Tax Garnishment: IRS and California Franchise Tax Board

Few people relish the obligation to file and pay income taxes, but the only thing that may be worse than paying taxes is failing to ensure that the full extent of your tax duties are satisfied. The failure to pay taxes can result in an IRS tax garnishment including the addition of significant penalties and interest on the unpaid amount of tax. The amount of tax due, penalties and interest will continue to grow either due to, the taxpayer’s refusal to pay the tax, failure to challenge the amount due, or due to neglect on the taxpayer’s part. If the failure to satisfy the federal or state debt continues for a long enough period, the IRS or California Franchise Tax Board may take additional action to collect on the unpaid tax debt. This action may include filing a public lien against the taxpayer or levying (forced taking of) a taxpayers assets.

tax garnishmentWhat is a Tax Levy or Tax Garnishment?

Both a tax levy and a garnishment are both forced formal claims to take your property or money to satisfy an unpaid debt. When filed by the IRS or FTB, a levy is the legal process utilized to seize your property in satisfaction of a tax debt. A tax garnishment is similar to a levy in the sense that it is also a legal process used to seize your property to cover an unpaid debt. The main difference between the two terms and procedures is that a levy typically applies to your property or money in a bank account. By contrast, a garnishment applies to your wages or other income. Thus, a levy is a one-time event. By contrast, a tax garnishment on a taxpayer’s wages is continuous. The IRS or FTB can use these processes to secure partial or full payment for an unpaid tax debt that is due and owing.

Tax Garnishments vs. Tax Liens

Taxpayers may have also heard the term “tax lien.” Some individuals may incorrectly assume that a lien and a levy are equivalent legal processes. In actuality, a tax lien refers to a different process by which the IRS or FTB may attempt to improve its collection position when a tax debt is owed against other creditors. Unlike a levy or tax garnishment that is the seizure of property, a lien is a formal public claim against your property. A federal tax lien attaches to all of your property including later acquired assets. The tax lien notifies the public, including potential creditors, that you have a tax debt and the government is attempting to secure a preferential right to collect that debt over other creditors. A lien may affect your ability to secure credit.

Thus, while a lien protects the government’s priority against other creditors to your property, a levy or garnishment is the actual legal process by which your property, assets, or income are seized.

When Will the IRS Issue a Tax Garnishment or Tax Levy in Los Angeles?

The steps and processes the IRS must satisfy before issuing a tax levy or garnishment are dictated by nationwide standard. Thus, whether you live in Los Angeles, Orange County, or somewhere else in California, or in another state the standards are the same.

In short, the IRS must send a number of notices to the taxpayer before the agency can seize property or assets. In other words, a tax garnishment generally cannot sneak up on a taxpayer. There may be a few limited circumstances, such as where the taxpayer moves, in which the taxpayer may claim that they did not receive notice. However, claims of this type are, at best, of limited effectiveness as all that is required that they notify you at your last known address whether you still reside at that address or not. The steps the IRS must take before issuing a levy on property are:

  • The IRS has assessed your taxes. Following the assessment, the IRS mailed a tax bill to you. The tax bill is typically titled along the lines of a Notice and Demand for Payment.
  • The taxpayer then ignores or neglects the letter sent. In some cases, the taxpayer may refuse to pay the tax bill or exhaust all appeal options.
  • The IRS will then send the taxpayer a final notice. The notice is typically titled Final Notice of Intent to Levy and Notice of Your Right to A Hearing or similar language. The notice can be delivered in a number of ways including in-person service at your home or regular place of business or by registered mail.

The levy notice is sent at least 30 days before the IRS will take action to seize your property. While the levy may not necessarily occur on the 31st day, it is still import for the taxpayer to file a timely appeal or otherwise take timely action to stop the levy. If the taxpayer fails to do so, he or she will forfeit certain rights that would otherwise protect his or her property.

When Will the California Franchise Tax Board (FTB) Levy to Collect Unpaid State Income Taxes?

The failure to pay California state income tax can also result in facing a levy or garnishment. While the IRS enforces federal income tax obligations, the California Franchise Tax Board (FTB) enforces state income tax obligations. A taxpayer will face collections actions by the FTB because they have ignored the obligation, refused to pay, or are unable to pay an outstanding tax balance that is due and owing. The FTB can then move forward with the enforced collection action.

Similar to IRS collection enforcement, FTB can levy the taxpayer’s bank account or garnish his or her wages. However, as compared to the IRS, different standards apply to FTB actions. For instance, while the IRS permits the taxpayer 21 days to modify or release a bank levy, the FTB only typically provides the taxpayer 10 days to alter or release the levy. However, the FTB will grant additional time if the taxpayer can present sufficient evidence of a hardship. In any case, immediate action such as contacting an experienced tax lawyer is necessary. Furthermore, for wage garnishments, the IRS is guided by formulas computed into tables published in Publication 1494 providing for a taxpayer’s allowed exemptions from a garnishment. The FTB may garnish up to 25% of the taxpayer’s disposable income subject to modification.

stop irs tax garnishmentHow Do I Stop an IRS Tax Garnishment?

One means available to stop a wage tax garnishment or other levy on your property is to file your appeal through IRS Collection Due Process (CDP). A timely request for a due process hearing filed within 30 days, will be followed by a notification alerting the taxpayer their request has been forwarded to IRS Appeals. A timely request will prevent collection enforcement action by the IRS until the CDP hearing. IRS Appeals typically follows-up within 60-90 days, therefore it is essential that the taxpayer is diligent during this period and collects and provides all relevant documents so that an experienced tax lawyer can assist the taxpayer in achieving compliance including, unfiled taxes, estimated taxes, and other federal tax obligations. Furthermore, if a Final Notice was served, documents evidencing the taxpayer’s ability to pay must be provided. Achieving compliance is important because without taking such action, the IRS Settlement Officer will decline to discuss the merits of the case because no other viable collection alternatives are available. Discussion and negotiations during the CDP hearing generally concern procedural issues and alternatives to the proposed levy by the IRS. If an agreement cannot be reached, the taxpayer retains the right to appeal to Tax Court. While other options exist, they should be discussed thoroughly with a tax lawyer prior to taking action.

What Can Tax Lawyers Do to Stop a Levy by California FTB?

A tax attorney experienced in working with the California Franchise Tax Board can work to assist a taxpayer who has entered into involuntary collections due to a failure to pay. Typically, the first step in addressing a state income tax issue is contacting the FTB to perform a compliance check. The compliance check includes whether the taxpayer has filed all tax returns, whether the FTB has prepared taxes on the behalf of the taxpayer, the balance of unpaid tax due, and the specific division or agent handling the account. Following obtaining this information, contacting the appropriate party pursuing the enforcement action to determine necessary steps to release or modify the levy can be appropriate. Furthermore, additional options such as an installment plan or payment plan can be explored. If this process is unsuccessful in stopping the levy or garnishment, California taxpayers have a right to a hearing to stop the seizure or sale of their property.

Attorneys Provides Tax Garnishment Help in Los Angeles and Orange County

If you have already received a levy notice, the exact action you should take is dependent on which notice you received and how far the process to seize your property has progressed. However, regardless of how far the process has proceeded, individuals facing a levy must keep their cool, proceed methodically, and avoid rash decisions motivated solely by panic or anxiety. The steps a taxpayer who has received a notice regarding a property seizure from the IRS or FTB should follow are:

  1. Collect all notices mailed to you regarding the levy.
  2. Once all notices are collected, examine the upper right-hand corner of the notice for a code beginning with CP or LT. For IRS collections enforcement, these notices may include a CP-504 Intent to Levy notice or an LT-11. If you have received a notice from the California FTB including a tax bill, an Order to Withhold (OTW), an Earnings Withholding Order for Taxes (EWOT), Income Tax Due Notice, or a notice from a private tax collector authorized by the State of California collect these documents. A full listing of notices FTB may send can be found on its notices page
  3. With the information in-hand, contact an experienced tax lawyer.

The Tax Law Offices of David W. Klasing can assist taxpayers facing tax garnishment or levy involuntary collections actions due to unpaid state or federal income taxes. Our experienced tax lawyers can handle levies and garnishments attempted by the IRS or FTB. To schedule a reduced-rate initial consultation to discuss how you can protect your property by stopping a seizure, contact our experienced team by calling  800-681-1295 or contact us online.