It might be said if any of the California taxing authorities have threatened you with a lien or a levy, they’ve decided to take the boxing gloves off. You’re now in the ring due to long-delinquent taxes and it’s the bare knuckles version of boxing that they will try to hit you with.
When I say try, I mean that you still have a fighting chance, especially if you have the assistance of a seasoned tax attorney.
The delinquent tax round you are in – the balance you owe, whether you’ve made any attempts to pay, or have already received a Notice of State Tax Lien or Levy – can strengthen or weaken your case.
To begin with, let’s have a clear understanding of what EDD Liens and Levies are and if you receive a notice of one, what that can mean to you.
To begin, a tax liability owed to the EDD differs from your liability to the IRS. It may accrue if you have not paid payroll taxes or if you have failed to submit a quarterly or annual report on time. If you are deemed to be an employer but did not pay wages in a particular quarter, you must still submit a quarterly report.
If you are paying workers under the table in order to avoid paying payroll taxes, you may be investigated for fraud. The EDD is empowered to audit companies suspected of, or reported for, payroll tax fraud.
Penalties include the amount of unpaid payroll tax as well as fines and interest charges and that money can be recovered in the same way as a normal tax liability.
How EDD Liens Work
If there is an unpaid liability, the EDD will first send you an Employer Account Statement listing the past due amount and requesting payment in full.
If you believe that the amount is wrong, or if you are unable to pay in full, it is important that you contact the EDD as soon as possible to request a revision or a payment plan. If the EDD does not hear from you and the amount isn’t satisfied, their next step is to record a Notice of State Tax Lien.
A copy of the Notice of State Tax Lien is mailed to your registered address and states that the amount of the unpaid tax is a lien on both real and personal property, including subsequently-acquired property, belonging to the taxpayer.
A tax lien will remain on your credit record indefinitely until the liability is paid in full and formally removed.
Once removed, the record of the paid lien will remain for an additional seven years. As the lien is detrimental to your credit rating, it is in your best interests to pay the amount and obtain the release even if you are not seeking to sell the property over which the lien is held.
Payment and Release of the Lien
When the EDD receives confirmation that liability has been paid in full, they will mail a Release of Lien to the County Recorder office within 40 days. No record is sent directly to the taxpayer unless one is requested. You may request that a Status of Lien Release notice be sent to you; this will be at your own cost and the money collected in the same manner as the tax.
If you are selling or refinancing real estate, your escrow company will need to pay the lien with certified funds (cash, cashier’s check or money order) and the EDD must be notified in writing or via fax with a demand for a release of the lien. The release must be obtained before the property can change hands.
Avoiding an EDD Lien
As with all things that relate to your taxes, prevention is better than cure. If you do receive a notice of liability from the EDD, it is essential to deal with it as a priority.
A tax attorney can help you determine whether the notice is correct and if you are obligated to pay the amount. He or she can also advocate on your behalf for a suspension of obligation or a partial payment plan if you are unable to pay.
If you do not take any action, a lien will be recorded and your credit rating affected. The long-ranging consequences of avoiding your tax obligations can be devastating for your business and your personal financial future.
EDD Notice of Levy
The California Employment Development Department can issue a Notice of Levy to attach the credits or personal property of any delinquent account, either active or inactive.
- The Notice of Levy may be made upon financial institutions, including banks, credit unions, trust companies, and savings and loan institutions. For these institutions, the Notice requires that any funds held at the time of receipt of the Notice be remitted to the EDD.
- Notice can be imposed on the third-party accounts receivable. In such cases a third party is served with the Notice and must surrender assets within five days after the assets are payable to the taxpayer.
- Notice can be served on credit card processors and it will remain in force for one year, and can be renewed.
The Unemployment Insurance Code (UIC) Section §1755 directs that the Notice of Levy must be served on taxpayer in person or by certified mail not later than three years after the required payment of any contributions, penalties or interest became delinquent because the taxpayer failed to pay them.
Or, a Notice must be served within 10 years from the recording of a judgment or the filing of a Notice of State Tax Lien. A stop notice (mechanics lien under California law) has a priority over Notice of Levy under California Civil Code §3193, meaning that a proper filing of mechanics lien under state law will override EDD’s Notice of Levy.
- The Notice of Levy requires approval of the Tax Compliance Supervisor or lead and the amount shown on Notice includes non-final amounts.
- A Notice can be mailed by certified mail with return receipt if sent to other than a bank or financial institution.
- If it is served in person, then the recipient will be asked to sign and date one copy for EDD filing
- If the garnishee (taxpayer) does not sign, this fact is noted on the form.
If a partial payment or payment in full with guaranteed funds is received from other than the Notice of Levy, then the EDD issues an Amendment to Notice of Levy (DE 8016). If the taxpayer does not make levied payment or personal property the taxpayer becomes liable for the value of credits (payment amount) or other personal property up to the amount specified in the Notice of Levy.
If the taxpayer fails to respond to the Notice, then the EDD contacts the recipient of the Notice to verify its receipt and explain instructions on the Notice.
- EDD’s attempt to contact taxpayer fails
- Taxpayer is not identified
- EDD is unable to locate him or her
- The taxpayer does not have funds at the time of contact …
… then EDD has three options:
- To keep communicating with payee
- To supply specific personal information to locate the person
- To issue another Notice of Levy
If the taxpayer files bankruptcy, then the EDD must verify the date and time of the filing.
Please note that EDD will not automatically release a Notice when the taxpayer files bankruptcy after the Notice is served. If accounts receivables are levied, after Notice of Levy is paid in full EDD releases all accounts receivable.
To release or modify Notice of Levy, the EDD uses Form DE 8016.
Notice of Levy can be released in whole or in part. In cases of modification or partial release, the taxpayer levied will receive a letter instructing that the sum was released and that the balance of the account must be paid in accordance with the original Notice of Levy.
If you are ever worried about your compliance with the EDD or any other tax authority, a consultation with a qualified tax attorney can offer you real peace of mind. There’s that old saying about the two sure things in life being death and taxes, but if you need help to better enjoy the time between them, give Brotman Law a call.