Modification of California Unemployment Insurance Code Section 1755(a) to Provide a Minimum Holding Period for Surrender of Property Subject to Levy from Financial Institutions

JurisdictionCalifornia,United States
AuthorBy Rami Khoury, Joyce Cheng and Alexander Schindler
CitationVol. 30 No. 1
Publication year2021
Modification of California Unemployment Insurance Code Section 1755(a) to Provide a Minimum Holding Period for Surrender of Property Subject to Levy from Financial Institutions

By Rami Khoury, Joyce Cheng and Alexander Schindler1

The authors would like to thank Robert Schriebman and Patrick McGinnis for their helpful comments.2


The current legislation under California Unemployment Insurance Code ("CUIC") § 1755 governs bank levies by the Employment Development Department ("EDD"). CUIC § 1755(a) explains the levy process, applicable statutory periods, and identifies a response time of "within five days of service of the levy." This means that once a levy is served upon a financial institution, the institution must remit the levied funds to the EDD "within five days of service of the levy" to avoid being deemed liable for the tax.

In contrast, Revenue & Taxation Code ("R&TC") § 18670 for the Franchise Tax Board ("FTB"), R&TC § 6703 for the California Department of Tax and Fee Administration ("CDTFA") as explained in Compliance Policy and Procedures Manual (CPPM) Chapter 7, section 753.205, and 26 United States Code ("U.S.C.") § 6332(c) for the Internal Revenue Service ("IRS") provide significant guidance regarding how and when banks must surrender deposits that are subject to levy from other taxing agencies. Pursuant to R&TC § 18670, the bank remits the levied funds "not less than 10 business days from receipt" of the levy notice. Pursuant to CDTFA Collection Publication 54, the bank must hold the funds subject to levy for 10 days prior to releasing the levied funds to the CDTFA. Finally, 26 U.S.C. § 6332(c), provides that the financial institution must turn over levied funds "only after 21 days after service of the levy." Ultimately, the other taxing agencies demonstrate at least a 10-day minimum holding period after receipt of a levy before remitting the designated funds, which is very different from the language found in CUIC § 1755, which requires funds to be remitted to the EDD "within five days."

The limited response time—"within five days"—required under CUIC § 1755 does not provide the taxpayer a sufficient opportunity to determine the validity of the levy, whether funds are exempt from levy, or whether the proposed levy would create undue financial hardship. The authors propose that this law be modified to provide a minimum holding period of 21 days. Modifying the statute would reduce: (1) financial hardship to taxpayers and, (2) administrative costs for the Employment Development Department.


This proposal addresses the EDD bank levy statute codified in CUIC § 1755. The code section at issue imposes an undue financial hardship and administrative costs on taxpayers and the EDD. This proposal will recommend solutions and amendments to the statute that would allow taxpayers to avoid financial hardship and will allow the EDD to avoid administrative costs.


CUIC § 1755 requires banks to remit levied funds to the EDD "within five days of service of the levy." The authors propose that this statute be changed to more closely mirror the required levy hold periods of the FTB, CDTFA, and IRS.

A. Bank Policy When Receiving a Levy Notice

The authors of the proposal researched the internal policies of several major banks regarding accounts served with levies.3 The bank policies are generally consistent in two respects. First, the account holder must pay a fee for the bank's processing of a levy. This fee applies even in the event of a wrongful levy action. Second, a bank will generally refuse to remit withdrawals and honor the levy that they believe is valid, even if it leaves the account holder's account with insufficient funds to pay a check that was written from the account. Banks are sure to remit levied funds to avoid incurring liability for failure to comply.4

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Banks are legally required to comply with a levy notice sent from a taxing agency and will presume its validity unless a taxing agency instructs otherwise. As such, the imposition of fees and restrictions placed on a taxpayer's account are intrusive.

B. FTB Bank Levy Procedures

Per California Revenue and Taxation Code § 18670, the FTB instructs financial institutions to hold taxpayer funds for 10 business days before remitting taxpayer funds in accordance with that bank levy. The minimum holding period the FTB grants to taxpayers is significantly longer than the maximum holding period that the EDD grants. Taxpayers are afforded at least 10 business days to resolve their accounts (essentially at least two full weeks) before levy action is taken. Conversely, the EDD language states that a financial institution must remit a levy "within 5 days." This distinction is significant because, regardless of the "hold period," the bank will withdraw the funds from the taxpayers account on the day the levy is received. The absence of the term "business" days is conspicuous and could effectively reduce the time for taxpayer intervention to 1 or 2 days if a levy is served on a Thursday or if there is a three-day holiday weekend. Thus, mirroring the FTB's holding period would afford taxpayers time to intervene to resolve their liabilities in an alternative manner.

The FTB also provides notice to taxpayers before levying their bank accounts. Before bank levies are enforced, the FTB sends taxpayers the following notices: Formal Demand for Payment5, Past Due Notice, Final Notice Before Levy ("FNBL"), etc. Initially, the FTB sends a series of collection notices, such as the Formal Demand for Payment and Past Due Notice, to make taxpayers aware that they owe a liability. When the taxpayer does not respond to the notices or resolve their state tax liabilities, the FTB then issues the taxpayer a FNBL. The FNBL advises the taxpayer of its liability and the col lection action the FTB could pursue, including bank levies.

Conversely, the EDD does not provide pre-levy notice to a taxpayer. As discussed further below, there are likely underlying due process issues given that the EDD is not required to issue any notices prior to taking levy action.

C. CDTFA Bank Levy Procedures

Similar to the FTB, the CDTFA provides for a 10-day holding period from the date the levy is served before remitting bank funds.6 During this minimum holding period, taxpayers have an opportunity to contact the CDTFA to discuss alternatives to levy or to file a claim of exemption with the levying officer. The...

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