Taxpayers Are Penalized For Overpaying Taxes Under The New May Revise

Tuesday, May 22, 2012

SACRAMENTO (May 22, 2012) - Assemblyman Jim Nielsen (R-Gerber) announced today that a budget trailer bill being included in the May revision would authorize the Franchise Tax Board (FTB) to impose a 20 percent penalty on taxpayer overpayments, unless the refund claim for the excessive amount has a "reasonable basis."

"This is a confiscatory attempt by government to raise more revenue to fund out-of-control spending by increasing taxes, fees, and fines on the citizens," said Nielsen. "This language has just been slipped into the budget. It allows the FTB to now collect penalties for both overpayments and underpayments of taxpayers, putting taxpayers in a no-win situation. Further under this language the taxpayer is denied due process, having no ability to protest other than expensive litigation."

Currently, taxpayers are subject to a 20 percent "understatement penalty" for understatements. This encourages taxpayers to overstate their taxes to avoid the penalty. Additionally, the statute does not define "reasonable basis."

Nielsen said that, this proposal prohibits taxpayers who have overpaid their taxes from protesting the penalty and appeal to the Board of Equalization (BOE) - their only course of action would be to file suit, which would increase litigation costs for the state.

"It is outrageous that the taxpayer, in efforts to cover their tax obligations and overpays, now will be penalized for it," said Nielsen. "Adding an erroneous refund penalty will whipsaw taxpayers who have overstated their liabilities to avoid the understatement penalty."