California Tax Debt Forgiveness: Is It a Real Thing?
California will forgive tax debt via a Franchise Tax Board Offer in Compromise. An FTB Offer in Compromise is an agreement between the California state taxing authorities, the FTB, and the taxpayer to settle the tax debt for less than the amount owed. FTB Offers are not someone everyone qualifies for. It is common to have an IRS Offer in Compromise is accepted and the FTB Offer is not plausible to send or rejected if sent. An FTB Offer is the best kind of California tax debt forgiveness.
Check out our video below on how it all works. Then keep reading on for more info.
What Makes California Forgive Tax Debt?
The California FTB wants to see that you are broke with little to no chance of improving the situation in the near future. The financial qualifications for CA tax debt forgiveness are similar to that of the IRS, but a few details make it harder to get an FTB Offer accepted. First, California takes age into consideration in the Offer process and uses it against you. You are less likely to get an offer accepted if you are young. The IRS is more likely to accept an offer if you are a senior, but they do not disqualify you for being young.
If you are 20 and owe $10,000 to the FTB, odds are your request for CA tax forgiveness will get rejected due to your age. However, if the financials make sense, the IRS would still accept an Offer in Compromise from you. This happens in a lot of cases. You get a settlement with the IRS, but a payment plan with the FTB. The good news is the FTB debt is usually substantially less in comparison to the IRS debt.
CA Tax Debt Forgiveness Beyond Just Settlement
I have seen one case where the CA FTB agent just wiped out the debt and did not make our client pay anything on the Offer in Compromise. Our client had offered $100 to settle the FTB debt. She was taking care of two disabled adult children and the FTB agent felt bad for her. So she did not require the $100 to settle the case and she discharged the debt. This was a very rare case and not normal.
Requirements for CA Tax Debt Forgiveness
You have to show that you are barely making it financially. If at the end of the month you have no funds left based on the FTB financial statement and are not under 50, good chance you will qualify. Your expenses also have to be reasonable. For example, you live in San Diego, are single, and pay $4,000 per month for rent. The average rent in the area is $1,800. The expense is unreasonable according to the FTB settlement examiner. The CA FTB does not want you living lavishly when you owe them a debt.
Your Options If You Do Not Qualify for California Tax Debt Forgiveness
Four options exist for those that do not qualify for tax debt forgiveness with California. Those are:
- Payment Plan – Pay the debt over time in installments.
- Hardship – the case is put into a status where no payment is required. The debt remains, but you do not have to pay it currently. The FTB will ask for new financials year after year to maintain the hardship. The FTB has 20 years to collect on tax debt in most cases. See our csed date guide for more information.
- Bankruptcy – If you cannot get an Offer in Compromise due to age but qualify otherwise, you most likely can still get a bankruptcy accepted, but this is not recommended if taxes are your only debt. See our bankruptcy vs. offer in compromise guide for more information on making a decision.
- Pay in Full – You pay the debt in its entirety.
When it comes to a payment plan or pay in full, you might also qualify for penalty abatement. These are hard to get, but if the facts are in your favor you may have a chance. You must prove there was a “reasonable cause” for you to get an abatement. It is not as easy as the IRS’ first-time penalty abatement based on prior compliance. A penalty abatement technically would be a bit of a California tax debt forgiveness as well but for usually much less than an Offer in Compromise.
Consult a Licensed Tax Attorney if You Are Unsure Where You Stand
Many tax relief firms out there will tell you that you have a great chance of getting California tax debt forgiveness via an Offer in Compromise. Usually, the odds are slim. Make sure you talk to an attorney that handles tax issues specifically. Many people that get an IRS Offer in Compromise don’t end up with an FTB Offer in Compromise. If the FTB debt is not that large, often its much cheaper to just put that case into a payment plan and pay someone to handle the larger IRS debt. Most FTB debt is accompanied by IRS debt. Unfortunately, usually, it is the IRS that will settle and not the FTB.
If you owe more than $20,000 to the FTB or IRS, give us a call at (888) 515-4829 and press 1 for a free consultation with one of our tax attorneys. We have handled many FTB cases and can give you a realistic outlook on your case. You can also visit our Contact Us page for us to contact you. We guarantee to beat the rates of any radio advertised or television advertised firms, such as Optima Tax Relief or Tax Defense Partners.