and additional
information is requested from the taxpayer.
• Supervisor Approval – The payment plan is awaiting supervisor approval.
March 2020
Compliance Policy and Procedures Manual
Accounts in ACMS:
• Pending – The payment plan has been entered in the system, but it has not been
approved by a supervisor. While a payment plan is in pending status, debit payments
and payment reminder notices will not occur. While in pending status, the payment
plan can be modied. However, if the payment plan was submitted online, some elds
cannot be modied.
• Active – The payment plan is active and ongoing. The debit payments will be initiated,
or payment reminder notices will be sent. Liabilities included in the active payment
plan are identied in the system by the PRM status code. This status not only indicates
there is an active payment plan for the account but identies the specic liabilities
included in the payment plan. While in Active status, bank account information elds
can be modied in the Promise to Pay screen.
• Completed – All liabilities included in the payment plan have been paid in full or the
amount required to be paid by the taxpayer (i.e., the “Maximum Amount”) has been
received.
• Terminated – The payment plan is terminated. The status changes to terminated after
the collector has initiated the termination process, a CDTFA-407-T, Payment Plan –
Notice of Termination, has been sent, and the 15-day period from the date the Notice
of Termination was sent has passed. Note: during the 15-day period, the status of the
payment plan remains active and debit payments and reminder notices continue.
• Cancelled – The payment plan has been cancelled by the collector. . If, for example,
a new payment plan is negotiated with the taxpayer due to a change in the tax/
feepayer’s circumstances, the existing payment plan must be cancelled before a new
one can be entered into the system.
• Taxpayer Cancelled – The payment plan has been cancelled at the taxpayer’s request.
• Legal Cancelled – The payment plan has been cancelled as a result of a bankruptcy
case led by the taxpayer or other legal proceeding. The status will automatically
change to Legal Cancelled when bankruptcy information is entered in IRIS. For all
non-bankruptcy related legal types in IRIS, the payment plan will not be cancelled
automatically. Collectors with supervisor security capability in ACMS have the ability
to change the status to Legal Cancelled.
• Denied – The pending payment plan has been denied by a collector or supervisor.
• Unable to be Processed – The status of the pending payment plan will automatically
change to Unable to be Processed when any of the following enter ACMS:
o New bankruptcy
o All periods of liability are paid in full and/or adjusted to zero
o All periods of liability become non-nal
March 2020
Collections
Approving a Payment Plan in the System
Other than online payment plans that have been automatically approved, payment plans
with automatic debit payments require supervisor approval in the system prior to becoming
active. Manual payment plans with three or more payments also require supervisor approval.
Until the payment plan is active, no payments are debited and no payment reminder notices
are mailed. Therefore, timely review and approval of a pending payment plan is imperative.
All attempts should be made to review and approve (if appropriate) these payment plans no
later than two business days prior to the due date of the rst debit payment. In instances
where an automatic debit payment plan is not approved within this time period, the payment
dates identied on the payment plan will need to be modied prior to approval. Generally,
this involves retaining the previously agreed to payment schedule and merely advancing the
start date of the payment plan to the date of the next regularly scheduled payment. If the
only modication to the payment schedule is the date of the rst payment, the taxpayer is
not required to complete a new CDTFA-407. The taxpayer should, however, be informed of
the new date on which the debit payments will begin. Additionally, the taxpayer should be
requested to make the “missed” payment online or by check.
Supervisors review and approve or deny payment plans in the system. To initiate the
supervisor approval, the status of the payment plan must be changed from Collector Review
to Supervisor Approval and all details regarding the payment plan should be reviewed prior to
approval. When reviewing the payment plan, the supervisor must select one of the following
three options:
• Approve – The payment plan is approved and the status changes to Active.
• Reject or Deny (ACMS) – The payment plan is not approved and the status changes
to Denied.
• Send Back – The payment plan is not approved, but is returned to the collector for
additional work. All payment plan information is retained and the status remains
Pending.
Once approved by a supervisor, a CDTFA-407-CN, Conrmation/Online Payment, may be
sent to the taxpayer.
March 2020
Compliance Policy and Procedures Manual
January 2021
PAYMENT METHOD 770.022
Automatic debit payments are the preferred payment method for all payment plans established
in the system. However, if a payment plan calls for only one or two payments, taxpayers are
not required to pay using automatic debit. These taxpayers should generally be directed to
make their payments online, or if they are unable to pay online, payment made by check,
money order, etc., will be accepted.
Payments by credit card are acceptable in most cases. The system will limit the payment
plan to 12 months when using a credit card. When a customer’s payment plan is approved,
and they have opted to pay by credit card, the system will redirect the customer to the
ACI Payments, Inc. website. ACI Payments, Inc. charges a service fee for each credit card
payment. When the payment due dates occur, the CDTFA will transmit the customer’s name
and an electronic key (eKey) to ACI Payments, Inc., who will then place the transaction on
the customer’s credit card and return the payment to CDTFA.
For accounts in ACMS, the CDTFA requires that the payments be made by automatic
debit when the payment plan will have three or more payments. The only exceptions to the
mandatory requirement are the Water Rights Fee and the Cigarette and Tobacco Products
Internet Program Excise Tax.
For all other accounts in ACMS, only in the following circumstances will the taxpayer be
allowed to pay by another method:
• The taxpayer does not have a checking or savings account,
• The taxpayer’s nancial institution is unable to process Automated Clearing House
(ACH) payment transactions (debit payments), or
• More than one payment plan exists for the account (e.g., partnership accounts), and
a payment plan is already established.
Note: Accounts should not be set up for automatic debit payments when any Legal
status (e.g., bankruptcy, probate) exists on the account, and payment plans should
be established using the manual payment plan method, if appropriate.
The CDTFA-407 is used only when taxpayers cannot enter their payment plan online.
When the CDTFA-407 is used, the section with the banking information and signature for
authorization for payments to be debited must be completed. Attached to the CDTFA-407
is an information sheet (CDTFA-FAQ). Another type of authorization form (CDTFA-407-CA)
is available in the system, and also has a CDTFA-FAQ attached. The CDTFA-407-CA would
be used when a taxpayer already in an active payment plan wants to change bank accounts
from which payments are debited. Completed authorization forms must be received before
the payment plan can be processed. Forms received by fax are acceptable.
Bank Account Information
A checking or savings account may be used for debit payments. The bank name and routing
number and the taxpayer’s bank account number are required. Since taxpayers may be
unfamiliar with routing and bank account numbers, the CDTFA-FAQ is automatically sent
with the CDTFA-407. The CDTFA-FAQ provides detailed information about bank account
and routing numbers and asks taxpayers to provide a copy of a cancelled check or bank
specication sheet. In some instances, a nancial institution may use a unique routing
number for ACH transactions (debit payments) that is different from the routing number
on the taxpayer’s checks. In addition, the numbers on deposit slips are generally not the
routing number for debit payments. Therefore, taxpayers should be requested to verify the
routing number with their nancial institution and provide the bank specication sheet if
appropriate.
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March 2020
Before entering the bank information in the system, the collector should compare the numbers
on the CDTFA-407 to the numbers on the cancelled check or bank specication sheet. If a
simple error is found (e.g., transposed numbers), the collector should use the number on
the cancelled check, etc., and enter a comment in the system regarding the correction. If
the banking information provided on the CDTFA-407 differs signicantly from the cancelled
check or bank specication sheet, or if there is any question as to the correct bank account
information, the taxpayer should be contacted to determine the correct information. A
comment must be entered in the system detailing the contact and identifying the correct
bank information.
ACH Debit Block/Filter
In some cases, a taxpayer’s bank may have an ACH debit block on their bank account. If a
taxpayer makes an ACH Debit payment and has an ACH Debit block on their account, they
must inform their nancial institution of the CDTFA’s Company Identication Numbers to
avoid their payment from being rejected. The taxpayer should provide all three of CDTFA’s
Company Identication Numbers to their nancial institution to ensure the payment goes
through. The CDTFA Company Identication Numbers are 2822162215, 1822162215, and
1282435088.
Collection Cost Recovery Fee
Generally, a Collection Cost Recovery Fee (CRF) is imposed on past due liabilities over $250
that remain unpaid for more than 90 days from the date of the demand notice, unless the
liability is included in an active payment plan.
In some instances, the CRF may be automatically assessed when it may not be appropriate.
For example, the collector may exclude penalty amounts from the payment plan when entering
the promise in the system. This is done when the taxpayer has requested or will request relief
of the penalty. When all amounts included in the payment plan have been paid, the promise
will automatically “complete”, resulting in the payment plan status being removed in the
system. This may result in the CRF being assessed on the outstanding penalty amount for
which the taxpayer has requested relief. The collector should inform the taxpayer that this
may occur when the payment plan is initially established. Assuming relief of the penalty is
granted, the CRF amount will be adjusted to zero by the ofce granting the relief. In instances
where relief of penalty is denied, relief of the CRF may be granted assuming the taxpayer
pays the penalty amount in full.
The collector should also be mindful when a taxpayer qualies for relief of the nality penalty.
If the nality penalty is excluded from the payment plan and the taxpayer qualies for relief,
a CRF could be assessed on the outstanding nality penalty if the account is no longer in
payment plan status. A CRF relief request is not required and the removal of the CRF should
be included in their recommendation to relieve the nality penalty.
Court-ordered restitution (COR) can only be considered a payment plan with respect to the
CRF exclusion when the COR expressly established a dened payment plan and the COR
was issued prior to the CRF being assessed. When this occurs, the collector must follow
procedures to initiate adjustment of the CRF amounts (see CPPM section 525.045).
Compliance Policy and Procedures Manual
Msrch 2020
Payment Processing
The debit payment process starts two days prior to the due date of a payment. This generally
allows the CDTFA to debit a taxpayer’s bank account on the actual due date of the payment.
If the due date falls on a weekend or bank holiday, the payment will be debited from the
taxpayer’s bank account on the rst banking day following the due date.
In rare instances the nal debit payment received may exceed the balance of the liabilities
in the payment plan. This can happen if, for example, the taxpayer makes an additional
payment that is not reected the system until after the automatic payment is debited. If
this occurs, the excess payment will generally be applied automatically to any other billed,
unpaid liabilities that exist on the account. If no other billed liabilities exist on the account,
the overpayment will be refunded. However, for accounts managed in ACMS, the overpayment
may remain unapplied until a refund is requested or the payment is moved to a period of
liability.
Reversed Payments
Usually a debit payment is reversed due to insufcient funds or an invalid or closed bank
account. If the bank information is valid, but the funds were not available on the date the debit
was attempted (insufcient funds or uncollected funds), a second attempt will automatically
be made two to three business days after the rst attempt. If funds are not available after
the second attempt, the payment will be identied as “reversed” or “rejected.” Information
regarding the reversed payment, including the specic reason, is captured in the system.
The system reverses the allocations for the payment, effectively removing the payment from
the system, and changes the status of the payment to Reversed. The reversed allocation
can still be viewed on the Payment springboard on the History tab. However, the application
or details of the payment cannot be updated when a check is returned from the bank for
insufcient funds. The instructions to reverse a payment can be found in the system’s Help
Manager, under the Fully Reverse a Payment topic.
If the payment is reversed for any reason other than insufcient funds (e.g., the bank
account is closed, payment was not authorized, taxpayer is deceased, etc.), the collector
must terminate the payment plan immediately. Continuing to debit the taxpayer’s account
after the payment was reversed for these reasons may constitute a violation of National
Automated Clearing House Association rules and may result in the CDTFA being ned.
Generally, reversed payments will cause the account to route into the In Grace or Broken
Promise work state in the system which must be reviewed daily (see CPPM section 770.024).
A report containing information for all reversed payments will automatically be produced.
The report will be produced for statistical purposes and will assist management in identifying
any potential issues with the debit payments.
Moving Payments
Collectors with the appropriate security level necessary to move payments in the system
will have the ability to move debit payments. However, these payments should generally
not be moved from one liability to another. If a payment is moved to a liability that was not
included in the payment plan, this could result in the CDTFA debiting the taxpayer’s bank
account for an amount in excess of the sum of the total payment plan. Supervisor approval
is required for any payment or portion of a payment over $5,000 that is moved.
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March 2020
Unscheduled Payments
An unscheduled payment (e.g., FTB offset payment) is not considered part of the payment
plan and will not cause the due date of the next scheduled debit payment to change, unless
the liability in the payment plan is paid in full.
Payment Errors
When establishing the payment plan, reasonable precautions should be taken to avoid
potential debit payment errors. For example, the collector should call the taxpayer to resolve
any apparent issues with bank account information before proceeding. Collectors must also
use care when inputting the payment information, including bank account information,
payment terms, etc.
Regardless of the precautions taken, the possibility exists that an error may occur. Errors
may consist of debiting an incorrect bank account if the account number was entered
incorrectly, debiting the wrong amount if the payment amount was entered incorrectly, or
continuing to debit the bank account after the taxpayer requested to cancel the agreement
(see CPPM 770.032 for cancellation requests).
Resolving Payment Errors
The CDTFA will most commonly be made aware of a payment error when a taxpayer or other
person contacts the CDTFA to resolve the problem. The collector assigned to the account is
responsible for taking prompt action to conrm and resolve the error before another debit
payment is attempted. If the assigned collector is not available, the designated back-up
collector, supervisor, or other designee must provide assistance in resolving the error.
First, the collector must conrm the error occurred by reviewing the debit payment information
input in the system and comparing it to the information provided on the taxpayer’s payment
plan agreement (CDTFA-407) or authorization form (CDTFA-407-CA), and then comparing it
to the payment information in the system. If the error is on the agreement or authorization
form, a corrected CDTFA-407-CA should be obtained from the taxpayer. The correction
must also be made in the system. An error with the bank routing number or bank account
number can be corrected by updating the existing (active) payment plan. Errors involving
the payment amount and frequency will require the existing payment plan to be cancelled
and a new (corrected) payment plan input.
The collector must then take action to correct the payment error. Depending on the
circumstances of the error, the erroneous payment transaction can either be reversed or
refunded. The following table identies the recommended action for resolving a payment
error based on type of error and the number of banking days that have passed since the
person’s bank account was debited:
Error Type 6 Days or Less Since Debt
Occurred
7 Days or More Since Debt
Occurred
Incorrect Bank Account Payment Reversal Payment Reversal
1
Incorrect Payment Amount Payment Reversal Refund Check
Debit After Cancellation Payment Reversal Refund Check
1 A refund check can be issued if a payment reversal is not possible.
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Reversal of Payment due to Error – 6 Days or Less
A payment reversal is similar to a stop payment for a check and must, therefore, be initiated
by the taxpayer. To initiate a reversal, taxpayers must contact their nancial institution and
request an ACH dispute to reverse the transaction.
Reversal of Payment due to Error – 7 Days or More
Reversal of a payment transaction after six banking days requires the CDTFA to authorize
its nancial institution to allow the reversal. CDTFA authorization must occur prior to the
attempted reversal of the payment. To authorize the reversal, the collector must provide the
following information in an email to their supervisor (or designee):
• Subject line should be “Payment Reversal Authorization,”
• Taxpayer’s name and the CDTFA account number to which the payment was applied,
• Name on the bank account that was debited in error,
• Name, title, and phone number of the person requesting the reversal,
• Copy of payment screen showing the remittance to be reversed, and
• Copy of system notes pertaining to the error added to the remittance.
The supervisor is responsible for reviewing the request and conrming an error has occurred
requiring reversal. The supervisor should also conrm the email contains all necessary
information for Return Analysis Unit (RAU) Return Processing Branch (RPB), or Motor Carrier
Ofce (MCO) representative to authorize the reversal. The supervisor should enter a comment
in the system stating that the request has been reviewed and approved. Requests should be
marked as high importance and sales and use tax, prepaid MTS, lumber assessment, and
motor vehicle fuel pre-collection accounts should be forwarded to the RAU email group at
BTFD RAU Auto Pay Reversal Refund Group, and special taxes and fees accounts should
be forwarded to the designated RPB or MCO representative.
Team members in RAU, RPB, or MCO are responsible for contacting the CDTFA’s nancial
institution to request the reversal of the erroneous payment. The CDTFA initiate the reversal
through CDTFA’s nancial institution on a specic form. Afterwards, RAU, RPB, or MCO will
inform the collector whether the reversal was completed or if a problem was encountered.
Refund Check
The CDTFA will issue a refund check for erroneous debit payments in instances where:
• The taxpayer’s nancial institution refuses to reverse the payment; or
• The taxpayer prefers that CDTFA issue a refund in lieu of a reversal of the transaction.
A refund check cannot be issued unless seven or more banking days have passed since
the bank account was erroneously debited. This is necessary to conrm the debit payment
is valid and not rejected. In instances where the incorrect bank account that was debited
belongs to someone other than the taxpayer, a payment reversal should be used to correct
the error if possible.
Prior to initiating a refund request, the collector should rst conrm the mailing address
on the taxpayer’s CDTFA account is accurate since this is the address to which the refund
check will be mailed. If the taxpayer wants the refund check mailed to a different address,
the taxpayer must provide a signed, written request identifying the mailing address for the
refund check. A signed request is also required when issuing a refund to a person that does
not have a CDTFA account.
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To initiate the refund request, the collector must provide the following information in an
email to his or her supervisor (or designee):
• Subject line “Payment Refund Authorization;”
• Taxpayer’s name and the CDTFA account number to which the payment was applied;
• The name on the bank account that was debited in error;
• The name, title, and phone number of the person requesting the refund;
• The mailing address to which the refund check should be mailed if different than the
mailing address on the taxpayer’s CDTFA account or if refund is being issued to a
person that does not have a CDTFA account;
• Copy of the payment screen showing the remittance to be reversed; and
• Copy of the system notes pertaining to the error the collector added to the remittance.
The supervisor is responsible for reviewing the request and conrming an error has occurred
which requires a refund. The supervisor should also conrm the email contains all information
necessary for RAU or the designated RPB or MCO representative to initiate a refund of the
erroneous payment. The supervisor should enter a comment in the system stating that the
request has been reviewed and approved. Requests should be marked as high importance
and forwarded to the RAU email group BTFD-RAU-Auto Pay Reversal Refund Group for
sales and use tax, prepaid MTS, lumber assessment, and motor vehicle fuel pre-collection
accounts, and those related to special taxes and fees accounts should be forwarded to the
designated RPB or MCO representative. If applicable, the signed, written request regarding
the mailing address for the refund check must be faxed to RAU or provided to the RPB or
MCO representative.
RAU, RPB, or MCO team members are responsible for taking actions necessary to initiate
the refund. Processing of the refund should be expedited by all sections and units involved
in the process so that the taxpayer receives the payment as quickly as possible. However,
refunds over $50,000 require approval from the appropriate Deputy Director (or designee).
In addition, if CDTFA determines that a claim for refund in excess of $50,000 should be
granted, the decision must be made available as a public record for at least ten days before
it becomes effective.
Requesting Waiver of Bank Fees
In some instances, an erroneous debit payment may cause the taxpayer to incur bank fees.
For example, a taxpayer may be assessed fees for items returned due to insufcient funds.
If the erroneous payment was caused by an error on the part of a CDTFA employee, the
collector is responsible for providing the taxpayer’s nancial institution with a letter on CDTFA
letterhead requesting any bank fees associated with the erroneous debit payment be waived.
The request should be addressed to the taxpayer’s nancial institution and should include
pertinent information regarding the erroneous payment (e.g., bank account, settlement date,
payment amount). The request should either be faxed or mailed to the nancial institution
and a copy of the letter provided to the taxpayer.
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March 2020
In situations where the nancial institution will not waive bank fees relating to an erroneous
payment caused by CDTFA error, the account holder may le a claim for reimbursement.
Under Revenue and Taxation Code (RTC) section 7096, and equivalent special taxes and
fees statutes, a taxpayer may le a claim for reimbursement of bank charges and any other
reasonable third-party check charge fees incurred as a direct result of an erroneous levy
or notice to withhold, erroneous processing action, or erroneous collection action by the
CDTFA (see CPPM section 155.025 for detailed information about requirements under the
RTC sections and what constitutes “CDTFA error”). These claims must be led in writing
within 90 days from the date the bank or third-party charges were incurred by the taxpayer.
Responsible ofces and headquarters units should forward claims for reimbursement to the
Taxpayers’ Rights Advocate (TRA). Claims forwarded should include:
• The original, written claim led by the taxpayer/feepayer/claimant
• A copy of the notice of charge(s) from the taxpayer’s/feepayer’s/claimant’s bank, and
• A memorandum explaining the facts that led to the ling of the claim and a
recommendation whether the claim should be paid. The memorandum should be
written by the collector that is knowledgeable of the case and approved by his or her
immediate supervisor.
The statute requires a response within 30 days; therefore, the responsible ofces or
headquarters units should review and forward claims as soon as they are received. The TRA
will evaluate the claim and notify the claimant of its decision. If the claim is approved, it will
be forwarded to the Accounting Section of the Financial Management Division for payment
and the claimant will receive a check from the State Controller approximately two to four
weeks later.
Notice of Change to Banking Information
Banks routinely notify the CDTFA of changes to a taxpayer’s banking information. Changes
in banking information can occur, for example, as a result of bank mergers or acquisitions. A
bank may notify CDTFA of a change in banking information for a specic taxpayer in response
to the CDTFA debiting the taxpayer’s bank account. The CDTFA must take action on these
items to avoid future debit payments from being reversed. The correct bank information on
the Notication of Change must be corrected within six banking days of receipt or before
initiating another entry, whichever is later.
As a result of receiving updated banking information, the system will automatically update
the information. If the automatic update cannot be completed, an ACH Notice of Change
work item is created and RAU assigns the work item to the responsible collector. If the
work item is for a special tax or fee program, RAU assigns the work item to a designated
representative of that program. An email is created for the responsible collector, with a copy
to their supervisor, that contains the banking information received. The email should be sent
as a high priority and should have “Auto Pay Bank Information Change” in the subject line.
If the payment plan is still active, the collector must put notes in the system stating the
banking information has been changed. Taxpayers are not required to complete a new
authorization form since electronic banking guidelines allow the CDTFA to update the
information based on what was provided by the bank.
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REJECTING A PAYMENT PLAN 770.023
A taxpayer’s payment proposal may be rejected if the taxpayer’s nancial circumstances
do not warrant the CDTFA accepting payments over time. Rejection of a payment proposal
may also occur for other reasons, such as the failure of the taxpayer to provide adequate
documentation to support the need for a payment plan. Collectors must be able to show
that the reasons for rejecting a taxpayer’s payment proposal are justied.
The reason for rejecting a taxpayer’s payment proposal must be entered into notes in the
system. The responsible collector should contact the taxpayer and verbally explain why the
payment proposal was not acceptable. This contact should be followed by mailing a CDTFA-
407-D, Payment Plan Denial Letter, to the taxpayer that summarizes the verbal explanation
and declines the payment proposal.
If a payment proposal is declined, all documentation provided by the taxpayer should be
returned or placed in a condential destruction bin. If the taxpayer subsequently makes a
new request for a payment plan the collector should request current nancial documents.
When the system determines the payment plan is in default, it will route to the In Grace/
Broken Promise work state in the system.
In Grace status occur when:
• The balance of the payment plan isn’t reduced to the forecasted balance by the due
date,
• One installment payment is skipped,
• The payment was reversed (insufcient funds),
• A subsequent return or prepayment is not led and paid in full when due.
Broken Promise in ACMS is generally due to:
• A payment that is dishonored because of insufcient funds,
• Failure to le a current return or prepayment, or
• Failure to make a manual payment on time.
While accounts are in the In Grace or Broken Promise work state, the payment plan is still
active and debit payments and payment reminder notices continue.
The collector must review the account thoroughly to determine if the payment plan is actually
in default, and not in Grace or Broken Promise in error (e.g., payment erroneously applied to
another account or another reporting period). If it is determined that the plan is in default,
the collector should call the taxpayer rst to try to resolve the issue immediately. In some
instances, a payment agreement may need to be modied, or temporarily modied, due to
the taxpayer’s unexpected nancial crisis, but a history of any defaulted payment plans
should be considered, and documentation to support the situation should be requested
prior to modifying the payment plan.
Compliance Policy and Procedures Manual
If a debit payment is rejected for invalid or closed bank account, a Stop Automatic ACH Debit
indicator is automatically placed on the account. If the CDTFA receives notication that a
plan payment was dishonored for any reason other than insufcient funds or uncollected
funds, the collector must cancel the payment plan or modify the banking information
immediately. Continuing to debit the taxpayer’s account after the payment was dishonored
may constitute a violation of National Automated Clearing House Association rules and
may result in the CDTFA being ned. Therefore, all collection accounts in Grace or Broken
Promise must be reviewed daily. To determine why the debit was dishonored, the collector
must highlight the “Returned Payment” history line in the system and click the “Details”
button to open the history detail window. The reason for the dishonored payment will appear
in the top center of the window. Note: To prevent another debit attempt, the cancellation
must occur at least two business days prior to the scheduled due date of the payment.
In any case, if the payment plan is in default and resolution is not immediate, the collector
should terminate the agreement (see CPPM section 770.025).
Reforecast/Modify a Payment Plan
A payment plan can be modied in the system. The supervisor will update the payment plan
schedule through the change schedule button in the Payment Plan springboard.
For accounts in ACMS, the collector will update the payment plan using the Modify Promise
to Pay screen in ACMS if the payment plan is in Pending or Active status. When a payment
plan is in Active status, only the banking information elds can be modied. If any other
information needs to be changed, the payment agreement must be cancelled, and a new
payment plan entered.
If banking information is updated, the collector may send a CDTFA-407-CC, Payment Plan
– Conrmation, Automatic Payment Modication, to the taxpayer informing them the bank
information has been updated.
Skipping a Payment
Collectors can allow the taxpayer to skip a payment without terminating the payment plan.
The collector responsible for the account has the discretion to determine whether or not a
taxpayer should be allowed to skip a payment based on the circumstances. The payment
plan schedule must be updated through the Change Schedule button in the Payment Plan
springboard. For accounts in ACMS, supervisor approval is not required to skip a payment
once every 365 calendar days, up to a maximum of two times during the entire length of
the payment plan. The skip payment option is available in the Modify Promise to Pay screen
in ACMS.
Skipping a payment is not an option for payment plans with only one or two payments,
and is not available for accounts where termination of the payment plan has been initiated.
For a debit payment to be skipped, the collector must initiate the skip payment option at
least two business days prior to the due date of the payment to be skipped. Otherwise, the
following payment will be skipped instead. For Manual payment plans, the skip payment
option can be initiated up to, and including, the due date of the payment. Where appropriate,
a CDTFA-407-SP, Payment Plan – Notice of Skipped Payment, may be sent to the taxpayer.
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March 2020
TERMINATING A PAYMENT PLAN 770.025
Under RTC section 6832, and equivalent special taxes and fees statutes, the CDTFA has
authority to terminate a payment plan upon default of the agreement by the taxpayer. It
requires CDTFA to mail a notice of termination to the taxpayer, and requires the CDTFA to
wait 15 days after the notice before taking collection action. The CDTFA-407-T, Notice of
Termination, states that if the requested items are not received within 15 days, the payment
plan will be terminated, and collection action will be taken. The 407-T also advises of the
taxpayer’s right to an administrative review.
RTC section 6832, and equivalent special taxes and fees statutes, also allows the CDTFA to
bypass the required notication process if it nds that collection of the liability is in jeopardy.
Collectors seeking to terminate a payment plan must fully document their reasons in the
system and, if the liability is in jeopardy, they must secure supervisory approval before
initiating collection action.
While a taxpayer may terminate the payment plan at any time, the CDTFA may only terminate
it when the taxpayer defaults on the agreement and the provisions in the law for terminating
a payment plan have been met. A taxpayer defaults on the payment plan when any or all of
the terms in the agreement are not met. It is considered to be in default for missed or late
payments, delinquent or partial remittance returns, or failure to disclose assets or income
on a nancial statement. Failure to increase the payment amount when a nancial review
warrants an increase, or failure to comply with a required nancial review, may likewise
result in default of the agreement.
The termination process is initiated from the Payment Plan springboard or for accounts
in ACMS, the Modify Promise to Pay screen, and is only available for payment plans in
Active status (Note: If a payment plan is in Pending status, the only way to terminate it is
for the supervisor to deny approval ). When termination is initiated, the CDTFA-407-T is
automatically displayed in the system so that it can be printed and provided to the taxpayer.
The collector must immediately mail the CDTFA–407–T when a taxpayer defaults
on the payment agreement. The taxpayer then has 15 days from the mailing date of
the CDTFA–407–T to le a written request for an administrative review during which time
collection action will be suspended, except when collection of the liability is in jeopardy
(RTC section 6832(d) and equivalent special taxes and fees statutes). Any scheduled debit
payments or payment reminder notices continue during the 15-day period. After the 15-day
period has elapsed, collection action may begin even though an administrative review has
been scheduled or is ongoing. A supervisor has discretion to extend the hearing period if the
taxpayer can provide a reasonable explanation as to why an administrative hearing cannot
be set within the 15-day period.
Compliance Policy and Procedures Manual
Situations can occur where a payment plan is not formally established because the taxpayer
did not complete and return a CDTFA–407, but a termination letter (CDTFA-407-T) must
still be sent and the 15-day period must have passed before collection action may be taken.
To decide whether a termination letter should be issued, the collector should rst determine
whether the actions taken have given the taxpayer a reasonable presumption to believe that
they are in a payment plan. Generally, if the collector and taxpayer agree to a payment plan,
and the collector sends the CDTFA-407, and the taxpayer does not return the form, the
collector should still send a CDTFA-407-T and suspend collection until the 15-day period
has passed. Below are three examples of possible situations:
1. The taxpayer proposes a monthly payment plan of $500 and the collector verbally
accepts the offer. A CDTFA–407 is not issued or, if one is issued, the taxpayer did
not sign and return it. Although there is no further contact between the collector and
taxpayer, the taxpayer has paid some of the agreed upon payments. In this situation
the taxpayer can reasonably presume the acceptance of the payment proposal since
we have not indicated anything to the contrary and have been accepting the taxpayer’s
payments without contacting the taxpayer to inform them otherwise. If the taxpayer
defaults on the verbal agreement, they should be contacted and a CDTFA–407–T
should be issued before initiating any new collection action.
2. The taxpayer proposes a monthly payment plan of $500, which is verbally agreed
to pending receipt of supporting documentation. The taxpayer does not remit
any payments and does not provide any supporting documentation (i.e. nancial
information). In this situation, the taxpayer has not made any effort toward compliance
and cannot reasonably presume that a payment plan is in effect. The collector does not
need to send CDTFA–407–T in this situation, but an attempt to contact the taxpayer
prior to initiating any new collection action should be made.
3. Same situation as #2 above, however; the taxpayer sends us the nancial information
and begins making voluntary payments while the nancial information is being
reviewed. The payments being remitted are not sufcient to pay off the liability in a
reasonable amount of time, but they are accepted while we are reviewing the account.
To ensure there is no misunderstanding, the taxpayer should be sent a letter stating
that the voluntary payments are being accepted only until the nancial information
has been reviewed. Assuming the nancial information is reviewed timely, sending the
taxpayer a CDTFA–407–T is not required. The collector should contact the taxpayer
once the review of the nancial information is completed and provide them with the
appropriate payment proposal form to complete and return.
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Collections
REINSTATING A PAYMENT PLAN 770.030
A payment plan can be reinstated if the termination process has been initiated, as long as
the status has not changed to Terminated. Once the reason causing the payment plan to
be In Grace is resolved, the system will change the status to Active. For accounts in ACMS,
reinstatement of the payment plan is initiated in the Modify Promise to Pay screen. Once
the payment plan is reinstated, the termination process is cancelled and the status of the
payment plan remains active. A payment plan can be reinstated up to a maximum of three
times during the length of the payment plan.
After reinstatement, a CDTFA-407-R, Payment Plan – Notice of Reinstatement, must be
provided to the taxpayer. This letter is available in the system and documents the fact that
the payment plan is not being terminated and informs the taxpayer that the payment plan
will continue.
Although the system will allow a payment plan to be reinstated if new liabilities or
delinquencies exist on the account, only liabilities that were included in the payment plan
when it was originally approved will be included in the reinstated payment plan. To add new
liabilities that were not included in the original payment plan, if appropriate, the existing
payment plan must be cancelled and a new one established. The taxpayer should be directed
to request the new payment plan online. If the payment plan is not auto approved, but is
accepted by the collector, it must then be approved by the supervisor. A CDTFA-407-CN
must then be sent to the taxpayer. If the taxpayer is unable to make the request online, the
collector will send a CDTFA-407 that includes the new liabilities and outlines the terms of
the agreement. The CDTFA-407 must be received by the collector, entered into the system
and approved by the supervisor before the new payment plan is conrmed.
ADMINISTRATIVE REVIEW UPON TERMINATION 770.031
A taxpayer’s request for an administrative review upon termination of a payment plan by
CDTFA will be conducted at a time convenient for the taxpayer but within the 15- day period
mentioned in CPPM section 770.025. The taxpayer may choose at which CDTFA ofce to
have their administrative review. For special taxes and fees accounts, the administrative
review will be held in CDTFA Headquarters in Sacramento if convenient or by conference call.
The review will be informal and the reviewing ofcer will be a compliance supervisor who, if
at all possible, will not be the assigned collector’s direct supervisor. The reviewing ofcer will
verbally notify the taxpayer of the time and place of the administrative review when possible,
and may also send a CDTFA–407–AR, Payment Plan - Notice of Administrative Review, to the
taxpayer’s address of record. The reviewing ofcer will document this action in the system.
The reviewing ofcer will advise the taxpayer that the issues subject to discussion are limited
to the reasons for terminating the payment plan. Any documentation presented at the review
must relate to the reasons why the taxpayer defaulted on the payment plan.
Within 5 calendar days following the administrative review, the reviewing ofcer must issue
a written decision to the taxpayer and the originating ofce indicating whether the payment
plan was:
1. Reinstated,
2. Referred back to the originating ofce for further evaluation, or
3. Terminated.
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Compliance Policy and Procedures Manual
March 2020
If the reviewing ofcer determines that the original payment plan terms should be modied,
the termination will be reversed, and the case sent back to the originating ofce. The
originating ofce will re-evaluate the circumstances and modify the agreement accordingly.
Modication of a payment plan can only occur with the mutual consent of the taxpayer and
the reviewing ofcer. If the terms of the original agreement are modied, a new CDTFA–407
must be completed.
CANCELLING A PAYMENT PLAN 770.032
A payment plan in Active status can be cancelled in the system. The three different
cancellation status types are Cancelled, Taxpayer Cancelled, and Legal Cancelled (see CPPM
section 770.020). Cancellation of a payment plan in Pending status can only be accomplished
by having a supervisor deny approval.
A taxpayer whose payments are automatically debited can request CDTFA to stop debiting
the account at any time. Taxpayers can request cancellation either verbally or in writing.
Taxpayers are advised in writing on the CDTFA-407 that a request to cancel the agreement
and stop a debit payment must be received at least ve business days prior to the due date
of a payment. This allows the CDTFA time to process the request prior to the next scheduled
payment. Regardless of the manner in which a cancellation request is received, it must be
processed immediately to avoid the taxpayer’s bank account from being erroneously debited.
After cancelling the payment plan, the collector should send the taxpayer a CDTFA-407-C,
Payment Plan – Notice of Automatic Payment Cancellation and Termination, which can be
accessed in the system.. The letter advises the taxpayer that the automatic payment has
been cancelled and the payment plan will be terminated after 15 days. The collector must
wait for the 15-day period to pass before taking collection action.
ANNUAL REVIEWS 770.033
All payment plans lasting more than a year must be reviewed every 12 months, at a minimum.
After 12 months, a work item called “Yearly Review of Payment Plan” is created. For accounts
in ACMS, accounts in the Promise to Pay work state (XX05) for 365 days will automatically
be routed to the Promise Review state (XX65). If the account routes to a different state within
that time, the 365 time frame starts over.
The review will be recorded in notes. As part of the review, collectors must verify the taxpayer’s
current income by obtaining recent payroll stubs, copies of the current income tax returns,
etc. Collectors should also review the original CDTFA–403–E, Individual Financial Statement,
to see if any claimed expenses previously allowed have been paid in full. If the taxpayer has
paid off some claimed expenses, the amount of payment previously directed to that debt is
to be paid to the CDTFA.
When performing a review of an existing payment plan, collectors will use the appropriate
review letter when requesting updated nancial documentation from the taxpayer. The review
letters are the CDTFA–59, Payment Plan — Review (Individual), and the CDTFA–61, Payment
Plan — Review (Non-Individual). Collectors will review the agreement as discussed above
and, when appropriate, route the account back to the Promise to Pay state (ACMS). When
ACMS routes the accounts into the Promise Review state, the payment plan remains in effect
and any scheduled debit payments or promise reminder notices scheduled to be mailed to
the taxpayer will continue. Existing payment plans determined to still be in the State’s best
interest will be manually routed back into the Promise to Pay state by the collector.
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If cancellation of a payment plan is necessary, collectors will route the account to their
supervisor. Accounts remaining on the Promise Review state for more than 15 days are
automatically routed to the work list of the assigned collector’s supervisor.
When performing an annual review of a payment plan, the collector must check to see if any
liability periods will become 30 months old prior to the next annual review. Liability periods
exceeding 30 months may be nearing the 3-year statute of limitations for ling liens and are
subject to CDTFA’s lien policy outlined in CPPM section 757.000. Prior to requesting a lien,
the collector will mail a CDTFA–407–L, Notice of Intent to Lien, to the taxpayer. If the taxpayer
does not remit payment for the aged liability periods within 45 days of the CDTFA–407–L
mailing date, the lien request will be initiated through the system.
SUCCESSFUL COMPLETION - RELIEF FROM FINALITY PENALTY 770.035
Pursuant to RTC section 6832(e) in the Sales and Use Tax Law, 55209(e) in the Fee Collection
Procedures Law, and similar statutes under certain special tax and fee programs, except
in the case of fraud, the California Department of Tax and Fee Administration (CDTFA) will
generally relieve nality penalties for taxpayers who satisfactorily complete payment plans
under certain conditions
1
. To be eligible for relief, the liability must be CDTFA-assessed and
the payment plan must be entered into within 45 days from the due date of the determination
or redetermination (billing).
If the nality penalty is relieved, all nality penalty amounts actually remitted by the taxpayer
(if any) must be refunded to the taxpayer. The taxpayers are not required to submit a request
for relief of nality penalty or le a claim for refund to receive this relief. Furthermore, the
six-month statute of limitations for refunds is not applicable.
Relief of nality penalties will not be granted when:
1. The determination includes a fraud penalty. Fraud requires clear and convincing
evidence of a deliberate intent to deprive the state of taxes or fees legally due, or intent
to evade the payment of taxes or fees.
2. The taxpayer fails to complete the payment plan as agreed. This does not include
payments which are late due to circumstances beyond the taxpayer’s control including,
but not limited to, late U.S. Postal Service delivery of timely mailed payments and
checks dishonored due to bank error.
This section only applies to relief of a nality penalty when the basis for relief is successful
completion of a payment plan. All other requests for relief from penalty must be requested
through the process outlined in CPPM section 535.055.
For payment plans made online that are approved, the nality penalty is included in the
payment plan, so relief is not automatically granted or processed. Therefore, on a monthly
basis, each ofce must review the Payment Plan Reports and identify the accounts that
qualify for relief of the nality penalty. Once identied, the collector will set a reminder to
review the account for a date immediately prior to completion of the payment plan and take
action to prevent the nality penalty amount from automatically being debited.
1 A nality penalty is a penalty assessed pursuant to RTC sections 6565 or 55086 and similar
provisions for special tax and fee programs.
Compliance Policy and Procedures Manual
August 2020
After the payment plan is completed, the collector will initiate the adjustments in the system
if the adjusted amount does not exceed $50,000. Note: the collector should not create a
relief case to process these adjustments because it will negatively affect relief requests that
are submitted online. The collector should include the following in the adjustment note:
• Name of the taxpayer who entered into the payment plan
• Account number associated with the request
• Payment plan start date and completion date
• Audit period/return period
• Determination date and nality date
• Finality penalty amount and collection cost recovery fee amount
• All other penalties associated with the liability
The collector will send a request in the system to their supervisor for review. The supervisor
will add notes indicating approval or denial. If the supervisor does not approve the
adjustment, the reason will be provided in the notes and the assignment will be sent back
to the collector. If the adjustment is approved, the supervisor will send the assignment to
the Ofce Administrator, or equivalent, for nal approval. See the cheat sheets available on
the CDTFA’s intranet for instructions on the relief from nality process in the system.
In the case where the payment is applied to the nality penalty, the system will process the
credit automatically after the Ofce Administrator’s approval. If a refund is due and does
not process automatically, the collector should contact the Audit Determination and Refund
Section after the adjustments have been processed.
Adjustments in excess of $50,000 must be processed by the Petitions Section or the Appeals
and Data Analysis Branch (ADAB) since they are responsible for submitting these adjustments
to the public record pursuant to RTC sections 6901 and 6981 and equivalent special taxes
and fees statutes. If the Petitions Section or ADAB processes the adjustment to the nality
penalty, they will also adjust the Collection Cost Recovery Fee, if needed. The collector
must not process adjustments in excess of $50,000. After the payment plan is completed,
the collector will make a written recommendation for relief of the nality penalty to the
supervisor, and if appropriate, the supervisor will forward the request to the administrator. If
approved, the administrator will send a memo to the Petitions Section for sales and use tax,
or the Appeals and Data Analysis Branch for special taxes and fees, stating that the nality
penalty is to be waived. The memo should be sent to the Petitions Section’s shared mailbox,
BTFD-HOD Petitions. If, in the opinion of the administrator, relief should not be granted,
the administrator will provide the reason for denying relief to the collector’s supervisor.
While verbal payment agreements do not qualify for relief under RTC sections 6832, 55209,
and similar special tax and fee statutes, if the agreement is made within 45 days from the
due date of the determination or redetermination, the taxpayer may still qualify for relief
under RTC section 6592(c) or 55044(c) and equivalent special taxes and fees statutes. If
the terms of the verbal agreement are completed, the administrator of the ofce of account
may request the nality penalty be waived by sending a recommendation to the Petitions
Section or the Appeals and Data Analysis Branch. Unlike relief under RTC section 6832,
the collector should not make the adjustment in the system, nor should they create a relief
case in the system. Relief of the penalties in these instances shall constitute an efcient
resolution pursuant to RTC section 6592(c), and equivalent special taxes and fees statutes.
Collections
August 2022
INTERAGENCY INTERCEPTS 771.000
GENERAL 771.010
The Government Code authorizes any state agency to request payment from any other state
agency that owes money to a person or entity when that person or entity owes a liability to
a state agency.
Government Code section 12419.4 provides that the State has a lien for any taxes due the
State from any person or entity, upon any and all personal property belonging to such person
or entity and held by the State or amount owed to such person or entity by the State. The lien
shall apply to all such property held or such amount owed by an agency of the State while
such person or entity owes any taxes to that agency or another agency of the State. This lien
does not apply to salary or wages owing to ofcers or employees of the State.
To enforce the lien, CDTFA must send written notication to the agency holding money for
refund and include the taxpayer’s name, the amount due, and request that the payment be
intercepted and sent to CDTFA and applied towards the person’s liability. Some intercepts
are automatically created in the system, some are initiated by the Collection Support Bureau
(CSB), while others are initiated by collectors.
Intercepts Against Individuals
CDTFA electronically sends FTB an annual list of all individual taxpayers (sole proprietor,
partnership, co-owner accounts) with qualied nal balances every January. The system
automatically sends FTB information on new taxpayers that qualify for intercept, as well
as offset balance updates (adjustments, accrued interest, new balances, etc.) every month,
except for the month of December.
Intercepts Against Business Entities
Intercepts for business entities (corporation, LLC, LLP, and limited partnership accounts)
are processed by CSB. FTB sends an electronic listing of potential refunds eligible for
intercept to CSB daily, excluding holidays. CSB manually searches system les to identify
matching business entity customers who meet the criteria for FTB intercepts (see CPPM
section 771.020).
CSB sends an email regarding the potential intercept to the team member assigned to the
case with a copy to their supervisor inquiring whether they wish to request or decline the
intercept. The team member replies by email with their decision based on their review. If the
team member approves of the intercept request, the CSB Offset Desk team member prepares
a memo to FTB and uploads it to the secured FTB File server. Notes must be entered on the
Customer springboard whether the intercept requested is approved or declined.
Compliance Policy and Procedures Manual
August 2022
CRITERIA FOR FTB INTERCEPTS 771.020
Accounts selected for intercept must meet the following conditions:
1. Individuals with a valid Social Security Number, or business entities with a valid
Federal Employer Identication Number in the system.
2. There is a nal liability which exceeds $250.00.
3. A demand notice was previously sent to the debtor with the standard FTB pre-intercept
blurb.
4. Taxpayer is not in bankruptcy or received a discharge from bankruptcy. A petition
in bankruptcy carries with it an automatic stay, so the intercept of the liability is
withheld until the debtor receives a discharge or the automatic stay is lifted.
5. The balance is at least 30 days old.
If the taxpayer is on a payment plan, an intercept may still be requested for nal liabilities.
Payment plan forms (CDTFA 407 series) include language to notify the taxpayer of CDTFA’s
ability to initiate an intercept against their property held by another state agency. However, the
collector should consider not requesting the intercept if the payment plan will be completed
and paid in full within the next 90 days, considering whether the taxpayer is likely to default
within that time.
If the FTB refund is determined to be community property, it is subject to an intercept
for debt incurred by either spouse before or during the marriage. Debt incurred after the
dissolution of the marriage, or while the couple lived apart, is not the responsibility of the
non-liable spouse and not subject to intercept (see CPPM section 753.240). Team members
should look for dissolution of marriage or evidence the couple is living apart. If the couple
is living apart, the income of each spouse is separate property.
If an intercept occurs, the taxpayer will receive a letter of notication and team members must
be prepared to respond to calls from the affected taxpayer. Taxpayers should be directed to
contact FTB only if the taxpayer has a tax problem involving FTB. If the liability is paid in
full or it becomes apparent that it will be paid in full without the intercept, or if conditions
for the intercept are no longer met, a Stop EDD/FTB Debt Files indicator should be added
by the team member.
INTERCEPT REQUESTS 771.030
EDD sends les containing intercept information and the system automatically creates the
refund intercept if the account meets the following criteria:
• Valid Social Security Number (SSN) for the individual in the system,
• The nal liability exceeds $50, and
• The taxpayer is not in bankruptcy and has not received a discharge in bankruptcy
for the period of liability.
CDTFA sends EDD offset balance updates (credits, adjustments, increases, accrued interest)
electronically on a weekly basis.
Collections
August 2022
Business and Professions Code section 23959 states, “If an application [for an alcoholic
beverage license] is denied or withdrawn, one-fourth of the license fee paid, or not more
than one hundred dollars ($100), shall be deposited in the Alcohol Beverage Control Fund
as provided in Section 25761. The balance of this amount shall be credited on any taxes
due from the applicant under the Sales and Use Tax Law, and the remaining portion shall
be returned to the applicant.”
ABC periodically transmits a “Refund Schedule for Sales Tax” to CDTFA that lists the
applicant’s name, address, and amount of funds available for intercept. These transmittals
from ABC do not arrive on any specic schedule, but they do have a deadline of 14 days from
the date of the notice to request intercept of the funds. These refunds typically occur because
an ABC license applicant, after paying the fee for a license, has withdrawn an application
and ABC is refunding the fee paid. Generally, the entity that responds rst is the one to
receive the funds, so a timely response is critical. ABC intercepts are handled in the same
manner as FTB intercepts with business entities (see CPPM section 771.015).
INTERCEPT REQUESTS 771.050
DHCS, which administers the Medi-Cal program, annually distributes over $4 billion to
California health providers. Among their clients are physicians, dentists, chiropractors,
optometrists, pharmacies, hospitals, ambulance services, and retailers of hearing aids,
prosthetic devices, wheelchairs, etc.
Healthcare provider participation in the Medi-Cal program can be conrmed through the
Open Data Portal – Prole of Enrolled Medi-Cal Fee-for-Service (FFS) Providers link on the
DHCS website.
To request an intercept, a work item must be created in the system and assigned to CSB
who will request the intercept under the provisions of Government Code section 12419.5.
FUNDS DUE TO TAXPAYERS FROM OTHER STATE AGENCIES 771.070
Although most intercepts are automated or initiated by CSB, the responsible ofce may nd
funds owed to a delinquent taxpayer by agencies that are not monitored by CSB, such as
bonds subject to refund posted with Contractors State License Board (see CPPM section
720.035). The responsible ofce creates a work item in the system and assigns it to CSB.
CSB, in turn, may request an intercept of funds from any state agency that owes a taxpayer
a refund.
REQUESTS FOR INTERCEPTS TO COLLECTIONS SUPPORT BUREAU 771.080
The responsible ofce requesting an intercept of funds from agencies other than EDD, FTB,
and ABC, will create a work item from the Customer springboard and assign it to CSB with
the following information:
1. Taxpayer’s name, address, and account number.
2. Amount of taxpayer’s liability.
3. Amount of intercept requested, if known.
4. A summary of the account history.
5. Name and address of the agency that is holding funds available for intercept.
6. Any documentation or information showing the taxpayer is due funds from the
respective agency.
Compliance Policy and Procedures Manual
August 2022
COLLECTIONS SUPPORT BUREAU INTERCEPT NOTIFICATION TO
RESPONSIBLE UNIT OR FIELD OFFICE 771.090
CSB sends an email to the team member assigned to the case with a copy to their supervisor
that an intercept is available from EDD, FTB, or ABC. CSB uses two standard sets of email
notications and system notes entered on the Customer springboard are as follows:
Sample Email and System Notes for ABC/EDD Intercepts
Subject: ABC/EDD Intercept/Account Number/Taxpayer’s Name
There is an ABC/EDD intercept available in the amount of $(intercept amount) on
the above account. Please review the account and determine if the intercept should
be taken. So that CDTFA may receive the funds, please respond to this email by close
of business today. If you have any questions, please contact me at (phone number)
or by replying to this email.
Once the responsible team member responds with a decision, CSB enters notes in the
Customer springboard like the following:
CSB received notice from ABC/EDD of an intercept available in the amount of
$(intercept amount). The account was reviewed and (Team Member’s Name) replied
via email to accept/decline the intercept.
Sample Email and System Notes for FTB Intercepts
Subject: FTB Intercept/Account Number/Taxpayer’s Name
There is an FTB intercept available in the amount of $(intercept amount) on the above
account. NOTE: Before we can intercept this amount, the Pre-Intercept Notice*
requirement must be met. Also, 30 days must have passed from the Demand
date for each period in which an intercept is requested. Please review the account
and determine if the intercept should be taken. So that CDTFA may receive the funds,
please respond to this email by close of business today. If you have any questions,
please contact me at (phone number) or by replying to this email.
*Pre-Intercept Notice (see below) is generally the last blurb found on the Demand
billing:
The Franchise Tax Board (FTB) administers the Interagency Intercept Collection Program
in conjunction with the State Controller’s Ofce. FTB is authorized to redirect a refund
owed to a tax or fee payer to the California Department of Tax and Fee Administration
(CDTFA) to offset the tax or fee payer’s liability under California Government Code
section 12419.5. If you have any questions or objections to the liability on this notice,
contact the CDTFA ofce indicated above within 30 days from the date of this notice
and a CDTFA representative will review and discuss your account with you. You have
30 days from the date of this notice to either remit payment in full, contact CDTFA, or
provide documentation to CDTFA to show the liability is not due. Failure to respond
within 30 days from the date of this notice will result in CDTFA forwarding your account
to FTB to proceed with intercept collections.
Once the responsible team member responds with a decision, CSB enters notes on the
Customer springboard like the following:
CSB received notice from FTB of an intercept available in the amount of $(intercept
amount). Emailed (Team Member Name) regarding the Pre-Intercept Notice requirement,
the 30-day waiting period from the Demand date, and whether the intercept should
be accepted/declined. The account was reviewed and (Team Member Name) replied
via email to (accept or decline) the intercept.
Collections
April 2020
OFFERS IN COMPROMISE 772.000
GENERAL 772.010
The Offer in Compromise (OIC) program is available to all taxpayers that do not have the
income, assets, or means to pay their liability within a reasonable period of time, in most
cases within 5 to 7 years. Generally, if an OIC is accepted, the taxpayer’s liability is eliminated
and liens are released.
In order to participate in the OIC program, taxpayers must meet the following requirements:
1. The account is closed (not active) and the liability is nal.
2. The taxpayer is not disputing the liability.
3. The person making the offer is not involved or associated with the same, or similar,
type of business.
4. The liability is assessed by the California Department of Tax and Fee Administration
(CDTFA), is nal, and there is no evidence of tax reimbursement.
Effective January 1, 2009, through January 1, 2023, the OIC program will extend to qualied
active businesses where the taxpayer has not received reimbursement for the taxes, fees,
or surcharges owed to the state, to successors of businesses that may have inherited tax
liabilities of their predecessors, and to consumers who incurred a use tax liability.
To assist taxpayers in determining if they are eligible for an OIC and an appropriate offer
amount, a new Offer in Compromise Pre-Qualier web-based tool is available on the CDTFA
website. The tool is intended for use by individuals and not by corporations or limited liability
companies. Taxpayers should be encouraged to use the tool before submitting their OIC
application to ensure they qualify and are making a reasonable offer. Taxpayers who pass
the initial vetting questions process are asked to provide additional nancial information.
Once the information is added, the tool calculates a proposed offer based on the amount of
the tax/fee debt, equity in assets, and monthly income. If the taxpayer decides to continue
and apply for an OIC, they can click the link to the CDTFA-490, Offer in Compromise
Application, within the tool’s webpage. A hardcopy of the application must be submitted to
the CDTFA. While the tool may inform a taxpayer they appear to qualify for the OIC program,
the OIC Section is responsible for reviewing the application and supporting documentation
to determine whether the taxpayer’s OIC request is approved.
If the taxpayer is not able to use the OIC Pre-Qualier tool and it appears the taxpayer is a
good candidate for the OIC program, the responsible collector may invite them to participate
by sending a CDTFA–908, Offers in Compromise Program, and/or an OIC application
(CDTFA–490 or CDTFA–490–C).
Compliance Policy and Procedures Manual
April 2020
FRAUD 772.020
An OIC will not be considered in situations where the taxpayer has been convicted of
criminal (felony) fraud. However, taxpayers who have been assessed a civil fraud penalty
may participate in the OIC program. In these cases, the CDTFA requires a minimum offer
of the tax plus the fraud penalty. The minimum offer requirement may be waived if it can be
shown that the taxpayer making the offer was not the person responsible for perpetrating
the fraud. Usually, this situation occurs in partnership accounts where the intent to commit
fraud can be clearly attributed to another partner.
PROCESSING AN OFFER IN COMPROMISE PROPOSAL 772.030
All OIC proposals must be led with the OIC Section using a CDTFA–490, Offer in Compromise
Application (for individuals, sole proprietors, married couples and domestic partners), or
CDTFA–490–C, Offer in Compromise Application for Corporations, LLCs, Partnerships, etc.
Individuals that have multiple tax liabilities with the CDTFA, Franchise Tax Board (FTB),
or Employment Development Department (EDD) may use the Multi-Agency Application
(DE–999CA). All three application forms are available to CDTFA staff and the public via the
CDTFA’s website at www.cdtfa.ca.gov.
The taxpayer is required to complete and sign the application and provide all the required
supporting documentation (see Check List of Required Items on page 2 of the OIC application).
OIC packages are either submitted to the ofce responsible for the account or directly to the
OIC Section. When the OIC package is submitted to the responsible ofce, the collector shall
scan and upload the OIC package into the system within three business days of receipt. The
collector will send an email to the OIC lead and OIC support team member informing them
an OIC package has been uploaded in the system. The collector will forward the original
package to the OIC Section (MIC 52) via inter-ofce mail.
If there is a payment plan already in place, the OIC Section will advise the taxpayer to
continue remitting their payments as promised, or inform them the payment plan is being
terminated. While the OIC is under review, existing Earnings Withholding Order for Taxes
(EWOT) payments and offsets from other state agencies will continue. When accounts are
under the OIC review, collectors may continue to monitor existing payment plans and
collections, but should not invoke any new collection actions. If delaying any collection
actions will jeopardize the CDTFA’s ability to collect, the collector must contact the OIC
Section prior to taking any new collection actions.
Some OIC proposals may involve partnership accounts. If only one partner has requested an
OIC, the responsible ofce should suspend collection actions only for the partner requesting
the OIC.
Collections
April 2020
OFFER IN COMPROMISE SECTION — PROCESSING APPLICATIONS 772.040
In accordance with CDTFA policy, all OIC applications sent to the OIC Section are acknowledged
in writing, within 12 working days of receipt. The taxpayer receives an acknowledgement
letter along with a copy of the CDTFA–324–OIC, Privacy Notice. The OIC Section inputs notes
in the system after the acknowledgement letter and privacy notice is mailed.
The OIC Section assumes control of the account while the offer is under consideration, unless
there are partners who are not involved in the offer.
SECURING THE OFFERED AMOUNT 772.050
The taxpayer is not required to post the offered amount at the time the application is
submitted. The OIC Section will notify the taxpayer when it is appropriate to fund the offer.
However, funds received in a eld ofce should be processed with an OIC payment voucher.
If the offered funds are provided by a person not associated with the business entity (e.g.,
relatives, friends), notes identifying the person making the deposit must be entered into the
system.
If an OIC is not accepted, the deposited funds are either applied to the liability or returned
to the taxpayer, based on the written direction of the taxpayer. If a third party posted the
deposit, the written direction of the third party is needed. When the CDTFA retains an OIC
deposit, it is applied to the taxpayer’s liability using the date the funds were received as the
effective date of payment.
PROCESSING ACCEPTED OFFERS 772.060
The OIC Section will evaluate all OIC requests to determine if they are consistent with
statutory requirements and CDTFA policy. If the offer is formally accepted, the OIC Section
will initiate the approval process.
Upon approval of the accepted offer, the OIC Section will apply the offered funds, adjust
balances, release liens, remove offsets, and enter notes in the system. The OIC Section will
send the taxpayer an acceptance letter indicating the periods of liability that have been
compromised. The release of lien documents will be auto-generated and mailed separately
to the taxpayer. In addition, a public records notice will be issued if the compromise exceeds
$500. If there is an offset or Earnings Withholding Order for Taxes (EWOT) in place, the OIC
Section will release any offsets, and notify the employer, as applicable.
If the compromise involves a partnership, the partner making the OIC offer is relieved from
debt upon acceptance of the offer. Any partner that was not included in the OIC request is
responsible for the remaining balance due after the offered funds are applied to the liability.
The OIC Section shall enter the appropriate notes in the system to conrm the partner’s
approval and unlink the approved partner from the liability’s balance. The approved partner
shall remain in account history and notes.
Compliance Policy and Procedures Manual
April 2020
PROCESSING REJECTED, DENIED, OR WITHDRAWN OFFERS 772.070
If an offer is not acceptable, the OIC Section noties the taxpayer in writing of the rejection,
denial or withdrawal and provides an explanation for the decision. The OIC Section is
responsible for closing the case in the system and entering the appropriate notes. Upon
closure, the OIC indicator is removed. If the taxpayer posted the offered amount, the
deposited funds either remain applied to the liability or are returned to the taxpayer, based
on the written direction of the taxpayer. When a third party posts the deposit and a refund is
requested, the refund will be sent directly to the third party. The OIC Section is responsible
for initiating the refund request.
APPEALS 772.080
A denied or rejected Offer is not subject to administrative appeal or judicial review.
Collections
February 2023
INNOCENT SPOUSE AND EQUITABLE RELIEF 773.000
INNOCENT SPOUSE AND EQUITABLE RELIEF 773.010
When spouses or registered domestic partners (registered with the Secretary of State) owe a
tax or fee to the California Department of Tax and Fee Administration (CDTFA), both parties
are individually and jointly liable for the amount due when the account is registered as a co-
ownership or a partnership. (Hereinafter, a reference to “spouse” also refers to a registered
domestic partner.) However, California law recognizes that it is not always reasonable or
equitable to hold a spouse liable for the liability when certain conditions exist. Innocent
Spouse (IS) claims usually occur when spouses divorce, separate, or no longer live with
one another. Generally, the requesting spouse claims that they were not involved with the
business when the liability was generated. The burden of proof for this claim rests with the
requesting spouse.
To seek relief, the claiming spouse must submit a written request to the Offer in Compromise
(OIC) Section that specically requests IS relief. The written request must contain:
1. The account number.
2. The period for which IS relief is requested.
3. The basis for the IS request. This includes documentation that establishes that the
requirements for relief have been met.
The claiming spouse may meet this requirement by completing a CDTFA–682-A, Request for
Innocent Spouse Relief, located in publication 57, Innocent Spouse Relief, which is available
on the CDTFA website (www.cdtfa.ca.gov) or in any CDTFA ofce. The CDTFA–682-A, or other
completed written request for IS relief, along with the supporting documents, may be sent to:
Offer in Compromise Section, MIC:52
California Department of Tax and Fee Administration
PO Box 942879
Sacramento, CA 94279–0052
Alternatively, the written request for IS relief may be hand-delivered to any CDTFA ofce or
emailed to the OIC Section at [email protected]. Digital signatures are acceptable if
they conform to California Government Code section 16.5 and regulations adopted by the
Secretary of State (see CPPM section 150.050).
A request for relief led with CDTFA no later than one year from the date CDTFA rst made
contact with the claiming spouse about the outstanding liability is timely as to all liabilities.
A request led thereafter is timely only as to liabilities:
1. Reported on a return due no more than ve years before the ling of the request for
IS relief.
2. Assessed by a determination issued by CDTFA that became nal no more than ve
years before the ling of the request for IS relief.
The OIC Section will mail the individual requesting relief an acknowledgement letter,
which includes a questionnaire and nancial statement for the individual requesting relief
to complete and return. They will also notify the non-requesting spouse that the request
has been led, the basis for the request, and that the non-requesting spouse may submit
information to support or counter the request.
Compliance Policy and Procedures Manual
February 2023
The OIC Section will review the request for IS relief to determine whether they are eligible
for IS relief or other equitable relief from all the liabilities included in their request. Relief or
partial relief of liability may be granted as to a timely written request for IS relief if all the
following qualifying conditions are met:
1. A liability is incurred under the Sales and Use Tax Law or certain special taxes and
fees laws administered by CDTFA as outlined in Regulation 35055.
2. The liability is attributable to the non-claiming spouse.
3. The spouse claiming relief establishes that they did not know of, and that a reasonably
prudent person in the claiming spouse’s circumstances would not have had reason
to know of, the liability.
4. It would be inequitable to hold the claiming spouse liable, taking into account whether
the claiming spouse signicantly beneted directly or indirectly from the liability, and
taking into account all other facts and circumstances.
5. At the time of making the request for IS relief, the claiming spouse:
a. Was no longer married to, or was legally separated from, the non-claiming spouse;
or
b. The claiming spouse was no longer a member of the same household as the non-
claiming spouse.
If the claiming spouses’ request for IS relief is denied, their request will then be considered
for equitable relief (ER). The OIC Section will examine the following factors to determine if
it is inequitable to hold the claimant liable for the existing liability:
1. Is the claimant separated (legally or not) or divorced from the non-requesting spouse?
2. Would the claimant suffer an economic hardship if relief is not granted?
3. How much knowledge did the claimant have regarding the understatement or non-
payment of the liability?
4. Did the claimant receive a signicant benet because the liability was not paid?
5. Is the liability attributable to the claimant or the non-claiming spouse?
6. Does the claimant have the legal obligation under a divorce decree or agreement to
pay the liability?
7. Was claimant under duress from the non-claiming spouse to not pay the liability, as
documented by objective evidence?
8. Did the claimant comply with the tax and fee laws administered by CDTFA during
the period of liability or subsequent periods?
9. Does the non-claiming spouse support the request for relief of liability?
If the claiming spouse receives IS or ER relief, the OIC Section will enter notes in the system
regarding the approval and will unlink the innocent spouse from the account liability. If the
OIC Section is unable to unlink the claiming spouse, the OIC Section will email a collection
team member to request an account transfer (under the adjustment tab), to transfer the
liability to the non-claiming spouse. If liens need to be released, the OIC Section will create
a task in the system requesting the partial lien release be processed. However, a state tax
lien that has been recorded against the non-claiming spouse may continue to attach to a
jointly owned property.
Collections
The OIC Section will mail an approval letter to both the claiming and non-claiming spouses.
The lien release documents will follow by mail.
IS and ER cases may result in partial relief being granted on a particular period of liability.
In these cases, the claiming spouse’s name is not removed from registration and the
claiming spouse may not receive a single party release of lien. A partial lien release may be
considered when appropriate. In addition, if a claimant received real property through a
divorce settlement, the property may still be subject to CDTFA’s tax lien for the non-claiming
spouse’s ownership interest and/or the community property interest.
If the claiming spouse receives IS relief, they may be entitled to a full refund of monies
collected either voluntarily or involuntarily. However, the claiming spouse’s written request
for refund must be submitted within the statute of limitations for claims for refund. Therefore,
when making a payment(s), the claiming spouse should be provided with publication 117,
Filing a Claim for Refund, and informed to submit a CDTFA–101, Claim for Refund or Credit,
if applicable. A claiming spouse who receives ER relief is not entitled to a refund of amounts
previously collected.
Where the OIC Section denies both innocent spouse relief and other equitable relief as to any
liability included in a request for IS relief, the OIC Section will send the claiming spouse a
letter explaining why such relief was denied. The letter will include instructions to request
review by the Appeals Bureau of that denial for relief. The claimant may appeal the denial
by submitting a written request for appeals conference to the OIC Section within 30 days
from the date of the denial letter.
If the IS relief and ER are denied by the Appeals Bureau, the individual may le an appeal
with the Ofce of Tax Appeals within 30 days from the date of the denial letter from the
Appeals Bureau. If the claiming spouse does not make a timely appeal, the Appeals Bureau
decision becomes nal.
February 2023
Compliance Policy and Procedures Manual
April 2023
SUBPOENA DUCES TECUM 774.000
AUTHORITY AND USE 774.010
Government Code section 15613 authorizes the California Department of Tax and Fee
Administration (CDTFA) to issue a subpoena duces tecum if, while conducting an audit or
investigation of a taxpayer’s business, the CDTFA representative is denied access to business
records necessary to carry out his or her ofcial duties.
INFORMATION NEEDED 774.020
The Administrator must authorize, and the Field Operations Division Deputy Director,
Program and Compliance Bureau Chief or Audit and Carrier Bureau Chief must approve, all
requests for the Litigation Bureau to draft a subpoena duces tecum. A CDTFA-301, Request
for Issuance of Subpoena, should be prepared for all subpoena requests and should include
the following information:
a. The taxpayer(s) name, dba(s), address, and account number(s) applicable to the
records being requested, if known.
b. The name and address of the person or entity upon whom the subpoena is to be served
on behalf of the taxpayer, if applicable (for example, registered agent or corporate
ofcer).
c. The name, title, and phone number of the CDTFA team member who will examine
the documents.
d. The CDTFA address where the documents are to be examined.
e. If necessary, a date and/or time when the records are to be produced or examined. A
date/time may be appropriate if the team member who will examine the records will
be available only before or after a certain date. Normally the Litigation Bureau will
calculate and specify the appropriate dates based on time frames which are controlled
by statute.
f. The time period covered by the documents that are being requested.
g. The specic records that are being requested. Request only the records needed. Do
not state “any and all records” or similar general requests.
h. Reason for requesting the subpoena.
i. The efforts that have already been made to obtain the documents being sought. Attach
copies of letters written and indicate whether the request was ignored or refused.
j. If service is being made on a nancial institution for production of a customer’s
nancial records, the California Right to Financial Privacy Act requires that (1) the
customer affected is also served with a copy of the subpoena and (2) the customer shall
have a ten-day period in which to notify the nancial institution of their intention to
move to quash the subpoena. (See CPPM section 135.073.) Therefore, the following
additional information is required:
1. Customer’s name, address, and account number(s) at the nancial institution
2. Select entity type:
• Corporation
• Corporation that has forfeited its charter or right to do business or has
dissolved
• Joint stock company or association
• Partnership
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April 2023
• Unincorporated association
• Public entity
• Minor
• Fiduciary – guardian, conservator, trustee, executor, etc.
• Candidate for election for public ofce
• Any other natural person not described above.
k. If service is being made on a third party, provide the name and address of the third
party and the customer’s name(s), address(es), and account number(s).
This information is necessary to ensure against infringements of the taxpayer’s constitutional
guarantees relating to unreasonable search and seizure and due process of law. The subpoena
and the declaration of materiality (under penalty of perjury) supporting the issuance of
the subpoena must clearly identify the particular records being requested and specify the
reasons why their contents are necessary and material to the work of CDTFA in carrying
out its duties.
PREPARATION AND SERVICE OF SUBPOENA AND DECLARATION 774.030
Team members must complete a CDTFA-301, Request for Issuance of Subpoena, for all
subpoena request. Those requests initiating from the eld ofces under the direction of the
Field Operations Division should be forwarded by the Administrator to the Deputy Director
for approval. Other BTFD requests should be forwarded by the Branch Administrator to the
Program and Compliance Bureau Chief or Audit and Carrier Bureau Chief. Upon approval, the
Deputy Director or BTFD Bureau Chief will forward the CDTFA-301 and any accompanying
documents to the Litigation Bureau for the drafting and issuance of the Subpoena Duces
Tecum, Declaration, and Proof of Service. Once the documents have been processed by the
Litigation Bureau and all required signatures obtained, the Litigation Bureau will serve the
subpoena electronically, via email, or forward to a process server to be served in person.
Service of the subpoena occurs by presenting the original subpoena duces tecum to the
person required to appear and, at that time, providing them with a copy of the subpoena
together with a copy of the declaration of materiality. At the time of service, the person serving
the subpoena will also execute a proof of service, in the form of a declaration under penalty
of perjury, and attach it to the original subpoena. After the subpoena has been served, the
Litigation Bureau will send the requestor a copy of the subpoena, declaration of materiality,
and the proof of service.
Compliance Policy and Procedures Manual
June 2022
DISCHARGE FROM ACCOUNTABILITY 776.000
GENERAL 776.010
When an amount due from a taxpayer is not economically feasible to pursue, or when collection
efforts have proven to be unsuccessful and recovery of the amount due is improbable, the
California Department of Tax and Fee Administration (CDTFA) may le an Application for
Discharge (Std. 27) requesting the liability be discharged from accountability. Requests for
discharge are forwarded to the State Controller’s Ofce (SCO) for approval pursuant to the
Government Code. A discharge from accountability, also referred to as a “write-off,” relieves
CDTFA of the responsibility to actively pursue uncollectible amounts due and removes the
liability from CDTFA’s accounts receivable.
MANUAL WRITE-OFFS
Write-offs are initiated by the responsible collector. A write-off checklist (see Exhibit 1) and
all supporting documents must be submitted to the compliance supervisor or their designee
for review and approval for all accounts over $2,000. Collectors should use the checklist
as a tool to ensure all efforts to collect the liability have been exhausted. Not all points on
the write-off checklist are applicable for all accounts. The designated write-off reviewer
will use the checklist to determine if there are actions appropriate to the case that have not
been addressed.
The compliance supervisor, or their designee, reviews the case and all supporting
documentation and approves the write-off request in the system. Once approved, the write-off
case is staged in the system to the Collections Support Bureau (CSB). The write-off checklist
and documentation are only used by the collector and the designated reviewer and do not
need to be forwarded to CSB.
The CDTFA-908, Important Notice: OIC Program for Closed Businesses, should be mailed to
all accounts prior to being written off, except for:
1. Accounts that previously requested an offer in compromise (OIC) and were rejected,
2. Accounts that do not qualify for the OIC Program, and
3. Accounts that do not have a good mailing address.
A reasonable amount of time, generally 15 days, should be given to the taxpayer to respond
before initiating the write-off.
CSB reviews and approves write-off cases submitted through the system, which places
the liability in pending write-off status. Every month, the system generates schedules of
uncollectible items, which are submitted to SCO for nal approval along with the Application
for Discharge.
Supervisors should encourage their team members to actively submit accounts for write-off
when collection efforts have been exhausted. If an account is not collectible, the case is not
completed until the write-off recommendation is forwarded to CSB, accepted for discharge
from accountability, and subsequently approved by SCO.
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June 2022
WRITE-OFF DOES NOT RELIEVE THE TAXPAYER OF LIABILITY 776.020
Although CDTFA is relieved of the collection responsibility after writing off a liability, this
action does not relieve the taxpayer from the liability. If assets are located after the write-off,
collection action should be taken as though the liability was still active in CDTFA’s records.
Full collection action may be taken, provided the appropriate statute of limitations has not
expired. However, a notice of levy should not be issued on a deceased taxpayer’s account once
CDTFA has been notied and the information has been conrmed. If a taxpayer requests a
release of lien after the write-off process is complete, full payment of the liability is required
before the lien can be released, barring a court order stipulating a release for a lesser amount
paid. If the taxpayer does not pay with certied funds, additional time is required to allow
the funds to clear the bank before a lien release can be issued.
Write-off Re-establish Work item
Written off accounts can be recommended for re-establishment either automatically by the
system or by team members if assets are located from sources such as EDD, FTB, IRS, and
others. A write-off does not need to be re-established for one payment or lien payoff. See
Write-off Re-establish Work item in the system’s Help Manager for additional information.
WRITE-OFF RECOMMENDATION 776.030
The write-off recommendation is processed on the Customer case in the system. When
preparing a recommendation to request a discharge from accountability, complete the required
elds for the corresponding reason selected in a Write-Off Taxpayer case.
Before initiating a write-off recommendation, the following issues must be resolved:
1. Unapplied credits,
2. Negative amounts entered in the system for tax, penalty or interest,
3. Credits,
4. Unbilled collection costs, and
5. Unresolved tasks requiring user action, including legal actions.
SCO, in conjunction with the State Administrative Manual, requires that multiple accounts
owned by the same entity/customer must be written off together. This means these accounts
must be on the same write-off schedule and have the same write-off status.
CSB will either:
1. Approve the write-off recommendation and schedule a request for discharge from
accountability, or
2. Stage the case in the system to the requestor’s supervisor for additional information
or further investigation.
REASONS FOR RECOMMENDATION 776.035
In the system, only one reason for recommending a write-off can be selected for a taxpayer
even though more than one category may be applicable. A summary of the collection activity
must be recorded to support a recommendation for write-off.
The completed write-off may be reviewed by SCO, the Attorney General, or other control
agencies. Common outcomes in the drop-down list of write-off points should be used for
consistency. Do not use catch phrases, acronyms, initialisms, form numbers, or terminology
exclusive to CDTFA.
Compliance Policy and Procedures Manual
June 2022
TAXPAYER DECEASED 776.040
A recommendation for write-off may be submitted if a taxpayer is deceased and has no estate,
or the estate has been distributed by the time CDTFA obtains knowledge of the death. If
a claim in probate has been led, and CSB later learns through correspondence with the
estate attorney that the assets of the estate are insufcient to pay the claim or any portion
thereof, a write-off request can be initiated by a collector. CSB will enter notes in the system
that no payment is expected from CDTFA’s claim.
TAXPAYER CANNOT BE LOCATED 776.050
A recommendation for write-off because a taxpayer cannot be located should occur only
after making a diligent effort to locate the taxpayer. The amount of the liability is a prime
factor in determining whether sufcient time and effort was expended to support requesting
a discharge from accountability. Some other factors to consider are:
1. Whether all sources of information have been checked.
2. If the taxpayer is absent from this state, whether it appears that such absence is
permanent.
3. Possible future sources of information, e.g., relatives, personal references, or business
associates remaining in this state.
TAXPAYER OUTSIDE OF STATE JURISDICTION 776.060
Generally, taxpayers who are permanently situated outside of California, owe a liability less
than $10,000, and have no assets in California are potential cases for write-off. However,
a case is never an automatic candidate for write-off even though the liability is less than
$10,000. The nal course of action depends upon the availability of assets owned by the
taxpayer and the type of legal action anticipated. Each case must be evaluated individually
for write-off potential or possible referral for an out-of-state judgment.
The collector is responsible for the initial investigation and should check on the following
points prior to forwarding their recommendations to CSB:
d. Does the taxpayer have any out-of-state assets? If so, is the value of the asset(s)
sufcient and/or cost effective to pursue and of a nature to make a referral to CDTFA
counsel worthwhile?
e. Is the taxpayer sufciently established in their new location to the extent that obtaining
a judgment would be practical? For example:
a. Is the taxpayer operating a business?
b. Does the taxpayer currently own a home or are they in the process of buying one?
c. Is the taxpayer employed? If so, who is the employer?
f. Are the taxpayer’s assets encumbered and, if so, to what extent? For example, is their
home mortgage nearly paid in full or was the home newly purchased and subject to
a lengthy loan term or large payments?
The above items are not all-inclusive, but merely some of the items to review before deciding
to proceed with a legal referral or requesting a discharge from accountability.
Legal referrals on out-of-state taxpayers can range from corresponding with the taxpayer
for payment, to offers in compromise, to proceeding with full collection efforts through out-
of-state attorneys after obtaining a judgment in California. If CDTFA enlists the services
of an out-of-state attorney to pursue collection from the taxpayer, the attorney will retain
approximately 1/3 of any money collected as payment for their fees.
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June 2022
If the amount exceeds $10,000, a decision must be made whether the amount due, when
considered with the nancial condition of the taxpayer, will warrant a legal referral for further
action. CSB will make this decision after examining the facts supplied by the collector and
ensuring that all collection efforts have been exhausted.
INACTIVE CORPORATION/LLC 776.070
A recommendation for write-off is appropriate when a corporation or limited liability company
is found to be:
1. Inactive or suspended.
2. Without assets.
3. Without valid personal guarantors on le.
4. Without any collection against secondary parties due to collection being exhausted
and written off.
NO ASSETS OR INCOME 776.090
Prior to recommending a write-off because of inability to pay, a number of factors must be
evaluated, such as:
1. The amount of the liability.
2. The possibility of acquiring future assets or income.
3. The taxpayer’s age, occupation, physical and mental condition, earning capacity,
rehabilitation if disabled, or release from an institution or prison.
If the taxpayer appears to have placed, or is placing, assets in the name of another person,
a write-off should not be processed. Continued investigation to establish the taxpayer’s
interest in the assets should be made prior to a write-off recommendation.
BALANCE OUTLAWED 776.100
“Balance Outlawed” is used when a liability is discharged in bankruptcy, but a valid state
tax lien was recorded prior to the bankruptcy petition date (see CPPM 740.160).
SMALL BALANCE 776.110
Small balances often do not justify further collection effort. A compliance supervisor will
approve these types of cases with balances up to $500.00 after a reasonable effort has
been made to collect the liability. To avoid costly collection efforts out of proportion to the
amount to be realized, balances of $500.01 through $5,000.00 can be submitted to CSB with
a minimum explanation of previous collection efforts required from the responsible ofce.
(See CPPM section 776.180 for automatic write-off of balances of $10.01 through $500.00.)
A reasonable effort is dened as collection effort(s) where the cost is commensurate with the
amount to be realized. For example, conducting several eld calls to collect an item of less
than $5,000 goes beyond a reasonable effort.
Compliance Policy and Procedures Manual
June 2022
COLLECTIONS SUPPORT BUREAU NOTIFICATION 776.150
Once the case is approved by the supervisor, the write-off case should be staged to CSB
in the system. The CSB reviewer will retrieve the approved case through the system. For
additional steps see the system’s Help Manager “Review and Approve a Write-Off Case.”
When the write-off case is staged to “Approved-Send to SCO” in the system by the CSB
reviewer, the collection will automatically stage to “Pending Write-Off” and a Pending Write-
off indicator is added to the customer. The collection is also automatically unassigned from
the collector when staged to “Pending Write-Off.” Several months may elapse before nal
approval is granted and CSB receives notication of the discharge from SCO. A Written-
Off indicator is added to the customer when SCO approval is noted in the system for every
schedule that listed the customer’s liabilities.
AUTOMATED WRITE OFF OF BALANCES OF $500 OR LESS 776.180
A write-off case should not be prepared for liabilities of $500 or less. Under Government
Code section 12438, CDTFA is not required to collect small balances under $500. Although
all amounts over $10 are billed, liabilities of $10.01 through $500 are automatically written
off once the liability is nal for 180 days provided:
1. All accounts are closed.
2. No delinquency or other active collection task exists.
3. No payments or adjustments have been made in the preceding six months.
4. A security deposit is not available to be applied to the existing liability.
Since CDTFA does not normally make demand on a surety bond for amounts of $250 or less,
surety bonds solely securing the liability and meeting the other three automatic write-off
criteria should be “ended” by a supervisor or authorized designee.
AUTOMATED WRITE-OFF RECOMMENDATION FOR BALANCES
GREATER THAN $500 776.190
The system will automatically create a write-off case when all of the conditions below are
met. Once the write-off case is created, the case must then be completed by a collector:
1. Balance is over $500.
2. No impact exists that would prevent write-off, such as an active payment plan or
delinquency
3. No SCO collected account with a balance on the customer.
4. No secondary/dual debt is linked to the customer.
5. No open offer-in-compromise or bankruptcy case.
6. All accounts have a cease date over three years old.
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June 2022
WRITE OFF CHECKLIST EXHIBIT 1
Account No: ______________________ Taxpayer Name:______________________________
Prepared by: _____________________________ Date: ___________________
(Place the date attempts to locate debtors, assets, and personal information next to each
item when completed or write N/A for items not applicable. Add an explanation below the
item, if necessary, and enter your ndings on the “External Sources” tab in the system.)
Date Attempts to locate debtors, assets, and personal information
_______Security checked and applied, if available.
_______System was checked for related accounts.
_______Evaluated for dual determination (RTC 6829, corporate suspension, questionable ownership,
including trustees).
_______Determined if successor liability exists and successor billing done, if warranted.
_______Checked Pacer and entered ndings on the External Sources tab.
_______CLEAR searched for address, phone numbers, assets (including out-of-state assets) and
real property. Attach PDF to Customer springboard and enter ndings on the External
Sources tab.
_______Contacted landlord and/or sent CDTFA-1511 to obtain address, employment, payment/
bank information, and copy of lease agreement, if applicable.
_______Data Warehouse checked (enter dates below) and ndings entered on the External Sources tab.
EDD FTB DMV IRS Other .
SOS Entity No. Registration Date Status Status Date
_______If information exists that cannot be obtained through the Data Warehouse, order EATS
reports for EDD FTB DMV
_______Sent Post Ofce letter, CDTFA-53, to obtain taxpayer’s address if unknown.
_______Sent OIC Program Notice, CDTFA-908 to last address of record and most recent address
found through investigation unless OIC previously submitted.
_______Levies sent to all recent banks, spousal blurb included, if applicable. Levies should
not be sent when the taxpayer is deceased. (Levies must be resolved before write-off
submitted.)
_______EWO sent, including referral for spousal EWO, if applicable. (EWOs must be resolved
before write-off submitted).
Compliance Policy and Procedures Manual
June 2022
Date Attempts to locate debtors, assets, and personal information
_______Liens led in all corresponding counties and with SOS, if applicable (including nominee
lien, if applicable).
_______Searched ABC website for liquor license, if applicable, and liquor license withhold placed
and/or license seized. Entered ndings on the External Sources tab.
_______Internet searched for taxpayer whereabouts or activity (search myCDTFA for Collection
Tools).
_______Checked Department of Consumer Affairs licenses for contractor’s or other occupational
licensing and entered ndings on the External Sources tab.
_______For auto dealerships, veried status of dealer’s license and entered ndings on the External
Sources tab.
_______Veried documentation regarding proof of death and mailed Probate Letter, CDTFA-1079
to probate court in county of residence and county of death. (Customer will need to be
ceased in the system in order to send Probate Letter.)
_______UCC Online website checked for possible assets and entered ndings on the External
Sources tab.
_______Obtained physician’s statement or medical record from taxpayer to verify disability.
_______Taxpayer’s age veried.
_______Searched Inmate Locator and contacted prison/institution for taxpayer’s release date, if
applicable.
_______Referred to Collection Support Bureau (CSB) for pursuit of out-of-state collection, if feasible.
Write-off case should not be submitted until out-of-state collection is exhausted.
_______Refreshed and resolved all system Recommendations on Collection springboard.
_______Ensured all open tasks were resolved and ceased applicable indicators before submitting
the case for review.
_______Created Write-Off Case in the system and completed all points.
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July 2009
OTHER PROGRAMS 799.000
REWARD PROGRAM 799.005
Revenue and Taxation Code section 7060 provides for a rewards program for information
resulting in the identication of underreported or unreported sales and use taxes. If a person
indicates that, for a reward (monetary compensation), he or she has information that would
enable the California Department of Tax and Fee Administration (CDTFA) to recover sales tax
revenues, the person should be advised that, to date, the Legislature has not appropriated
funds for the reward program. Although no reward money is currently available, an appeal
to the person’s sense of fair play (equal treatment/payment of taxes for all) and responsibility
as a good citizen may result in the person divulging the information.
CONTROLLED SUBSTANCES 799.090
Assembly Concurrent Resolution (ACR) 143 deals with the illegal sales of narcotics and other
illegal drugs (Controlled Substances). Under the Controlled Substances program, the CDTFA
will be contacted by FTB and will issue determinations when there are assets being held
by the arresting authorities or some other third party that can be levied upon or when FTB
has monies to refund to the taxpayer because FTB has reduced the amount of its liability.
The Controlled Substances program is controlled by headquarters and the Sacramento Ofce.
This procedure, however, should not deter staff from issuing determinations on controlled
substances and following-up with collection action on those cases where the responsible
ofce identies a cause or is contacted directly by a FTB eld ofce, local police authorities,
or some other source.
If a loss of assets is probable through regular determination procedures, existing jeopardy
determination procedures should be utilized. Headquarters should be contacted immediately
and the levy initiated for collection on a same-day basis when possible. Experience with
these types of cases has shown that any delays in levying upon the assets may result in the
loss of the assets to attorneys or other third parties. If the assets are going to be retained by
the arresting authorities as evidence, a levy should still be served to establish the CDTFA’s
priority lien.
Compliance Policy and Procedures Manual
March 2022
IDENTITY THEFT PROGRAM 799.100
Identity theft occurs when a person makes an unauthorized use of another person’s personal
identifying information for any unlawful purpose, such as to evade tax. Even though the
perpetrator may be a family member or friend, it cannot be assumed that a person authorized
such use of their personal information merely because of their relationship to the perpetrator.
The discovery of identity theft may arise from an audit or collection activity. It may also be
discovered after a person unlawfully uses another person’s name and personal information
when applying for a permit or license without their consent, thus making the other person
appear to be the person responsible for any debts incurred. However, merely adding a
person’s name and personal information, including a signature or electronic signature,
when applying for a permit or license does not always establish an intent to evade tax. A
person may have received authority and consent from the other person to act on their behalf
in specied circumstances. For example, if a partner completes the permit application for
him or herself as well as another partner, the act of registering for the other partner may
not have been done with the intent to evade tax.
In the event a tax or fee liability is accrued on an account where a person alleges to have
been fraudulently registered for that permit, the responsible ofce or headquarters section
that discovers the alleged identity theft or forgery is responsible for evaluating the evidence
and having the account adjusted if appropriate. If team members other than the responsible
collector or auditor becomes aware of the possible identity theft, the information should be
sent for review to the ofce responsible for the collection of the liability.
Team members are responsible for clearing an innocent party of any CDTFA liability resulting
from identity theft or forgery. However, team members are not responsible for pursuing
or identifying the perpetrator. In all cases, team members should send a memo to the
Investigations Section (Investigations) with all pertinent information and any documentation
obtained as evidence to support that identity theft has occurred, so investigations may begin
an investigation and take appropriate action. Investigations is responsible for contacting
law enforcement.
Evidence
The innocent party is responsible for providing team members with documentary evidence
supporting the claim of identity theft. Documentation may include the following:
• Police and/or court reports;
• Documentation that shows a fraud alert has been placed on credit reports;
• A copy of the Identity Theft Afdavit led with the Federal Trade Commission (FTC).
(The FTC serves as the federal clearinghouse for complaints by victims of identity theft.);
• Written responses of results of investigations by creditors, banks, or companies that
provided the perpetrator with unauthorized goods or services;
• Written responses of results of investigations by district attorney’s ofce or other
investigators supporting the claim of identity theft;
• Copies of other applications and business records relating to transactions and accounts
that show that those transactions involved identity theft;
• Afdavits from landlords, vendors, accountants, or bookkeepers supporting a claim
of identity theft;
• Deposition from a private handwriting expert certifying a forged signature; or
• A birth certicate indicating that the innocent party was a minor at the time the
application was signed which may indicate identity theft occurred.
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March 2022
This list of documentation is not intended to be all inclusive and not all of the items listed
are required to substantiate claims of identity theft.
Procedure
The responsible ofce or section that discovers the alleged theft or forgery will examine the
evidence. The Compliance Principal or section supervisor should contact other potentially
affected ofces (e.g., Collections Support Bureau, Program and Compliance Bureau, Use Tax
Collection Bureau) when a related account, or tax or fee program, is identied that may have
additional pertinent information. Once the responsible ofce is satised the documentation
supports the identity theft, the Compliance Principal or section supervisor should review the
case, and if in agreement, should approve a request for a legal adjustment to the account.
Once approved by the Compliance Principal or headquarters section supervisor, the
responsible collector will create and send a letter to the customer informing them that a legal
adjustment and release of liens (if warranted) is forthcoming. The responsible collector will
create a request package and send it to the Collections Support Bureau (CSB) to perform
the legal adjustment. The package must contain:
1. Memo addressed to CSB listing the documentation provided, and if liens were led
in the innocent party’s name, the request to release lien(s) led in error should be
included in the letter and the recommendation for legal adjustment.
2. Documentation proving the identity theft claim (outlined in 799.100).
3. Copy of the letter of acknowledgement/action sent to the customer by the responsible
ofce/collector.
CSB will process the legal adjustment in the system and add notes thoroughly explaining
the identity theft adjustment.
Team members will send the lien release directly to the county recorder unless otherwise
instructed by the innocent party or an escrow company acting on behalf of the innocent party.
Compliance Policy and Procedures Manual
December 2021
TOP 500 PROGRAM 799.200
Revenue and Taxation Code (RTC) section 7063 directs CDTFA to make public each quarter
a list of the 500 largest sales and use tax delinquencies (liabilities) in excess of one hundred
thousand dollars ($100,000). The list is available on CDTFA’s website.
Effective July 1, 2012, state governmental licensing entities that issue professional or
occupational licenses, certicates, registrations, or permits, are generally required to suspend
or refuse to issue or renew a license if the applicant’s or licensee’s name is included on the
list of the 500 largest sales and use tax delinquencies. The Department of Motor Vehicles
(DMV) is required to suspend the license of any person whose name is on the list. The State
Bar of California and the Alcoholic Beverage Control Board (ABC) are generally not mandated,
but at their discretion, may participate with the application of this section of the law. The
Contractors State License Board may also suspend, or refuse to issue or renew the license of
any person whose name is on this list. For further information see Business and Professions
Code (BPC) sections 494.5, and 7145.5.
The law also prohibits a state governmental agency from entering into any contract for the
acquisition of goods or services with a contractor whose name appears on the Top 500 list.
For further information see Public Contract Code Section 10295.4.
For purposes of compiling the Top 500 list, a liability means an amount owed to CDTFA that
meets all of the following criteria. The liability must be:
1. Based on a determination deemed due and payable or self-assessed by the taxpayer;
2. Recorded as a notice of state tax lien in any county recorder’s ofce in this state; and
3. For an amount of tax delinquent for more than 90 days.
For purpose of the Top 500 list, a liability does not include any of the following, and, therefore,
may not be included on the Top 500 list:
1. A liability that is under litigation in a court of law;
2. A liability for which payment arrangements have been agreed to by both the taxpayer
and CDTFA and the taxpayer is in compliance with the arrangement; and
3. A liability of an individual or business taxpayer under federal bankruptcy protection,
and the taxpayer has not yet exited or emerged from bankruptcy.
Each quarter the list of the Top 500, with respect to each liability, will include all of the
following:
1. The names of the person(s) liable for payment of the tax and their last known address(es);
2. The amount of the liability as shown on the notice or notices of state tax lien including
any applicable interest or penalties, less any amounts paid;
3. The earliest date that a notice of state tax lien was led;
4. The telephone number of the Compliance Policy Unit (CPU) located at Headquarters,
for taxpayers to contact if they believe their name was included on the list in error;
5. The number of persons that have appeared on the list who have satised their liability
in full, along with the total dollar amounts that have been applied to the related
liabilities; and
6. Any payments made toward liabilities on the list if requested by the taxpayer.
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December 2021
Thirty (30) days prior to making a liability a matter of public record on its website, CDTFA
shall send a preliminary written notice (CDTFA-1401, Possible Public Disclosure of Tax
Delinquency) by certied mail, return receipt requested to each person(s) liable for the
payment of tax. The notice will advise each person(s) of CDTFA’s intent to place their name
on the list and the basis for the action.
CPU will send the CDTFA-1401 letters to notify taxpayers of the possibility of public disclosure
of their tax liability. The notice will provide warning to the person(s) that if their name is
included on the list, it may lead to the loss or denial of their professional or occupational
licenses, including driver licenses, pursuant to BPC section 494.5, and prevent them from
entering into contracts for the acquisition of goods or services with California state agencies
as noted in Public Contract Code section 10295.4. If within 30 days after the issuance of
the notice, the person(s) does not remit the amount due, or make arrangements with the
CDTFA for payment of the amount due, the delinquent amount shall be included on the list.
Once the tax delinquencies are published, CDTFA will provide the state governmental licensing
agencies, via secure le transfer, a “Certied List” of the Top 500 largest sales and use tax
delinquencies for purposes of administering BPC section 494.5. These agencies shall refuse
to issue, reactivate, reinstate, or renew a license and shall suspend a license if a licensee’s
(our taxpayer) name is included on the “Certied List.”
Each state licensing agency shall determine whether an applicant or licensee is on the
“Certied List.” If applicants or licensees are listed, the licensing agency shall then deliver,
within 30 days of receipt of the list, a preliminary notice to the applicants or licensees
stating the intent to suspend or withhold issuance or renewal of their licenses. The notice
will include CPU’s address, a telephone number for immediate contact, and the License
Suspension Release form (provided by the state agency suspending the license) in the event
the licensees wish to challenge the submission of their names on the “Certied List.”
Taxpayers challenging the submission of their names on the list will complete the form and
make a timely written request (explained below) for release to CPU. The criteria for release are:
1. The applicant or licensee has complied with the tax obligation, by either payment of
the unpaid taxes or entry into a payment plan;
2. The applicant or licensee has submitted a request for release not later than 45 days
after receipt of the state licensing agency’s preliminary notice; or
3. The applicant or licensee is unable to pay the outstanding tax obligation due to a
current nancial hardship. BPC section 494.5(h)(3) denes nancial hardship as
determined by CDTFA where the taxpayer is unable to pay any part of the outstanding
liability and is unable to qualify for a payment plan. In order to establish existence of
a nancial hardship, the taxpayer shall submit any information requested by CDTFA,
including information related to reasonable business and personal expenses, for
purposes of making that determination. Hardship requests will be considered on a
case-by-case basis.
Compliance Policy and Procedures Manual
December 2021
CDTFA must remove the taxpayer’s name from the Top 500 list no later than ve business
days from the occurrence of any of the following:
1. The person(s) liable for the tax has contacted CDTFA and entered into a payment
plan to satisfy the liability. However, if the person fails to comply with the payment
plan after having their name removed from the list, CDTFA shall add that person’s
name to the list without providing additional written notice. The responsible collector
must notify CPU if a payment plan is terminated. This notication should include
the reason for termination and indicate if all criteria for inclusion on the Top 500 list
have been met;
2. CDTFA has received notice, or discovered that the delinquent taxpayer is under federal
bankruptcy protection;
3. CDTFA has analyzed the delinquent taxpayer’s bankruptcy case docket and papers
conrm that there are no more assets to pay down an aged, dischargeable delinquency;
or
4. Collections Support Bureau (CSB) has approved the liability for write-off because it
is uncollectible. Once Field Operations Division (FOD) team members determine that
an account eligible for the Top 500 list should be written off, the write-off should be
initiated and sent to CSB as soon as possible. Notify CPU once the write-off has been
initiated so CPU can refrain from placing the taxpayer on the list until the write-off
occurs. It may take over 30 days before the write-off is approved by CSB and sent to
the State Controller’s Ofce. With a new Top 500 list posting roughly every 90 days,
the write-off process may not be completed before the next Top 500 list is posted.
HEADQUARTERS RESPONSIBILITY
Compliance Policy Unit (CPU)
Each quarter, CPU will:
1. Extract a list of candidates that may qualify for the Top 500 list, based on the required
criteria stipulated above. The list will be distributed to FOD to determine if all the
criteria have been met for inclusion on the list;
2. Post the Top 500 Tax Delinquencies on CDTFA’s website once the accounts have been
certied by FOD;
3. Provide state governmental licensing agencies with the quarterly “Certied List” of
the Top 500 largest sales and use tax delinquencies pursuant to section 7063 for
purposes of administering BPC section 494.5, and act as a point of contact with state
licensing agencies, licensees, and FOD to facilitate tax resolutions;
4. Receive “License Suspension Release” requests from taxpayers wishing to challenge
their placement on the Top 500 tax delinquency list and distribute them to FOD for
processing of tax payment arrangements; and
5. Notify licensees on the outcome of their License Suspension Release requests. Copies
of these responses will be mailed to state governmental licensing agencies related
to the licensee. CDTFA will respond within 45 days from the date CPU received the
License Suspension Release request. In the event CDTFA is unable to complete the
release review within 45 days after receipt of the licensee’s request for release, the
release should be granted and CDTFA shall notify the licensing agency to reinstate the
applicable license with retroactive effect back to the date of the erroneous suspension,
and the suspension shall not be reected on any licensee’s record.
Collections
December 2021
Collections Support Bureau (CSB)
Once an account on the list has received nal approval by CSB for write-off, CSB shall
immediately notify CPU, so that the account may be removed from the list.
FIELD OPERATIONS DIVISION (FOD)
To determine the potential liabilities to be placed on the Top 500 quarterly list, the system
will create a list for eld ofces to review. The list includes the name of the collector assigned
to each account. A team member from the respective ofce is responsible for performing the
review. Once the ofce has determined whether all the criteria has been met for inclusion on
the list, a Business Taxes Administrator I or higher will approve the case in the system. After
determining whether candidates can be included on the list and approving or denying the
case in the system, team members in the responsible ofces must continue to monitor those
accounts until the Top 500 list is published. Any change in status must be communicated
to CPU as soon as possible. As used below, the term “qualifying liabilities” means individual
differences that solely, or in combination, cause the account to qualify for listing on the
website. The responsible ofces must ensure that:
1. The qualifying liabilities have been nal for more than 90 days;
2. CDTFA has recorded a notice of state tax lien for the qualifying liabilities in a California
county recorder’s ofce;
3. The current delinquency amount due for the qualifying liabilities is in excess of
$100,000;
4. The qualifying liabilities are not under litigation in a court of law;
5. The qualifying liabilities are not in the appeals process. For the purpose of this process,
if all of the tax liability, with the exception of the penalty and interest, has been paid
and a refund request has been submitted, we will consider this as an appeal;
6. The taxpayer is not in bankruptcy status;
7. The account is not on a payment plan;
8. The mailing address is current by checking EDD, DMV, Franchise Tax Board (FTB),
Clear and/or other available search tools;
9. For partnerships, husband-wife co-ownerships, and registered domestic partnerships,
ensure that all listed taxpayers are liable for the qualifying liabilities. If individual
partners are liable for lesser amounts, specify those amounts on the list. If all partners
are liable for the full amount, no special notation will be required;
10. The qualifying liabilities were not discharged in bankruptcy. Discharged liabilities will
not be adjusted off of the taxpayer’s total outstanding tax liability when a lien survives
the discharge and remains in place. If a liability was discharged in bankruptcy but a
lien remains in place, collection against the property subject to the lien may occur,
however not against the individual who was discharged in bankruptcy. Therefore,
discharged liabilities cannot be included in the calculation of liabilities qualifying a
taxpayer for listing. Verify the taxpayer qualies for listing based only on the non-
discharged liabilities that remain subject to collection action. To determine liabilities
subject to collection after a bankruptcy, search the notes on the customer level
and review it for a “bankruptcy summary, discharge review” note, or contact CSB
Bankruptcy Team;
11. The accounts have not been written off. An account is considered written off when it
has been approved by all required levels within CSB;
Compliance Policy and Procedures Manual
December 2021
12. The taxpayer does not qualify for License Suspension Release. Review taxpayers’
“License Suspension Release” requests received by CPU and determine if taxpayers
qualify for the license suspension release by agreeing to pay the liability in full or
by entering into reasonable payment plans. Once taxpayers agree to either form of
payment, FOD should notify the taxpayer of the agreement using current acceptance
documents. There may be instances where taxpayers will send their release requests
directly to FOD ofces instead of CPU. In this case, the responsible ofces should
begin working the account and immediately send a copy of the Release Request via
email (PDF) to CPU or fax a copy to CPU at 916-322-4530; and
13. Immediately notify CPU of the outcome of the License Suspension Release review so
that state licensing agencies can be informed whether or not to release the license
suspension.
FOD will continue to be responsible for collection of accounts posted on the Top 500 list.
Returned mail updates will be sent from CPU to the responsible ofce to determine if a better
address exists by using skip tracing tools such as EDD, DMV, FTB and Clear, etc. If a better
address is found, the address should be updated in the system. The information should also
be relayed to CPU who will then generate a new letter and mail it to the taxpayer. CPU will
ensure that the account is not posted to the list if the CDTFA-1401 letter is generated less
than 30 days from the next list update. Returned mail labeled as unclaimed and or refused
need not be further researched and will be included on the list.
Once an account has been posted on the Top 500 list, it should be closely monitored for any
changes that would require it to be removed from the list. CPU must be contacted immediately
by email if it is necessary to remove an account from the list. RTC section 7063 requires that
the taxpayer’s name must be removed from the list within ve business days after CDTFA
is notied of an action that disqualies it from placement on the list.
