The Offer in Compromise (OIC) program is for taxpayers who do not have, and will not have in the foreseeable future, the income, assets or means to pay their tax liability.   It allows a taxpayer to offer a lesser amount for payment of a non-disputed final tax liability.

Generally, we approve an Offer in Compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.

Although each case is evaluated based on its own unique set of facts and circumstances, we give the following factors strong consideration in the evaluation: 

• 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

Can We Process Your Application?

We will only process your Offer in Compromise application if you have done all of the following: 

• You have filed all of the required tax returns.  If you have no filing requirement, note it on the application.
• You have fully completed the Offer in Compromise application, and provided all supporting documentation.
• You agree with the Franchise Tax Board (FTB) on the amount of tax that you owe.

Will  a Collateral Agreement be Required?

Upon approval, we may require a taxpayer to enter into a collateral agreement for a term of five years.   Generally, a collateral agreement will be required in cases when the taxpayer has significant potential for increased earnings.  A collateral agreement requires a taxpayer to: 

• Pay to FTB a percentage of future earnings that exceed an amount agreed upon by the taxpayer and FTB.

Is Collections Suspended? 

In most cases, collection action will be suspended until the Offer in Compromise evaluation is completed.  However, submitting an offer does not automatically suspend collection activity.  If delaying collection activity jeopardizes our ability to collect the tax, we may continue with collection efforts.
 
 

When Should Offered Funds be Submitted?

You should not submit the offered funds until we request them.  When we do ask for the funds, submit them by cashiers check or money order.
 
 

What Documentation is Required with the Application?

For a check list of  required items that must be included with the application, see page 3 of the 4905PIT.
 
 

Questions and Answers  

Q. What does the FTB consider a fair offer in relation to the amount due?
A. Generally, an offer will be accepted when the amount offered is more than the FTB can expect to collect within a reasonable period of time.

Q. How long will it take to get a decision on my OIC?
A. Generally, if we accept your offer for processing, we will have a decision to you within 90 days after receiving your offer.  If your account is more complex, it may take longer than 90 days.

Q. What is a collateral agreement?
A. A collateral agreement is a contractual agreement between you and the FTB.  By signing the agreement, you agree to pledge a percentage of income that exceeds an amount agreed upon by you and FTB.  Generally, the collateral agreement period is five years.

Q.If my offer is approved, will I have to sign a collateral agreement?
A. If you are on a fixed income or have limited potential for increased earnings, a collateral agreement will generally not be required.

Q.Can I make payments on the offered amount?
A. No, we require full payment of the offered amount at the time the offer is submitted for approval.

Q.Can prior payments be applied to the offered amount?
A. No, prior payments are not accepted towards the offered amount.  However, prior payments and the offered amount compared to the total liability are taken into consideration when evaluating your offer.

Q. My IRS OIC has been accepted.  Will the FTB automatically approve my offer?
A. No,  your FTB offer will be evaluated separately from your IRS offer and generally, if the amount of the offer represents the most that we can expect to collect within a reasonable period of time, we will accept your offer.

Q. If the Franchise Tax Board determines that my offer is not acceptable, will I be contacted?
A. In most cases, we will contact you to discuss your account and to determine the most appropriate resolution.   For example, if it is determined that you will have the ability to make monthly payments which will exceed the amount offered, we will work with you to establish an installment agreement.

Q. I am single now.  If I marry while the collateral agreement is in effect, how will this affect me?
A. If you marry while the collateral agreement is in effect, we will review any joint tax returns you are required to file.  Generally, we consider your joint annual income in the collateral agreement.  If you are married and filing separate income tax returns, the evaluation will be based on your separate income.

Q.Will state tax liens be released if my offer is accepted?
A. Generally, we release state tax liens upon final approval of your Offer in Compromise.

Q. Do I need to have someone represent me?
A. Representation is not required.  The Offer in Compromise program 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.

Q. Can I get relief from the tax liability by filing bankruptcy?
A. 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.
 
 

Application Request

To view and download the 4905PIT, select: 

• FTB 4905PIT - Offer In Compromise

• Call 1-800-338-0505
• Select Personal Income Tax Form Requests.
• Enter Code 971 when you are instructed to do so.

Federal Tax- IRS

If you cannot pay your tax debt in full or you dispute what is owed, you may propose to resolve the matter with an Offer in Compromise. The purpose of an Offer in Compromise is to settle a taxpayer's liability for less than the full amount owed. The ultimate goal is a resolution that is in both the government's and the taxpayer's best interest. 

To submit an offer complete Form 656, Offer in Compromise. Detailed instructions are provided with the form. 

If the basis of your offer is inability to pay, also complete Form 433-A, Collection Information Statement for Individuals and/or Form 433-B, Collection Information Statement for Businesses. We cannot consider an offer on this basis if you're involved in an open bankruptcy proceeding or if you have not filed all federal tax returns. In-business taxpayers must have also timely filed employment tax returns for the two prior quarters and have timely deposited all employment taxes for the two prior quarters and the current quarter. The amount of your offer should equal or exceed your equity in assets, your ability to make installment payments from future income, amounts we can collect from third parties on your behalf and funds that are available to you but not subject to the Service's collection actions. You may choose to pay the offer amount in a lump sum, in monthly payments over the remainder of the statutory time allowed for collection or a combination of a lump sum and monthly payments. Generally, it is to your advantage to pay the amount in the shortest time possible because longer payment terms will require a larger offer amount. 

If the basis of the offer is a dispute as to what is owed, provide a written statement of supporting evidence. We cannot accept a compromise on this basis if a court has decided the liability. 

Ordinarily, we will withhold collection action while we consider your offer. The statutory time allowed for collection is suspended during the period your offer is pending. An examiner will evaluate your offer and may request additional documentation from you to verify financial or other information you provide. If we decide a larger offer amount is necessary to justify acceptance you will be given an opportunity to amend your offer. In exceptional circumstances, some taxpayers may qualify for a special type of Offer in Compromise even though the amount owed is correct and it can be paid in full. To be eligible for a compromise on this basis you must demonstrate that paying the debt would create an economic hardship or would be unfair and inequitable. If the IRS grants you a fresh start by accepting your offer it is expected there will be no further delinquencies. If you do not abide by all the terms of our agreement, including filing all future returns and making all payments when required, your offer may be declared in default. We will reinstate the entire liability including accrued penalty and interest. All payments made toward the offer will be applied to the original liability. If we reject your offer you will be notified by mail. In our letter, we will explain the reason for the rejection and provide detailed instructions on how to appeal our decision. Additional information about the Offer in Compromise can be found on Form 656, and in Publication 594, Understanding the Collection Process. Publications and forms may be downloaded from this site or ordered by calling 1-800-829-3676.