California Offer In Compromise Program
California has an offer in compromise program for taxpayers who do not have the income, assets or means to fully pay their state tax liability currently or in the foreseeable future. However, the FTB will not accept a zero-dollar offer; the offer must represent the most the FTB can expect to collect over a reasonable period of time. The factors used by the FTB in considering the offer include the taxpayer’s ability to pay, the taxpayer's age and health, present and future income and expenses, the amount of equity in the taxpayer’s assets, the potential for changed circumstances and whether the offer is in the best interest of the state.
Application Processing and Options
For the Franchise Tax Board to process an OIC application, the taxpayer must have:
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Filed all required tax returns.
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Fully completed the OIC application (FTB 4905PIT for personal income tax, FTB 4905BE for business income tax) and provided all supporting documentation (see list in 4905 booklet). According to the FTB web, site the booklet and forms are only available by request. By providing the FTB with an email address they will email the information to the requestor.
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Agreed with the FTB as to the amount of tax owed.
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Authorized the FTB to obtain the taxpayer’s consumer credit report, and to investigate and verify the information provided on the application.
If an OIC was accepted by the IRS, it does not mean that the OIC made to the FTB will be accepted automatically. The FTB does a separate evaluation from the federal offer.
If the taxpayer owes tax to the Employment Development Department, California Department of Tax and Fee Administration, and Franchise Tax Board (or any one or combination of these agencies), Form DE 999CA, OIC Multi-Agency Application, can be used instead of FTB 4905PIT or FTB 4905BE.
No Installment Payments
Unlike the federal OIC program which allows instalment payments of the compromised tax amount, the FTB requires a lump sum payment of the offered amount, which must be submitted by cashier’s check or money order. The offered funds should not be sent in with the application but should only be sent to the FTB after the offer is accepted and the taxpayer has been notified to send payment.
Collateral Agreement May Be Required
If the offer is approved, the FTB may require a “collateral agreement” for a term of 5 years. A collateral agreement is a contractual agreement between the taxpayer and the Franchise Tax Board in which the taxpayer agrees to pay to the FTB a percentage of future income that exceeds an agreed upon threshold. Generally, if the taxpayer is on a fixed income or has limited potential for increased earnings, a collateral agreement will not be required.