CA Franchise Board Posts List of Delinquent Taxpayers

The California Franchise Tax Board released its list of the top delinquent taxpayers and it is quite an eye-opener. The authority to publish this list is pursuant to California Revenue & Taxation Code Section 19195. The complete list can be accessed at the Franchise Tax Board website.

While nearly 90 percent of taxpayers pay the taxes they owe, the rest are delinquent in the amount of $6.5 billion, which represents about one-third of the persistent budget deficit in California during the past few years. When taxpayers do not pay their fair share, it places an unfair burden on those of us who do.  Those of us who play by the rules are harmed by those who don’t because the tax shortfall has led the state to cut essential services, lay off workers, and dial back on infrastructure plans that might stimulate the economy.

The list shows the top 250 individual and business taxpayers with state income tax liens where the total balance owed is greater than $100,000. Bear in mind there are lot more below the $100,000 threshold. The Franchise Tax Board encourages whistle-blowers to come forward and assist the Board in its collection efforts. Good luck with that!

As of October 13, 2011, the amount due on this list totals $152,377,555.74. The Board of Equalization is required by law to post this information every quarter, removing amounts that are being addressed through payment arrangement, bankruptcy, litigation, or appeal. Each taxpayer is notified 30 days before their information is posted. Since the inception of the posting program, the Board of Equalization has received a total of $5.2 million from 37 qualifying taxpayers that came forward to take care of their debts: 26 through installment payment agreements and 11 by making payment in full.

Here is the “Top Ten” of the list of 250 deadbeats published by the Board: (1) Halsey M. and Shannon Minor (L.A.), $14.2 million: (2) Aviv Mizrahi (L.A.), $9.4 million; (3) Van Rex Gourmet Foods (Thousand Oaks), $4.4 million; (4) Randall E. Cohn (L.A.), $3.8 million; (5) Neil A. Scott (Solana Beach), $3.1 million; (6) Scott A. and Kelli A. Walchek (Alamo), $2.9 million; (7) Robert J. McNulty (Henderson, NV), $2.9 million; (8) Stuart J. Gourlay, M.D. a Professional Corporation (Pinole), $2.7 million;  (9) Ilena Joyce Blicker, M.D., a Medical Corporation (Glendale), $2.6 million; and (10) Ronald and Diane Lessem (San Diego), $2.6 million.

Our resident income tax expert at Cal Poly, Professor Rodney Mock, has an interesting perspective on the posting of tax delinquencies. Professor Mock points out that this published “shame list” has become increasingly popular among the various states. However, he wonders whether or not such is “ethically appropriate” for a state entity to publish a tax delinquency list since it may be due to extenuating circumstances such as loss of business, loss of employment, medical crisis, and phantom income. Professor Mock makes a good point. Of course, the opposite argument is that we all have problems to deal with and if everyone who owed taxes stopped paying because of personal circumstances, then the California budget deficit might be $250 billion.

On October 4, 2011, Governor Jerry Brown signed Assembly Bill 1424, The Delinquent Taxpayer Accountability Act, into law. The bill was introduced by Assembly member Henry T. Perea (D-Fresno) as a way to help the state Franchise Tax Board and Board of Equalization collect some of the $6.5 billion owed to the state that goes unpaid each year. AB 1424 allows the state to suspend the professional and/or driver's licenses of the state's worst delinquent tax debtors until they make payment arrangements. Debtors will have their license reinstated after making payment arrangements with the state or if they demonstrate a financial hardship.

I support the law and note it does allow for financial hardship. Those of us who play by the rules are sick and tired of allowing those who don’t get restructured mortgages, forgiven debt, and selectively enforced tax collection laws. There is a moral hazard element in how the government has made concessions to some during the financial crisis while others are unable to refinance their home mortgage loans at a lower interest rate because of having an underwater mortgage, even though they have made their payments on time and in full. Neither the federal nor state government should be in the business of picking “winners” and “losers.” I say let the free market take care of these problems.

Blog posted by Steven Mintz, aka Ethics Sage, on November 2, 2011