Cal. Code Regs. Tit. 18, §§ 19195-2

Current through Register 2024 Notice Reg. No. 45, November 8, 2024

Section 19195-2 - Determination of Current Financial Hardship Under Subdivision (h)(3) of Section 494.5 of the Business and Professions Code

(a) Applicability of Regulation. This regulation applies to determinations of whether an applicant or licensee is unable to pay the outstanding tax obligation due to a current financial hardship under subdivision (h)(3) of section 494.5 of the Business and Professions Code.

(b) Applicant or Licensee Required to Provide Information. Notwithstanding any other provision of this regulation, the Franchise Tax Board shall not send a release under subdivision (h)(3) of section 494.5 of the Business and Professions Code if the applicant or licensee fails to submit:

(1) Any and all information and documentation related to assets, income or expenses and

(2) Any and all other information or documentation requested by the Franchise Tax Board for the purposes of making a determination of whether the applicant or licensee is unable to pay the outstanding tax obligation due to a current financial hardship pursuant to subdivision (h)(3) of section 494.5 of the Business and Professions Code in the form and manner requested by the Franchise Tax Board and under penalty of perjury.

(c) Applicant's or Licensee's Entitlement to Release. An applicant or licensee has a current financial hardship under subdivision (h)(3) of section 494.5 of the Business and Professions Code and the Franchise Tax Board shall send a release under section 494.5 of the Business and Professions Code if both of the following are true:

(1) The applicant or licensee is unable to pay any part of the outstanding tax obligation; and

(2) The applicant or licensee is unable to qualify for an installment payment arrangement as provided for by section 19008 of the Revenue and Taxation Code.

(d) An applicant or licensee is able to pay part of the outstanding tax obligation within the meaning of subsection (c)(1) and is not entitled to a release under subsection (c) if the following calculated amount is greater than zero:

(1) The amount of the applicant's or licensee's assets that are cash or readily converted to cash, without regard to whether such conversion will have an adverse tax consequence to the applicant or licensee, including, but not limited to, assets that are separate, community or quasi-community property of the applicant or licensee, but excluding non-cash assets that are necessary for the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is separate, community or quasi-community property of the applicant or licensee, less

(2) The amount described in subsection (d)(1) that is:

(A) In the case of an individual applicant or licensee, necessary to provide for the applicant's or licensee's (and his or her family's) health and welfare as determined in subsection (g), during the five (5)-year period after the date of the determination under this subsection (d), and/or

(B) Necessary to pay the reasonable costs, during the five (5)-year period after the date of the determination under this subsection (d), of the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is separate, community or quasi-community property of the applicant or licensee.

(3) Amounts described in subsection (d)(1) are necessary under subsection (d)(2) and, therefore, included in subsection (d)(2) only to the extent such amounts cannot be paid from sources other than those described in subsection (d)(1).

(e) An applicant or licensee is able to qualify for an installment payment arrangement as provided for by section 19008 of the Revenue and Taxation Code within the meaning of subsection (c)(2) and is not entitled to a release under subsection (c) if the following calculated amount is greater than zero:

(1) The amount of any and all assets owned or to be owned by the applicant or licensee that are cash or can be converted to cash during the five (5)-year period after the date of the determination under this subsection (e), without regard to whether such conversion will have an adverse tax consequence to the applicant or licensee, including, but not limited to, assets that are separate, community or quasi-community property of the applicant or licensee, but excluding non-cash assets that are necessary for the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is separate, community or quasi-community property of the applicant or licensee, plus

(2) The amount of any and all income projected to be received by the applicant or licensee during the five (5)-year period after the date of the determination under this subsection (e), including, but not limited to, income that is separate, community or quasi-community property of the applicant or licensee, less

(3) The amount described in subsections (e)(1) and (e)(2) that is:

(A) In the case of an individual applicant or licensee, necessary to provide for the applicant's or licensee's (and his or her family's) health and welfare as determined under subsection (g) during the five (5)-year period after the date of the determination under this subsection (e), and/or

(B) Necessary to pay the reasonable costs, during the five (5)-year period after the date of the determination under this subsection (e), of the operation of a trade or business of the applicant or licensee that produces income for the applicant or licensee, including, but not limited to, a trade or business that is separate, community or quasi-community property of the applicant or licensee.

(f) Even if the Franchise Tax Board is not required to send a release under subsection (c), the Franchise Tax Board shall send a release under section 494.5 of the Business and Professions Code if both:

(1) The applicant or licensee pays the Franchise Tax Board an amount equal to:

(A) The amount of the applicant's or licensee's assets that are cash or can be readily converted to cash, without regard to whether such conversion will have an adverse tax consequence to the applicant or licensee, including, but not limited to, assets that are separate, community or quasi-community property of the applicant or licensee, but excluding non-cash assets that are necessary for the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is the applicant's or licensee's separate, community or quasi-community property, less

(B) The amount described in subsection (f)(1)(A) that is:

1. In the case of an individual applicant or licensee, necessary to provide for the applicant's or licensee's (and his or her family's) health and welfare as determined in subsection (g), during the five (5)-year period after the date of the determination under this subsection (f), and/or

2. Necessary to pay for the reasonable costs, during five (5)-year period after the date of the determination under this subsection (f), of the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is the separate, community or quasi-community property of the applicant or licensee.

(C) Amounts described in subsection (f)(1)(A) are necessary under subsection (f)(1)(B) and, therefore, included in subsection (f)(1)(B) only to the extent such amounts cannot be paid from sources other than those described in subsection (f)(1)(A).

(2) If the tax obligation is not paid in full under subsection (f)(1), the applicant or licensee and the Franchise Tax Board enter into an installment payment arrangement as provided for by section 19008 of the Revenue and Taxation Code, if the applicant or licensee is able to qualify for installment payment arrangement as provided for by section 19008 of the Revenue and Taxation Code, and as is defined in subsection (e), that:

(A) Is consistent with the need of the applicant or licensee to pay:

1. In the case of an individual applicant or licensee, expenses necessary to provide for the applicant's or licensee's (and his or her family's) health and welfare as determined under subsection (g) during the period of the installment payment arrangement, and

2. Necessary and reasonable costs, during the period of the installment payment arrangement, of the operation of the applicant's or licensee's trade or business that produces income for the applicant or licensee, including, but not limited to, a trade or business that is the applicant's or licensee's separate, community or quasi-community property, and

(B) Contains such terms and conditions as are required by the Franchise Tax Board in exercising its discretion under Section 19008 of the Revenue and Taxation Code, which may include terms and conditions allowable under Sections 19008 and 21019 of the Revenue and Taxation Code, including, but not limited to, some or all of the following terms and conditions:

1. Terms related to timing, amounts and duration of payments, which duration may be five years or any time longer or shorter,

2. The applicant or licensee shall authorize electronic funds withdrawal from the applicant's or licensee's bank account to make payments required under the installment payment arrangement,

3. The applicant or licensee shall maintain sufficient funds in a bank account to make the payments required under the installment payment arrangement,

4. As a condition to the Franchise Tax Board's agreement to the installment payment arrangement, the applicant or licensee shall complete a financial statement describing all of the applicant's or licensee's assets, income, liabilities and expenses that is signed under penalty of perjury, and the applicant or licensee shall agree that any false statement in the financial statement shall constitute a breach of the installment payment arrangement,

5. The applicant or licensee shall provide information and documentation requested by the Franchise Tax Board during the term of the installment payment arrangement, including, but not limited to, financial statements submitted under penalty of perjury, and the applicant or licensee shall agree that the Franchise Tax Board may require that the installment payment arrangement be modified based on a change of circumstances,

6. If the applicant or licensee receives wages, the applicant or licensee shall confirm that the withholding rates for Employment Development Department Form DE 4 and Internal Revenue Service W-4 on file with the applicant's or licensee's employer will withhold enough California income tax to pay the applicant's or licensee's California state income tax liability for the next California income tax return and shall agree that the applicant or licensee will ensure that the withholding rates for Employment Development Department Form DE 4 and Internal Revenue Service W-4 on file with the applicant's or licensee's employer will withhold enough California income tax to pay the applicant's or licensee's California income tax liability for the future California income tax returns,

7. The applicant or licensee shall make any required estimated payments if the applicant or licensee receives income from sources other than wages,

8. The applicant or licensee has filed and shall agree to file all past, present and future tax returns that are required to be filed with the Franchise Tax Board,

9. The applicant or licensee shall not incur any additional obligations to the Franchise Tax Board that are not paid when due, and

10. The applicant or licensee shall provide security for the Franchise Tax Board's rights against the applicant or licensee.

(g) The Franchise Tax Board shall determine whether expenses are necessary to provide for the applicant's or licensee's (and his or her family's) health and welfare as follows:

(1) The Franchise Tax Board shall make its determination under this subsection (g) pursuant to the following Internal Revenue Service standards, as specified in The Internal Revenue Service Allowable Living Expenses Standards (Rev. 10/16), which are hereby incorporated by reference, as follows:

(A) The Internal Revenue Service Allowable Living Expenses Standards -- National Standards: Food, Clothing, and Other Items, relating to food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous, pages 2 through 3,

(B) The Internal Revenue Service Allowable Living Expenses Standards -- National Standards: Out-of-Pocket Health Care, relating to out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies (e.g., eyeglasses, contact lenses, etc.), page 4,

(C) The Internal Revenue Service Allowable Living Expenses Standards -- Local Standards: Housing and Utilities, relating to mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, residential telephone service, cell phone service, cable television, and internet service, pages 5 through 151, and

(D) The Internal Revenue Service Allowable Living Expenses Standards -- Local Standards: Transportation, relating to loan or lease payments and amounts for monthly operating costs, pages 152 through 155.

(2) In addition to the expenses covered by the standards in subsection (g)(1), the Franchise Tax Board may allow the following expenses to the extent they are being paid, if they are reasonable and the applicant or licensee provides documentation to substantiate such expenses:

(A) Accounting and legal fees for representation of the applicant or licensee before the Franchise Tax Board,

(B) Accounting and legal fees if necessary to provide for the applicant's or licensee's (or his or her family's) health and welfare,

(C) Charitable contributions (donations to tax exempt organizations) if such donations are a bona fide condition of employment,

(D) Child care (baby-sitting, day care, nursery and preschool) expenses if necessary for the applicant's or licensee's (or his or her family's) health and welfare,

(E) Court-ordered payments for alimony, child support or restitution for victims,

(F) Dependent care expenses for elderly, invalid or handicapped persons if necessary to provide for the dependent's health and welfare and if there is no alternative to the applicant or licensee paying the expenses,

(G) Education expenses if required for a physically or mentally challenged child and no public education providing similar services is available,

(H) Education expenses if such expenses are a bona fide condition of employment,

(I) Involuntary deductions that are a bona fide condition of employment, including, but not limited to, union dues, uniforms and work shoes,

(J) Life insurance expenses for a term policy on the life of the applicant or licensee,

(K) Required payments and withholdings for current year federal, FICA, Medicare, state and local taxes,

(L) Payments under agreements with the Internal Revenue Service, other states or other state agencies for delinquent taxes,

(M) Payments on student loans guaranteed by the federal government if for the applicant's or licensee's post-high school education,

(N) Payments for health insurance for the applicant or licensee (or his or her family) if necessary to provide for the applicant's or licensee's (or his or her family's) health and welfare, and

(O) Other expenses if necessary to provide for the applicant's or licensee's (or his or her family's) health and welfare.

(3) In making its determination under the Internal Revenue Service standards described in subsection (g)(1), the Franchise Tax Board shall follow the Internal Revenue Service rules relating to shared expenses, as specified in The Internal Revenue Service Allowable Living Expense Standards (Rev. 10/16) -- Shared Expenses, which are hereby incorporated by reference, pages 156 through 158.

(h) Definitions.

(1) The term "asset" means all real and personal property, including, but not limited to, cash; cash equivalents; deposits; shares in credit unions; publically traded stocks; mutual funds; investment accounts; money market accounts; non-publicly traded stocks; municipal bonds; interests in incorporated and unincorporated businesses, including, but not limited to, an interest in a corporation, limited liability company, partnership, and joint venture; government and corporate bonds; other negotiable and non-negotiable instruments such as personal checks, cashier's checks, promissory notes, and money orders; pre-paid debit cards; Individual Retirement Accounts, Keogh Plans, Simplified Employee Pensions, 401(k) Plans, and any other retirement or pension accounts and profit sharing plans; annuities; trusts; equitable or future interests in property; rights or powers exercisable for the benefit of the applicant or licensee or the applicant's or licensee's community or quasi-community; mineral rights; licensing agreements; tax refunds; interests in insurance policies; soft and hard commodities including, but not limited to, precious metals and agricultural products; jewelry; gems; artwork; vehicles, including, but not limited to, automobiles and trucks; aircraft; vessels; collectables; antiques; Bitcoin; funds deposited by crowd-sourced websites; accounts receivable; notes receivable; obligations owed to the applicant or licensee and the applicant's or licensee's community or quasi-community; real estate, including, but not limited to, rental property; trust accounts; furniture; mineral rights; factories; fixtures; buildings; inventories; merchandise; stock in trade; raw materials; work in progress; finished products; supplies; machinery; tools; equipment; intangible assets, including, but not limited to, good will, patents, copyrights, trademarks, franchises, licenses, domain names of websites and customer lists; and any other property or interest.

(2) The term "income" means payments that the applicant or licensee or the applicant's or licensee's community or quasi-community receives or is entitled to receive from any source (irrespective of whether such payments would be treated as gross income for tax purposes to the applicant or licensee), including, but not limited to, assets; wages, salary, tips, meal allowance, parking allowance, or any other monetary or non-monetary compensation as an employee for services rendered; interest; dividends; the conduct of a trade or business; pensions; social security; child support, including, but not limited to, the actual amount received in addition to other debts or bills the non-custodial parent is paying pursuant to a child support order; alimony, including, but not limited to, the debts or bills the other spouse is paying pursuant to an alimony order; royalties; gambling winnings; oil subsidies; and payments made by others on behalf of the applicant or licensee or the applicant's or licensee's community or quasi-community.

Cal. Code Regs. Tit. 18, §§ 19195-2

1. New section filed 11-17-2016 as an emergency; operative 11-17-2016 (Register 2016, No. 47). A Certificate of Compliance must be transmitted to OAL by 5-16-2017 or emergency language will be repealed by operation of law on the following day.
2. Certificate of Compliance as to 11-17-2016 order transmitted to OAL 4-20-2017 and filed 5-24-2017 (Register 2017, No. 21).

Note: Authority cited: Section 494.5, Business and Professions Code; and Section 19503, Revenue and Taxation Code. Reference: Section 494.5, Business and Professions Code; and Section 19195, Revenue and Taxation Code.