Can California Tax Lien Seize Arizona Bank Account?

The federal and state tax authorities have the same tools available to them to collect back taxes. Some states may be more aggressive than other states in collecting back taxes. Both authorities can garnish wages, place liens on your property and via a tax levy seize your property including bank accounts.

A credit report can provide most of the information they need. There are a variety of laws that control how much of your wages can be garnished and when certain types of assets (funds) can't be seized. E.g., Social Security, unemployment insurance, veterans' benefits and public assistance income can't be seized. When a bank receives the proper paperwork regarding a levy, they must, under the law, freeze your account. If you co-mingled exempt funds with non-exempt funds in the account, then those exempt funds will also be frozen until you are able to satisfactorily supply the evidence to prove what is exempt.

The IRS and states do share tax information. In 1970, a co-worker of mine told me about a tax audit that NY conducted over an itemized deduction (casualty loss) at the request of the Feds (that's what the NY auditor told him). After the NY auditor adjusted the deduction, he told my co-worker he'd be hearing from the Feds; he did a few months later.

In 1978, I filed a Federal tax return for my daughter to declare accrued interest on US Savings Bonds. I didn't file a state return because her income wasn't above the threshold; especially, since Fed interest is state tax-free. In December, 1978, not only did she receive the Federal income tax instructions, she also received the similar NJ mailing.

Finally, for the last few years, those who work out of state know they no longer need to include a copy of the out-of-state return with their own state return when they claim the out-of-state tax credit. I have to presume there's now some central database where the commuter tax info is available to our home states.

Not true. It may appear to be true if you electronically file your federal and state tax returns through an intermediary. The intermediary is sending the copy to the other state. Some states require a copy of the other state's tax return when you claim a credit for taxes paid to that other state. E.g., CA, AZ & NM. NY does not require a copy.

CA has been aggressive about tax enforcement for years, but this is the first time I've heard of one state seizing a bank account in another state. I'm not a lawyer, but in my IRS collection days I dealt a lot with property law, and my memory is that all intangible personal property is located where the owner is, regardless of where the account is. That would seem to argue against the interstate bank theory.

Ordinarily the IRS doesn't have any administrative collection authority in other countries, but there are treaties that provide for mutual international authority. However, in such a case, e.g., the IRS is collecting something for Canada, it's still the IRS that's exercising the authority. In your friend's case it appears that it's CA seizing money from an AZ account.

My best guess is that there's something in AZ law that allows this, plus some sort of mutual cooperation agreement between the two states. If I were your friend I'd certainly pursue the question of the legality of this seizure.

As far as the Feds are concerned, the IRS and the states have broad information sharing programs. If one knows something, assume the other does too.

With apologies to your friend, who I'm sure takes this personally, it almost makes me wish I was still working. It's fascinating, and I'd love to know the underpinnings of it.

Phil Marti Retired IRS Collection officer Clarksburg, MD

A state tax authority is no different than any other creditor who is trying to collect an unpaid debt. There is no law that prevents State A from collecting a back tax debt from a resident of State B who has no assets left in State A. State A has to conform to its own rules and regulations on tax collection. Once it determines that it can now levy, nothing stops it from levying the tax debtors bank accounts in other states other than the levy procedure must conform to the state law where the bank account is located. All 50 states and D.C. allow for bank levies. However, as I have previously stated, a state is free to exempt certain assets from seizure. Federal law protects your SSA & VA benefits and some miscellaneous other assets. States generally add state welfare and child support payments to that list. Other than that, the funds in your bank account are fair game to all creditors who follow the rules.

As to sharing of data: Title 26 Sec. 6103(d) allows the IRS to share tax return information with the state tax agencies. I believe that all of the states and D.C. have comparable confidentiality and disclosure laws that allow them to share state tax information with the Dept. of the Treasury and other state tax agencies. I am not up on whether there are shared databases.

I have to differ on that one. Most creditors cannot seize assets on their own. They can go to court, get a judgment and have it executed, usually by the sheriff, but they can't just march in and take it.

Your last point is the one I'm wondering about. In my early days of being a jackbooted thug states didn't have administrative authority. They had to go to court like any other creditor. Over time state laws caught up with the Feds, but only with respect to collecting their own taxes. For example, while I was serving my California sentence in the late 80's CA could levy on CA bank accounts to collect CA taxes, but other states couldn't levy on CA accounts.  It's certainly possible that state laws have further advanced to allow such actions across state lines since I retired and don't care anymore.

One of the honors I bequeathed to my successor in 1997 was being Collection's point person on the STAWRS project. The Simplified Tax and Wage Reporting System was a joint IRS/SSA/Labor effort with the states to try to simplify things for employers. One of its lofty goals was to come up with something akin to the UCC for unemployment. The state unemployment records were the best source for current employment information, so our biggest hope from the project was a national database. Don't know what ever happened. I used to see STAWRS newsletters now and again, but it's been quite some time since I saw the last one.

Phil Marti Retired IRS Collection officer Clarksburg, MD

You missed my point. State A follows the same rules as any other creditor if they want to place a tax levy on your bank account in State B. The only exception is if State B has a law that allows another state's tax agency to levy without going to court. This point is made in the next paragraph.

You continue to miss the point. I very explicitly said they "must conform to the state law where the bank account is located." That means they may have to go to court to get an order. One would have to review the laws in each of the 50 states plus D.C. to see whether a court order is required.

I'm not specifically aware of laws that allow that either. However I do know that states have been known to enter into tax compacts that allow more streamlined interstate tax collection.

I have a question - what does it mean to say an account is in CA (or AZ or whatever state) Is it the address associated with the account(account holder) or the address of some bank branch.

-Antony

That's really an excellent question. With interstate banks and being able to do transactions at any branch of a bank, is there any actual location for any account?

At Bank of America at

You're asking a legal question, not a tax question. One would have to look at the Civil Procedure law to determine where a levy must be served. Some states allow a levy to be filed with any branch in the state. Some states require the levy to be filed at the branch where the funds are located. Some require it to be filed where the account was first opened. Some laws give the bank leeway as to how and where a levy must be served.