Articles

Sales Tax Offers in Compromise

Offers in compromise — CDTFA

Friday, January 01, 2021
By: Spidell

To qualify for the CDTFA’s OIC program, the taxpayer must:

Have a tax or fee liability on a closed account;
No longer be associated with the business that incurred the liability, or with a similar type of business; (see exception below)
Not dispute the amount of tax or fee owed; and
Be unable to pay the full amount owed in a reasonable amount of time.

Until January 1, 2023, the CDTFA will also consider an OIC for:

Open and active businesses that have not received reimbursement from the taxes, fees, or surcharges owed;
Persons liable as successors; and
Consumers, who are not required to hold a seller’s permit, but incurred a use tax liability.

A taxpayer may not request an offer if:
There is a Petition for Redetermination, late protest, claim for refund, or settlement pending; or
The tax or fee liability is not final.

The taxpayer does not qualify for the OIC program until all appeal rights have been exhausted. (R&TC §§7093.6, 9278, 50156.18)

Pre-qualifier tool
The CDTFA has developed an online OIC pre-qualifier tool to assist taxpayers with closed businesses determine if they are eligible for apply for an OIC by entering financial information to calculate a preliminary offer amount.

The tool is available at:

Website: www.cdtfa.ca.gov/OIC/

Acceptance of offers
The CDTFA will generally approve an offer when the amount offered represents the most it can expect to collect within a reasonable amount of time (typically five to seven years).
In evaluating the offer, the CDTFA gives strong consideration to:

Ability to pay;
Amount of equity in assets;
Present and future income;
Present and future expenses;
Potential for changed circumstances; and
Concealment of assets or existence of fraud.

Both public and private sources of information will be used to verify a taxpayer’s financial condition.
Although the CDTFA normally suspends collection action while evaluating an offer, taxpayers who are currently in an installment payment agreement or earnings withholding order are required to continue making payments. Interest continues to accrue on the liability while the offer is evaluated.

Note: If the taxpayer is currently making installment payments, the offer should be for more than would be collected under the installment plan.

Submitting the application
Use Form 490 (individuals) or Form 490-C (all other entities), Offer in Compromise Application, along with income and financial information (including copies of tax returns for the past three years). A taxpayer may not use FTB or IRS forms nor submit a copy of an IRS or an FTB OIC. However, a sole proprietor may submit a Form DE 999CA, Multi-Agency Form for Offer in Compromise, which is a single form that can be submitted simultaneously to the CDTFA, EDD, and FTB. If you use the Multi-Agency application, you will still need to negotiate separate payment arrangements with each agency.

Supporting documents must be provided with the application. However, there is one list of supporting documents for individuals and another list for all other entities. A complete list is available by searching “OIC documentation” on the CDTFA website at:

Website: www.cdtfa.ca.gov

The completed application should be submitted to the local district office or department that has been handling the taxpayer’s account. That office will forward the application to the Offers in Compromise Section for evaluation.

Payments
The CDTFA requires full payment of the amount offered before it makes a final decision on the offer. After the taxpayer submits the application, the CDTFA will request the taxpayer either pay the full amount offered, or the taxpayer may make payments toward the offer amount. The funds are then held as a deposit while the final review takes place. If the offer is ultimately denied, the funds are returned to the taxpayer, and no interest is paid on the deposit.

However, taxpayers may apply the deposit to their liability. The effective date of the payment is the date the deposit was made.

Installment payments
Taxpayers may enter into a written installment agreement, at the discretion of the OIC Section based on the taxpayer’s financial situation. All payments must be received within 12 months. In contrast to taxpayers who pay the full amount up front as a deposit, if a taxpayer makes installments, the CDTFA will retain all payments made if the taxpayer fails to make subsequent payments.

In contrast, the CDTFA will retain all installment payments received should a taxpayer fail to make subsequent installments as agreed to.

How long does the process take?
Generally, once a completed offer is received, it takes about 180 days to get a decision to the taxpayer. The process will take longer if the application is incomplete or if the situation is complex.

Note: When more than one taxpayer is liable for a debt, such as with spouses, partnerships, or other business entities, the acceptance of an offer in compromise from one liable taxpayer does not relieve the other taxpayer(s) from paying the entire liability. However, the amount of the liability will be reduced by the amount of the accepted offer.

Approval may be required
For any reduction in tax or fees of $7,500 or less, the CDTFA Director and chief counsel are jointly allowed to compromise a debt, or to delegate the authority to others within the CDTFA. The CDTFA Director has final approval authority for offers that result in a reduction of more than $7,500. (R&TC §7093.6)

Public-record statements
The CDTFA is required to post a public-record statement when a compromise of tax and/or penalties in excess of $500 is approved. (R&TC §7093.5) A public-record statement includes:

The name of the taxpayer involved in the compromise;
The amount of unpaid tax and related penalties, interest, or other amounts involved;
The amount offered; and
A summary of the reasons why the compromise is in the best interest of the state.

A public-record statement is placed in the office of the CDTFA’s executive director for at least one year.


About the Author
D. Steven Yahnian has been a member of the California Bar and a practicing Attorney since 1980. He has also been a California CPA since 1984. Mr. Yahnian also holds the CFP® designation.

Mr. Yahnian practices in the following areas of law through YAHNIAN LAW CORPORATION:

  • Tax Planning, Tax Debt Resolution and Tax Litigation
  • Business & Corporate Law & Planning
  • Estate Planning & Administration
  • Real Property Law & Planning
  • Asset Protection Planning

As a CPA/CFP, Mr. Yahnian also has a separate accounting and tax return preparation practice called DSA ACCOUNTING.

Mr. Yahnian is a California State Bar Certified Specialist in the following
• Taxation Law and
• Estate Planning, Trust & Probate Law.

Mr. Yahnian received a B.S. degree in Accounting from USC, a J.D. from Loyola University of Los Angeles School of Law and an LL.M. in Taxation from New York University Law School. He also has a Certificate in Taxation from UCLA (with distinction).

See websites:

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