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California's Top 500 tax delinquent list clears court hurdle

Public shaming is seen by some as a way to get folks to pay overdue taxes.

If you're naughty when it comes to paying — or rather not paying — your California tax bill, then everybody, not just Santa, can know. That's the official word from the U.S. Supreme Court.

The nation's top jurists decided on Monday, Dec. 10, that they won't consider a case challenging California's tax delinquent list.

That means the names of the state's Top 500 tax delinquents will remain public.

No High Court hearing: At issue was the Golden State law that requires the publication of the names of delinquent taxpayers and the suspension of the offenders' driver's and occupational licenses.

By refusing to hear Franceschi v. Yee, the Supreme Court leaves in place the determination by the United States Court of Appeals for the Ninth Circuit that the state's actions are constitutional.

California attorney Ernest Franceschi in 2014 challenged the law, which took effect two years earlier, that mandates that the California Franchise Tax Board (FTB) publish at least twice a year a list of the 500 largest state income tax delinquents whose bills are more than $100,000.

State tax officials say the folks on the Top 500 List are major contributors to California's annual tax gap — that's the amount of tax owed vs. the amount that's actually paid — of around $10 billion.

Tax naming/shaming procedure: Before adding anyone to the list, the FTB must provide the tax debtors 30 days' notice.

List advocates say that gives them the opportunity to either pay their bills or enter into payment agreements. They contend that the publication of certain tax debtors' names and subsequent license suspensions are the best remedy short of criminal charges to get the attention of large tax-owing taxpayers.

Others, including Franceschi, disagree.

Franceschi's lawsuit, filed after he got notice he would appear on the next delinquent taxpayers update, contended that the California statute violates the due process clause.

He argued that the state does not provide "a prior hearing or a prompt opportunity for independent review" of the license suspension or the individual's tax liability.

Appeals court sides with state tax officials: The Ninth Circuit judges were not convinced by Franceschi's arguments.

In its April 11 ruling, which upheld two lower court decisions, the Ninth Circuit found (emphasis mine):

"California's Revenue and Taxation Code sets forth a framework under which a delinquent taxpayer, like Franceschi, has multiple opportunities to challenge deficiency assessments. Cal. Rev. & Tax Code § 19031, et seq. At the outset, the FTB is required to send the taxpayer notice of the proposed deficiency assessment for any tax deficiency it proposes to assess. Id. § 19033(a). The taxpayer may then file a protest within sixty days. Id. § 19041(a). If the taxpayer files a protest, the FTB must reconsider the assessment and, if the taxpayer so requests, grant the taxpayer a hearing on the deficiency. Id. § 19044(a). If the deficiency is not resolved at this stage, a taxpayer has further recourse by appealing to the State Board of Equalization. Id. § 19045. After the State Board of Equalization rules on the matter, a still dissatisfied taxpayer can then petition the State Board of Equalization for rehearing. Id. § 19048.

Still further, a taxpayer has an additional opportunity to be heard on the validity of his or her tax delinquency by paying the taxes and filing a claim for refund with the FTB. Id. § 19382. Utilization of this procedure here would have permitted Franceschi to both challenge the original assessments and to retain his driver’s license while doing so. If the FTB denied the claim he could have sued for a refund in California Superior Court. Franceschi concedes that he did not avail himself of any of these multiple remedial procedures."

The Ninth Circuit essentially determined that California tax officials, under the delinquent taxpayer list law, provide tax-owing taxpayers multiple chances to take actions that would keep them from being publicly shamed and prevent the loss of their licenses.

And the Supreme Court apparently believes the Ninth Circuit had covered the matter sufficiently, deciding that the case didn't need further judicial review.

So now, it's cased closed. And it's time for Franceschi and others on California's Top 500 List to start making nice with the state tax collector.

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