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Interest Abatement - for qualified Individuals and Business Entities

Do I qualify?

Background

The law requires that we charge interest. If the tax you report on your return is not paid by the original due date, or if we assess additional tax that becomes due and payable, we must charge interest on the balance due, compounded daily.

If we cancel interest, we call it "abatement." We cannot abate interest except where the law provides an exception.

There are no reasonable cause exceptions for abatement of interest.

Circumstances for Abatement

We are authorized to abate interest under the following circumstances:

Request for refund

You can request that we abate interest if the account is paid or unpaid. However, if you are requesting that we abate (refund) interest that has already been paid, your request must be made within the statute of limitations for filing a claim for refund.

Generally, a claim for refund must be made within the later of four years from the due date of your return, or one year from the date of overpayment.

Financial hardship based on catastrophic circumstance or disability

Interest may be abated for any period we determine that an individual taxpayer is unable to pay the interest because of extreme financial hardship. The individual must be able to show the financial hardship resulted from a significant disability or other catastrophic circumstance. An interest waiver for reason of extreme financial hardship does not apply to corporations.

Interest abatement requests based on financial hardship should be mailed to:

COLLECTION ADVISORY TEAM
FRANCHISE TAX BOARD MS A-340
PO BOX 2952
SACRAMENTO CA 95812

Your request should include the following documents:

  • A completed Financial Statement, Form FTB 3561.
  • A detailed physician's statement, if applicable.
  • Verification of catastrophic circumstance or significant disability.

Erroneous refund

An erroneous refund is a refund issued by us in error, which must have occurred through no fault of the taxpayer. If we determine that we made an erroneous refund, we will issue a notice and demand for repayment to the taxpayer. If the taxpayer does not make repayment in response to the notice and demand, interest on the erroneous refund will start accruing 30 days after the demand is mailed. We will automatically waive interest on an erroneous refund for the time period between the issuance of the erroneous refund and 30 days after the notice and demand for repayment is issued. Taxpayers do not need to request abatement.

Reliance on formally requested written advice

Interest may be abated if: (1) the taxpayer makes a formal written request for advice from us as to whether a particular activity or transaction is subject to tax, (2) we respond in writing regarding your written request for advice, and (3) the taxpayer reasonably relies on that advice on whether a certain activity or transaction is subject to tax by California, and the tax due is not remitted based on such reliance.

If interest abatement is requested because the taxpayer relied on written advice from us, the taxpayer must provide all of the following:

  • A copy of the original written request and a copy of our written advice.
  • A statement, made under penalty of perjury that outlines the facts on which the claim for abatement is based.
  • Any other information we may require.

If important facts are misstated or omitted in your formal written request for advice, we will not abate the interest.

Send your request to:

LEGAL DIVISION
FRANCHISE TAX BOARD MS A-260
PO BOX 1720
RANCHO CORDOVA, CA 95741-1720

Disaster Losses

See Disaster Loss for more information.

For taxable years beginning on or after January 1, 1998, and for disasters declared on or after January 1, 1998, we will not charge interest for the extension period for an individual taxpayer who is a victim of a disaster. Up to 90 days of interest will be waived if both of the following are true:

  • The individual was located in a presidentially-declared disaster area or in a county or city in California that is declared to be in a state of disaster by the Governor.
  • The FTB extended the time to file an income tax return and to pay income tax.

Important:  The provisions do not apply to estates and trusts or to corporations.

Important:  For disasters that occurred on or after September 11, 2001, we will not charge interest for the extension period for any taxpayer (i.e., individuals, including estates and trusts, and business entities) who is a victim of a disaster. Thus, up to one year of interest will be waived if both of the following are true:

  • The taxpayer was located in a presidentially-declared disaster area or any county or city in this State that is proclaimed by the Governor to be in a state of disaster that incurred a loss.
  • The FTB extended the time to file an income tax return and to pay income tax.

FTB/IRS error or delay for individuals and business entities

The law gives us the discretion to abate interest if you show that an unreasonable error or delay by an FTB employee occurred while performing certain types of acts that caused interest to accrue on your additional tax or caused a delay in your payment of your tax.

To qualify for interest abatement based on an FTB error or delay, you must show that either:

  • An unreasonable error or delay by an FTB employee occurred while the employee was performing a ministerial act that caused interest to accrue or caused a delay in payment, or
  • An error or delay by an FTB employee occurred while the employee was performing a managerial act that caused interest to accrue or caused a delay in payment for any tax year beginning on or after January 1, 1998.

In addition, you must meet the following criteria to qualify for interest abatement under the ministerial or managerial act provisions.

  • The interest accrued after September 25, 1987.
  • No significant aspect of the error or delay is attributable to you.
  • The error or delay occurred after the date we first contacted you in writing about your deficiency or payment.

The law also provides that if the Internal Revenue Service (IRS) abates interest on a deficiency based on an error or delay in the performance of a ministerial or managerial act, we will also abate interest for the same time period, if the following conditions are met:

  • The additional tax you owe to us is based on a final federal determination of tax.
  • The federal error or delay occurred on or before the final federal determination.
  • The interest accrued after September 25, 1987.
  • For managerial acts, only interest accrued on tax years beginning on or after January 1, 1998 may be abated.

To request an abatement of interest based on an error or delay by the FTB or the IRS, use FTB Form 3701, Request for Abatement of Interest.

If you are filing a protest against a proposed deficiency or an appeal from a notice of action on a protest, you must submit your request for abatement of interest along with your protest or appeal.

Denied Requests

If we deny your request to abate interest based on an FTB/IRS error or delay, you have the right to file an appeal from our action with the State Board of Equalization. Get form FTB 5847I, Procedure for Appealing a Denial or Partial Denial of a Request for Abatement of Interest.

Definitions

Deficiency

A deficiency is the difference between the amount of tax shown on an original or amended tax return and the amount of tax determined by FTB or IRS.

Managerial act

A managerial act is an administrative type act that occurs during the processing of a taxpayer’s case. It is also the exercise of judgment or discretion relating to management of personnel. A managerial act does not involve the application of tax law to the facts of a case.

An example of a managerial act would be an FTB employee, in the process of reviewing a taxpayer's protest of an additional tax assessment, is sent to a training course for an extended period. If the protest case was not reassigned to another employee, the decision to send the employee to the training course and the decision not to reassign the taxpayer's protest to another employee, are both managerial acts.

Ministerial act

A ministerial act is a procedural or mechanical type act that does not involve the exercise of judgment or discretion. It occurs during the processing of a taxpayer’s case after all prerequisites to the act, such as conferences and review by supervisors, have taken place. A ministerial act does not involve the application of tax law to the facts of a case.

An example of a ministerial act is when a taxpayer contacts an FTB employee and requests a balance due. The employee fails to access the most current information and provides the taxpayer with an amount that is less than the actual balance due. The act of accessing the account information and providing that information to the taxpayer is a ministerial act.