California Tax Debt to Multiple Agencies

We have a client who had to close down his business due to financial difficulties. Unfortunately he ended up owing taxes to all of California's tax agencies - FTB, EDD and BOE. The amounts to FTB and BOE are relatively small (under $4000 each) compared to the EDD debt which is now over $12,000.

The client has a regular wage job now, and pretty soon after he started working the FTB attached his wages and were taking 25% of his take home pay. After speaking with the FTB and providing a small amount of income and expense information, the wage levy was reduced to $150/month, which is a reasonable payment for this particular client.

The good thing about this is that because the FTB has already attached his wages, the EDD and BOE cannot take any collection action until the FTB debt is paid or the collection order is extinguished.

A CA collection manager I spoke with called this their "higher order" rule, which I don't think is an official term. Basically, if a taxpayer owes taxes to multiple tax agencies within the state of California, only one agency can take enforced collection at a time. This also operates on a first come first served basis, which means that whichever agency takes action first, the other agencies have to wait in line until that first debt is paid. ***Unfortunately this rule does not apply to the IRS or for Child Support enforcement. Either of these agencies can still levy or withhold wages on top of an existing levy from the State of CA.

In my opinion this is a very good policy which prevents the California agencies from "Piling On" a taxpayer and attaching all of his or her wages at once. It allows a cash strapped taxpayer a little breathing room and still enough cash to pay any reasonable living expenses. For us, the tax professionals, it gives us the ability to focus on one agency at a time and without having to deal with urgent demands from all three agencies at once. In this case our plan is for the client to continue the $150/month payments to FTB until that debt is paid. At the same time we will try and work out an Offer in Compromise Settlement with the EDD to settle out the $12,000+ balance. The BOE balance, which is the smallest of the three, will need to wait until, either the other two are taken care of or the client is able to pay it by making voluntary payments.