Last week, one of my clients received a notice from the State of California's Franchise Tax Board, the revenue collection arm of the state. I have attached a copy for your viewing. When I got this letter it was just so unbelievable and alarming that the State would publish an annual list of the top 250 tax delinquent people or companies; showing their names, including spouses' names, addresses, type of tax and the actual amount. This list is then maintained and published on the Internet. As Pamela Anderson (oh, by the way she is on this list of 250 for year 2010) and Dr. Laura found out as they both went to court in an attempt to block the distribution of their compromising photos/video of themselves in separate restraining order lawsuits; once their photos/videos entered the stream of the internet no judge or court decision could physically stop the endless spreading of these photos/video over the internet. As such, the listing of the top 250 taxpayers of California tax debts will no doubt be spread without the ability to stop its endless dissemination to the public with unpredictable consequences.

Information Regarding Public Discloser of Tax Delinquency

The Franchise Tax Board was instrumental in the legislative enactment of Revenue and Taxation Code Section 19195, which states in part:

19195. (a) Notwithstanding any other provision of law the Franchise Tax Board shall make available as a matter of public record each calendar year a list of the 250 largest tax delinquencies in excess of one hundred thousand dollars ($100,000).

In trying to gain an insight for the rationale for this public flogging of private information, at least from the view of the average American, might best be found in the recent Franchise Tax Board meeting on March 19, 2009:

APPEARANCES FRANCHISE TAX BOARD:

Hon. John Chiang, Chair
Hon. Michael C. Genest
Hon. Betty T. Yee
Deputy Controller Marcy Jo Mandel

FRANCHISE TAX BOARD STAFF:

Colleen Berwick
Phillip Gray
Patrick Kusiak
Diane Lieberman
Brian Rau
Anne Mazur
Brian Miller
Selvi Stanislaus
Geoffrey S. Way

PUBLIC SPEAKERS:

Kyla Christoffersen, California Chamber of Commerce Lenny Goldberg,
California Tax Reform Association

ACTING CHAIR MARCY JO MANDEL

"Good afternoon. My name is Diane Lieberman, and I am the Director of the Field and Complex Account Collections Bureau. I'm pleased to be here today to share with you several collection efficiency initiatives that have recently been undertaken by the Accounts Receivable Management Division. My presentation overview, I'm going to be covering the following topics: Top 250 List. I'll share with you the results that we've seen and some changes that we've made to that list. I will be talking to you a little bit about the Treasury Offset Program. We have a pilot project in that area. I'll be sharing with you e>Demand, which is really an exciting Web-based system that we have. I'm going to be talking about the Business Entities Complex Account Resolution Team, which is a small team of the Franchise Tax Board that has done incredible things. I'm going to be talking to you about Collection Notices and some changes that we'll be seeing. So let's start with the Top 250 List.

California Revenue and Taxation Code Section 19195 directs the Franchise Tax Board to publish annually a list of the top 250 taxpayers with delinquencies over $100,000 as of 12/31 of the previous year. We are in the third year of this program. Starting in the second year, which was 2008, we decided to implement a three-phase approach to this program. Phase I is that we actually send out what we call pre-letters. It's a courtesy letter that we send to taxpayers informing them that their balance qualifies them to possibly be on the next publication of the list. Last year we sent out 500 of those letters. For the 2009 list, we have now sent out a thousand letters. So that was one change we made. The second thing that we have done is Phase II, which we've always done, which is we have, as required by law, a notice of public disclosure of a tax delinquency letter sent to the taxpayers, the top 250 who will be on the list. And that is sent certified mail. Then, finally, the third phase of our approach is to actually publish the list.

In 2007, we published the list Last year, in 2008, and this year, 2009, we felt it might be more effective to publish that list right around April 15th, and so we plan on publishing it on or around April 9, 2009. So here are the results to date. As you can see, in the first year, we brought in about $505,000. In the second year, that was 2008 year, we brought in $9.2 million. And this year, and this is just based on the pre-letters, we have brought in $13.5 million. And that was as of the end of February, and that amount is growing. I don't have any information at this point about the Top 250 letter because we just mailed those out. Any questions? I'll move on. Okay."

The List to date for 2010, as of November 1, 2010, shows a total tax due the Franchise Tax Board of $154,144,260.57. If you want to view the this list, click on this link. The information contained on the Internet show:

1. Name, including spouse's name
2. Address of City, State and Zip Code
3. Amount of Tax Delinquency
4. Type of Tax
5. Date Tax Lien was Filed
6. Total Payments Made to Date.

Although Acting Chair Marcy Jo Mandel noted above that the net effect of publishing this Top 250 list was large collections, the above site noted that $6,321,880.78 was collected as "paid in full" and from only 16 of the Top 250. This means that 6.4% of the Top 250 paid in full and the amount collected represented 4.1% of the outstanding deficient taxes. From my viewpoint, I do not view this as an overwhelming success. In addition, many on the List no longer, if ever, live in California. I also note that the dates of the Lien filing are as old as 1995, 15 years. Depending on the property interest secured by the lien and the reason for the tax deficiency, it seems that the statute of limitations may now bar the Franchise Tax Board from collecting the tax deficiency or that the potential for discharge of tax debt through filing Chapter 7 bankruptcy may discharge the entire tax debt of the taxpayer. More than several of these individuals are medical doctors and I strongly suspect that any medical practice that they are a part of would take a dim view of this public knowledge of having a partner on the List which would exasperate the taxpayer from earning money to subsequently pay the agreed tax liability. Others may decide to leave the state of California with their businesses to other states. Should any of these tax claims be determined to be meritless or subject to review and mitigation of taxes through court procedures or re-audit determination, then the individual would have been put on the List in error, but it would be too late to be removed from the internet as Pamela Anderson and Dr. Laura discovered. Should any of these individual decide to bring suit against the State of California, then the matter of sovereign immunity would probably be raised by the State.

In the past, Dionne Warwick was listed with a New Jersey address, owing $2,665,305.83 since 1997. Sinbad (David) Adkins, was also listed with an address in Oak Park, Illinois owing $2,138,592.62 since 1999. O. J. Simpson, was listed as Orenthal Simpson with an address in Miami, FL, owing $1,435,484.17 since 1999. But, as we all know, Mr. Simpson has a new address in Nevada and very little financial means to pay any tax debts that may still be outstanding. Simpson, 63, is now serving a 33-year sentence in Clark County, Nevada with the possibility of parole after nine years.

I am sure that other states are looking at California and weighing in on using similar tactics for collection of past revenues. This Top 250 List began in 2007 and the Franchise Tax Board is very pleased with the results as of this writing. The List is said by the Board to have been designed to not only encourage the tax debtor to quickly reach an agreement for full payment, with a heightened degree of embarrassment, but to also have third-party individuals come forward with information for finding assets that the Board can lien or attach. I would imagine these third-party individuals may be comprised largely of ex-spouses and ex-business partners.