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Settling tax debt in California

On Behalf of | Nov 2, 2022 | Tax Debt

The California Franchise Tax Board has an Offer in Compromise program available for residents who want to settle tax debt. The program allows residents to offer a lower amount to pay the undisputed final tax liability. The Internal Revenue Service also has an OIC program available for settling tax debt. Paying less than the amount owed may be available for those who cannot pay the full amount or would face financial hardship if they had to pay in full.

Tax debt resolution

Before you can apply for California’s OIC, you’re required to have already explored other payment options with the FTB, filed all the necessary income returns and agreed on the amount owed. Eligibility for the OIC is based on the applicant’s ability to pay, current and future income and expenses, the value of current assets, the potential for a change in circumstances and if the offer is in the best interest of the state. The offer made must be a lump sum.

Settling tax obiigations

The IRS uses similar criteria to qualify applicants and has an OIC that allows periodic payments each month. Applicants are required to submit an application package that includes Form 433 for the OIC, Form 656 for submitting personal or business tax debt, $205 in application fees and initial payment. If you don’t qualify and the IRS can’t process the OIC, the application and fee are returned and the initial payment included may be applied to the balance due.

In California, debtors apply for OIC with Form FTB 4905 either as an individual or as a business entity. Individuals who have tax debt with more than one agency, use Multi-Agency Form 999 for OIC. The FTB typically reaches a decision within 4 to 6 months if the account isn’t complicated.