Guide to California FTB Liens: How to Release Tax Liens

What to Expect if the CA Franchise Tax Board Issues a Lien Against You for Unpaid State Taxes

The California Franchise Tax Board (FTB) can issue a state tax lien against your personal property if you have unpaid state taxes. A lien secures the state's interest and allows the state to claim the funds if you sell the underlying assets. This guide explains what to expect if the CA FTB has issued a lien against you, and it outlines how to get a California tax lien released. 

Key takeaways

• Tax lien - the state's legal claim to all of your assets.
• Financial impact - gives the state the right to the proceeds if you sell the asset and makes it hard to borrow against or transfer assets.
• How to release - pay in full, show an error was made, or possibly set up a payment plan.

How the CA FTB Issues Liens

The CA FTB can file liens in the county recorder's office or with the Secretary of State. Once issued, the lien becomes public record and attaches to all of your personal and real property. In California, state tax liens attach to homes, buildings, vacant lots, vehicles, business assets, and any of your other assets. 

CA tax liens last for ten years, and the CA FTB can extend them beyond that time frame. Liens also attach to property that you acquire in the future. For instance, if there is an active state tax lien against you and you inherit an RV, the lien will attach to the RV. 

The Effect of CA Tax Liens

Liens are public records. Once they're attached to your property, the state has the right to the proceeds if you sell the asset. To explain, imagine that the FTB issues a state tax lien in the amount of $15,000. It attaches to all of your assets, and you sell a vehicle you own for $10,000. The CA FTB has the right to that money. 

This is exactly the same as if you had a mortgage against a home or a car loan for a vehicle. The lender has a lien against those assets for the amount of the loan. If you sell the asset, you must repay the loan. A tax lien works about the same way. 

The CA FTB can charge a cost recovery fee for the cost of the lien. This fee gets added to your tax liability along with interest and penalties. A CA tax lien can make it difficult to do the following:

• Buy, sell, refinances, or transfer property
• Take out personal or business loans.
• Get jobs in industries where you have to demonstrate financial responsibility.

Luckily, there are ways to get the lien released If the CA FTB files a lien against you for unpaid taxes. 

How to Get a California State Tax Lien Released

The CA FTB will immediately release a tax lien if you pay the tax liability in full or if the lien was recorded in error. If you pay your CA back taxes in full, the CA FTB must release the lien within 40 days. If you pay by check, the 40-day period doesn't start until the check clears your bank account.

Liens are considered to be in error if any of the following apply:

• The underlying liability is incorrect.
• The lien was recorded after you paid the tax bill.
• The lien was filed with the wrong name or an incorrect Social Security Number (SSN) or Employer Identification Number (EIN). Basic typographical mistakes don't constitute an error. 

If a lien was filed against you in error and it appears on your credit report, you could request that the CA FTB send a notice to the credit reporting agencies. The notice will say that the lien was filed in error and request the credit reporting bureaus to remove it from your credit report.

Does the FTB put tax liens on credit reports?

No, the FTB does not report tax liens to the credit bureaus. Liens are filed with the County Clerk and the Secretary of State and are public record. They may be noted on your credit report if picked up by the bureau or entered by another creditor.

Lien Release Due to Sale of Property

As noted throughout this article, if you sell property while a lien is attached, the proceeds of the sale (up to the value of the lien) will go the FTB. The closing company takes care of sending the payment. They also work with the FTB to ensure that the lien is removed from the property's title before it's transferred to the new owner.

If the sale does not generate enough money to pay off the lien, the closing company will request a partial release of the lien - ie, the lien gets removed from the property being sold, but continues to stay attached to all other property. If there are other liens such as IRS tax liens that were filed before the CA FTB lien, those will be paid first, and again, if there is not enough money to cover the FTB's lien, the closing company will secure a partial lien release to complete the sale.

However, you cannot get around this by selling property to a close friend or relative for less than its value. You must disclosure non-arm's length transactions, and the FTB watches for property transfers that are designed to get around tax liens.  

Partial Lien Release

A partial lien release is when the state removes the lien from a specific piece of property. The CA FTB will only do a partial lien release if it doesn't affect the state's ability to collect the back taxes or if a lien secures the tax liability on another piece of property. 

For instance, if a piece of property doesn't have enough equity to cover the tax bill, the FTB may do a partial lien release and agree to accept less than the full amount due. This may happen if you qualify for an offer in compromise in California. 

To request a partial lien release, you need the following:

• Letter explaining why you need a partial lien release.
• Estimated closing statement prepared by the escrow company.
• Preliminary title report with a property description.
• Appraisal or other document showing fair market value.
• Documentation that proves pay off to lienholders.

If the CA FTB agrees to a partial lien release, the lien will continue to be attached to your other property and to any property that you acquire in the future. 

CA FTB Lien Subordination

Multiple liens may be attached to the same piece of property in many cases. To give you an example, imagine that you owe a mortgage on a home, and the CA FTB issues a state tax lien against you. Now, both your mortgage holder and the state have a lien on your home. 

When there are multiple liens on a property, they have different levels of priority depending on the situation. In the above example, the mortgage holder's lien takes precedence over the state tax lien. Generally, under California law, liens take precedence based on the statutory lien date. In other words, lien priority is based on the order in which the liens were filed. 

For instance, if the IRS files a tax lien against you, and then, a month later, the CA FTB files a lien against you, the IRS lien takes precedence. But if the state tax lien was filed first, it would take precedence. 

Subordination is when a lien holder agrees to let another lien holder take priority. The state may sometimes be willing to subordinate its claim to another lien holder. 

The process of getting a lien released, subordinated, or discharged is similar to the IRS. If you have an issue with an IRS tax lien, you can read this full guide on releasing an IRS Tax lien.

Notice of State Tax Lien in California

Before issuing a state tax lien against you, the CA FTB will send you Notice FTB 4932 (Intent to Record a Notice of State Tax Lien). This notice outlines the effect of a state tax lien. If you don't pay within 30 days after receiving this notice, the state will move forward and file the lien. 

When Do CA Liens Expire?

CA tax liens expire after 10 years unless they are extended by the state. An expired lien is not released, but it cannot be enforced. Once the lien is expired, the FTB no longer has a claim to your assets for the tax debt.

What if a Lien for My Spouse's Tax Debt Attaches to My Property?

California is a community property state, meaning that you and your spouse share each others' property and debts. Thus, the state may be able to attach tax liens to your property for your spouse's tax debts and vice versa. The only exception may be property or debts that were specifically detailed in a pre-nuptial agreement. However, if you are in a situation where it would be inequitable to hold you responsible for taxes incurred by your spouse or former spouse on a jointly filed return or for community income on a separate return, you may want to look into the FTB's innocent spouse program.

How to Prevent a Tax Lien in California

Removing a tax lien can be difficult. If possible, you should try to avoid state tax liens. To prevent tax liens, you need to do the following:

• File state personal and business tax returns on time.
• Pay tax liabilities in full when due or set up payment plans.
• Make sure your employer withholds enough tax from your paycheck.
• If self-employed, ensure you make adequate quarterly payments so you don't have an outstanding tax liability when you file your annual tax return. 
• Don't ignore CA FTB notices.
• Keep your address updated with the CA FTB, so you don't miss any notices. 
• Make sure your tax documents such as W2w, 1099's, and K-1's have the right information on them. 

In many cases, if you set up an installment plan on your CA back taxes, the FTB may still issue a state tax lien against you. To avoid a lien, try to request the payment plan before the state files a tax lien. 

California Tax Lien Verus Tax Levy

A state tax lien is the state's claim to your assets. In contrast, a levy is when the state seizes your assets. For instance, if the state garnishes your wages, that is a tax levy. Similarly, if the FTB seizes your bank accounts, that is also a levy. Generally, the FTB must issue a lien before it can move forward with a levy.

Which part of the California state law addresses tax liens?

Government Code Section 7170 explains tax liens and other types of property liens in California. Section 7171 explains the process of recording liens with the county and state agencies. Section 7172 explains how long liens last. Section Section 7173 explains what happens if the party subject to the lien receives a money judgment or becomes entitled to property Section 7174 outlines the rules for getting tax liens released in this state.

Differences Between IRS and California Tax Liens

IRS tax liens are issued by the IRS when you have unpaid federal taxes. CA tax liens are issued by the FTB when you have unpaid state taxes. Both liens attach to all of your personal and real property, and the priority depends on when the lien was filed. For example, if the IRS filed its lien first, it has priority over the CA tax lien. 

IRS tax liens are automatically released 10 years after the tax was assessed - the IRS only has 10 years to collect taxes in most situations. CA tax liens expire after 10 years, but they can be extended. Also, the expiration doesn't cause the lien to be released.

Get Help With CA FTB Tax Liens

A tax lien can affect your credit and make it difficult to sell or transfer your assets. To get help with state tax liens, you need a local tax pro who is experienced in dealing with the FTB. A California tax professional can help you apply for a lien release. They can also talk with you about other resolution options for California back taxes.

To get help with a state tax lien, contact a CA tax pro today. TaxCure makes it easy to find a tax pro you can trust. Using our directory, you can search for tax pros who have experience with the CA FTB, and you can also filter your results based on their experience with specific types of tax problems. Check out the links to 

• California tax attorneys
• CA Enrolled Agents
• California CPAs

Once you're on each directory page, use te filters to the left of the page to narrow down the search results based on the problem you're having (for example, CA tax liens) or the solution you want (for example, lien release). then, review the experienced pros and start reaching out for help.