For How Long Can a California Income Tax Lien Be in Force?

When a California income tax liability goes unpaid, the state’s Franchise Tax Board (FTB) can place a legal claim, known as a state tax lien, against a taxpayer’s property. The lien serves as public notice of the debt and attaches to all of a taxpayer’s assets, including real estate, personal property, and any assets acquired after the lien is filed. This legal claim makes it difficult to sell or refinance property until the tax debt is settled.

The Statutory Collection Period

The California Revenue and Taxation Code establishes the time frame the FTB has to collect unpaid taxes. The FTB has 20 years to collect on a tax liability. This 20-year period, known as the Collection Statute Expiration Date (CSED), is longer than the 10-year statute of limitations the Internal Revenue Service (IRS) has for federal taxes.

The 20-year clock does not begin on the original due date of the tax return. It starts on the date the latest tax liability for a specific tax year becomes “due and payable.” The event that triggers the start of the collection period is the date of the FTB’s official assessment of the tax, which occurs after a return is filed or an audit is completed.

Each tax year stands on its own with a separate 20-year collection statute. A tax liability includes the original tax, penalties, interest, and any collection-related fees. The 20-year collection period for an entire tax year’s liability runs from the date the latest item becomes due and payable. For instance, if the FTB adds a collection fee years after the initial tax was assessed, the 20-year statute for that entire tax year runs from the date the new fee was assessed.

Actions That Pause or Extend the Collection Period

While the 20-year statutory period provides a baseline, certain events can pause, or “toll,” this collection timeframe. When the statute is tolled, the 20-year clock stops running and resumes where it left off once the event concludes. This extends the date on which the lien would otherwise expire.

One of the most common tolling events is a taxpayer filing for bankruptcy. The automatic stay provision in federal bankruptcy law prohibits the FTB from continuing collection activities. The collection statute is suspended for the duration of the bankruptcy proceeding, plus an additional period after the case is discharged or dismissed.

Engaging with the FTB to resolve the debt can also pause the collection clock. Submitting an Offer in Compromise (OIC), a proposal to settle the tax debt for less than the full amount owed, tolls the statute while the FTB evaluates the offer. Similarly, entering into a formal installment agreement suspends the 20-year period as long as the agreement is active and in good standing.

Other situations can also lead to a suspension of the collection statute. If the taxpayer is a service member deployed to a combat zone, the collection period is paused during their deployment. The statute may also be tolled during certain types of litigation with the FTB or when the FTB must file a probate claim against a deceased taxpayer’s estate.

Consequences of an Expired Lien

When the 20-year collection statute, including any extensions, finally expires, the tax lien becomes legally unenforceable. The FTB can no longer issue bank levies, garnish wages, or seize property to satisfy the expired liability. The underlying debt is effectively extinguished for collection purposes.

Upon the expiration of the collection statute, the FTB is legally required to release the Notice of State Tax Lien that was filed with the county recorder’s office. A recorded lien release clears the title to real estate and removes the legal encumbrance from personal property, restoring the taxpayer’s ability to sell, transfer, or refinance assets.

The FTB’s systems automatically identify an expired collection statute and issue a lien release without any action required from the taxpayer. However, administrative oversights can occur. If a taxpayer believes their collection statute has expired but the lien has not been released, they should contact the FTB to verify the Collection Statute Expiration Date and demand a release.

Resolving a Lien Before Expiration

A taxpayer does not have to wait 20 years for a tax lien to become unenforceable, as methods exist to resolve it sooner. The most direct approach is to pay the tax debt in full, including all accrued interest and penalties. Once the FTB confirms full payment, it will issue and record a Certificate of Release, which removes the lien from public record.

In rare cases, the FTB may perform a lien withdrawal, which removes the public Notice of State Tax Lien. Unlike a lien release, a withdrawal does not mean the debt is paid and is reserved for situations where the lien was filed in error. Entering into an installment agreement does not guarantee a lien withdrawal; the FTB may file a lien as a condition of a payment plan.

For taxpayers needing to sell or refinance property, lien subordination may be an option. Subordination does not remove the tax lien, but it allows another creditor’s lien to move into a higher priority position, which is necessary to obtain a loan. The FTB may agree to subordinate its lien if doing so will increase its chances of collecting the tax debt, for example, by allowing a homeowner to refinance at a lower interest rate.