ANEXO 2

EFFECTIVE PERIODS AND LIABILITY

735.010

A surety can be held liable for an amount that its principal failed to pay only if the liability results from transactions that occurred during the effective period of the bond. The bond effective period runs from the date shown on the face of the bond until 30 days after the Board of Equalization (BOE) receives a notice of termination from the surety. The liability of the surety extends to tax, penalty, and interest, regardless of the location(s) where the liability was incurred.

NOTIFICATION TO SURETIES

735.020

SOB prepares the demand for payment against a surety bond posted by a taxpayer as a security deposit. Making a demand on the surety may only be used as a last resort (see CPPM 735.035).

In order to keep sureties informed of the status of the accounts of their principals, they are also notified when SOB files claims in bankruptcies, assignments, or probates.

RECOMMENDATIONS FOR DEMANDS ON SURETIES

735.030

A collector may recommend making demand on the surety if all of the following conditions are met:

1. The liability exceeds $50.

2. Collection from the taxpayer is not possible. 3. There is no corporate officer personal liability. 4. There are no assets upon which to levy.

The collector should submit the request to SOB through ACMS on a BOE-200-A, Special Operations Branch Action Request

DEMANDS ON SURETIES — CORPORATE ACCOUNTS

735.035

The district or CCS recommendation can be initiated as soon as collection from the taxpayer appears doubtful. However, Civil Code section 2845 states:

“A surety may require the creditor, subject to Section 996.440 of the Code of Civil Procedure, to proceed against the principal, or to pursue any other remedy in the creditor’s power that the surety cannot pursue, and that would lighten the surety’s burden; and if the creditor neglects to do so, the surety is exonerated to the extent to which the surety is thereby prejudiced.”

Therefore, the BOE must exhaust all collection avenues and investigate all other available remedies prior to making demand upon a surety bond unless the surety has similar remedies. If a bond is indemnified by the corporate officer(s) who would also be the individual(s) billed by the BOE, similar remedies exist.

Consequently, the following procedures will be followed when a surety bond secures liability on a corporate account.

1. If collection cannot be made from the corporation, and the corporate officer(s) indemnify the bond, and the liability for the secured bond does not exceed the penal sum of the bond plus $500 (normal minimum amount of liability required to issue a dual determination), a request for demand on the bond is in order.

demAndson sureties — corPorAte Accounts (cont.) 735.035

1. If the liability for the secured period exceeds the penal sum of the bond by more than $500, corporate officer/employee liability must be explored. If the review for individual liability is negative, a request for demand on the bond is in order. If the review is positive, the individuals should be billed and demand on the bond deferred until the potential for collection from the individual(s) has been thoroughly explored.

INTEREST CHARGES ON DEMANDS

735.040

In many cases, the amount of the tax-debtor’s liability covered by the surety is not sufficient to pay the liability in full. When a demand is made on a surety:

1. If the total amount of the tax-debtor’s liability is less than the amount of the bond, the demand will provide for interest (calculated on the tax portion of the liability) at the prevailing interest rate required under the RTC, and any portion of the penalty, up to the full amount of the liability.

2. If the liability exceeds the total amount of the bond, the demand will be for the full amount of the bond. In addition, the demand will provide for additional legal interest at the prevailing per annum rate as provided for in the Code of Civil Procedure.

APPLICATION OF PAYMENTS FROM SURETIES

735.050

Payments received from a surety for application to a liability incurred during the effective period of the bond will be applied as follows (except as otherwise authorized by the supervisor of SPS):

1. Tax. 2. Interest. 3. Penalty.

LIMITATION PERIODS FOR DEMANDS

735.070

The BOE’s legal staff believes that the limitation period for making demand on a surety bond or guaranty is within ten years from the date a tax liability becomes due, or within ten years from the effective date of termination by the surety or guarantor, whichever is earlier. SPS will make demand on the surety well in advance of the expiration of the limitation period to allow for the filing of a legal action, if necessary, or to obtain a waiver of the limitation period. If the surety will not furnish a waiver and has not made payment, SPS will refer the matter to the Attorney General to file a legal action if the amount of liability warrants such action. Legal action must be filed against the surety or guarantor before the limitation period expires.

DEMANDS INVOLVING MORE THAN ONE SURETY

735.080

If there is more than one surety on an account, demands will be made on each surety for the amount of liability incurred during the effective periods to the extent of the penal sum of each bond. If there is an overlap of the effective periods, the liability due for the overlap period will be prorated between the sureties. If an overlap exists, each surety is liable for the full amount incurred during the overlap period.

COLLECTION FROM GUARANTORS

735.090

The provisions applying to collection from guarantors in relation to effective periods, limitation of liability, notification, demands, interest charges, application of payments due, and limitation periods for demands are the same as those applying to sureties.

December 2009