California Offer in Compromise: What You Need to Know
An Offer in Compromise is an agreement between you and the State Government to settle your back taxes for less than you owe.
An Offer in Compromise is strictly based on numbers; basically, your income versus your expenses and the equity in your assets.
If you can prove to the State you do not have the ability to pay back your taxes in full before the Statute of Limitations expires, then you may be eligible to file an Offer in Compromise. However, it will depend on your Reasonable Collection Potential and how much time is left before Statute of Limitations on the debt expires.
Qualifying for an Offer in Compromise
The State of California OIC program is through the Franchise Tax Board. That website is www.ftb.ca.gov Much like the IRS OIC process, they give the following more consideration when evaluating your Offer:
- Ability to pay.
- Equity in assets.
- Present and future income.
- Present and future expenses.
- Taxpayer’s age and health.
- The potential for changed circumstances.
- Whether the Offer is in the best interest of the state.
In addition, compliance is a must so you need to file all required tax returns.
Submitting Your Offer in Compromise
California uses Form 4905 PIT to submit Offer for Individuals, and Form 4905 BE for Business Entities. In addition, you are also authorizing the FTB to obtain your credit report, investigate and verify the information provided on your application.
California requires all applicants to fully complete the application. If a something doesn’t apply to you then you must write “not applicable” in that section. You cannot leave it blank.
You must submit bank statements, income information such as paystubs and/or profit and loss worksheets. If you submitted an OIC to the IRS, you must include a copy of that acceptance letter.
Lastly, if you fail to disclose an asset and the State finds out about that asset during its evaluation process, they will automatically deny your Offer, and good luck submitting again.
Offer in Compromise Pros and Cons
The Pros of submitting an Offer to the State of California is they may allow your debt to be compromised and thereby removed.
The Cons are if the State rejects your Offer, it is not subject to administrative or judicial review. In addition, if you submit a second Offer it will 99% of the time also be rejected.