When a bank paid a California tax levy after the taxpayer filed bankruptcy, was payment effective on service or later remittance?

Plain-English summary

Tax counsel said he understood that a California tax levy had been served on a bank before the taxpayer filed bankruptcy. The bank did not release the funds until a court ruled that they belonged to the Board, by which time the described ten-day payment period after levy had passed. The levy, petition, bank record, court ruling, dates, amounts, payment, and penalty notice are not reproduced.

Tax counsel concluded that service of the levy transferred ownership of the funds to the Board immediately. Because the Board already owned the money on the service date, the later bank remittance did not support a late-payment penalty.

Government Code section 11002's postmark rule did not conflict with that conclusion. It governed payments sent through the mail, where the taxpayer relinquished control upon mailing; the levy cases separately determined when ownership of levied bank funds transferred and whether those funds entered the bankruptcy estate or were protected by the automatic stay. The request says section 11002 was attached, but the attachment is absent.

The live annotation publishes the postmark rule and levy-service payment date without the response's express “I understand” qualification. It omits both bankruptcy cases, the levy and seizure statutes, request provenance, named staff, missing records, and printed wording defects. Neither source supplies a claim, appeal, or later outcome.

Common questions

Was the effective date the day the bank finally sent the money?

No. The memorandum used the levy-service date because ownership transferred then.

Did the postmark statute control the bank levy?

No. Section 11002 addressed mailed remittances, not ownership of funds reached by a levy.

Citations and references

• California Government Code section 11002 — partially quoted for the postmark rule; attached copy, complete text, exceptions, amendments, later history, and current law not supplied
• California Revenue and Taxation Code sections 6757(a), 6703, and 6796 et seq. — levy provisions distinguished from seizure and sale through the Paul discussion; complete texts, procedures, amendments, later history, and current law not supplied
• 11 U.S.C. section 362 — cited for the automatic bankruptcy stay; complete text, exceptions, amendments, later history, and current law not supplied
• In re Paul v. State Board of Equalization, decided May 12, 1988 in the U.S. Bankruptcy Court for the Eastern District of California — no citation, opinion, complete facts, exact holding, quotations, or later history supplied
• In re Caldwell (Sanwa Bank California) v. State Board of Equalization, decided February 16, 1990 in the U.S. Bankruptcy Court for the Central District of California — no citation, opinion, complete facts, exact holding, quotations, or later history supplied
• September 11 request and October 3, 1990 response — no attached statute, levy, petition, bank record, court ruling, payment, dates, amounts, penalty notice, agency reply, claim, appeal, or later outcome supplied; the response introduces the scenario as counsel's understanding
• Official Annotation 320.0055's postmark rule, ownership transfer, payment-date conclusion, and date — omits the cases, other statutes, request, factual qualification, named staff, missing records, printed defects, later outcome, and reliance status and supplies no additional transaction record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/320-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/320-0055.pdf

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Rick Slater
Supervisor, Collections Unit

From:

Gordon P. Adelman
Tax Counsel

Subject:

Effective Date of Payment

320.0055

Date:

October 3, 1990

In your memorandum dated September 11, 1990 you inquired as to the effect of two recent bankruptcy cases on Section 11002, Government Code: regarding the effective date of payment of funds to the Board. The two cases are In re Paul v. State Board of Equalization, decided May 12, 1988 in the USBC, Eastern District of California, and In re Caldwell (Sanwa Bank California) v. State Board of Equalization, decided February 16, 1990 in the USBC, Central District of California. Government Code Section 11002 provides in part that funds are "deemed received on the date shown by the post office cancellation mark stamped upon the envelope containing the remittance…” The two cases hold that service of a Notice or Levy by the Board transfers ownership in the funds levied upon co the Board as of the date of service. You see an apparent conflict between the statute and the cases. I do not see a conflict, The Paul and Caldwell cases involve (1) a question of whether funds levied upon by the Board before a petition in bankruptcy is filed become part of the estate and (2) whether the automatic stay provided by 11 U.S.C. § 362 conceals and applies to the service of the Notice of Levy. The Paul case held that the funds levied upon by the Board two days before the bankruptcy petition was filed never became part of the bankruptcy estate because ownership was transferred to the Board at the time the levy was served. The decision distinguishes Sections 6757(a) and 6703, Revenue and Taxation Code, from Sections 6796 et seq., where seizure and sale occur but the taxpayer retains an interest in the property until title passes. The Caldwell case reached the same conclusion and denied application of the automatic stay since the stay can only apply to debtors and property of the bankruptcy estate. Since ownership transferred to the Board upon service of the levy, the funds were never part of the estate and the automatic stay cannot apply to those funds.

Section 11002, Government Code, is not concerned with whether or not funds levied upon are part of a bankruptcy estate. The statute provides that receipt of funds required by law to be made to the Board on or before a specified date sent through the U. S. Mail is deemed received by the Board on the date postmarked. The taxpayer has relinquished control of the funds when the funds are posted in the mail. I understand that the situation that brought this issue to light involved a levy served on the bank. Before the bank transferred the funds to the Board, the taxpayer filed a petition in bankruptcy. The bank did not release the funds to the Board until the Court ruled the funds were ours. The Court relied on the Paul and Caldwell cases. Meanwhile, the ten-day period for payment after levy had long elapsed and the question arose as co whether a lace payment penalty should apply. Since the Board had ownership as of the dace of service, a lace penalty cannot apply. If you have additional questions, please let me know.

GPA: sr
cc:
Ms. Vi Sawyer
General Services Division

State of California

Board of Equalization

Memorandum

To:

Legal - John Abbott

From:

P. A. Slater

Subject:

Effective Date of Payment

320.0055

Date:

September 11, 1990

Historically, the Board has used the postmark as effective date of payment of remittances as defined in Government Code Section 11002 (attached). Two recent bankruptcy cases, In Re Paul and In Re Caldwell found that service of a Notice of Levy transferred ownership in the funds levied upon to the Board as of the date of service rather than upon receipt of funds by the Board. It would appear that, in the case of remittances received via levy the effective date of payment should be the date or service. This Approach, however, appears to conflict with Section 11002. My choice is date or service. What is yours?

PAS:sas
Attachment
cc:
San Jose - Bill Ryle
Gary Evans