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Delinquent California Tax

California Franchise Tax Board threatens to levy my bank account for taxes I owe. How can I stop this? What are my options?

I currently live in Las Vegas, Nevada. I recently received a letter from the California Franchise Tax Board saying that I owe money for year 2007. The letter reads that if I do not file the return they can move forward with collection activity up to placing a levy on my bank account. I am currently not working for it is difficult finding a job in today's economy especially here in Nevada. Can you please help me with advice, for I am worried sick about getting my account levied?

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Bill's Answer
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Highlights

  • Review how to contact the CA FTB to explain a financial hardship.
  • Understand that the CA FTB is very aggressive about levying wages and bank accounts.
  • Examine options for wiping out a CA FTB tax debt.

California, and other states, standardly use a few methods to collect delinquent tax debts. They primarily use:

  • Wage garnishments
  • Bank Levies
  • Liens on Property
  • Seizure of tax refunds due to the tax debtor

Installment Agreement

If you owe taxes in California and are not able to pay the entire amount due immediately, you should look into setting up a long-term payment plan. Visit the Installment Agreement - Individuals page to learn the terms and conditions that the State of California require. The basic requirements appear reasonable:

  • 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.

Contact the California Franchise Tax Board at the Web page linked to above or call (800) 689-4776, during business hours, to learn more.

Not Collectible Status

If you are unable to commit to a monthly payment plan, speak to the CA FTB about "not collectible status." Not collectible status is granted temporarily if can prove a financial hardship. The debt continues to grow with interest and penalties, but your wage and bank accounts will NOT be garnished. Tax debts in California generally have a 20 year statute of limitations from the time that they are assessed. After 20 years, your responsibility to pay the tax debt expires. In some cases, certain actions lead to collection stays that suspend or extend the 20-year SOL

If you are unable to pay, there are two options to consider aside from not collectible status. California has a tax settlement program, the Offer in Compromise, that allows some taxpayers who lack the income and assets to pay off the debt to settle the debt for less than is owed.

Options to Reduce or Not Pay the Debt

Depending on how old your tax debt is and when you filed your returns, you may be able to legally discharge your responsibility to pay the taxes by filing for bankruptcy. The general rule for including California tax debt in a Chapter 7 bankruptcy, which wipes out your debt, is that the taxes must be due for three years, the return must be filed for at least two years, and the assessment has to have been in place for 240 days. Tax debt can be included in a Chapter 13 repayment plan, no matter how old or recent it is.

Lastly, any time a person is subject to a bank levy, it is smart to not keep a lot of money in the bank. A bank levy can hit at any time and the authority to levy the account is ongoing. That means you can be levied over and  over again, until the debt is paid. If you have a bank levy and are paid by direct deposit, either see if you can get your employer to switch to a paper check or pull the funds out immediately after they are deposited.

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

Best,

Bill

Bills.com

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19 Comments

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  • KL
    Feb, 2016
    Kenia
    Thought-provoking commentary - I Appreciate the insight , Does someone know where my company could get ahold of a template CA FTB 540-ES copy to fill out ?
    0 Votes

  • JD
    May, 2014
    John
    Hi...if I am a resident of another state (or even CA) and CA FTB says I owe back income taxes...can they levy a bank account in another state? The bank in question has no banking offices in the state of California. Thanks.
    0 Votes

    • BA
      May, 2014
      Bill
      Your question is not entirely clear to me, but the fact is that the CA FTB could exercise its authority to levy a bank account outside of CA.
      0 Votes

  • JM
    Jan, 2014
    jj
    Mountain View, CA
    I filed bankruptcy and the IRS was discharged but the Franchise Tax board sent me a letter after the fact. Despite numerous letters from the lawyer, they garnished my bank account and continued to say I owed $. I paid it but to me it seems illegal
    0 Votes

    • BA
      Jan, 2014
      Bill
      I can't give you legal advice. Only an attorney can do so (and you have an attorney), but I will share some thoughts with you.

      You may have some grounds to have avoided paying if you were not given proper notice of your tax liability. The California Franchise Tax Board website says the following, written in language where "client" is a person working with a lawyer in bankruptcy."If your client is currently in bankruptcy, they may receive a tax due notice. This is not a demand for payment; it is for informational purposes only. Under California law we must notify your client anytime we assess a new liability. Your client may also receive a notice at least once a year if they have a delinquent tax balance. This annual notice is required under the California Taxpayer Bill of Rights."

      Another possibility is that your lawyer should have made sure that you had no CA FTB liability, depending on the information that you disclosed and he or she received.
      0 Votes

  • ME
    Sep, 2013
    Michelle
    Roseburg, OR
    Seems they did the same to me, too. It is now 2013 and they are claiming that I owed "Estimated Taxes" for the year 2002 from my CA Court Reporters License. They helped themselves to my money without any notification. Crazy thing is -- I left CA in 1998, and when it came time to renew my License in 2000, I declined to do so. How are they allowed to assess "Estimated Taxes" on a hypotheses of what I could have POTENTIALLY owed in taxes HAD I actually been living in CA and Had I been working as a court reporter. The whole thing is insane. I had to pay to get my Oregon Tax Returns from 2002 to prove to CA that I wasn't living there so they can reimburse my money. This whole process so far has taken two weeks, and now it's going to be another 30 days for them to give me my money back. How any of this is legal, I beg to question.
    1 Votes

    • BR
      Jan, 2014
      Brek
      Montello, NV
      Michelle, It is not legal, but they have the power to do as they please. What should really scare people about this is if the legislature can create an entity and give it powers above the law, the FTB today what about tomorrow? As you know the FTB levies an accusation at you, then it is your job to prove otherwise to their satisfaction. Why not enforce drug laws the same way. Hey, we "know" you are dealing drugs, you have 30 days to prove you aren't. Failure to prove to our satisfaction you aren't and you will be sentenced for the accusation. No attorney, no jury, no right to remain silent etc. All your known due process rights are set aside in an "overwhelming state interest." Welcome to the new America.
      0 Votes

  • CW
    May, 2013
    Clayton
    Santa Maria, CA
    I too just got a notice in the mail regarding unpaid taxes back in 2010 but haven't received any notices the last 3 years regarding it! Is there a way to check on if I owe additional taxes for 2011,12, and 13? So I dont get hit with these fees again?!
    0 Votes

    • BA
      May, 2013
      Bill
      I recommend that you contact the California Franchise Tax Board directly, to find out the status of your 2011-2013 returns and whether there are any balances due. You can reach the CAFTB Taxpayer Assistance Line at 800-852-5711.
      1 Votes

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