California offer in compromise (Franchise Tax Board)

The FTB's offer in compromise page says you must have explored payment options such as an FTB payment plan, filed all required income tax returns, and agreed with the amount you owe. The program is for undisputed liabilities — if you disagree with the tax, an offer isn't the right tool.

FTB considers your ability to pay, the value of your assets, current and future income, current and future expenses, the potential for your circumstances to change, and whether the offer is in the best interest of the state. FTB 4045 adds that age and health are strongly considered. Each case is decided on its own facts.

An FTB offer must be a lump sum — FTB doesn't accept offers paid in installments — and can't include prior payments or be a zero-dollar offer. FTB evaluates its offer separately from any offer to the IRS, the California Department of Tax and Fee Administration (CDTFA) or the Employment Development Department (EDD). An accepted IRS offer doesn't bind FTB, though FTB 4045 asks you to include IRS offer paperwork if you have it.

Apply online through a MyFTB account (select "Submit an Offer in Compromise" from the Services menu) or create a basic account to submit. Or apply by mail using the booklet for individuals (Form 4905PIT), for businesses (Form 4905BE), or the multi-agency Form DE 999CA for individuals who owe more than one California agency. Paper applications go to Franchise Tax Board, Offer in Compromise Group MS A453, PO Box 2966, Rancho Cordova CA 95741-2966.

FTB 4045 says to complete every page (writing "not applicable" where needed), explain the justification for the offer and the source of funds, sign and date, and include bank statements, pay stubs and profit-and-loss worksheets. Individuals should include three months of billing statements for claimed expenses and a current lease or mortgage statement; medical justifications need documentation. Businesses must file all returns through the current year and include every bank statement or proof accounts were closed. Omitted assets found later are grounds to deny the offer.

FTB says you should receive an acknowledgment letter within 2 to 4 weeks, and generally a decision within 4 to 6 months after a specialist is assigned, longer for complex accounts. Applying doesn't automatically stop collection: in most cases no new collection actions are taken during review, but FTB may continue if delay risks collection. Penalties and interest keep accruing. If the offer is approved, collection stops and state tax liens are released. FTB may instead propose a payment plan, a hardship delay or a collateral agreement.

Sales and use tax debts are handled by the CDTFA, and payroll taxes by the EDD — each with its own programs. For sales tax, see our California sales tax guide. We couldn't open the CDTFA offer page during this review, so we don't describe its rules here.