Did money in a bank account become part of a Chapter 13 estate when California served its levy two days before bankruptcy?

Plain-English summary

California's Legal Division approved an earlier collection memorandum concluding that money in a bank account did not enter a taxpayer's Chapter 13 estate when the Board had served its levy two days before the bankruptcy filing.

The 1988 memorandum said the taxpayer argued that the funds remained estate property because the bank had not yet remitted them. It reported that the Attorney General prevailed and that the bankruptcy judge relied on the Board's successful appeal in In re Farmers Market. The memorandum treated title as passing to the creditor upon levy.

The 1996 Legal Division review expressly agreed with that conclusion. The earlier memorandum warned collection staff that the result probably was not relevant to Chapter 11 cases.

Common questions

Did it matter that the bank had not yet sent the money to the Board?

No, under the approved memorandum's reasoning, because title passed when the levy occurred.

How soon after the levy did the taxpayer file bankruptcy?

Two days later.

Did staff say the same rule necessarily applied in Chapter 11?

No. The 1988 memorandum cautioned that the decision probably was not relevant to Chapter 11 cases.

Citations and references

• In re Farmers Market — bankruptcy decision discussed by name, without a full citation in the published source
• United States Bankruptcy Court for the Eastern District of California, Sacramento — court identified in the 1988 memorandum

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0007-175.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

District Principal Compliance Supervisors

From:

R. A. Slater

Subject:

Notice of Levy

170.0007.175
Date:

May 13, 1988

Attached is a favorable decision from the United States Bankruptcy Court, Eastern District, Sacramento. In summary, the Board levied upon the taxpayer’s bank account. Two days later, the taxpayer filed for protection under Chapter 13 of the Bankruptcy Code. The taxpayer objected, contending that the levied funds were property of the estate as they had not yet been remitted to the Board. The Attorney General prevailed. It is interesting to not that Judge Dahl relys on In re Farmers Market. Judge Dahl issued the original opinion in Farmers Market which was adverse to the Board and now cites the language in our successful appeal to support our position in this case. Districts should be alert to this change, noting that it probably is not relevant to Chapter 11 cases. If you should encounter a case similar to the attached, refer the debtor to Judge Dahl’s opinion. If you are unsuccessful and the amount warrants Attorney General involvement, forward your request for referral. If you have any questions, give me a call.

R A Slater
RAS:tw
cc:

Ms. Judy A. Agan
Mr. R. Nunes
Mr. P. M. Fiorino
Mr. G. A. Bystrom
Mr. E. V. Anderson
Mr. C. Cordell
Mr. A. L. Cade
Mr. O. A. McCarty
Mr. R. O. Padilla

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
170.0007.175

To:

Mr. Glenn Bystrom

From:

Gary Jugum

Subject:

Non-Attorney Opinions

Date:

May 20, 1996

I have reviewed R. A. Slater’s memorandum of May 13, 1988 to District Principal Compliance Supervisors. We are in agreement with his conclusion, as follows:

Filing of Bankruptcy After Service Levy. The Board levied upon the taxpayer’s bank account. Two days later, the taxpayer filed for protection under Chapter 13 of the Bankruptcy Code. The taxpayer objected, contending that the levied funds were property of the estate as they had not yet been remitted to the Board. In a notice of levy, title passes to the creditor upon levy. Accordingly, the money is not part of the estate of the bankrupt. 5/13/88.

Gary Jugum