JK Tax Alert: Colorado Department of Revenue Improperly Issues Liens and Garnishment Notices
By D. Laird Blue
Various news outlets are reporting that the Colorado Department of Revenue improperly issued approximately 5,700 Notices for Lien and Garnishment Under Distraint for Collection of Delinquent State Taxes ("Notice of Garnishment") in late January 2011. A recipient of a Notice of Garnishment is required to pay over to the Department of Revenue the amount shown on the Notice to the extent the recipient holds funds on behalf of the taxpayer or owes money to the taxpayer; this also includes physical property.
The Notice of Garnishment specifically states that the Department of Revenue sent a notice and demand to the taxpayer as required by statute but the taxpayer has not paid the amount owed. It has come to our attention that in some cases there are no taxes owed at all and that no notice and demand was ever sent to the taxpayer. In addition, Notices of Garnishment have not only been sent to banks and financial institutions, they have been sent to customers of taxpayers causing customers to question the viability of the taxpayer's business.
Taxpayers across Colorado are discovering that their banks have complied with the Notices and transferred funds to the Department of Revenue. Some taxpayers are incurring NSF charges as a result of the funds being withdrawn and encountering a snowball effect of mounting fees.
While the Department of Revenue published an FAQ on the matter stating that letters of correction were sent out on February 4, 2011, taxpayers are still having their accounts garnished as recently as late last week.
We recommend that all clients review the transactions in their bank accounts from January 28, 2011 to determine whether they are a victim of the Department of Revenue's error.
If you did have funds improperly transferred from your account we recommend that you take a proactive approach and immediately contact your bank and the Department of Revenue at 303-205-8291. Unfortunately the phone number provided by the Department of Revenue in the FAQ (303-205-8291) is the general collection number and calls to this number generally result in long hold times, inadequate answers and no resolution of improperly garnished funds. We further recommend that you keep a record of your phone conversations with your bank and the Department of Revenue, including the person with whom you spoke and what you were told.
If you still do not get an adequate response from the Department of Revenue, you should consider filing a Colorado Open Records Act ("CORA") request with the Department of Revenue requesting information about the Notices of Garnishment sent to the your bank and/or clients. The Department of Revenue is required, by law, to respond to the CORA request within 3 business days. This should get the attention of the Department of Revenue and the Colorado Attorney General's office. In our experience, the government takes a taxpayer's concerns much more seriously once Jones & Keller files a CORA request on the taxpayer's behalf.
If you have difficulty resolving the improper taking of your funds, you may contact the tax attorneys at Jones & Keller for assistance.
THIS TAX ALERT CONTAINS PROVISIONS CONCERNING A FEDERAL TAX ISSUE OR ISSUES AND IS NOT INTENDED TO BE USED, AND MAY NOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER BY THE INTERNAL REVENUE SERVICE.