CDTFA OFFERS IN COMPROMISE
The State Board of Equalization allows taxpayers to request a settlement of their tax liabilities for less than the full amount. The SBOE Offer in Compromise (OIC) program is for taxpayers that do not have, and will not have in the foreseeable future, the income, assets or means to pay their tax liabilities in full. The SBOE OIC program allows a taxpayer to offer a lesser amount for payment of a non-disputed final tax liability. The SBOE OIC is similar to the IRS Offer In Compromise in some respects, but altogether different in other respects.
Generally, the SBOE approves an Offer in Compromise when the amount offered represents the most that the SBOE can expect to receive from the taxpayer’s current income or assets. Although each offer in compromise is evaluated 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
The SBOE will evaluate all of these factors in making its determination of whether to accept the taxpayer’s offer in compromise and its determination of the amount the SBOE will accept as the offer amount. If you have been assessed a fraud penalty, a minimum offer amount including the outstanding tax and fraud penalty is required for the SBOE to accept the offer. However, if you have been convicted of felony tax evasion, generally an offer will not be considered. An SBOE tax liability may be the result of an SBOE audit, and these types of tax liabilities can be settled as well.
In Business CDTFA Offer in Compromise
The Offer in Compromise (OIC) program is for taxpayers or feepayers that do not have, and will not have in the foreseeable future, the income, assets, or means to pay their liability in full. It allows a taxpayer or feepayer to offer a lesser amount for payment of a non-disputed final tax liability.
Effective January 1, 2009 through January 1, 2018, the OIC program will extend to qualified active businesses where the taxpayer or feepayer has not received or collected the tax or fee reimbursement for tax and fees owed to the State, to successors of businesses that may have inherited tax liabilities of the predecessors, and to consumers who incurred a use tax liability.
A qualified active business is an active business that does not have, and will not have in the foreseeable future, the income, assets, or means to pay their non-disputed board assessed liability in full, where the Board of Equalization finds no evidence that the taxpayer collected sales or use tax reimbursement, and the taxpayer has not previously received an offer in compromise.
Generally, the CDTFA approves an OIC when the amount offered represents the most it can expect to collect within a reasonable period of time. Although each case is evaluated based on its own merit, we give the following factors strong consideration in the evaluation:
- ability to pay
- equity in the entity’s assets
- present and future income
- present and future expenses
- potential for changed circumstances
- concealment of assets or existence of fraud
Therefore, the SBOE will accept offers in compromise for existed and ongoing businesses as long as the business did not collect the sales tax.
Will collection action be suspended while my offer is being evaluated?
In most cases, no new collection action will be taken while your offer is being evaluated. However, submitting an offer does not automatically suspend collection activity. If delaying collection activity jeopardizes our ability to collect the amount you owe, we may continue with collection efforts. The following documentation must be submitted with the OIC Application. Please submit copies only. We will not return any documentation that you send us. Additional documentation may be required and requested as the evaluation of the OIC proceeds. Your OIC must include the following:
- Completed OIC application
- All required documentation to support the OIC
List of Items Required for Your CDTFA Offer in Compromise
All required documents to support your offer in compromise must be included in the offer in compromise for the offer to be successful. The presentation of the offer in compromise is very important and the better your offer in compromise is organized, the better the chances are for success.
Verification of Income and Expenses
Year-to-date income and expense statements, cash flow statements, profit and loss statements, a balance sheet, and any other related documents. If the entity is subject to annual financial audit, you will need to submit audited financial statements.
Bank statements for all savings, checking, and investment accounts held within the last twelve months. Final statement for any accounts closed within that time. Investment account statements showing the value of stocks, bonds, and mutual funds.
Current Lease or Rental Agreements
Include all lease agreements, including property where you are the lessor or lessee. This is used to substantiated your rental expense.
Real Property Information
Mortgage statements, escrow settlement statements, or copies of grant deeds for any property currently owned, sold, or gifted in the last five years. Include the fair market value as well to calculate the equity in your real estate.
Copies of loan/lease statements for all vehicles. You will need to include the fair market value of the vehicle to calculate the equity in the vehicle.
Complete copies of Internal Revenue Service (IRS) and Franchise Tax Board (FTB) returns for the last three years filed. Please include all attached schedules. If applicable, copy of IRS, FTB, or Employment Development Department (EDD) OIC and acceptance letter or documentation of other IRS/FTB/EDD arrangements.
Copies of judgments, pending lawsuits, trust documents, and bankruptcy documents.
CDTFA OFFER IN COMPROMISE SUCCESS
If you have a proposed CDTFA assessment or an CDTFA tax liability, you have options to resolve your matter successfully. An installment agreement or offer in compromise may be appropriate for you. Contact a Los Angeles tax attorney at Disparte Tax Law today for a free consultation.