California tax problems can come as a result of an IRS tax audit, if the IRS sends the result to the California Franchise Tax Board (FTB). The FTB can also initiate its own audit, or you can simply find yourself in a difficult financial situation and be unable to pay your California income tax debt.
The FTB offers a number of ways to get tax relief. If you have a complex tax situation that requires professional assistance, talk to a tax attorney before you agree to any tax relief programs.
The FTB offers installment agreements for taxpayers who owe $25,000 or less, have filed all income tax returns, and over an installment period of 60 months or less.
For tax liability in excess of $10,000 or payment periods greater than 36 months, you must certify that you have a financial hardship as part of your agreement.
You will have to make all of your monthly payments and file all tax returns on time as part of your agreement. You can also expect that the FTB will keep all future state tax refunds and apply them towards the debt. Your federal refunds may also be taken and applied towards your state tax debt.
The FTB may also file a lien on your property until the balance of your tax debt is paid in full.
Despite the relatively small limits the FTB “advertises” on its website a tax attorney may be able to negotiate an Installment Agreement even though you owe well in excess of $25,000.
Offer in Compromise
The FTB also offers an Offer in Compromise program for taxpayers who do not have the income, assets, or means to pay their tax debt now or in the near future. Generally, the FTB accepts Offers in Compromise when they represent the most they can expect to collect within a reasonable period of time.
The FTB will examine your income, assets, expenses, and the potential for your circumstances to change when deciding whether to accept your offer. You must file all tax returns, and you must agree with the FTB on the amount of tax you owe.
A collateral agreement may also be required as part of the offer. This agreement will state that if your earnings increase in the next five years, you will pay a portion of your increased earnings to the FTB.
If you have California tax debt, you must also be able to discharge some of your debt in a tax bankruptcy, which you can read more about here.