Offer in Compromise
What is an Offer in Compromise?
An Offer in Compromise (OIC) is a proposal to pay the California Department of Tax and Fee Administration (CDTFA) an amount that is less than the full tax or fee liability due.
Do you qualify for the OIC program?
The 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 tax liability in full. You qualify for the program if you meet all of the following criteria:
- Have a final tax or fee liability on a closed account.
- Are no longer associated with the business that incurred the liability or a similar type of business.
- Do not dispute the amount of tax or fee you owe.
- Cannot pay the full amount you owe in a reasonable amount of time.
Effective January 1, 2009 through 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; successors of businesses that may have inherited tax liabilities from their predecessors; and consumers, who are not required to hold a seller's permit, but incurred a use tax liability.
How do you apply?
You must complete an OIC Application (form CDTFA-490 for individuals or form CDTFA-490-C for all other entities) and submit it with the supporting documentation listed on the second page of the application to the California Department of Tax and Fee Administration collector assigned to your account. If your account is not assigned to a collector, please contact your local field office or division that administers your account. For more specific information on the OIC process, you may contact the OIC Section at 916 322-7931.
If you have liabilities with multiple state tax agencies, it may be helpful to use the Multi-Agency application (Multi-Agency Form for Offer in Compromise). This application can be used to apply for OIC programs with CDTFA, EDD, and FTB without duplication of forms or other paperwork. If you use the Multi-Agency application, you will still need to negotiate separate payment arrangements with each agency.
How are OIC's evaluated?
Although each case is evaluated based on its own unique set of facts and circumstances, the CDTFA will 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
Generally, we approve an OIC when the amount offered represents the most the CDTFA can expect to collect within a reasonable period of time. The OIC must be in the State's best interest.
Please note: If you have been assessed a fraud penalty, a minimum offer of the outstanding tax and fraud penalty is required for processing. However, if you have been convicted of a felony tax evasion, an offer will not be considered.
When do you pay?
You should not submit the offered funds until the CDTFA requests them. If the OIC section recommends acceptance of your offer, staff will contact you in writing and ask you to pay the full amount offered. Your funds will be held as a deposit, and credit interest will not be paid to you on the deposited amount if your offer is denied and subsequently refunded. In some cases, you may also be asked to pay court fees for a Stipulation for Judgment.
Questions and Answers
Publication 56 answers several of the most commonly asked questions. Many practitioners use this tri-fold as a helpful handout for their clients.
Additional questions and answers can be found on the Offer in Compromise – Frequently Asked Questions Page.
If you do not qualify for an OIC, what options do you have?
If you dispute CDTFA's staff's decision regarding the amount of tax or fee you owe, you can usually contest that decision by filing an appeal (filing deadlines apply). Or you may pay the liability and then file a Claim for Refund, CDTFA-101 (filing deadlines apply). If you have a petition for redetermination, administrative protest, or claim for refund pending, you may qualify for the Settlement Program. You may want to refer to Publication 17, Appeals Procedures, for additional information concerning the CDTFA's appeal process. If you want to make payments instead of paying the liability in full, you should contact the collector assigned to your case. You may want to refer to Publication 54, Collection Procedures, for additional information concerning the CDTFA's collection process.
If you are an individual or individual partner, please click the individual button to see a list of the supporting documentation you need to send with your OIC Application. If you are submitting an OIC Application for a corporation, limited liability company, partnership, trust, or other business organization, please click the other entity button to see a list of the supporting documentation you need to send with your OIC Application.
What does the California Department of Tax and Fee Administration (CDTFA) consider a fair Offer in Compromise (OIC) in relation to the amount due?
Generally, an OIC will be accepted when the amount offered is more than the CDTFA can expect to collect within a reasonable period of time, typically from five to seven years.
For closed out accounts, you cannot have an interest or association with the same business or a similar type of business as the transferred or discontinued business for which you seek a compromise. Effective January 1, 2009 through 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; successors of businesses that may have inherited tax liabilities from their predecessors; and consumers, who are not required to hold a seller's permit, but incurred a use tax liability.
I have an open business that is a partnership. Do all partners have to submit an OIC application with personal financial information?
Yes. For open businesses, all partners must submit an OIC application and make full disclosure of their business and personal financial information in order to be considered for an OIC.
No. Your CDTFA offer will be evaluated separately from your IRS or FTB offer.
Yes. Effective January 1, 2009 through January 1, 2023, if you are unable to fund your offer with a lump-sum payment, you may enter into a written agreement to pay the offered amount with payments over a period not to exceed one year. However, the terms of the payment agreement are at the discretion of the OIC Section and are determined by your current and future financial situation.
Representation is not required. OIC is available to all taxpayers, whether or not they are represented. If you think you need representation, there are many tax professionals who have experience with the OIC process.
No. Prior payments are not credited to the offered amount unless you have entered into a written agreement with the OIC Section to fund the offer with installment payments. However, prior payments and the offered amount compared to the total liability are taken into consideration when evaluating your OIC.
No. Interest continues to accrue on your liability while your OIC is being evaluated.
Most collection actions will be suspended while your OIC is being considered. However, if delaying collection activity jeopardizes the CDTFA's ability to collect the tax, the CDTFA may continue with collection efforts. You may also be required to continue payments if you are currently in an Installment Payment Agreement while applying for an OIC. You may want to refer to Publication 54, Collection Procedures, for additional information concerning the CDTFA's collection process.
Generally the CDTFA will release state tax liens upon final approval of your OIC. However, if another partner existed on the permit, that person's liability will not be canceled nor will the lien be released. A single-party release will be issued to release you from the effects of the lien.
Your application information and financial documentation will be evaluated. If your OIC is acceptable, the OIC Section will submit a recommendation to management for approval.
The CDTFA will apply the offered funds to the amount owed and release any tax liens associated with the taxpayer involved in the compromise. If the liability compromised was for an active business, you must file and pay all returns by the required due dates for a five-year period from the date the liability was compromised or your OIC may be rescinded. The CDTFA is required by law to post a public record statement when a compromise of tax and/or penalties in excess of $500 is approved.
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 Director for at least one year.
Generally, if the CDTFA accepts your OIC for processing, the CDTFA will have a decision to you within 180 days after receiving your offer. If your account is more complex, it may take longer than 180 days.
The CDTFA may contact you to discuss your account and to determine the most appropriate resolution. For example, if the CDTFA determines that you have the ability to make monthly payments that will exceed the amount offered, the CDTFA will work with you to establish an installment payment agreement.
Yes. If you funded the offer with a lump sum payment you may choose to have the deposit applied to your liability or you may have it returned to you. If you choose to do so, the effective date of the payment is the date the deposit was made. If the deposit was posted by a third party, the CDTFA must obtain their approval before applying the payment. If the offer was funded through a written payment agreement, the payments are retained and applied towards the liability.
For active businesses, effective January 1, 2009 through January 1, 2023, only "qualified" liabilities are eligible for the OIC program. A "qualified" liability is a final CDTFA assessed liability that resulted from a transaction in which no tax or fee reimbursement was collected from the customer. If tax was collected but not remitted in full to the CDTFA, the liability is not a "qualified" liability and will not be considered for an OIC.
Generally, a tax or fee liability becomes final after you have exhausted all your appeal rights. The tax or fee liability is not final if you have a petition for redetermination, administrative protest, claim for refund, or settlement pending.
I purchased a business and was assessed a liability for taxes incurred by the previous business owner. Do I qualify for an OIC?
Yes. Effective January 1, 2009 through January 1, 2023, if you inherited a liability as a "successor" of a business for your predecessor's tax or fee liability, the liability is eligible for an OIC, as long as you were not part of the predecessor's business. However, if you were notified by the CDTFA through a Sales Tax Clearance Request or through an open escrow, that the predecessor had a liability prior to purchasing the business, your OIC will not be considered. For example, you initiated an escrow to purchase the business and were notified that a liability existed. If the escrow is cancelled and you later purchase the business without obtaining a tax clearance from the CDTFA, you were aware of the liability prior to your purchase and circumvented payment to the CDTFA. Therefore, the CDTFA will not compromise your successor liability.
I don't own a business, but I purchased tangible personal property outside California and was later assessed use tax on my purchases. Can I resolve my liability with an OIC?
Yes. Effective January 1, 2009 through January 1, 2023, consumers (not required to hold a permit with the CDTFA) who incur a use tax liability may resolve their liability through the OIC program provided they do not have the ability to pay the outstanding liability in full.
I previously received an OIC and would like to get another compromise for liabilities recently assessed by the CDTFA. Will my second request be considered for an OIC?
No. The CDTFA will not consider an OIC for a business in which a taxpayer has previously received an OIC, nor will the CDTFA consider an OIC for any liabilities similar in assessment that were previously compromised. For example, if you received an OIC for a liability that was assessed for excise taxes due on cigarettes purchased out-of-state, an excise tax liability for subsequent purchases of cigarettes will not be compromised.
I don't qualify for the OIC program. Are there other options that I can pursue to resolve my liability?
Yes. If you dispute the amount of tax or fee you owe, you can usually contest that decision by filing an appeal (filing deadlines apply). You may want to refer to Publication 17, Appeals Procedures, for additional information concerning the CDTFA's appeal process. If you have a petition for redetermination, administrative protest, or claim for refund pending, you may qualify for the Settlement Program. If you want to make payments instead of paying the liability in full, you should contact the collector assigned to your case. You may want to refer to Publication 54, Collection Procedures, for additional information concerning the CDTFA's collection process. In addition, you may pay the liability and then file a Claim for Refund, CDTFA-101 (filing deadlines apply).
Part or all of your taxes may be dischargeable under the bankruptcy code. If this is a consideration, you may want to seek legal advice.