Improve Compliance and Uniform Administration Taxpayers’ Bill of Rights Annual Report to the Legislature

Legislative Proposals and Regulations

Changes in Statutes – Legislative Proposal Summary

In accordance with reporting requirements outlined in California Revenue and Taxation Code (R&TC) Section 21006(c)(1), the following are legislative proposals that have been approved by the three-member Board.

Legislative Proposals That Were Enacted Into Law:

Eliminating the Repeal Date for Electronic Communication

Proposes to eliminate the January 1, 2025, repeal date to allow FTB’s authorization to, at the request of the taxpayer, send and receive notifications, including a notice, statement, bill, protest, or other communication, electronically.

This proposal was introduced by the Senate Revenue and Taxation Committee as part of Senate Bill (SB) 167 on January 18, 2023. This bill was chaptered into law on June 27, 2024, and is effective immediately through December 31, 2024. In addition, this proposal was introduced by the Assembly Revenue and Taxation Committee as part of Assembly Bill (AB) 3287 on March 19, 2024. This bill was chaptered into law on July 15, 2024. It will take effect on January 1, 2025.

Legislative Proposals That Were Not Introduced Into Bills:

None.

Training of FTB Staff

FTB develops knowledgeable and engaged employees to improve the customer experience and accomplish FTB’s mission. Our goal is to provide the services and information taxpayers need to file accurate and timely tax returns and to only pay the proper amount of tax owed. Training begins with our employees’ first day on the job and continues throughout their FTB careers.

Public-facing staff in our Filing and Accounts Receivable Management (ARM) contact centers and public service counter staff receive extensive initial training, on-the-job training, and ongoing training, with programs tailored to the specific needs of each business area.

In 2024, the ARM Division began to phase-out its legacy collection system and replace it with the new compliance system onto the enterprise case management platform. ARM leadership has been involved in actively communicating to staff about the upcoming changes, and the impacts and benefits the system replacement has on the collection programs. In addition, ARM’s training team implemented a new training curriculum based on new system designs. The training team has successfully rolled out training in phases to train staff on the new system designs.

ARM also prioritized new hire training in-person beginning January 2024. By utilizing the new Advance Hybrid Training Room technology installed in FTB’s training rooms, ARM provided a hybrid training format to include new hires in-person and from the field offices. This equipment and technology would allow for both the trainer and the room participants to be seen by any remote participants, while the materials are still presented visually in the classroom and to virtual participants. The Advance Hybrid Training Rooms allow for a more immersive experience and gives our new hires a greater opportunity for sustained success.

The Audit Division provides extensive training for their staff. This training includes both classroom and virtual instruction at all stages of their career. Division training includes, but is not limited to, analyzing tax returns, researching complex tax issues, and communicating audit findings to the taxpayer in verbal and written forms. Many of our knowledge transfer processes include these training forums and on-the-job training of various types of issues, industries, and services.

The Audit Division continues to maintain its Pathways to Excellence portal, which is a knowledge transfer and training resource for staff. In simplistic terms, this portal maps out different “pathways” for staff development that identify technical education opportunities with other value-added learning experiences and collaboration opportunities. The Audit Division Job Knowledge Transfer training series provides presentations on technical issues to enhance staff’s performance in their daily work functions. The Audit Division Mentoring Plus Program creates a culture of learning, sharing, and networking by pairing auditors with people with different backgrounds and expertise. Having well-trained auditors shortens the completion time of conducting audits and improves the accuracy of the outcome, thereby better serving taxpayers.

For fiscal year 2023/2024, the Filing Division provided training to over 400 new hire employees, including classes about personal income and business entity tax law, account resolution procedures, and improving our customer experience. Employees attend various formal and informal trainings, both in-person and virtual, to refresh their skills, learn new workloads, and remain informed of changing laws and procedures. Many training classes were modernized to leverage technology by incorporating interactive computer-based training. Sessions like these allow staff to understand the importance of addressing the taxpayer’s immediate need while also educating them to reduce future questions or confusion.

The Filing Division also develops the training concepts and materials to train free tax preparation site coordinators and volunteers throughout the state on California tax law and return preparation as part of our Volunteer Income Tax Assistance (VITA) program. The program assists lower-income individuals, senior citizens, and military personnel in filing personal income tax returns. FTB VITA trainers come from throughout the department, including field offices. The Filing Division also facilitates the central office VITA site, which provides federal and state income tax help and electronic filing support for FTB employees and their families. FTB included the program in the Governor’s Equity Initiative with a goal of increasing our FTB VITA volunteers to pre-pandemic numbers. As a result, 91 FTB staff were certified as volunteers, including 27 first-time volunteers. Training was provided to 1,880 volunteers and site coordinators throughout the state to assist with the 2024 Tax Filing Season. FTB’s VITA staff and volunteers participated in 48 events and volunteers assisted with 4,380 federal and California state returns. Increasing our FTB volunteers allows FTB to market the program to more communities, resulting in an increase in the number of individuals who can utilize and benefit from the VITA program.

The Legal Division continues to focus on its knowledge transfer programs to increase the sharing of knowledge and ensure a highly trained workforce. This effort includes providing cross-training opportunities among the bureaus of the Legal Division, mentoring new staff, and expanding and marketing the information libraries maintained by the Legal Division. The Legal Division has a Professional Development Program, which provides regularly reoccurring trainings by subject matter experts on different tax issues. The Legal Division also offers a collaborative program with Audit called “Lunch n’ Learn” where speakers present on tax issues at lunchtime in a more informal setting. Legal staff are also encouraged to participate in other training opportunities offered throughout the enterprise such as Job Knowledge Transfer presentations and online training, as well as continuing to participate in speaking engagements and webinars.

Across FTB, management and the department’s all-volunteer DEIA Team continues to take steps to ensure FTB remains a workplace where employees from all backgrounds, cultures, and personal experiences are welcome and thrive in support of FTB's mission, values, and goals. We believe a strong commitment to supporting a sense of belonging and respect in the workplace helps foster innovation, improves productivity, and continues to attract top talent by making us an employer of choice. This commitment also helps ensure FTB can meet the needs of our highly diverse state. In 2023, FTB rolled out a vendor-provided training suite that included dozens of new videos and micro-learning content for our staff. Our team regularly posts articles and videos on an array of topics to support our commitment to serving all Californians. The team also plans and supports events that bring more awareness to our workplace, including events and a resources toolkit available to all staff. In January 2024, FTB released an awareness training module titled “The You in Us” that was developed in-house. All employees were encouraged to take the training. The training module highlights how important every individual employee is to FTB’s success. The purpose of the course is to:

Provide definitions of key terminology and related principles.
Highlight historical actions and activities undertaken by FTB over the years.
Provide thought-provoking concepts and ideas for action in one’s work and home environments.

Over a four-month period in early 2023, we conducted training for all FTB supervisors nationwide that provided information and tools for more effective relationships with, and management of, staff in today’s hybrid (telework and office) work environment. Additional sessions of this training were conducted in early 2024 and will be offered several times a year moving forward.

Finally, all FTB personnel who are classified in FTB’s conflict of interest code are required to take an ethics training course provided by the Department of Justice within six months of appointment to a classified position and once every two years thereafter. Additionally, all FTB staff are required to complete annual Privacy, Security, and Disclosure web-based training.

Evaluating FTB Employees

FTB is committed to evaluating and providing feedback to our employees with the goal of helping them to perform at the highest level in their current positions and to advance professionally when promotional or developmental opportunities arise. Our goal is not only to provide all eligible employees with a written performance evaluation annually, but to ensure the evaluation and feedback they receive is valuable. The most important part of the evaluation process is sincere, respectful, and open conversations with employees regarding expectations and performance.

Customer service has always been one of FTB’s highest priorities. In recognition of this priority, FTB continues its practice of evaluating employees during annual reviews based on how well they communicate with taxpayers, tax professionals, and other stakeholders, and the overall quality of the customer service they provide. Evaluations include assessing whether employees have provided customers with accurate, timely, and complete assistance. Our goal is for every employee to exceed each customer’s expectations. Importantly, we do not evaluate employees based on revenue that is produced through additional tax assessments or collections, and FTB does not impose or suggest revenue production quotas or goals. (Refer to Appendix 4 — Certification Letter.)

We provide our supervisors with tools to assist in writing, online routing, and storing employee performance evaluations. These tools help us reach our goal of every eligible employee receiving a timely evaluation. In addition, we continue to provide tools and training to assist supervisors in having effective one-on-one conversations with their employees to build better connections, provide valuable feedback on performance, and maintain accountability for the expectations that have been set. We continue to reinforce the expectation that every supervisor will have regular one-on-one meetings with each of their employees.

A key component of employee and supervisor meetings is to have continuing discussions on performance expectations and to identify training and development needs. Discussing employee development opportunities is especially critical in today’s environment due to the rising number of employees who are eligible for retirement. It is an important part of our efforts related to workforce and succession planning.

Taxpayer Communication and Education

We strive to provide taxpayers, tax professionals, and external stakeholders with the information they need to file state tax returns completely, accurately, and timely. The department continues to focus on education and outreach efforts, creating useful tools and resources, and improving services.

FTB uses mainstream, trade, and social media to communicate important information to taxpayers and tax professionals. We post information on social media platforms, respond to news media inquiries, create video clips and webinars, and provide public service announcements to educate taxpayers. We constantly look for ways to improve our website, such as adding self-service options for taxpayers and by ensuring the information they need is available.

New ftb.ca.gov Webpages and Updates

In 2024, our Digital Services Section created several new informational webpages, including those focused on the 2023-2024 San Diego County flood victim tax relief, and filing a tax return and claiming CalEITC and other tax credits with an Individual Taxpayer Identification Number.

Updates to FTB’s website covered a variety of topics, including one-time penalty abatement, CalEITC and related cash-back tax credits, help with a pass-through entity, and emergency tax relief, especially relative to severe winter storms.

Online Self-Service

Historically, users registering for a MyFTB account need a Personal Identification Number (PIN) to activate their online account. For increased security, FTB mails the PIN to the address of record and the user enters it as the final step in the registration process. Since February 2022, individuals and tax professionals have had the ability to choose how they want to activate their MyFTB account. They can continue to have a PIN letter mailed or they can try to be verified for instant access by answering some personal information questions through our new Real-Time Identity Proofing and Enrollment process.

From July 1, 2023, to June 30, 2024, approximately 285,000 users registered for a MyFTB account, including over 4,800 tax professionals. Our number of individual taxpayer registrants has continued to increase compared to the same period in 2022/2023, largely attributable to the implementation of the Real-Time Identity Proofing and Enrollment process. We had over 250,000 individuals register for an account in 2023/2024.

We have over 1.5 million total registrants for MyFTB, including over 58,000 tax professionals. MyFTB continues to provide additional information and functionality. In addition to other activities, taxpayers can view notices and previously filed tax returns, chat about their account or send a message with attachments, protest assessments, and get detailed account information.

To improve the customer experience, FTB added instructional videos regarding using MyFTB and submitting Power of Attorney (POA) forms. An educational video was added to explain the difference between Tax Information Authorization (TIA) access and POA access within MyFTB to help tax professionals decide the best type of access and authorizations for their clients in MyFTB. FTB plans to add additional videos and information to the website to assist users of MyFTB.

Field Office Appointments

The Franchise Tax Board's field and public counter staff provide tax filing and payment assistance to taxpayers and their authorized representatives concerning PIT and BE Income Tax and Nontax Debt.

FTB field offices continue to serve customers by appointment, and our customers have the option to schedule an in-person appointment online or with the aid of a contact center agent. FTB's automated appointment system also sends text message updates to our customers as their appointment time nears. We found appointments provide an improved customer experience and minimized wait times. As a result, we have maintained a 94 percent approval rating from our public counter customers.

California Earned Income Tax Credit (CalEITC)

To be consistent with new legislation, and to enhance usability, we updated content on our CalEITC webpages, including the CalEITC landing page, CalEITC eligibility and credit information page, and the Young Child and Foster Youth tax credit pages. Our EITC calculator was updated to reflect various mandatory annual inflation adjustments and to improve its accuracy and ease of use, including the addition of a box to enter the age of the user and spouse.

CalEITC Direct Outreach to Taxpayers

In 2024, the second consecutive year of FTB’s Direct EITC Outreach effort, over 300,000 letters were mailed to two groups of Californians who appeared to qualify for CalEITC but had not claimed it. The letters explained the potential value of the credit and how to claim it.

In early August of 2024, we sent more than 187,000 letters to Californians who did not file a California state income tax return for tax years 2022 or 2023. However, these taxpayers appeared to be eligible for CalEITC for tax year 2022 based on state employment records and one or more state tax returns they filed for tax years 2019 through 2021. The letters explained how to claim the credit and provided related resources, such as links to FTB's free CalFile program, the VITA Program, and our EITC calculator to estimate their potential cash back.

Also in August 2024, we mailed 117,000 letters to Californians who filed a tax year 2023 California state income tax return, but did not claim CalEITC, to inform them they appear to qualify for the credit. We provided an estimate of the credit amount they might be eligible for and encouraged them to claim the credit by completing form FTB 3514, California Earned Income Tax Credit, and mailing it to us.

In 2023, the first year FTB sent EITC Direct Outreach, we mailed over 340,000 letters to Californians who either did not file a California state income tax return for 2021 or 2022 or who had filed a 2022 tax return but did not claim CalEITC and appeared to qualify for the credit. Of those contacted, approximately 10,600 respondents were allowed a total of $2 million in CalEITC refunds.

The CalEITC outreach effort employed by FTB reflects one of the strategies identified in an FTB report, required by the enactment of SB 1409, a 2020 state law, that explored ways to increase the uptake of CalEITC. In 2022, AB 1863 added to the CalEITC notifications and requires FTB to notify potentially qualified individuals of the CalEITC and paperless filing options.

Emergency Tax Relief

We updated the webpage for Emergency Tax Relief to explain the relief provided to Californians impacted by the San Diego County floods. Californians impacted by the San Diego County floods qualified for an extension to file and pay taxes until June 17, 2024, and many of those impacted were eligible to claim a disaster loss on their tax returns.

Our expansion of disaster-related online content included updates to the "Help with California winter storms" page. We also made regular updates of webpages devoted to information on how to claim a disaster loss deduction on your tax return, and to a list of disasters that provides the names of qualifying disasters and their corresponding codes for tax purposes.

FTB Website Visits, Page Updates, and Accessibility Remediation and Testing

These statistics reflect the January through November period in 2024:

New online resources helped draw a total of 31.2 million visits to ftb.ca.gov and our website was visited by 12.6 million mobile users.

We updated 1,578 of our public webpages–about 66 percent of all live pages–including online tax forms to ensure we provide the most current and accurate information.

We revised or added a total of 783 website documents, all of which meet state accessibility standards.

FTB Cannabis Team Outreach

Two new California income tax credits became available for cannabis businesses beginning in taxable year 2023: The Cannabis Equity Tax Credit and The High-Road Cannabis Tax Credit. We updated FTB's Cannabis webpage to include information on these credits and linked to two newly created, dedicated webpages with more detailed information on each credit. We published Tax News articles on this topic and sent informational letters to California licensed cannabis businesses. The letters provided the recipients with an overview of the tax credits, directed them to our online resources for more detailed information, and offered a dedicated FTB cannabis email address where they can send questions about the credits along with general questions about meeting their income tax obligations.

We also updated and maintained a variety of online resources providing information relating to licensing and tax compliance for cannabis-related activities.

FTB has participated in over 35 in-person and virtual cannabis-related presentations and workshops since 2019, including the National Cannabis Industry Association's Cannabis Business Caucus and Summit, state and local permitting workshops, and various government panels.

We continue to monitor cannabis legislation pending before Congress and the California Legislature that can potentially affect our programs.

Taxpayers' Rights Advocate's Office Education and Outreach

During FY 2023/2024, our Taxpayers' Rights Advocate's Office (TRAO) resumed in-person events and participated in 15 in-person and 23 virtual presentations that served approximately 4,800 taxpayers and tax professionals. The presentations provided information on California tax updates, foreign scholars, TRAO services, forms of business ownership, and small businesses tax matters. We continue to consider additional ways to foster and build relationships to reach our underserved communities. We established a new connection with the California Black Chamber of Commerce that brought in new small business contacts, and we collaborated with the IRS during filing season to assist Spanish-speaking taxpayers. For the first time, we partnered with Solvera Consulting to provide information on California residency and filing tips to new Ukrainian immigrants. We also updated our Education and Outreach webpage by adding additional resources based on common requests or questions we receive. We created a QR code for this webpage to share at our events to allow taxpayers to scan quickly from their phones to find information they need.

In February 2024, our small business liaison was invited by the Governor’s Office of Business and Economic Development (GO-Biz) to serve as a representative on a statewide team to discuss and plan how the state and small businesses will recover economically after a major disaster. Our liaison responded to over 1,700 email requests for assistance in 2024. The liaison continues to provide answers to general tax questions and questions about business filing requirements and business ownership types.

The process to improve our Systemic Issues Management System (SIMS) continues. This communication channel received more than 225 submissions and FTB’s IT staff upgraded the interface to allow for better evaluation. We also expanded the Systemic Issues webpage to provide additional resources to help taxpayers resolve their issues independently.

TRAO continues to assist taxpayers who request equity relief or the Advocate's Independent Administrative Review (IAR). Our technical expert received 72 IAR requests in FY 2023/2024. The IAR language is scheduled to be updated on FTB notices to help clarify the qualifications and scope of review. We expect to see a decrease in the number of requests after implementation.

Tax News, our monthly technical publication, remains a valuable resource for the tax professional community, with more than 32,000 subscribers. We recently overhauled the format and continue to provide how-to articles on relevant topics from customer contacts. For example, videos are now available on our public website on Real Estate Withholding and how to submit a Power of Attorney. We continue to partner with other tax agencies and external stakeholders to share information about educational opportunities. We also periodically send Tax News Flashes to proactively inform subscribers of time-sensitive changes to tax law, new programs, and current issues of interest.

We continue to obtain valuable feedback from our external stakeholders. We hold four annual meetings to allow the tax professional community, trade media, and businesses to provide input to improve FTB services. We host the annual Advisory Board for FTB’s Executive Officer to seek meaningful advice and support on various projects and programs FTB administers. In August, TRAO staff participated and networked with the California Society of Enrolled Agents to educate new enrolled agents through a partnership with the Employment Development Department and California Department of Tax and Fee Administration. We also collaborated with FTB leadership on a survey to understand the tax professional experience on the self-services available in MyFTB.

Our Tax Appeals Assistance Program (TAAP) continues to partner with several law schools throughout California. TAAP offers free legal assistance to mostly low-income and underrepresented taxpayers who have appealed actions of the FTB with the Office of Tax Appeals (OTA). Since its inception in 2006, TAAP has helped resolve hundreds of cases. Without this vital program, taxpayers would have to navigate tax issues alone, hire representation they cannot afford, or just give up and pay the disputed bill.

TAAP is not only instrumental in helping numerous taxpayers with the appeal process but also with helping taxpayers understand their tax issues. In doing so, many taxpayers have resolved their cases with FTB prior to an oral hearing before the OTA. Completed cases in 2024 fulfilled the purposes of the program, which are to:

Enhance the preparation and quality of the appeals going to the OTA.
Provide taxpayer representation that promotes and achieves more efficient and cost-effective resolution of taxpayer petitions.

As of June 30, 2024, TAAP informed 322 individuals and businesses about the program, accepted 89 new cases, and resolved 68 cases. TAAP had 62 law students participate in the program and represented 8 taxpayers at oral hearings in front of the OTA.

TAAP has been well received by all 11 participating law schools and makes a positive difference in the lives of its clients. Many TAAP student participants have gone on to practice tax law, both in the private sector and for the State of California.

Public Affairs Education and Outreach

FTB's Public Affairs Office educates taxpayers about filing requirements, eligibility for valuable tax credits, and other important tax issues through interviews with television, radio, and print media outlets, as well as through FTB's website, social media campaigns, videos, printed brochures, press releases, and webinars. Public Affairs' efforts align with the entire department to communicate information to the news media, taxpayers, tax representatives, and other stakeholders. Over the past year, the most common media and taxpayer inquiries included those related to multiple 2023 deadline extensions (ultimately to November 16, 2023), the winding down of Middle Class Tax Refund (MCTR) payments, and California’s spring 2024 participation–through our CalFile service–in the IRS’s Direct File free online filing pilot program.

Continuing a trend that began during the pandemic, Public Affairs mainly distributed CalEITC and Young Child Tax Credit (YCTC) outreach materials–flyers, posters, brochures, and social media toolkits–digitally and made them available for download on our website. Most materials were available in seven languages: English, Spanish, Mandarin, Vietnamese, Korean, Hmong, and Russian. FTB distributed these digital materials directly to CalEITC outreach partners, including nonprofits, such as United Ways of California, as well as state legislative offices, and a host of state and local social service agencies that could deliver the information directly to lower-income Californians likely to qualify for CalEITC. FTB also worked with the Office of State Publishing and CalFresh to include about 160,000 English-Spanish CalEITC informational flyers in state-funded, emergency food boxes that CalFresh distributed in early 2024 to families statewide.

FTB provided statewide foster care agencies, academic institutions, and other outlets with thousands of posters and flyers advertising California's cash-back FYTC for current and former foster youth.

Public Affairs continues to be part of, and work closely with, the State Interagency Team (SIT) Reducing Poverty Workgroup to stay abreast of CalEITC/YCTC/FYTC outreach challenges and successes and to help inform SIT members of CalEITC statistical trends and pertinent new tax laws and other matters that can impact their CalEITC outreach.

Translation for Limited English Proficient Taxpayers

Translations of CalEITC and other materials into multiple languages is handled by FTB's Multilingual Communications Program. The program provides vital services to our Limited English Proficient (LEP) taxpayers, as well as to our bilingual customer service representatives and the tax preparers who serve LEP taxpayers.

Our goal is to ensure LEP taxpayers have equal access to the tools and resources available to file tax returns timely, accurately, and pay the correct amount without experiencing delays due to a language barrier.

FTB's website offers 152 webpages in Spanish and three web applications in Spanish, including one application in additional languages:

Middle Class Tax Refund Estimator in Spanish.
Check Your Refund Status application in Spanish.
EITC calculator in Spanish, Chinese, Vietnamese, Korean, and Russian.

Over the past year, we translated new or updated FTB public webpages into Spanish, including:

CalEITC webpage.
Foster Youth Tax Credit webpage.
Young Child Tax Credit webpage.
Part-Year resident and nonresident webpage.
Payment Plans webpage.
Deductions webpage.
Forms and Publications webpage.
Tax Professionals Health Care Mandate webpage.
Spanish Index webpage.
News Releases webpage.
Health Care Mandate webpage.
Golden State Stimulus II webpage.
Filing Season Tax Tips webpage.

Other translations made over the past year include the following:

EITC Social Media Post Messages in Chinese, Korean, Vietnamese, Russian and Hmong.
FTB 3514, 2022 California Earned Income Tax Credit form and instructions, in Spanish.
FTB 854, CalEITC Flyer Tax Year 2023, in Spanish, Chinese, Korean, Vietnamese, Russian, and Hmong.
FTB 856 SP, CalEITC Poster Tax Year 2023, in Spanish.
FTB 853 EN-SP, Foster Youth Tax Credit Flyer, with Spanish on opposite side of English.
FTB 3568 SP, Alternative Identifying Information for the Dependent Exemption Credit, in Spanish.
FTB Pub. 1034 SP, Disaster Loss, How to Claim a State Tax Deduction, in Spanish.
FTB 540 2EZ SP, 2023 California Personal Income Tax Booklet, in Spanish.
FTB 3532 SP, 2023 Head of Household Filing Status Schedule, in Spanish.
FTB 3519 SP, 2023 Payment for Automatic Extension for Individuals, in Spanish.
FTB 3567 C2 SP, Installment Agreement Request, in Spanish.
FTB Pub. 1540 SP, California Head of Household Filing Status, in Spanish.
Interactive Voice Response Scripts, in Spanish.

We provide access to our programs, services, and facilities in accordance with Title II of the Americans with Disabilities Act (ADA) of 1990. At the taxpayers' request, we provide reasonable accommodations in alternative formats.

We regularly translate major news releases into Spanish. We offer bilingual Facebook Live videos about tax issues in English-Spanish and English-Russian, and we often translate key social media posts into Spanish and other languages as appropriate.

Nonwage and Real Estate Withholding Outreach and Education

Our Filing Division’s Withholding Services and Compliance Section (WSCS) continued its communication and outreach efforts with external stakeholder groups throughout 2023 and 2024. They delivered virtual and in-person presentations on real estate withholding requirements for traditional, like-kind exchange, and installment sale transactions at a variety of industry conferences and association meetings. WSCS proactively contacted several escrow and title companies that were making consistent mistakes and provided training on how to correctly complete Form 593, Real Estate Withholding Statement. WSCS delivered in-person presentations on nonresident withholding requirements to the National Association of Real Property Managers Wine Country Chapter. WSCS also released two new YouTube videos that can be viewed on demand for real estate withholding for installment sales and how to handle transactions when a trust is the owner on the property title.

Exempt Organizations Education and Outreach

FTB’s Exempt Organizations Unit participated in an outreach event sponsored by the California Lawyers Association. FTB’s representative engaged with members who are representing their nonprofit clients. Topics discussed include:

The exemption process, including FTB’s time frames for processing exemption applications.
Maintaining compliance with exempt organization filing requirements.
FTB efforts to assist nonprofits seeking to dissolve.
California conformity with recent federal tax law changes.
Various current issues identified by FTB auditors.
Other items by audience request.

Increased Enforcement Capabilities

Although FTB encourages voluntary compliance by providing taxpayer education, as well as pre-filing assistance and information, FTB continues to identify ways to improve its enforcement and collection capabilities.

Audit

The Audit Division staff works with taxpayers and their representatives to administer and enforce the law effectively to ensure all taxpayers meet their obligations to file correctly and pay the proper amount of tax owed. We use innovative methods to promote these objectives through customer service, education, self-compliance letters, initiatives, and partnerships with federal and state agencies. In performing these activities, we consider the effects of audit activities on taxpayers as well as the increases in timeliness and effectiveness of enforcement actions. All of our work focuses on adherence to the California Code of Regulation 19032, Audit Procedures, to complete audits in a timely manner.

We collaborate with subject matter experts to operate our programs in an efficient manner and to also seek better use of technology and data. We continue to seek new opportunities to form partnerships with taxpayers, their representatives, and other agencies to continue to promote best audit practices.

California’s Tax Gap

The tax gap is the difference between what is properly owed to the state and what is voluntarily reported and paid timely.

The three components of the tax gap are:

Underreporting, which is under-reporting of income or revenue or the over-reporting of expenses on a timely filed return.
Underpaying, which is the amount of tax reported on a timely filed return that is not timely paid.
Nonfiling, which is the tax not timely paid by those who do not timely file a return.

California’s tax gap is approximately $25.5 billion a year. We based this amount on the IRS’s most recent study, released in 2022, with adjustments for California laws and the California economy. The dollar amount of the tax gap does increase because the economy will expand over time, but FTB’s compliance efforts help keep the percentage of compliance steady.

Addressing compliance remains a top priority and we are fully committed to ensuring a fair tax system for all California taxpayers. We address compliance by improving the collection of data, which drives our taxpayer education and outreach efforts to encourage self-compliance. The right data also allows us to build compliance campaigns to identify those areas of noncompliance most in need of attention.

In 2022, we began our EDR2 project to update our compliance programs. This modernization will capture more data and provide new technology that will enable us to identify potential compliance issues earlier and assist taxpayers with resolving these issues using self-service options.

The new data and current data, coupled with the new EDR2 analytic capabilities, has helped FTB expand education and compliance efforts in targeted areas. Specifically, the analytic models help FTB contact the right taxpayers at the right time, and for the right reason, in both our audit and filing enforcement programs.

One example of our use of data, outreach, and enforced compliance has been our use of data to identify potentially abusive tax avoidance transactions. In prior years, we identified two potential abusive tax avoidance transactions: the Micro-captive Insurance transactions and the Syndicated Conservation Easement transactions. After conducting test audits, we utilized FTB data to identify taxpayers who may have engaged in these transactions. FTB conducted an outreach initiative using FTB Notice 2023-02 to encourage taxpayers to self-correct in exchange for reduced penalties and other costs. FTB Notice 2023-02 was referred to as the M.I.C.E. initiative, and it offered relief for both transactions. Taxpayers had until January 31, 2024, to submit closing agreements under the initiative. Under FTB Notice 2023-02, FTB mailed out a little over 3,000 letters to potential taxpayers who may have participated in the Micro-captive Insurance transactions and the Syndicated Conservation Easement transactions. In response, FTB received 242 Closing Agreements, resolving 762 tax years and generating $34 million in tax, penalties, and interest. Since the filing period has closed, FTB staff are turning from "outreach" to "enforced compliance" efforts. For taxpayers who participated in these transactions and failed to self-correct, FTB will begin contacting these taxpayers for audit examinations that include all issues in those tax returns, and all sustainable penalties applicable to those tax returns.

Criminal Investigations

FTB's ability to gain tax compliance involves enforcement action through our Criminal Investigation Bureau. FTB special agents in the Criminal Investigation Bureau are sworn peace officers and are responsible for investigating individuals and entities suspected of committing felony violations of the Revenue and Taxation Code. These violations include income tax evasion, income tax fraud, and the concealment of assets to evade the collection of tax. Special agents also conduct investigations of related crimes such as money laundering and fraud schemes, including refund fraud and preparer fraud, in which the state of California is a victim.

Criminal Investigation Bureau special agents also work in conjunction with other law enforcement agencies and participate on task forces such as the Tax Recovery in the Underground Economy and the Northern Impact Workers’ Compensation Insurance Fraud Task Force. These efforts join existing local, state, and federal resources to collaboratively combat illegal activities that rob California of public funds and its citizens of public services.

Accounts Receivable Management (Collections)

The ARM Division is responsible for managing delinquent debts entrusted to FTB, such as personal income tax and franchise and corporate income tax. We also collect various nontax debts, including debts owed to California’s courts and local jurisdictions, delinquent vehicle registration, CalSavers employer penalties, and victim’s restitution orders and fines.

We collect on tax accounts receivable that are established by self-assessment or audit, settlement, and filing enforcement actions. An automated billing system, combined with central and field office collection staff, administers collection activities.

Our collection approach is founded on the principle that we use the least intrusive action first to gain compliance. Our collection strategy is to encourage taxpayers to resolve their debts as quickly as possible through the method best suited for their situation to help them achieve long-term compliance.

The collection staff performs manual collection efforts to ensure that noncompliant taxpayers contribute their fair share to the General Fund. The following are the revenues collected in FY 2023/2024 through FTB’s collection programs.

Tax Programs²

Tax Programs	Amount
Personal Income Tax	$3.70 billion
Business Entity Tax	$789.9 million
Total	$4.49 billion

Nontax Debt Programs³

Nontax Debt Program	Amount
Court-Ordered Debt	$73.9 million
Vehicle Registration	$335.7 million
Interagency Intercept Collections	$277.4 million
Total	$687 million

Administrative Dissolution

FTB implemented the Administrative Dissolution Program on January 1, 2019, after being given authority, with the enactment of AB 2503, to administer the program for business entities seeking relief, and with the objective to improve compliance. Domestic corporations and domestic LLCs who ceased doing business and have no assets can now request a Voluntary Administrative Dissolution or Cancellation (taxpayer initiated). To date, we have received 34,969 requests for dissolution or cancellation. Of those resolved thus far, 10,930 business entities were approved for administrative dissolution.

On January 1, 2020, FTB implemented a second phase of the program and began evaluating business entities for Administrative Dissolution or Cancellation (FTB initiated), provided they ceased doing business, show suspended for 60 or more consecutive months, and met other established criteria. Overall, the program is doing what it was intended to do: assist domestic corporations and domestic LLCs registered with the Secretary of State for more than 12 months that have stopped doing business, never did business, and have no assets to dissolve or cancel their business. FTB is pleased with the program and progress in processing 32,827 requests to date to help businesses save money, making it easier to dissolve a business and educate business owners and their representatives.

Legal

FTB’s Legal Division supports enforcement efforts by providing consultation and litigation support for positions developed in cooperation with FTB’s enforcement programs. Support activities include providing representation in protest hearings, appeal proceedings before the Office of Tax Appeals (OTA), settlement of cases, supporting Attorney General staff in tax litigation proceedings, and representation in out-of-state bankruptcy and collection proceedings.

Footnote

2. Tax Accounts Receivable revenue declined from $5.3B in FY 22/23 largely due to the delayed federal and state tax filing deadline. ↵
3. Court Ordered Debt (COD) and Interagency Intercept Collection (IIC) revenue declined from $104.2M and $349.3M respectively in FY 23/24 from the previous year. Declines for COD are largely attributed to legislation restricting FTB’s ability to collect on these cases. Declines for IIC are largely attributed to a reduction in the number of accounts referred to FTB for offset. ↵