The California Franchise Tax Board (FTB), which we most recently discussed in our article on how to appeal an FTB audit, can be succinctly summarized as California’s version of the Internal Revenue Service (IRS). Just as the IRS enforces compliance with federal tax laws, the FTB enforces compliance with the California Revenue and Taxation Code (RTC), performing functions like reviewing California tax returns and auditing businesses or individuals whose records indicate omissions, errors, suspicious activity, or unfiled returns. The IRS and FTB also share another trait in common: both take an aggressive approach to collecting unpaid tax debts. If you failed to file a California return and owe an outstanding tax debt to the state, the FTB can take a range of actions to collect the debt – including placing a hold on your bank account. However, you may be able to reverse the hold by following certain steps within a specified timeframe.
What to Do if the FTB Levies Your Bank Account for Unpaid California Income Tax Debts
As our tax levy lawyers discussed in our recent article on FTB debt collections and disability benefits, the FTB has the authority to place levies on bank accounts when taxpayers fail to pay their California income tax debts. A levy will have the effect of freezing your account’s contents, a portion of which your bank must then direct to the FTB. In short, you will lose control of your bank account – and how its contents are spent.
Needless to say, this is a stressful position to be placed in – particularly because the FTB grants taxpayers a mere 10 days in which to modify or remove the levy. Though the 10-day deadline may be extended, an extension is contingent upon the taxpayer’s ability to successfully gather and present evidence proving financial hardship. Examples of situations constituting “financial hardship” could include:
- Eviction
- Home Foreclosure
- Utility Shut-Offs
Each taxpayer’s case is unique, and will, therefore, call for a tailored strategy. However, regardless of other factors, it is generally in your best interests to file your unfiled California tax returns as soon as possible.
Keep in mind that by this point, the state will have already prepared one or more returns for you, either by utilizing third-party income reporting and/or income estimates based on your occupational license, where applicable. Unfortunately, this is not necessarily good news. On the contrary, you will likely face greater penalties, more interest, and ultimately, a larger tax bill if the FTB files a California tax return on your behalf. Thus, it is financially prudent to handle your own returns, ideally with assistance from an experienced tax preparer in California.
Once you have done so, you will have a clearer idea of your California tax liabilities – and potentially, may be able to enter a temporary (“provisional”) payment agreement while obtaining a 30-day time extension to file. This could prevent additional enforcement actions against you, examples of which could include:
- Property Tax Liens – When a tax lien is attached to your property, not only will it become impossible to refinance or sell – you will also see a drop in your credit score, which will make it more difficult to obtain loans.
- California Tax Wage Garnishment – In addition to freezing your checking account, the FTB can also garnish your wages. Stated simply, wage garnishment will cause you to receive smaller paychecks, as a portion of your earnings will be withheld to satisfy the delinquent tax debt. Using wage garnishment, the FTB may collect up to 25% of your disposable income, which is any income that remains after income tax and essential spending have been accounted for.
For additional information on this subject, taxpayers may wish to read the following:
California Tax Relief Lawyers Providing FTB Audit and Appeals Representation
Keep in mind that, should you fail to file the return within the 30-day extension period, the payment agreement will default, which means that collection actions will resume, reopening the door to financial difficulty. Thus, it is crucial to discuss your options with an experienced tax attorney who can educate you on your responsibilities while protecting your rights as a taxpayer and holding your tax liabilities to a minimum. Your California tax lawyer can advise you on the benefits and drawbacks of various strategies, such as negotiating with the FTB or, where appropriate, challenging (“protesting”) its findings.
Even if you feel as though you are drowning in tax debt, know that you have options for tax debt relief. To speak confidentially with a Los Angeles tax attorney about FTB debt collections in California, contact the Tax Law Offices of David W. Klasing online, or call us at (800) 681-1295 for a reduced-rate consultation.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Helpful Collection Video – Common Issues with IRS Collection Actions
Helpful Collection Q and A Libraries:
https://klasing-associates.com/topics/liens-levys-garnishments/
https://klasing-associates.com/topics/non-filer-assistance-faq/
https://klasing-associates.com/topics/offer-in-compromise-faq/
https://klasing-associates.com/topics/tax-relief-and-resolution/
