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If you are an individual or business taxpayer that does not have the income, assets, or means to pay your state income tax liability to the California Franchise Tax Board (CAFTB) now or in the foreseeable future, you may be a candidate. The Offer in Compromise program allows you to settle your debt to California for less than the amount owed.

 Generally, the state of California will approve an Offer in Compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.  The term "reasonable" is not precisely defined and the state does not have a 10 statute expiration like the IRS does. Therefore, "reasonable" may be longer than 10 years.  

Although we evaluate each case based on its own unique set of facts and circumstances, we give the following factors strong consideration:

·         The taxpayer's ability to pay.

·         The amount of equity in the taxpayer's assets.

·         The taxpayer's present and future income.

·         The taxpayer's present and future expenses.

·         The potential for changed circumstances.

·         Whether the offer is in the best interest of the state.

 Eligibility for the Offer in Compromise

The CAFTB will only process your Offer in Compromise application if you have done all of the following:

·         Filed all of the required tax returns and you agree on the amount you owe. If you have no filing requirement, note it on the application.

·         Fully completed the Offer in Compromise application and provided all supporting documentation.

·         Authorized the Franchise Tax board to obtain your consumer credit report and to investigate and verify the information you provided on the application.

Collateral Agreement

Upon approval of your offer in compromise, the CAFTB may require that you to enter into a collateral agreement for a term of five years. Generally, a collateral agreement will be required if you have significant potential for increased earnings. A collateral agreement requires you to pay the California Franchise Tax Board a percentage of your future earnings that exceed an agreed upon threshold. If your earnings do not exceed that threshold you will not have to pay any additional money.

  Collection Actions May Not Be Suspended

Unlike the IRS, collection activity is not automatically suspended at the CAFTB. If delaying collection activity jeopardizes our ability to collect the tax, we may continue with collection efforts. Interest will continue to accrue as prescribed by law.

 How Long Does it Take to Get a Decision?

The CAFTB website says"Generally, we will have a decision within 120 days of your account being assigned to a specialist. If your account is more complex, it may take longer than 120 days."  However it has been my personal experience that these take much longer... even as long as one year.

If you offer in compromise is accepted, you must make a lump sum payment of that offer amount.  You will not be allowed to make payments on the offered amount.  Additionally, prior payments cannot be applied to the offer amount.

The CAFTB will not accept a zero dollar offer.  Your offer must represent the most the Franchise Tax Board can expect to collect from you over a "reasonable" amount of time.

 Different Criteria than the IRS

The California Franchise Tax Board offer in compromise program is entirely separate from the IRS program.  It has been my experience that the CAFTB is much more difficult to work with.  The IRS has much more definitive processes and procedures.  The IRS has a 10 year collection statute expiration date (CSED) cannot collect a debt after that date has passed.  The CAFTB does not have the same rules giving them more time to collect on your debt. Additionally, the IRS has formal guidelines on standard living expense allowances.  The CAFTB has no formal guidelines on expenses... sometimes I get the feeling they are just making it up as they are going along over there.

 For more information visit:  https://www.ftb.ca.gov

My name is David Krausse.  I am a licensed Enrolled Agent, admitted to practice before the IRS.  I am an advocate for taxpayer’s rights and believe that everyone deserves a second chance.