California Offer in Compromise

California --Multiple Taxes: Temporary Procedure Set for Qualified Offers in Compromise


For purposes of California sales and use, cigarette, use fuel, diesel fuel, and alcoholic beverage taxes, as well as for a variety of fees and surcharges administered by the State Board of Equalization (SBE), offers in compromise can be made through calendar year 2012 for qualified final tax liabilities regardless of whether the taxpayer's business has been discontinued or transferred, or whether the taxpayer has a controlling interest or association with a business similar to the discontinued or transferred business. Formerly, offers in compromise for those taxes were considered only for liabilities generated from a business that had been discontinued or transferred and the taxpayer making the offer no longer had a controlling interest in, or association with, either the transferred business or a similar business.



"Qualified final tax liability" includes (along with related interest, additions to tax, penalties, and other amounts assessed)



-- that part of a final tax liability arising from transactions in which the SBE found no evidence that the taxpayer collected sales tax reimbursements or use tax from the purchaser;



-- a final tax liability arising from the taxpayer's sale of the business to successors or assigns who withhold sufficient of the purchase price to cover the liability until the former owner produces a receipt from the SBE showing that it has been paid; or



-- that part of a final tax liability for use tax against a taxpayer who is a consumer that is not required to hold a seller's permit.



A qualified final tax liability may not be compromised with



-- a taxpayer who previously received a compromise for a liability arising from transactions substantially similar to transactions attributable to the liability for which the taxpayer is making the offer;



-- a business transferred by a taxpayer who previously received a compromise and who has a controlling interest or association with the transferred business when the liability arises from transactions substantially similar to transactions attributable to the liability for which the taxpayer is making the offer; or



-- a business in which a taxpayer who previously received a compromise has a controlling interest or association with a similar type of business for which the taxpayer received the compromise when the liability of the business making the offer arose from transactions substantially similar to the transactions for which the taxpayer's liability was previously compromised.



The SBE may permit the taxpayer to pay the compromise in installments for a period of up to a year, and the taxpayer may be required to pay by electronic funds transfer or any other means to facilitate the payment of each installment. Other than making recommendations to the executive director and the chief counsel, SBE members may not participate in this offer in compromise procedure.



A taxpayer receiving a compromise under this process may be required to enter into any collateral agreement deemed necessary to protect the interests of the state. A collateral agreement may include a provision allowing the SBE to reestablish the liability, or any part of it, if the taxpayer has sufficient annual income during the succeeding five-year period.



In addition, a taxpayer receiving a compromise shall file and pay by the due date all subsequently required tax returns for a five-year period from the date the liability is compromised or until the taxpayer no longer is required to file tax returns.



Unless reenacted in the interim, the qualified final tax liability process provisions will be repealed on January 1, 2013. At that point, the current version of the offer in compromise procedure will become operative.



Fees, surcharges, and other provisions not previously mentioned that fall under the new procedure are the emergency telephone users surcharge; oil spill response, prevention, and administration fees; underground storage tank maintenance fee; and fee collection procedures.


Ch. 222 (A.B. 2047), Laws 2008, effective January 1, 2009, and operative as noted