You can apply for a tax amnesty in California through the California Franchise Tax Board’s website to help you pay off your delinquent tax liabilities. The California Franchise Tax Board (FTB) has the Voluntary Disclosure Program that can waive the penalties if you are delinquent on your taxes so you can become current.
This amnesty program gives you extra time to pay off your tax debt. All California FTB collection activities will stop while you are in this program. However, you must prove you have a financial hardship to qualify, and there is a time limit while you are in this program. You should consider contacting the California FTB and asking them about the Voluntary Disclosure Program if you struggle to pay your taxes.
California FTB Back Taxes Resolution Overview
California has several agencies that administer tax policies, handle tax collections, and provide resolutions for tax issues. The primary agency that individual taxpayers will deal with is the California FTB. Taxpayers who own a business may also deal with the Employment Development Department, the California Department of Tax and Fee Administration, and the State Board of Equalization.
These agencies can work with individuals and businesses to resolve their tax issues. These solutions include:
• A payment plan – Make monthly payments to pay a tax debt
• An Offer in Compromise – Make a lump sum payment for less than what you owe
• Declare financial hardship – Stop California FTB collection efforts until you can pay your tax debt
• Penalty abatement – Waive the penalties to lower the amount you owe
You can contact the California FTB online, by phone, or by mail if you need assistance resolving your tax issues. The California FTB will provide instructions on proceeding with a tax resolution if you need help paying.
The California FTB Income Tax Enforcement and Collection Process
The California FTB will conduct a tax assessment to see how much you owe in taxes. Once the assessment becomes final, the agency will send you a notice demanding payment if you owe taxes. You will have 15 days from the date of the notice to make a full payment, or you can contact the California FTB to make a payment arrangement.
The California FTB will start the collection process if you do not make a payment or contact the agency within 15 days. In addition to collection activities, the California FTB will add penalties, fees, and interest to what you owe. The collection process can include wage garnishments, bank levies, and tax liens. Agents who work for the California FTB will get involved in the collection process and verify your income, document your assets, encourage compliance, and verify assets for potential seizure. They will also visit your business if you are a business owner.
There are many ways to contact the California FTB if you have concerns about the agency’s collection procedures. You can visit www.ftb.ca.gov, call personal income tax collections at 800-689-4776, or send a letter to:
Franchise Tax Board
PO Box 942840
Sacramento, CA 94240-0040
Options for Taxpayers in California with Unpaid Taxes
California taxpayers have several options if they cannot pay their tax obligations. Here is a closer look at all these options:
Claiming a Financial Hardship
You may be in a situation where you cannot afford a payment plan, such as an Offer in Compromise or a monthly installment agreement. In this situation, you may request the California FTB to postpone its collection efforts because of financial hardship. The California FTB Financial Hardship Program will give you extra time to pay or settle your tax debt while placing you in the “Currently Not Collectible” status. Collection activities will stop while you are in the CNC status.
You must have verifiable documentation that shows you are unable or can barely cover basic living expenses. The California FTB may look at your income, bank statements, rent or mortgage payments, and other expenses to determine if you qualify for the Financial Hardship Program. If you qualify for this program, the California FTB will put a time limit on how long you will be in the CNC status. Plus, interest and penalties will accumulate until you pay your tax debt.
Bankruptcy Establishes a Financial Hardship
Bankruptcy may be the last resort if you cannot pay your debt. It is a legal process that can eliminate some or all your debt. When you file a petition with a federal bankruptcy court, your creditors will receive a notice to stop their collection efforts. Your creditors must stop lawsuits, tax liens, bank levies, wage garnishments, and other collection efforts.
You can participate in the California Tax Amnesty Program when you file for bankruptcy because this qualifies as a financial hardship. You must file an application, and the California FTB must have a court order from a federal bankruptcy court before the FTB can approve you for a tax amnesty.
Bankruptcy can be helpful when you have financial hardship but can damage your credit. As a result, you should only file for bankruptcy as a last resort. Other options to think about before filing for bankruptcy include applying for a monthly payment plan with payments that fit your budget or making an offer to settle your tax debt for less than what you owe. It is best to work with an attorney so they can help you with the paperwork to include your tax debt in the bankruptcy.
Overview of the California Tax Amnesty Program
Here is a look at resolving tax issues with the California FTB.
Your Rights to Appeal a California FTB Decision
Resolving any issues with the California FTB by phone, email, or letter is best. However, you have the right to appeal a California FTB decision through the State Board of Equalization (BOE) when you cannot come to a resolution. Also, you must pay your tax obligation in full before you appeal a decision to get a refund.
Agree to a Payment plan
A payment plan, or installment agreement, is a way to pay your tax debt. You can make monthly payments that you can afford, avoid additional penalties and interest, and stop any collection efforts by the California FTB. However, a tax lien may be necessary to establish a payment plan. Also, there are personal and business payment plans.
Personal payment plans take up to 90 days to process a request, and you will have up to five years to pay your tax debt. Making one or more payments during these 90 days is best to avoid accumulating penalties and interest. It costs $34 to set up the payment plan, and you will receive a letter once the California FTB accepts you into the program with payment details. You can only be eligible for this program if your tax debt is less than $25,000 and you have filed taxes for the past five years.
Business payment plans take up to 60 days for approval, and you will have up to 12 months to pay your tax debt. It also costs $50 to set up a business payment plan.
Make an Offer in Compromise (OIC)
An OIC lets you pay your tax debt in one lump sum less than you owe. However, exploring a payment plan or another option may be best before pursuing an OIC. There are eligibility requirements to get an OIC, which include the following:
• Your ability to pay and the value of your assets
• Your current and future income and expenses
• The potential for a change in your financial situation
• Your offer is in the best interest of the state
The state will collect as much of your tax debt as possible, so you will have a better chance of getting approval if you can make the highest offer possible.
Individuals and businesses will need to fill out an application that is on the California FTB website at www.ftb.ca.gov and mail the application and all the necessary documents to:
Franchise Tax Board
Offer in Compromise Group MS A453
PO Box 2966
Rancho Cordova, CA 95741-2966
Receiving an acknowledgment letter from the California FTB will take two to four weeks, and approval can take up to six months. Approval may take longer if you have a complex tax issue. The California FTB may offer other resolutions during this time, such as a payment plan or a waiver of penalties, interest, and fees. Also, the California FTB may require you to have a Collateral Agreement as a part of a resolution.
Get a Penalty Abatement
A penalty abatement can lower your tax debt to help make it easier for you to pay. You can send a letter to the California FTB with supporting documents to prove your case if you believe the agency made an error in assessing a tax penalty and fee. However, you must first make a full payment before requesting a refund of the penalties and fees.
A common mistake you may make is when you receive an extension to file your taxes. An extension only means you have more time to file. However, you must still pay your taxes before the due date in April. You will be hit with penalties, fees, and interest if you make a late payment. Yet, you can qualify for a one-time reduction to cancel late payment penalties if it is your first time with a late payment violation.
Get Professional Assistance for a Tax Resolution
Dealing with the California FTB can be a challenging and intimidating experience. You may need to collect many documents and make a case to support your position. Thankfully, there are many professionals who can help you get the tax resolution you need to pay your tax debt. Certified Public Accountants (CPAs), enrolled agents, tax attorneys, and bookkeepers can help you gather documents or negotiate with the California FTB.
The Tax Statute of Limitations in California
The California FTB has four years to audit from the date you filed your taxes. The state also has four years to collect the taxes you owe if you filed a tax return but still need to pay. The California FTB can get an extension to the statute of limitation in special circumstances. However, the California FTB cannot start the collection process if it is more than 20 years from the date on the tax return or if the taxpayer did not make a payment.
Frequently Asked Questions
Does California have a tax amnesty program?
California has a tax amnesty program through the California Tax Amnesty and Revenue Recovery Act. It is currently called the Voluntary Disclosure Program.
What is the California Income Tax Amnesty Program?
The California Income Tax Amnesty Program will waive your tax penalties once you file and pay your delinquent tax liability. You can comply with the state and settle your tax debt for less than you owe. This program is only available to those with unfiled tax returns or unpaid taxes due on or before December 31, 2021.
What happens if you do not pay the franchise tax in California?
There is a penalty if you do not pay the franchise tax in California. The penalty can range from a minimum of 5% of the unpaid tax to a maximum of 25%. The California FTB will also impose a 0.5% penalty every month if you do not pay your tax obligation.
Do you have to pay a $800 California S Corp fee every year?
All S corporations incorporated, registered, and conducting business in California must pay the $800 franchise tax. However, a newly incorporated S corporation is exempt from paying the $800 franchise tax in its first taxable year. The S corporation is also exempt from paying the $800 franchise tax if its tax year is 15 days or less and it does not do any business in California during the tax year.
How to Apply for a California Franchise Tax Amnesty Online
You can apply for a tax resolution on the California FTB’s website at www.ftb.ca.gov to retrieve the documents you need to apply for a payment plan, OIC, or penalty abatement. You can go to the “Find Your Answer Online” section of the website to find what you need. You can also create a MyFTB account to gain access to your tax documents and other tax services.