State Tax Levy

My bank account was levied for a tax debt from my spouse's business. What do I do?

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Bill's Answer: Bills.com Resident Expert

The California Franchise Tax Board (FTB) collects state income tax from individuals and state payroll tax from businesses that have payroll tax obligations.

You stated that you are not part of your spouse's business. However, you did not mention whether the two of you file joint tax returns. It may be the case that you owe state income tax, perhaps due to the fact that you filed jointly with your spouse. You may want to consider, moving forward, filing your returns as "married filing separately." If you file separately, you should be insulated from collection efforts by the FTB for any tax debt that is solely in your spouse's name.

Regarding your bank levy, if the tax was not paid in full by the funds seized in the levy, your bank account can be hit again. Also, you could suffer a wage levy, too.

I recommend that you contact the FTB and set up a payment plan or pay the remaining balance as soon as possible. According to the FTB, you may request an installment agreement if you:

  • Owe a balance of $25,000 or less.
  • Agree to pay your account in 60 months or less.
  • Have filed all required personal income tax returns.

They approve or deny your request based on your ability to pay and your compliance history.

If you feel that you should not have been subject to collection efforts, because you did not file a joint return or have any responsibility for the tax debt, you can speak with the CA FTB Taxpayers' Rights Advocate's Office. They are available to provide an independent review of your unresolved tax problems.

Because you suffered collection efforts from the State of California, you should be concerned that the IRS may be on your trail, too. If it turns out that you were responsible for the state tax debt, you likely have an IRS debt, too. IRS tax debts are usually twice or three times the size of state tax debts. Make sure to look into any potential IRS liabilities before you suffer another levy or a wage garnishment. A taxpayer that does not take proper action may be garnished by both entities.

Offer in Compromise

For taxpayers who have a tax debt that they cannot afford to pay, it may be possible to reduce the size of the tax debt through an Offer in Compromise (OIC) tax settlement. OICs are advertised in some television ads touting amazing results, but OICs are not magical tax debt solutions everyone qualifies for. Only 15% of OIC applications are approved. To qualify for an OIC, you must be able to show the IRS that you lack the ability to repay the tax debt, based on an analysis of your income, assets, and monthly living expenses. Some states, but not all, also have OIC programs.  Individuals are permitted to submit OICs on their own, but individually submitted OICs have a much lower percentage of success than OICs submitted by a reputable tax professional.

If your tax debt exceeds $10,000, especially if you may qualify for an OIC, speak to a competent tax professional to review the options available for resolving the tax debt.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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