Calif. tax refunds and state IOU's (warrants)

Mark Bole · 2009-01-11T19:10:55+00:00

Based on comments found at California's State Controller's Office website ( on-going budget impasse could lead to state tax refunds being issued in the form of interest-bearing registered warrants (IOU's). While the Controller points out that such IOU's have only been used once since the Great Depression and are a highly undesirable option of last resort, there are already some tax return clients who are anxious about filing as soon as possible if they think they have a state tax refund coming.Are there any historical lessons learned or other insights to be shared by the many contributors to this board who have more years experience than me? Surely some other state somewhere has done something similar in the last 20 or 30 years...Other than arranging for a smaller refund (too late for most), is there anything else useful that a taxpayer can do in this situation?For example, apply the refund to next year's taxes and then request lower wage withholding (although this might lead to underpayment penalties next year, since California's annualized method is only supposed to be used for uneven *income* during the year, not uneven payments).For purposes of calculating taxable recoveries of previously deducted amounts, is a state IOU constructively received at time of issuance, or only at time of ultimate redemption?Are such warrants typically issued in bearer form (can be bought and sold), or are they registered in the name of the taxpayer (especially if direct deposit of refund was selected instead of paper check)?-Mark Bole

Jan 11, 2009 21 Replies

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It hasn't been "announced", but the California State Controller (the state's CFO) has published remarks on the public web site (link I provided in first message in this thread) that clearly indicated it is under serious consideration as of December 2008. This same official has already butted heads with the Governator over various payment issues during the current budget mess.

Is it probably going to happen? I think not (and as a California taxpayer, hope not!). Is there enough likelihood of it happening that one should not needlessly delay filing for a refund? I think so.

Awareness of the issue among the citizenry is certainly increasing, with comments mostly along the lines of "I guess this means I can pay them with IOU's too!" (or something more pithy).

-Mark Bole

Calif. tax refunds and state IOU's (warrants)

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