Offers in Compromise
An Offer in Compromise (OIC) is an agreement between the taxpayer and one or more of California’s three tax agencies to settle unpaid tax debt for less than the full amount of the balance due, including penalties and interest.
Although a generous and powerful tool, an OIC is often a last resort after all other available options-such as paying your tax debt in full or over a period of time through an installment agreement-are deemed not feasible because of your current ability to pay, your future earning potential, and the amount of equity you have in your assets.
Each agency has its own forms and approval guidelines for an OIC but all three consider three types of offers:
- Doubt as to Collectability-This is the most common offer, and is used when the taxpayer is unable to pay a tax debt in full before the statute of limitations on collections expires. To determine acceptance, the Franchise Tax Board (FTB), the Employment Development Division (EDD) or the State Board of Equalization (BOE) examine the taxpayer’s ability to pay based on assets, future earning potential and current income and living expenses. A limited amount of current living expenses are considered reasonable and you might be expected to reduce your monthly living expenses to make a higher offer.
- Doubt as to Liability-This offer is used when the taxpayer has reason to believe the assessed tax amount is incorrect. The agencies do not consider ability to pay to determine whether these types of offers will be accepted. Doubt as to Liability, however, is not available to taxpayers who have had their tax debt litigated in court.
- Effective Tax Administration Offer-This offer is used when there is no dispute on the tax debt and the taxpayer has the means to pay the tax debt in full but there are exceptional circumstances that exist. The agencies examine all facts, issues and circumstances when considering this offer. This is the least commonly accepted type of offer.
After an OIC is submitted, it can take three to six months to hear a determination of acceptance from the FTB, EDD or BOE. Collections actions will not be pursued during this time, however, the statute of limitations on collections is tolled during the consideration period. This means that, if it takes them six months to make a determination on your offer, an additional six months will be added on to the time that they have to collect the tax liability from you.
Let Brown, PC Help
An OIC is a complex and complicated process that requires detailed computations and professional assistance. The tax attorneys of Brown, PC will help determine what process is best for your tax situation and will work diligently to prepare a quality offer to get you the best possible resolution. We represent clients in Los Angeles and throughout California. Please contact the firm online or by calling 424-252-1100 to speak with one of our attorneys.