Early in 2024, I wrote about bank freezes. While the Department doesn't appear to have backed off of using that enforcement activity, I have seen a number of other collections matters at points ahead of a bank freeze. I thought it might be helpful to touch on the collections process leading up to a bank freeze so that tax professionals and taxpayers can know more about the process to better deal with the situation. This article addresses the Florida Department of Revenue (FDOR) and its general collection activity.
The FDOR collection functions does just that - it looks to collect on accounts with the DOR. This activity can apply to any tax type handled by the FDOR. This article will generally focus on sales and use tax - as that is the most common tax enforced by the FOD - but the collections activity is generally the same for any administered tax. The FDOR will contact a taxpayer in one of two general situations - either a tax is unpaid or a return (or returns) have not been timely filed. The unpaid tax could result from a tax return or an audit (assuming no available protest rights). In either event, a FDOR collector will contact the taxpayer to let it know about the unfiled return or unpaid liability. That starts the process.
When the FDOR collector contacts the taxpayer, one of the first things talked about likely will be that sales tax is state property and it is a crime to collect and fail to remit sales tax. The collector is doing this to set the foundation for a possible criminal investigation. Regardless of the "depth" of that conversation, the FDOR collection will put a note in the system indicating the taxpayer "knew" about the criminal implications so that the matter can more easily proceed with a criminal investigation. A criminal investigation is its own topic and will not be focused on here. That is enough for its own article but is an available enforcement action that will be noted below.
If the taxpayer, or an authorized representative/POA, speaks with the Department, then the immediate discussion will be on full payment of the tax liability (this will include penalty and interest and possible ACP fees if the liability has been open 90 days since FDOR initial communication). Full payment is an easy resolution. The taxpayer should get the payment to the FDOR to clear the liability and avoid additional interest (the FDOR is charging 12% currently and that will be reevaluated July 1st for a possible adjustment). If full payment cannot be made, then the process moves in a more complicated decision.
The inability to pay in full means the taxpayer will have to request a payment plan. The Department should issue a ZT20 which is a request for financial information. That likely will ask for the last two filed federal returns, one/two years of financial statements (balance sheet and income statement), last six months' bank statements for every account the business has, along with a proposed payment plan (including down payment, monthly payments and date of the month when payments will be due). The deadline to provide the information could be as short as 7 days or could go up to two weeks. Interest is accruing so moving quickly to set up the payment plan can help in the long run. Of note, the Department will say it "will not" consider a payment plan if there are any unfiled tax returns. That would be added to the list of needed information from a taxpayer. The filing of returns with the associated processing of the returns adds more time to the process. With the FDOR collections group short staffed statewide, the time to process returns could range from several days to several weeks. The taxpayer cannot impact that process other than providing the necessary returns as quickly as possible.
When all returns are filed and information provided, the Department will review the provided information to determine if it will agree to the proposed payment plan. Generally, don't expect that to happen. The Department is going to respond with its analysis of the federal returns and bank statements to indicate it "wants" a larger down payment or larger monthly payments - or both. It can be a difficult "negotiation" to try and explain why a taxpayer cannot agree to the "counteroffer" by the FDOR. This "negotiation" process can move quickly or can take time depending on how busy and responsive the FDOR contact is. Ultimately, if/when terms are agreed upon, the resolution is rather quick as the down payment might be required before executing the stipulated payment agreement (stip agreement). Though, the agreement could be signed ahead of the down payment being made. Usually, the former occurs as the Department wants to confirm receipt of the first payment to avoid a quick default of a stip agreement. With every stip agreement, the FDOR will file a tax warrant/lien against the business, if not done already. If the tax lien is not filed before the first call, then it usually is filed during the process of agreeing on stip agreement terms. The tax lien is necessary for the Department to proceed with enforcement activity.
The more dangerous situation is when a taxpayer does not respond to FDOR collection communications initially. If the first call is not answered and associated voicemail returned, the FODR collector will continue calling. During this time, a lien will be filed if not already done. With the filing of the lien, the Department will system generate a notice of the lien being filed. The warrant notice will indicate a lien has been filed against the business. The letter/notice instructs the taxpayer to immediately contact the FOR to discuss why further enforcement activity should not occur. The Department lists possible enforcement activity that includes bank freeze, garnishment, levy, criminal investigation or other enforcement activity.
Typically, the first activity is a bank freeze. Bank freezes frequently occur midweek (often Thursdays) to try and "catch" accounts when the most money is in the account ahead of paydays. My other article touches on this in more detail. As noted above, criminal investigations can also be initiated. That is the topic for another article. However, most situations involve additional attempts to set up a stip agreement before going this route. However, I have seen some "busy" collectors move quickly to referring accounts to a criminal investigation - especially if taxpayers are a "problem account" and have had prior collections issues with unpaid or unfiled returns - or a prior criminal investigation.
My main point here is to inform taxpayers and tax professionals of the "warning" that should be heeded from a warrant notice from FDOR collections staff. This letter/notice indicates the clock is ticking and the Department is not patient in trying to clear up account liabilities. Quick contact with the FDOR collector is important to try and head off further enforcement activity that will b be more impactful on the business.
If you or your client have received a warrant filing letter/notice, then take immediate action. If you have any questions about how to proceed, then you can reach out to my firm for a free initial consultation. There is no time to delay when the Department is looking to collect on liabilities and your timely response can help save your client from a very unpleasant and difficult situation that risks the very future of the business - especially during troubled economic times. We have dealt with all types of collections matters and can help figure out the best way to proceed or get involved to work on a reasonable solution to the situation. As more time passes from the issuance of the warrant filing letter - and the filing of the tax lien - the more difficult the resolution can be in working with the Department. This is completely aside from the likelihood that you or your client will start getting solicitation letters from out of state companies promising all kinds of assistance that likely is not possible with the FDOR.
About the author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. If you have any questions, please do not hesitate to contact him at 813-775-2132 or MatthewParker@FloridaSalesTax.com or his FIRM BIO.
About the law firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
ADDITIONAL REFERENCES
FL Dept. of Revenue Bank Freezes - A Summary From Start to Release, published February 15, 2024, by Matthew Parker, Esq.
FL Sales ax Notice of Assessment Personal Liability: What is it and what to do, published August 9, 2023, by Matthew Parker, Esq.
FL Notice of Final Assessment NOFA) FL. Dept. of Revenue, published December 2, 2018, by Matthew Parker, Esq.
FL Sales Tax 10% Penalty for Late Filing, published December 19, 2018, by David Brennan, Esq.