ASK THE EDD ATTORNEY – DO YOU HAVE AN INACTIVE CORPORATION THAT OWES THE FTB? CONSIDER MAKING AN OFFER IN COMPROMISE
By Robert S. Schriebman
August 25, 2015
Do you have an inactive or defunct corporation that has not paid the annual minimum $800 FTB Franchise Tax? Are you concerned about the FTB holding you personally responsible for these old taxes, penalties, and daily accruing interest? Has the corporation been suspended? Until recently the only solution was to pay the bill in full and dissolve the corporation. Otherwise you are confronted with either a problem that never goes away or, at the very best, waiting for the 20 year statute of limitations for collection to expire – year by year by year!
The FTB now offers a resolution known as an Offer in Compromise (OIC). This article will discuss the basics of the FTB’s OIC program.
What is an Offer in Compromise?
An OIC is the FTB’s version of “Let’s Make A Deal.” The OIC provisions in the Internal Revenue Code are the oldest continuing federal tax legislation in history – older than the Civil War. Every time the IRS Code has been reborn, the OIC provisions are always there. (IRC § 7122)
The FTB too has long standing OIC provisions but they have been traditionally applied to personal income tax deficiencies.
Every time you see or hear a radio or TV commercial about some wizard tax outfit you will hear them boast about one of their customers solving his or her tax problem by paying only “pennies on the dollar.” These advertisers are not wizards. They simply take advantage of long standing IRS OIC avenues of resolution.
OIC Program Now Available For Old FTB Corporate Tax Debts
One of our clients recently received a notice from the FTB threatening to take an IRS refund for old FTB corporate liabilities. The FTB notice informed the taxpayer to consider making an OIC.
It is not difficult to take advantage of the FTB’s corporate OIC program. Go online to the FTB website www.ftb.ca.gov. Order FTB booklet 4905BE “Order in Compromise for Business Entities.” The package contains some basic information, an OIC application, and a Business Entity Offer in Compromise Financial Statement.
FTB OIC Basic Rules
The first thing to know about the FTB’s OIC program is that you have to convince the FTB of “Gloom and Doom” in other words, you must prove that the FTB has absolutely no chance of getting blood out of a stone. You must clearly show that the old corporation is broke; has little or no assets; and has no chance of paying off what the FTB claims is owed for old tax years.
The second thing to know is that you must be current on all corporate yearly income tax filings. So, if the old corporation has not filed a corporate tax return since 2010, you are going to have to file all missing tax returns even though all of your entries will be either “zero” or “none.”
The third thing to keep in mind is do not send any money with your OIC application documents. If you do send money, you will have to inform the FTB whether the money should be returned to you or retained by the FTB as a partial payment if the OIC is rejected. (See item number 2 of OIC application.)
Finally, the FTB cautions that merely submitting an OIC package may not stop collection action such as a bank account levy, or the filing of a tax lien. Most of the time this warning is of no consequence as most OIC applicants have no bank accounts and nothing that FTB would care to levy or seize.
Some Tips on Completing the OIC Financial Statement
Most inactive or defunct corporations will have little or no assets. They probably do not have a bank account. Most of the entries from item number 3 through item number 17 will either be “zero” or “none” nevertheless you must complete each and every item.
If the corporation has an active bank account you will be required to supply copies of the most current 12 months of bank statements. Send copies only – do not send originals because you will never see them again. That goes for all backup documentation.
If the FTB accepts your OIC the outstanding balance owed to the FTB will be deemed paid in full and any and all liens filed against the corporation in the past will be removed. Once this occurs you can then file official corporate dissolution papers with the Secretary of State. If on the other hand, you want to reactivate the old corporation, you can apply to the Secretary of State for a Certificate of Revivor.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.
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