If you owe individual income taxes to the California Franchise Tax Board and are unable to full pay the balance, you must negotiate an alternative method to pay your tax. Failure to formalize a plan to pay may result in enforcement action from the state. Enforcement measures include bank levies and wage garnishments. As of 2011, the Franchise Tax Board (FTB) offers two methods for taxpayers to negotiate payment arrangements, including an Installment Agreement or an Offer in Compromise. Both methods require that any outstanding tax returns are filed prior to submitting a request.
Offer in Compromise
Download an FTB 4905 packet (see Resource section). This is the Offer in Compromise application. An offer in compromise is an offer to settle your debt for less than you owe. Not everyone qualifies for the program, but the FTB may consider your request if it is determined you do not have the ability to fully pay your balance in the foreseeable future.
Complete all sections of the application. You must provide your income, asset and liability information. Examples of income include wages, self-employment income and rental income. Assets include bank accounts, retirement accounts and real estate you own. Liabilities include debt instruments, such as home and auto loans, credit card balances and other taxes you may owe, such as IRS taxes.
Complete a monthly income and expense analysis in Section 5. This is a breakdown of your monthly income from all sources and your monthly expenses. Subtract your expenses from your income. The result is your monthly net income, or the amount you have left over each month. You must complete an annual analysis of the same information in Section 6.
Explain the reason you are requesting the offer in Section 7. You must also discuss how you determined your offer amount. The state bases acceptance decisions on your financial situation and ability to pay. Discuss financial reasons in this section. Do not discuss tax law, politics or reasons why the liability accrued in Section 7. These are not things the state considers to accept or deny your request.
Report the source of your offer funds in Section 8.
Report the amount you offer to settle your account in Section 9. You may not offer to pay zero dollars. Read the Statement Agreement and sign the application in Section 10. If you are married, your spouse must also sign.
Attach any documents that support your financial statement. Examples of documents to include are copies of your most recent pay stubs, bank statements and monthly expenses for the last three months.
Mail your application and documents to:
State of California OIC Group MS A453 Franchise Tax Board P.O. Box 2966 Rancho Cordova CA 95741-2966
Do not send any payment with your application. The Franchise Tax Board responds to your request within 90 days. Upon approval, the state notifies you to send your payment.
Download FTB form 3567, Installment Agreement Request (see Resource section). This is a formal request for a payment arrangement with the California FTB. You may qualify to pay your tax in monthly installments when you owe less than $25,000 and agree to pay your balance within 60 months (five years). If you owe $10,000 or less, you must agree to pay your balance within 36 months. However, if your financial situation does not permit you to pay within 36 months, you may declare financial hardship and request an extended amount of time to pay. You may also apply online. The same Form 3567 information is required for online applications.
Provide your name, Social Security number and address. If you are married, you must also provide your spouse’s information.
Calculate the amount you offer to pay monthly. Divide your balance by 36 months if you owe less than $10,000. Divide your balance by 60 months if you owe between $10,000 and $25,000. The result is the lowest amount the FTB accepts for a payment arrangement, unless you have a financial hardship and cannot afford the standard payment.
Complete the EFT authorization. California requires that monthly installments be made by electronic debit from your bank account. Write the withdrawal date you choose in the box located within the authorization text. Write the amount you want to pay each month in Box 1. Provide your bank information in Boxes 2 through 5.
Initial the box below your signature if you have a financial hardship that prevents you from making standard monthly payments. Mail your application to:
Franchise Tax Board P.O. Box 2952 Sacramento CA 95812-2952
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.