Collection notice from California State Controller for PTP

Please HELP!
Last week my wife received a bill from the California State Controller's collection office for approximately $8700.
They stated that if it remained unpaid the CA state controller's office will begin the process to intercept our State and federal returns. My wife is a housewife and has no income and because we file jointly they will go after my income tax return. This year I setup my exemptions low because I wanted to discretely save enough money for a vacation in the summer of 2013.
Filing married and Separate is not an option as the impact is much to great (2000$-3000$)
Took me some work to finally understand what happened.
The story turns out that my wife's previous husband used her name for absolutely everything and kept himself out of it. That includes the house, credit cards, and autos. My wife unfortunately at the time was very trusting and signed everything her husband through in front of her. In 2006 they bought a home and because her then husband was a disabled veteran he qualified for a California state program called the "Property Tax Postponement" program. This program offered by the state of California if you qualify pays for your Property taxes in full year after year indefinitely until you decide to sell or happen to die, in which the debt needs to be paid off by the owner or the estate. The subject home in the meantime carries a lien against it.
After a year in January of 2007 the house foreclosed and the Lien from the STATE of CA was never paid off. The reason was because it was considered a Jr. Lien against all others.
Her X-husband is on Social Security and does not file income tax returns. Therefore they will be coming after us.
Since my wife did not know anything about the debt owed to the state she did not include it during the 2007 bankruptcy filing.
What options do I have to protect my income tax return without filing married/separate?
• Is there any protection under the "Innocent Spouse"? My wife has no knowledge of this program and was initiated by her then husband of which he was the one whom qualified.
• Can the bankruptcy be amended to add this old debt which was incurred before the bankruptcy filing? And will it successfully protect my wife and me from this old debt. The state was actually acting as a bank and loaned them the money while incurring interest.
• Did someone drop the ball by not enforcing the lien at foreclosure?

ciscodilla:

• Is there any protection under the "Innocent Spouse"? My wife has no knowledge of this program and was initiated by her then husband of which he was the one whom qualified.
• Can the bankruptcy be amended to add this old debt which was incurred before the bankruptcy filing? And will it successfully protect my wife and me from this old debt. The state was actually acting as a bank and loaned them the money while incurring interest.
• Did someone drop the ball by not enforcing the lien at foreclosure?

I will let tax agent handle the first one, if he knows.

If the debt is treated as a tax, and it appears it would, it would not be discharged in bankruptcy, so no point in paying to reopen and amend if that is the case.   Check with your bankruptcy attorney about how this particular lien is treated in bankruptcy.

It is possible it should have been paid off at foreclosure, but it is likely a junior lien, and as such, the lien was wiped out in foreclosure as it was not a true tax lien, but still may be considered a tax debt.

ciscodilla:

My wife is a housewife and has no income and because we file jointly they will go after my income tax return. This year I setup my exemptions low because I wanted to discretely save enough money for a vacation in the summer of 2013.

I suggest, first thing Monday morning when you go to work, that you file a new W-4 and change your withholding to take out as little as possible for federal and states taxes to offset the extra amount already taken out.

You've probably got several paychecks coming in Nov and Dec. You might be able to get your tax returns close to break even so if there is an interception it might be relatively painless and give you some breathing space to figure this out.

Meantime, you need a tax pro who can analyze the property tax laws and see if there's a way out from under this.

ciscodilla:

Is there any protection under the "Innocent Spouse"?  

No. Both the federal and the CA state "innocent spouse" programs are for relief to a spouse for joint INCOME taxes owed. The liability here is for real estate taxes, and there is no innocent spouse relief program for that.

ciscodilla:

• Is there any protection under the "Innocent Spouse"? My wife has no knowledge of this program and was initiated by her then husband of which he was the one whom qualified.

No.  This does not apply to property taxes.

ciscodilla:

This year I setup my exemptions low because I wanted to discretely save enough money for a vacation in the summer of 2013.

There are many other ways to "discretely" set aside funds. It is silly to do so via reliance on a tax refund. 

LG81:

There are many other ways to "discretely" set aside funds. It is silly to do so via reliance on a tax refund. 

Also silly to let the government borrow your money interest free for a year.

Okay..Point well taken.  I had no reason to expect them to intercept my taxes.  It was a complete surprise.  Lets put that to rest now.

So Innocent spouse is not an option which I expected.

Now the house in which the taxes were owed has forclosed 2007.  I have a feeling that these should not be treated as taxes owed.  When I called the state controllers office I explained that my wife filed chapter 7 in 2007 after the property forclosed. They sad they have no information regarding the bankruptcy.  They then asked that I fax them the Bankruptcy information.  When I called they said that they where not named in the Bankruptcy so the debt is still good.

They are not willing to tell me that if I do ammend my wifes bankruptcy she will be relieved of the debt.  But I wondered why they would even ask for the bankruptcy information be sent to them if it never applied int he first case.

They County taxes were paid by the state and the state took on the debt with interest.  I essence they where playing the role of bank.  Which was a secured by the house which forclosed.

here is a link to the Property tax postponemnt program which my wifes X husband applied and received.

leginfo.ca.gov/pub/11-12/bill/asm/ab_1051-1100/ab_1090_bill_20110902_enrolled.pdf

ciscodilla:

They are not willing to tell me that if I do ammend my wifes bankruptcy she will be relieved of the debt

They aren't there to help you.

Talk to your wife's bankruptcy attorney about that.

ciscodilla:

But I wondered why they would even ask for the bankruptcy information be sent to them if it never applied int he first case.

For documentation purpose.

ciscodilla:

They County taxes were paid by the state and the state took on the debt with interest.  I essence they where playing the role of bank.  Which was a secured by the house which forclosed.

I doubt if any of that makes any difference.

ciscodilla:

here is a link to the Property tax postponemnt program which my wifes X husband applied and received.

leginfo.ca.gov/pub/11-12/bill/asm/ab_1051-1100/ab_1090_bill_20110902_enrolled.pdf

That's the proposed bill.

You'll need to look up the statute that was actually passed to rule out any last minute changes prior to passing.

Thanks again for all of your help...

After talking to the State controllers office it seems that this debt is dischargeable but only if the debtor is named in the bankruptcy.  In this case they are not.  Ive been doing some reading and it seems that bankruptcy is pretty broad when it is conidered a "No Asset" bankruptcy which in this case it is.  

I sent the SCO a copy of the CH 7 discharge along with a statement stating that this was a "NO ASSET" bankruptcy and that based on the Bankruptcy code all dischargeable debts are included regardless of whether or not they were listed in the list of creditors.

If by chance they continue to insist tht they must be listed what will it take to open a 5 year old "NO ASSET" bankruptcy in order to amend a creditor where the debt was incurred prior to bankruptcy.