The California Franchise Tax Board’s Financial Hardship Programs

The California Franchise Tax Board (FTB) encourages taxpayers facing a financial hardship to work with the FTB to find a way to pay off their tax debt. The FTB can give California taxpayers more time to pay, or settle tax debt for less than the full amount in some cases. Each method of solving your California income tax problems has its own requirements and benefits, so ask a California tax attorney which program can help with your situation.

Delay Collection Activities Due to Financial Hardship

The FTB will delay collection activities for taxpayers that are facing financial hardship. This is similar to being put into currently not collectible status by the IRS. The FTB does not advertise this option much, because it does not bring them any closer to collecting money from you to pay off your California tax debt.

This program is only a temporary fix, and does not reduce your tax liability. This tax relief strategy is best used when you just need a little time to figure out a more permanent way to get rid of your tax debt.

Monthly Payment Plans

The FTB will generally respond well to requests for payment plans if you meet certain requirements. Your tax liability must generally be $25,000, and you must agree to pay off the balance within 60 months. Taxpayers with balances over $10,000 or payment periods exceeding 36 months must certify that they are experiencing a financial hardship.

The FTB may file a state tax lien on your property to protect their interests while you pay off your state tax debt. You can also expect them to seize all future federal and state tax refunds until your balance is paid off. These amounts do not replace or count towards your monthly payment obligations. A California tax attorney may be able to negotiate a temporary hold on the filing of a state tax lien if you only need a relatively short payment plan.

Offers in Compromise 

If you do not have the ability to pay off your tax debt, and will not have the ability in the foreseeable future, you may submit an Offer in Compromise (OIC) to the FTB. This effectively settles your tax for less—sometimes dramatically less— than the amount you owe.

The key with an OIC is that you have to show that the amount of money you are offering is the most that the FTB can reasonably except to collect from. If you are retired, living solely off of Social Security, and do not have substantial assets, you may be able to present a strong case stating that your financial situation is not going to change. However, if you are just experiencing a temporary financial setback, you may have to offer a larger amount, or enter into a payment plan.