WHAT TO DO TO SETTLE STATE TAX LIABILITIES DURING COVID-19

On: October 7, 2020

It is never an easy situation when you cannot pay outstanding tax liabilities.  This problem has become even more significant for many taxpayers because of the adverse economic consequences caused by COVID-19.

The need to settle outstanding tax liabilities can apply to state tax liabilities, as well as Federal tax liabilities.

What actions can taxpayers take to settle their state tax liabilities during COVID-19?

State Payment Plans

One action available to taxpayers to settle their state tax liabilities is a state payment plan.  With a state payment plan, you can pay your outstanding state tax liabilities (plus interest and possible penalties) over an extended period of time.

States have made certain announcements concerning the availability of state payment plans during COVID-19.

For example, in California, the State of California Franchise Tax Board (the “CFTB”) has made announcements concerning both “existing payment plans” and “new payment plans”.

As to “existing payment plans”, the CFTB has said that if you cannot comply with the terms of an existing installment agreement (payment plan), you can request to skip payments online or by phone at (800) 689-4776.  If you are able to make your monthly payments, the CFTB encourages you to still pay because interest continues to accrue on all unpaid balances.  If you cannot make your monthly payments, the CFTB will not default your installment agreement through July 15, 2020.

As to “new payment plans”, the CFTB has said that you can apply for a payment plan if you cannot fully pay your state taxes (as usual).  In California, you may be eligible for a personal state payment plan (installment agreement) if the liability due is less than $25,000 and can be paid in 60 months or less, and you have filed all income tax returns for the past five years.

State Offers in Compromise

Another action that taxpayers can take to settle their state tax liabilities is a state offer in compromise (“OIC”).

With a state OIC, a taxpayer and the applicable state tax authority can settle the taxpayer’s outstanding indebtedness for less than the full liability balance.

States have also made certain announcements concerning the use of state OICs during COVID-19.

In California, the CFTB has said that it will not issue any denials on OICs prior to July 15, 2020.  The CFTB will also allow taxpayers until July 15 to provide requested information to support a pending OIC and any OIC payment currently due to be extended until July 15.

State OICs in California are evaluated by the California Department of Tax and Fee Administration (the “CDTFA”).  While each case is evaluated based on its own applicable facts and circumstances, the CDTFA gives strong consideration to the following factors – the taxpayer’s ability to pay, the amount of equity in the taxpayer’s assets, the taxpayer’s present and future income, the taxpayer’s present and future expenses, and the potential for changed circumstances.

The CDTFA generally will approve an OIC when the amount offered represents the most the CDTFA can expect to collect within a reasonable period of time.

If you need tax help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.