NEWSLETTERS
Offers in Compromise – EDD
Taxpayers may apply for an OIC when they are unable to pay their full tax liabilities to the state. The program allows taxpayers, under certain circumstances, to negotiate a reduced amount of their nondisputed tax liabilities. The state will consider an OIC when it is unlikely that the tax liability can be collected in full, and the amount offered reasonably reflects collection potential.
To qualify for the EDD Offer in Compromise (OIC) program, taxpayers must meet a stringent income requirement. (UIC §1870–1875) The taxpayer must not be able to pay more than the accumulating interest plus 6.7% of the outstanding liability annually. (UIC §1870)
If the applicant’s business is inactive and no longer operating, the employer may apply for an OIC whether an individual owner, partner, or an individual assessed under UIC §1735.
If the business is still operating and active, the employer may apply for an OIC only if it no longer has a controlling interest or any association with the business that incurred the liability.
Only nondisputed, final tax liabilities will be considered, and there is an income limitation.
Example : John was the owner of a business with an outstanding EDD liability of $5,000. Assuming an interest rate of 4%, John must not be able to pay more than $535 annually, or $44.58 per month.
Liability $5,000
Annual interest × 45%
$250
Liability $5,000
× 6.7%
$335
Total ($250 + $335) $585
The EDD will not accept an offer for liabilities assessed for fraud, or where the individual has been convicted of a violation of the UIC.
Acceptance of offers
The amount offered must be more than the EDD could expect to collect through involuntary means within four years of the time the offer is made.
Although the EDD normally suspends collection action while evaluating an offer, submission of an offer does not automatically suspend collection action on a liability. If there is any indication that the offer is filed solely to delay collection or negatively impact the EDD’s ability to collect the tax, collection efforts will continue. Taxpayers who are currently in an installment payment agreement are required to continue making payments.
Should collection action occur after the acceptance of an OIC, the individuals may receive a refund or have the funds applied to the offer amount.
Submitting the application
The offer must be submitted on Form DE 999CA, Multi-Agency Form for Offer in Compromise, and must be accompanied by Form DE 999B, Offer in Compromise Financial Statement. The financial statement form requires that the taxpayer submit copies of his or her personal federal tax returns for the prior two years, and asks for a list of current assets and income.
A separate application package must be submitted for each account to be compromised.
Multi-agency application: The EDD, FTB, CDTFA, and BOE use a single form, Form DE 999CA, Multi-Agency Form for Offer in Compromise, that individuals can use for any of the state’s tax agencies.
The individual agencies must still negotiate each OIC separately for their respective taxes. For example, the FTB only can negotiate a state income tax liability, and the CDTFA only can negotiate a sales or use tax liability.
Payment plans are allowed
The EDD requires full payment of the offer amount at the time the offer is made. However, if the full amount cannot be paid at the time of offer, the individual may be permitted to pay the agreed amount in installments if the full amount is paid within five years. The EDD will negotiate terms of the installment plan during the review process.
Approval may be required
For any reduction of tax of $10,000 or less, the EDD director approves the offer. However, the CUIAB must approve any offer that reduces an individual’s liability by $10,000 or more. (UIC §1871)
About the Author
D. Steven Yahnian has been a member of the California Bar and a practicing Attorney since 1980. He has also been a California CPA since 1984. Mr. Yahnian also holds the CFP® designation.
Mr. Yahnian practices in the following areas of law through YAHNIAN LAW CORPORATION:
- Estate Planning & Administration
- Asset Protection Planning
- Tax Planning, Tax Debt Resolution and Tax Litigation
- Business & Corporate Law and Planning
- Real Property Law & Planning
As a CPA/CFP, Mr. Yahnian also has a separate accounting and tax return preparation practice called DSA ACCOUNTING.
Mr. Yahnian is a California State Bar Certified Specialist in the following
• Taxation Law and
• Estate Planning, Trust & Probate Law.
Mr. Yahnian received a B.S. degree in Accounting from USC, a J.D. from Loyola University of Los Angeles School of Law and an LL.M. in Taxation from New York University Law School. He also has a Certificate in Taxation from UCLA (with distinction). Mr. Yahnian also has an MS in Taxation* from UCLA (with Distinction).
*Equivalent
See websites:
SPRING 2021 – FEATURED ARTICLES
FEDERAL TAXATION
Corporate Vehicle Deductions When Vehicle is in Your Name
Five Things to Know About Employing Your Spouse
Tax Savings Strategies to Fund College
CALIFORNIA TAXATION
Offers in Compromise – EDD
FTB offers in compromise (OICs)
Sales Tax Offers in Compromise
Does New California Law Make Independent Contractors Into Employees?