"New" financial hardship evaluation enhancements May 2018 Tax News

Includes detailed instructions to complete the form and organized expenses to match the Collection Financial Standards

Available June 1, 2018, you will be able to use our new form, FTB 3561C, Financial Statement to evaluate your clients’ financial status and ability to pay. The form, when coupled with our evaluation procedures, will provide a consistent process and reduce the burden for documenting income and expenses used to determine an individual’s ability to pay personal income tax liabilities.

We know that California taxpayers’ financial situations may be complicated and unique. They may even owe the IRS. In instances where taxpayers are unable to pay their tax liability in full or enter into an Installment Agreement (IA), we may need to substantiate their financial situation. However, that does not mean that the process has to be difficult or a mystery to maneuver. With that in mind, we created a form and evaluation procedures that are:

Fair and consistent

Our staff determines when a financial statement is required, as well as evaluates assets, income, and expenses. In an effort to ensure consistency when reviewing financial statements, we developed the Financial Statement Requirement Criteria to determine if a taxpayer is required to provide a financial statement to enter into an IA, reduce the amount of an existing IA, or modify an existing bank or wage levy. Generally, a taxpayer will be required to complete a Financial Statement under the following circumstances:

  1. When the total balance is greater than $25,000; or
  2. An IA will not pay in full within 60 months; or
  3. Claims they do not have the ability to pay (financial hardship); or
  4. Return/release of assets seized by Warrant; or
  5. Has demonstrated history of non-compliance.

Similar to the IRS’ financial hardship evaluation process

In 2016, we drafted and adopted Regulation 19195-2 to provide guidance for evaluating an individual’s ability to pay their tax liability. The regulation significantly aligns our evaluation procedures with the IRS Collection Financial Standards for evaluating a taxpayer’s ability to pay. The Collection Financial Standards take into account allowable living expenses necessary to provide for a taxpayer’s (and his or her family's) health, welfare and production of income. Expenses are categorized as Local Standards and National Standards. In addition, we will allow certain other essential expenses like child and health care benefits. If the taxpayer submitted an IRS Form 433-A or 433-F, dated within the previous 12 months, we will accept that form in-lieu of the FTB 3561C.

Simple to use

The new Financial Statement includes detailed instructions on how to complete the form and expenses have been organized to match the Collection Financial Standards. In June 2018, we will update our online Collection Procedure Manual with the new Financial Hardship Evaluation Procedures to provide clear direction and guidance.

We are pleased to provide a comprehensible process and tools that allow you to service your clients’ needs in an efficient manner.