Compliance Bulletin

New Data Match Program For Delinquent Tax Debtors
March 28, 2011

Pursuant to a Senate Bill 86, which is a budget trailer bill enacted last week, the Franchise Tax Board (FTB) will have authority to administer the “Financial Institution Record Match System,” which is similar to the data match program currently used to identify accounts of delinquent child support obligors, except that this program targets the accounts of “delinquent tax debtors.” [1]

Matching Requirement. On a quarterly basis, the FTB will furnish financial institutions with debtor names and social security numbers or other taxpayer identification numbers. Institutions are then required to match the information with account information, specifically by providing the FTB with the debtor’s name, “record address, and other addresses,” social security number or other taxpayer identification number, and “other identifying information” for each tax debtor identified by the FTB. An “account” is defined as “a demand deposit account, share or share draft account, checking or negotiable withdrawal order account, savings account, time deposit account, or money market mutual fund account, regardless of whether the account bears interest.” [2] The bill limits the first FTB data file for purposes of matching to 600,000 debtor records. The number allowed in subsequent data files may be increased by no more than 600,000 records at a time until all eligible tax debtor records are included in the data match file.

Regulations. The FTB is authorized under the bill to issue rules to implement the program, including how financial institutions or their agents will receive files from the FTB. Institutions that do not have the technical ability to process the data exchange (or who do not have the ability to employ a third-party data processor to process the data exchange) will be allowed to forward a list of accountholders and their social security numbers or other taxpayer identification numbers for the FTB to conduct the match. The FTB may exempt any institution whose participation would not generate sufficient revenue to be cost effective, as determined by the FTB. The bill also includes a provision that allows an institution, pursuant to regulation, to request a temporary suspension by providing a written notice from its supervisory agency that the institution is undercapitalized, significantly undercapitalized, or critically undercapitalized within the meaning of the FDIC’s minimum capital requirements set forth in 12 CFR 325.103(b)(3), (4), and (5). This notice will be protected from disclosure pursuant to Section Revenue & Taxation Code Section 19542, which makes it a misdemeanor for the FTB to disclose information received in the course of business.

No Disclosure. The institution may not disclose to a depositor or accountholder, or a co-depositor or co-accountholder, of the data exchange. The institution will not incur liability for furnishing the information to the FTB, for not disclosing to the depositor or accountholder of the data exchange, or for taking any other action in good faith to comply with the statute. The California Right to Financial Privacy Act, which governs the disclosure of financial information to government entities, does not apply to the program, but the information may only be used by the FTB for the purposes set forth in the bill.

Reimbursement. The FTB will reimburse financial institutions for costs to comply with the program upon receipt of an invoice, limited to no more than $2,500 for one-time startup costs and up to $250 per calendar quarter for data matching costs.

Enforcement. Compliance with the statute is enforceable by a penalty in the amount of $50 for each record not provided by the institution, not to exceed $100,000 during any calendar year. The FTB may institute civil proceedings to enforce this statute.

Effective Date. The first data exchange for purposes of matching tax debtor records will occur no earlier than April 1, 2012. However, the statute is not operative until 120 days after January 1, 2012, and applies to persons that are delinquent tax debtors on and after that date.

  1. The program is set forth in Revenue & Taxation Code Section 19266. The term, “delinquent tax debtor” is defined in Section 19266(h)(3) to mean “any person liable for any income or franchise tax or other debt referred to the Franchise Tax Board for collection as imposed under Part 5 (commencing with Section 10701), Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), or Part 11 (commencing with Section 23001), including tax, penalties, interest, and fees, where the tax or debt, including the amount, if any, referred to the Franchise Tax Board for collection remains unpaid after 30 days from demand for payment by the Franchise Tax Board, and the person is not making current timely installment payments on the liability under an agreement pursuant to Section 19006.”
  2. R&TC Section 19266(h)(1).

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.

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