Update: California’s Financial Institution Record Match (Firm) And Delinquent Taxpayers

by Sanford Millar
Contact

Reprinted from Cal Tax Network, September 2012

Last year (August 2011 Newsletter) I wrote a comment on recently enacted SB 86. Among the three sections of SB 86 is the Financial Institution Record Match system (FIRM). The following is an update to that comment. In a letter to financial institutions dated June 12, 2012, the Franchise Tax Board stated that it “expects to issue more than 475,000 Orders to Withhold, an increase of 75 percent over last year.” The increase in Orders to Withhold will largely be based upon implementation of FIRM.

Under FIRM, financial institution records are matched against customer records to determine if a person on the FIDM list has an account subject to levy by way of Order to Withhold. From this process comes the new California system R&T § 19266(a) establishing the Financial Institution Record Match System (i.e. FIRM). FIRM requires that all financial institutions (with some exceptions) doing business in the state provide to the FTB on a quarterly basis the name, record address and other addresses, social security number or other taxpayer identification number, and other identifying information for each delinquent tax debtor, as identified by the FTB, who maintains an account at the institution. Unless required by other law, the financial institution providing the information is prohibited from disclosing to an account holder that it has furnished the information to the FTB. Just how expansive the record match will need to be for the very large financial institutions is unclear. The financial institutions may need clarification on whether they need to do nationwide record searches, regional searches or statewide searches. FIRM is intended to comply with the California Right to Financial Privacy Act (the Act) by meeting an exception to the Act, in that the use of the information provided by the financial institutions is limited to the collection of delinquent taxes or other debts referred to the FTB for collection. All other uses are expressly prohibited.
“Financial Institutions” is broadly defined to include depository institutions, institution-affiliated parties (like captive brokerage affiliates and private banks), federal and state credit unions and benefit associations, insurance companies, safe deposit companies, money market funds or similar entities authorized to do business in California

“Account” is just as broadly defined and includes, demand deposit accounts, share or share drafts accounts, checking or negotiable withdrawal order accounts, savings accounts time deposit accounts or money market mutual fund accounts, regardless of whether the account bears interest.

A “delinquent tax debtor” means any person liable for any income or franchise tax or other debt referred to the FTB for collection where the obligation remains unpaid after 30 days from demand for payment and the person is not making timely installment payments under an agreement pursuant to R & T §19006.

There is an analogy between what FIRM has done with respect to record searches and the federal governments action in enacting the Foreign Account Tax Compliance Act (FATCA)(IRC §1474-1474). FATCA requires foreign financial institutions that have U.S. accounts to enter into information-exchange agreements with the Internal Revenue Service which provide that they will search their records and provide record information to the Service for all customers who are U.S. persons. FATCA is, in essence, a class reporting system as opposed to an individual reporting system. The class in question is (in general) all U.S. persons with accounts in a foreign financial institution. A record match system may occur later when the IRS compares FATCA reports with income tax return disclosures required under new IRC§6038D.

The focus of enforcement is now clearly on financial institutions as a tool of compliance. The State Legislature has shifted the costs of information gathering to financial institutions, much like Congress has shifted the costs of information gathering through FATCA. Just how these costs will be distributed to customers in the form of fees or lower rates of return remains to be seen.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sanford Millar, Law Offices of Sanford I. Millar | Attorney Advertising

Written by:

Sanford Millar
Contact
more
less

Law Offices of Sanford I. Millar on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!