Overview of California Back Taxes Resolutions (FTB)

The State of California has different tax agencies that handle the administration and collection of their taxes. These Departments are the Franchise Tax Board (FTB), the Employment Development Department (EDD), State Board of Equalization (SBE) ,and the California Department of Tax and Fee Administration (CDTFA). The CDTFA began operating in 2017, when the State Board of Equalization was broken out into three entities: the State Board of Equalization, CDTFA, and the Office of Tax Appeals. The FTB is responsible for the State Income Tax. The EDD is responsible for the State Employment Tax. Finally, the CDTFA is accountable for the State Sales and Use Tax and other Special Taxes and Fees.

Enforcement and Income Tax Collection Process

Once a tax assessment has become final, the FTB will mail a notice and demand for payment to the taxpayer. The taxpayer will have 15 days from the date on the notice to make payment in full. If the taxpayer does not pay in full and contact the FTB to make other arrangements, the FTB will begin collection actions. At this point, the FTB will start to assess penalties, interest, and collection fees. If the delinquent tax liability continues to remain unpaid, the FTB will file tax liens. The FTB may also pursue involuntary collection actions, such as bank, wage, or asset levies.

California law requires the taxpayer to receive specific notices before the FTB may file a Notice of State Tax Lien or before taking any involuntary collection actions. In the case of a tax lien filing, California law requires the FTB to mail notice to the taxpayer at least 30 days before the filing, stating the authority by which they are filing the lien and the procedures available to the taxpayer to prevent the tax lien filing. In the case of levies, California law only requires the FTB to provide a notice in writing at least 30 days before taking a levy action. If you have been issued a California FTB tax levy, you can view this detailed guide on removing FTB tax levies.

Overview of Options for Those With Back Income Taxes

Taxpayers who owe delinquent income taxes to the State of California and cannot pay in full have four main options available to reach a reasonable resolution. These are:

• Installment Agreement (Payment Plan),
• Offer in Compromise,
• Establish a Financial Hardship (Currently Not Collectable, “CNC”), and
• Penalty Abatement
• Innocent Spouse Relief

California’s FTB offers an Installment Agreement (IA), also known as a payment plan.  An IA allows a CA taxpayer to pay the FTB over a series of monthly payments until the delinquent tax liability, including penalties, interest, and collection fees, is paid in full. An Offer in Compromise is an agreement where the taxpayer and the FTB agree to settle the delinquent tax liability, including penalties, interest, and collection fees, for less than the amount the taxpayer owes. Establishing a Financial Hardship/CNC is merely acquiring a hold on involuntary collection actions for a temporary period. A request for penalty abatement is a written request asking the FTB to waive some, or all, of the assessed tax penalties.

Establishing a Financial Hardship (Currently Not Collectible)

The taxpayer may be in a situation where they cannot afford any Installment Agreement, and they do not otherwise qualify for an Offer in Compromise. In these situations, the taxpayer should request that the FTB delay collection activities due to Financial Hardship. Otherwise stated, put into Currently Not Collectible (CNC) status.

If the FTB agrees, they will suspend enforced collection on the taxpayer for a specified period. The FTB provides essentially no guidance on how to apply for or qualify for this type of temporary relief. This relief is only a temporary fix and does nothing to reduce or resolve the delinquent tax liability. Further, penalties and interest will still accrue, and tax liens remain filed. This option is for those taxpayers who need time to qualify for a more appropriate form of tax resolution.

Alternative Options That May Be Available

Challenge the Assessment

If the taxpayer has a proposed assessment for additional income tax due as a result of an FTB audit, they have the opportunity to protest the proposed assessment. The taxpayer can submit the protest online through MyFTB or file a written protest. The taxpayer must file the protest letter by the “protest by date” shown on the front of the proposed assessment notice. The protest process is informal and conducted by a hearing officer within the FTB. Taxpayers have the option of requesting an oral hearing, although not required. The FTB will issue a Notice of Action (NOA) informing the taxpayer as to their determination of the protest.

If the taxpayer cannot reach an agreement with the FTB audit protest office, they may appeal to the Office of Tax Appeals (OTA). The taxpayer must request an appeal within 30 days from the date on the NOA. The OTA is an administrative, judicial body that works in a formal, courtroom-type manner. While a taxpayer may represent themselves in the OTA, many may recommend hiring a licensed attorney or tax professional who has experience practicing in front of the OTA.

Bankruptcy

Bankruptcy, just like many tax resolution services, can be an expensive endeavor.  Therefore, this option is likely only practical for taxpayers who also have significant personal liability as well. Bankruptcy proceedings may discharge some state tax liabilities. Taxpayers should seek the advice of an experienced tax and bankruptcy attorney if they want to consider this option.

The California Tax Amnesty Program

The State of California has conducted numerous tax amnesty programs. Currently, this program is called the Voluntary Disclosure Program. It is open to qualified entities, shareholders, members, beneficiaries, or partners. It encourages delinquent taxpayers to become current by waiving penalties for those who file and fully pay their delinquent tax liabilities. Many delinquent business taxpayers should consider taking advantage of this program. California and the FTB have run similar programs in the past for individual taxpayers as well.

Appeal Rights

California law does not provide taxpayers with the right to appeal determinations of the FTB concerning the collection of delinquent tax liability. However, there are a couple of practical tips a taxpayer should consider in an attempt to reach a reasonable resolution.

First, do not be afraid to escalate contentious issues to a manager within the FTB. Often a fresh set of eyes and the authority and experience of a supervisor can help resolve the matter amicably.

Second, if you believe that your case manager is not following California law, or discriminating against you, file a request for assistance with the Taxpayers’ Rights Advocate Office. The Taxpayers’ Rights Advocate Office is authorized to help resolve problems or complaints that were not resolved through proper channels. Taxpayers should file FTB 914, Taxpayer Advocate Assistance Request, found at https://www.ftb.ca.gov/forms/misc/914.pdf or leverage the online form found here.

FTB Lien Releases

The FTB will release state tax liens after the delinquent tax liability, including any penalties, interest, and collection fees, has been paid in full. They can also release them through an Offer in Compromise acceptance or Penalty Abatement. 

Statute of Limitations

An important factor that a taxpayer may consider before pursuing a possible resolution pertains to the taxpayer’s legal rights under California law concerning the statute of limitation rules for the collection of delinquent tax liability.

California law prohibits the FTB from performing collection action on a delinquent tax liability that is more than 20 years from the assessment date, or commonly referred to by the FTB, the Statutory Lien Date (SLD). Under California law, the SLD is the point in time when the tax liability becomes “due and payable.” For practical purposes, and for most taxpayers, this date is the due date on the first assessment notice issued by the FTB for tax liability.

Taxpayers should be aware that certain circumstances may ‘stop the clock’ on the statute of limitations period. These circumstances are called “collection stays.” Some examples are:

• the taxpayer files bankruptcy,
• a taxpayer is in an approved installment agreement,
• the taxpayer is in a military or combat zone,
• a taxpayer is in child support collection,
• or a presidentially declared disaster or terroristic or military action suspends the FTBs ability to perform collection actions.

During these situations the time elapsed, and possibly longer, will not count towards the 20-year collection expiration date.

Help With California Tax Problems and TaxCure

Taxpayers have many tools at their disposal when dealing with delinquent income tax liabilities with the State of California. With that said, the FTB has a government-friendly statute of limitations within which to work. Additionally, the penalty, interest, and collection fees system can result in reasonable tax delinquencies ballooning into a crippling liability. Therefore, taxpayers should consult with a licensed and qualified tax professional as soon as these problems arise. An experienced tax professional can help determine which course of action is most appropriate for their situation. At TaxCure, we have a unique ranking algorithm that can help you find the best tax professional for your unique problem. All tax professionals specialize in various problems and solutions. You can start your search by using this link to filter California FTB tax professionals by your particular problem, solution, and other important factors. You can also use the form below to start your search, or navigate by professional type located in California.

• Top-Rated California Tax Professionals
• Top-Rated California Enrolled Agents
• Top-Rated California CPAs

CA Franchise Tax Board Installment Agreement Overview

Like the IRS and many states, California’s Franchise Tax Board offers taxpayers the ability to pay taxes owed overtime. To illustrate, the State of California Franchise Tax Board will accept Installment Agreements for up to 60 months. However, in order for a taxpayer to be eligible for an Installment Agreement all of the following must be true:

• The liabilities must not exceed $25,000
• The taxpayer must file all past-due tax returns, and
• The taxpayer must not already be in an Installment Agreement.

Taxpayers can set up Installment Agreements online (https://www.ftb.ca.gov/online/eIA/Apply_Online.asp) or via mail (https://www.ftb.ca.gov/forms/misc/3567.pdf).

By setting up a payment plan with the California FTB, this can significantly reduce future tax penalties, reduce the chance of getting a tax lien placed, prevent tax levies, and also release tax levies.

CA FTB Installment Agreement Conditions

The taxpayer must agree to the following Taxpayer Installment Agreement Conditions while in an Installment Agreement:

• Pay a $34 set-up fee that the FTB adds to the balance due
• Make monthly payments until the taxpayer pays the entire tax bill in full
• Pay by automatic withdrawal from a bank account
• Make sure to keep enough funds in the bank account to make the monthly payment
• File all future income tax returns on time
• Pay all future income taxes on time
• Adjust any W-4 and DE-4 forms so that the taxpayer will not owe taxes in the future
• Make all estimated tax payments, if required

Additionally, if the tax liability exceeds $10,000, or the Installment Agreement period will exceed 36 months, the taxpayer must certify that they have a financial hardship. Moreover, Installment Agreements where the taxpayer is required to confirm a financial hardship are subject to periodic review. In other words, it means that the taxpayer may be required to update financial information periodically (generally each year), and their monthly payment figure may be adjusted accordingly, depending on their current financial situation.

Finally, the taxpayer will still be subject to all of the FTB’s offset programs regarding applying state tax refunds to offset current state tax liabilities, or, in some cases, to be sent to the IRS to offset federal tax liabilities.

FTB Acceptance Determinations

The FTB states that they make acceptance determinations based upon the taxpayer’s current ability to pay the liability and their compliance record.

If the FTB accepts the Installment Agreement request, the FTB will send a notice to the taxpayer confirming the monthly payment amount and the due date for each monthly payment.  However,  if the taxpayer fails to maintain compliance with the conditions stated above, the FTB reserves the right to terminate the Installment Agreement. Before the FTB terminates an Installment Agreement, they will send a notice to the taxpayer 30 days before termination. The FTB notice will state the reason(s) for termination and provide instructions regarding the taxpayer’s rights.

If the FTB Rejects the Installment Agreement

If the FTB rejects the Installment Agreement request, the taxpayer can file for an independent administrative review. As a result, the taxpayer needs to send the request in writing within 30 days from the date of the rejection letter. The taxpayer should mail it to:

Executive and Advocate Services MS A381
Franchise Tax Aboard
PO Box 157
Rancho Cordova, CA 95741

If You Do You Not Qualify

If you do not qualify for an installment agreement, taxpayers may want to consider working with a tax professional who has experience with Franchise Tax Board tax cases. There are other options for taxpayers.  Above all, a licensed tax professional can review their financial situation, tax situation, and determine all options available.

Help With California Installment Agreement and TaxCure

At TaxCure, we have a large network of tax professionals with a variety of specialties. We made it easy for taxpayers to find the best professional to help with the particular tax agency problem they are experiencing. You can view the top-rated professionals to help with a California installment agreement. Or browse top tax professionals by license type below that are located in California.

• Top-Rated California Enrolled Agents
• Top-Rated California CPAs
• Top-Rated California Attorneys

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.

CA Franchise Tax Board Offer in Compromise Overview

The FTB has a formal Offer in Compromise (OIC) program in which they will settle delinquent taxes owed for less than what is owed “when the amount offered represents the most we can expect to collect within a reasonable period of time.” An Offer in Compromise merely is the taxpayer asking the state to accept a lesser payment in full settlement of their delinquent tax liability. The tax settlement will include the delinquent tax due, as well as, penalties, interest, and any collection fees that have accrued.

This article discusses below more details such as information as to the general eligibility requirements, submission requirements, and a list of financial documents required.

Eligibility

The FTB states that each case’s unique set of facts and circumstances determines acceptance. However, the following is a list of factors that are most strongly considered when they are making acceptance determinations:

• The taxpayer’s ability to pay
• The taxpayer’s equity in assets
• Present and future income of the taxpayer
• The taxpayer’s current and future expenses
• The potential for changed circumstances
• The offer is in the best interest of the state

Requirements

Taxpayers must meet the following requirements for the FTB to consider an Offer in Compromise application for acceptance:

• The taxpayer has filed all required tax returns and does not dispute the amount that is owed
• The taxpayer has completed the Offer in Compromise application and provided all requested supporting documentation (see below)
  • Taxpayers can find the OIC application here: https://www.ftb.ca.gov/pay/if-you-cant-pay/offer-in-compromise.html
• The taxpayer authorizes the FTB to obtain their consumer credit report. Furthermore, they can investigate and verify the information that they have provided on the application

Required Documents

The following is a list of documents that the FTB requires to be included with the submission of the Offer in Compromise application, if applicable:

• Verifying Income: Recent copies of pay stubs for the past three months or two years of financial statements for self-employed taxpayers.  Include any income from investments or ownership in any business entity or trust. It includes distributions, K-1 Income, or dividends for example.
• Verifying Expenses: Include copies of the most recent three months of billing statements. It may include credit card statements, other creditor billing statements, and any personal loan settlements.
• Banking Information: Include copies of savings and checking account bank statements for the most recent six months. For self-employed taxpayers, then include the last twelve months of bank statements. Lastly, provide any bank accounts that closed during that period.
• Securities: Account statements for investments like stocks, bonds, profit-sharing plans, mutual funds, and retirement accounts. For example, 401ks, IRAs, Keogh, or Annuities.
• Current Lease or Rental Agreements – Recent lease or rental agreements
• Real Property Information: Include mortgage statements and escrow statements for the property the taxpayers owns, sold, or gave away for the most recent five years.
• Medical Information: For any medical condition that the FTB must consider, including the Doctor’s letter for the diagnosis and prognosis.
• IRS Information: IRS application for an OIC and letter of acceptance or other IRS arrangements
• Legal Documents: Bankruptcy documents, trust documents, marital property settlement agreements, and divorce decrees.
• Power of Attorney: If a representative designated by the taxpayer submits the OIC, include the Power of Attorney form

Filing Process and Considerations

The FTB requires that the taxpayer complete and submit a paper copy of the Offer in Compromise application. Taxpayers should mail their request and supporting documents to:

State of California
OIC Group MS A453
Franchise Tax Board
PO Box 2966
Rancho Cordova, CA 95741-2966.

In some circumstances, the FTB will only accept an Offer in Compromise if the taxpayer agrees to enter into a collateral agreement for 5 years. A collateral agreement requires the taxpayer to pay a percentage of their future earnings that exceed an agreed-upon threshold in the event that the taxpayer earns more than anticipated in those future years.

CA usually suspends enforced collection while they review an Offer in Compromise application. However, the FTB still may pursue enforced collection if they believe delaying collection jeopardizes their ability to ultimately collect some or all of the delinquent tax taxes owed.

Taxpayers should be aware that the FTB reserves the right to use any information that is provided in the Offer in Compromise application for tax collection purposes. Further, the FTB reserves the right to rescind the offer terms if the taxpayer becomes delinquent with their tax obligations in future years.

Review and Determination

Once the FTB has received the Offer in Compromise application and supporting materials, they will conduct a review. The review generally takes approximately 90 days from the date the taxpayer applies. The FTB will accept, accept with the collateral agreement, reject or counter-offer.

Once the FTB has reached a determination they will contact the taxpayer. Taxpayers are generally contacted within 90 days after filing the Offer in Compromise application. If the offer has been accepted the taxpayer will be required to make a lump-sum payment in the accepted amount. Once that payment has been made to the FTB,  they will begin the process of releasing any state tax liens. The taxpayer does not have the right to appeal a denial of an Offer in Compromise. However, they do have the ability to refile the application if their circumstances change.

Help With California Offer in Compromise & TaxCure

If you need help with this type of filing or even getting an evaluation from a professional if you qualify, consider connecting with one of the professionals in our network. At TaxCure, professionals from all over the country have signed up and we have obtained details on their strengths with the various taxation agencies. We have made it easy for taxpayers to find professionals that can help with a particular problem or solution based upon the unique experience of the professional. You can start your search below or you can follow this link to view the top professionals with California offer in compromise experience.

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.

California Franchise Tax Board Innocent Spouse Relief

The FTB has an innocent spouse program that provides tax relief for those taxpayers who otherwise are not responsible for their spouse/RDP’s (registered domestic partnership) delinquent taxes owed. The FTB offers the following types of innocent spouse relief.

Traditional Innocent Joint Filer Relief

A taxpayer may qualify for relief from assessed additional tax, penalties, and interest if they meet all of the following conditions:

• The taxpayer filed a joint tax return
• At the time the taxpayer signed the joint tax return, they were unaware of the items that resulted in an audit assessment of additional tax
• The spouse/RDP created the liability, and
• Taking into account all the facts and circumstances, holding the taxpayer liable for the tax liability would be unfair

Relief by Separate Allocation of Liability

Under this type of tax resolution, the FTB will determine which spouse/RDP is liable for the assessed additional tax, penalties, and interest. They will then assign the liabilities to the responsible spouse/RDP.

A taxpayer may qualify if they filed a joint tax return and met all of the following conditions:

• The taxpayer divorced, legally separated, terminated a registered domestic partnership, or lived apart for 12 months before requesting relief
• The additional tax assessed is attributable in part or in full to the spouse/RDP, and
• The taxpayer did not know the items that created the tax liability when they signed the joint tax return

Equitable Relief

A taxpayer who filed a joint tax return, and does not otherwise qualify for traditional innocent joint filer relief or relief by “separate allocation of liability,” may be entitled to equitable relief under certain conditions. This is similar to the IRS's equitable relief program.

Regarding a taxpayer’s eligibility for equitable relief, they must show that some or all of the unpaid liability is attributable to the other spouse/RDP (unless they can establish that they were the victim of abuse or financial control by the other spouse/RDP).

The FTB states that they will consider all facts and circumstances when making determinations as to equitable relief. The following are specific factors they will take into consideration:

• The taxpayer’s current marital/RDP status
• Whether the taxpayer experienced abuse from the spouse/RDP during the marriage or registered domestic partnership
• Whether the taxpayer knew when they signed the tax return that it understated their tax liability or that the spouse/RDP would pay the taxes owed when their spouse/RDP filed the tax return
• The taxpayer’s current financial situation and their ability to pay the tax liability
• Whether termination of a registered domestic partnership, a divorce decree or the legally binding agreement identifies the taxpayer or the spouse/RDP as the person legally liable to pay the tax liability
• Whether the taxpayer received a significant benefit from the unpaid income tax liability or tax deficiency, and
• The taxpayer’s compliance with income tax laws for tax years following the tax years for which they requested tax relief

IRS Relief

If the IRS granted the taxpayer innocent spouse relief, the FTB may do so from self-assessed unpaid state tax liabilities, or an assessed deficiency of additional taxes, if the taxpayer meets the following conditions:

• The taxpayer filed a valid joint tax return
• Taxpayer submitted a completed FTB 705, Innocent Joint Filer application
• The facts and circumstances underlying the federal unpaid liability and the California unpaid liability are the same
• The IRS granted the taxpayer relief for the same tax years, and
• The taxpayer provides a copy of the IRS Final Determination Letter

Relief from Community Income

If the taxpayer failed to include community income on a separate tax return, and FTB assessed additional tax against the taxpayer based on that omitted community property income, the taxpayer may be entitled to relief from having that community property income included as part of their gross income if the taxpayer meets the following conditions:

• The taxpayer did not file a joint tax return
• Taxpayer did not include an item of community income on a separate tax return for that taxable year
• The taxpayer did not know of, and had no reason to know of, that community income item, and
• The taxpayer can prove that the unreported income was attributable to the spouse/RDP.

Relief by Court Order

The taxpayer may obtain relief if the taxpayer received a divorce decree/termination of registered domestic partnership from their spouse/RDP and the court issued an order relieving the taxpayer of some or all of the unpaid tax due from a joint tax liability. To qualify for a court-ordered revision, it must include the following items:

• A specific reference to the amount of CA state income tax liabilities for each tax year for which relief is granted
• The amount of the total unpaid tax liability each taxpayer is liable for paying

If the taxpayer’s joint gross income exceeds $150,000 or they owe more than $7,500 for the tax years for which they want relief, the taxpayer must send the FTB a letter to request a Tax Revision Clearance Certificate (TRCC) before seeking court-ordered relief. This letter must include the taxpayer’s name, address, telephone number, and social security number. The TRCC is provided to the court. After the court issues its order, the FTB must receive a copy.

The FTB requests that taxpayers who obtain a divorce/registered domestic partnership termination call an Innocent Joint Filer representative at 916.845.7072. They will provide case evaluation and advice on the information that is required to be included in the divorce decree, marital settlement agreement, or registered domestic partnership termination.

Requesting Relief

The FTB requires the taxpayer to submit the following documents:

• FTB 705, Innocent Joint Filer application (found here: https://www.ftb.ca.gov/forms/misc/705.pdf)
• A statement explaining the grounds for relief and any supporting documentation
• Include the taxpayer’s name, social security number, and the tax years for which the taxpayer wants relief for
• Complete copies of state and federal tax returns for the tax years the taxpayer wants relief for
• If the taxpayer asked for tax relief from the IRS, attach a copy of any IRS correspondence responding to the request
• A complete copy of any divorce decree or marital settlement agreement or termination of registered domestic partnership

Taxpayers should mail these documents to:

State of California
Innocent Joint Filer Program MS A-452
Franchise Tax Board
PO Box 2966
Rancho Cordova, CA 95741-2966.

For a list of tax professionals experienced with California Franchise Tax Board issues, visit the link and use the search filters to refine your search, or start your search below.

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.

North Carolina State Tax Payment Plan Overview

If a taxpayer owes back taxes to the State of North Carolina, they can set up its version of a tax payment plan. NC’s Department of Revenue (DOR) calls it an Installment Payment Agreement. An Installment Payment Agreement allows a taxpayer to pay off their taxes (including accrued penalties and interest) over a series of monthly payments.  Moreover, the state will not let a taxpayer set up an Installment Payment Agreement until it sends the taxpayer an official notice. Consequently, once the taxpayer has received a tax notice, they can consider requesting an Installment Payment Agreement to avoid enforced collection action.

If you have received a notice from the state, you can request a payment agreement based on the following parameters:

North Carolina Tax Payment Plan Details

Tax Type	Tax Owed	Months
Individual Income	Less Than $1,000	15
Individual Income	$1,000 to $6,999	30
Individual Income	$7,000 to $49,999	40
Individual Income	$50,000 or more	50
Business	Any Amount	12

Applying for an NC Payment Plan

A taxpayer can request an Installment Payment Agreement by filling out a form online.  You can find the North Carolina Department of Revenue’s links to this Installment Payment Agreement form online now. In this case, there are no fees to apply for or to process your application for an installment payment plan.

Remember, taxpayers need to receive official notice from the N.C. Department of Revenue to request an Installment Payment Agreement. If they have not yet received one, they can make payments on the Department of Revenue’s website.

Individuals also have the option of calling 1-877-252-3252.

Other Documentation a Taxpayer May Need

If the taxpayer believes that they cannot make payments according to the parameters provided by the Department, the taxpayer may submit more information for review. In other words, the taxpayer needs to complete a form. Specifically, individuals should use the Collection Information Statement for Individuals (Form RO-1062), and Businesses should use Collection Information Statement for Business (Form RO-1063). Therefore, if you are submitting financial information to the NC Department of Revenue, you may want to receive help from a licensed tax professional.

Generally, when submitting these forms, a taxpayer must include three months of bank statements and supporting documentation for all income and expenses listed on the forms.

What Else Do I Need to Do to Apply for a Payment Plan?

To apply for an installment payment agreement, a taxpayer must:

• Continue to file and pay all tax returns in full during the entire term of the agreement
• Have a bank account
• Allow the Department to take automatic payments
• File and pay estimated income taxes
• Provide any additional information that the Department requests

Forms of Payment Accepted

An installment payment plan can only be paid by automatic electronic debit from a bank account. Consequently, you are required to have a Personal Checking, Personal Savings, Business Checking, or Business Savings account to set up a plan.

Reasons for Payment Plan Being Denied or Defaulted Automatically

Taxpayers can default on an installment payment agreement automatically or receive a denial if they:

• Fail to file and continue to pay all tax returns in full during the term of the agreement
• Do not have a bank account
• Fails to make a scheduled payment, or the payment is returned
• Do not pay current estimated income taxes
• Do not provide any requested information to the DOR

Potential Negative Consequences From Obtaining a Payment Plan

If you obtain an installment payment plan with the Department of Revenue and default on any of the terms, the Department must take legal action to force collection of the tax immediately.

Forced collection actions include:

• Garnishment and Attachment – An order that requires that money be withheld from a taxpayer’s bank accounts, wages, or other intangible property.
• Certificate of Tax Liability (CTL) – A CTL places a judgment on real or personal property that is held by a taxpayer. Moreover, a CTL is public information and must be resolved to obtain a clear title to a property.
• Jeopardy Assessment – The NC Department of Revenue may immediately assess and collect any tax the Department finds in jeopardy. Furthermore, when making a jeopardy collection, the Department may use any collection remedy in NC General Statutes § 105-242.
• Tax Warrant – A tax warrant is a request issued to a Sheriff to seize and sell any personal property owned by a taxpayer who has failed to pay taxes, penalties, interest, or fees that have been assessed by the NC Department of Revenue.

When in doubt, it is generally a good idea to work with a licensed tax professional that has resolved or has experience fixing tax problems with North Carolina's DOR, click the link or start your search below to see top-rated tax professionals. Sometimes other options, like an Offer in Compromise can be a better course of action if a taxpayer qualifies. 

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

North Carolina Tax Resolution Options for Back Taxes

The Department of Revenue (DOR), a cabinet-level executive agency, is responsible for administering tax laws and collecting NC taxes. The governor appoints the Secretary of Revenue.

Do you owe back taxes to North Carolina?  Perhaps you lost your job or were in the hospital.  Maybe you just had a hard year and didn’t have enough money to pay your state income taxes.  Whatever the reason was, you should know what will happen if you don’t pay NC state promptly. Furthermore, you should also understand what your tax payment options are. Before pursuing most NC tax resolution options, taxpayers usually need to receive a final notice of assessment.

North Carolina Individual Income Tax Options

The State of North Carolina offers a variety of options to taxpayers who owe the state income back taxes.  These tax resolution options are for taxpayers so they can reach a resolution with the state regarding unpaid tax liabilities. This list is not all-inclusive but can give taxpayers an idea of some tax options available.

NC Installment Payment Agreement

North Carolina offers an Installment Payment Agreement. Many may also refer to it as a tax payment plan or installment agreement. With this option, if the taxpayer cannot pay the balance in full, they can pay it over time. The type of tax and the amount owed usually determine the duration of the Installment Payment Agreement. Taxpayers can find out more about NC’s installment payment agreement here.

NC State Offer In Compromise

North Carolina’s DOR has an Offer In Compromise (OIC) program for qualifying and financially distressed taxpayers. With this tax resolution, a taxpayer can pay a lump sum to settle their tax liabilities in full. The OIC tax program may also be an excellent alternative for taxpayers who cannot comply with an installment payment agreement. Taxpayers can read more about this tax resolution option here.

NC Innocent Spouse Relief

In North Carolina, spouses are jointly and severally liable for the taxes that are due (e.g., married filing jointly).  However, a spouse will be allowed relief from a joint state income tax liability that is attributable to a substantial understatement by the other spouse if the spouse qualifies for innocent spouse relief of tax liability for federal tax due to the same “substantial understatement” by the other spouse under Internal Revenue Code Section 6015.

It is the only type of innocent spouse relief offered by North Carolina  G.S. § 105-153.8(e).

There is no time limit specified by the North Carolina statute to file. In comparison, to qualify for innocent spouse relief under Internal Revenue Code Section 6015, taxpayers must file Form 8857 no later than two years after the first IRS attempt to collect the tax from the taxpayer that occurs after July 22, 1998.

Bankruptcy

A taxpayer may also consider bankruptcy to discharge NC tax liabilities. However, some tax liabilities are non-dischargeable. For example, trust fund taxes (sales and withholding taxes), income taxes (including extensions) due within three years of the bankruptcy petition date, or tax liabilities due to unfiled or fraudulent tax returns. If a taxpayer considers this option, they should reach out to an experienced bankruptcy attorney.

NC Tax Penalties for Not Filing or Paying Income Taxes

If a taxpayer does not pay their income tax in full on time, the unpaid tax is subject to penalty and daily accruing interest.  Taxpayers will also be subject to both civil and criminal penalties.

Failure to Pay and File Tax Penalties

If a taxpayer doesn’t pay or file their state income taxes in North Carolina, they may be subject to the following penalties:

• Failure to file penalties – Returns filed after the due date are subject to a failure to file penalty of 5% of the net tax due for each month or part of a month that the return is late (maximum of 25% additional tax).
• Failure to pay penalties – If a taxpayer fails to pay their tax on time, NC state will assess a late payment penalty of 10% of the tax not paid by the original due date. If the taxpayer files a timely extension, the penalty will only apply to the remaining balance due if the tax paid by the original due date is less than 90% of the total amount due.  If the taxpayer paid at least 90% of the total tax due, DOR expects the taxpayer to pay the remaining balance before the expiration of the extension period to avoid late payment penalties.  DOR will not assess the late payment penalty if the taxpayer pays the amount due with the amended return.  The additional tax due is subject to the 10% late penalty if DOR does not receive the tax payment within 45 days of the assessment or a Request for Departmental Review is filed promptly.

Fraud, Negligence, Frivolous Tax Return Penalties

• Negligence penalties and Large tax deficiency – If a taxpayer understates their taxable income, in an amount equal to 25% or more of gross income, the 25% large individual income tax deficiency or other large tax deficiency penalty will be assessed. If the taxpayer understates their income by less than 25%, a 10% negligence penalty may be applied.  If the taxpayer had an accuracy penalty assessed for federal income tax purposes, DOR will assess the 10% negligence penalty for State income tax purposes, unless a larger deficiency penalty applies.
• Fraud – If a taxpayer received a fraud penalty from the federal government and their state return was based on that fraudulent return, they will also be assessed a 50% fraud penalty for state purposes. If taxation authorities assess a fraud penalty, the state cannot also assess a taxpayer for negligence, large tax deficiency, or failure to file for that same deficiency.
• Frivolous return – If a taxpayer files a frivolous return, the state may assess up to a $500 penalty. A frivolous tax return is one that both fails to provide sufficient information to permit a determination that the tax return is correct and positively indicates the tax return is incorrect and evidences the intent to delay, impede or negate the State or purports to adopt a position that lacks seriousness.

Other Tax Penalties Assessed by North Carolina

• Failure to report federal changes – If the taxpayer fails to report changes in federal tax returns within six months of being notified by the Internal Revenue Service, the taxpayer may be subject to the failure to file penalty and will forfeit the right to any refund.
• Insufficient funds penalty – If a taxpayer writes a bad check, they will be assessed a penalty. DOR will assess a penalty of 10% of the check amount. The bad check penalty has a maximum of $1,000.
• Collection assistance fee – The state assesses a 20% collection assistance fee for any tax, penalty, or interest not paid by the taxpayer within 90 days from the payment due date. It does not apply if the taxpayer begins making payments under an installment agreement that became effective within those 90 days.
• Underpayment of estimated income tax – If interest on the underpayment of estimated income tax is due, that amount must be added to the tax due.

G.S. § 105-236 specifies additional tax penalties for taxpayers to review.

Interest

Interest accrues on any unpaid tax from the original due date. It accrues on overpayments beginning 45 days after the latest of

• (1) the date the taxpayer filed the final return,
• (2) the date the final tax return was due to be filed, or
• (3) the date of the overpayment.

On or before June 1 or December 1 of each year, the Secretary of Revenue establishes the interest rate for the next six-month period.  The interest rate for January 1st, 2019 to June 30th, 2010 is 5%. Taxpayers can find quarterly interest rate updates here.

Conclusion

There are many options available for taxpayers who cannot pay NC tax liabilities in full. Some tax resolutions are more accessible than others. If taxpayers do not address past-due tax liabilities, eventually NC State will proceed with enforced collections. Enforced collections may include a Certificate of Tax Liability (similar to a tax lien). It may also include wage garnishment, and bank account levies (garnishment) among other things. Therefore, taxpayers should address tax issues as soon as possible. Moreover, consulting with or hiring a licensed tax professional can make the process of tax resolution a lot easier, click the link to see professionals that help with North Carolina tax issues or start your search below. 
 

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

NC Tax Offer In Compromise Overview

An NC tax offer of compromise (OIC) is when the North Carolina Secretary of Revenue decides to accept a settlement for back taxes for a lesser amount than what is due when the secretary determines that it is in the best interest of the state.  Specifically, N.C  Gen. Stat. § 105-237.1 provides authority for the Secretary of Revenue to consider an OIC. Consequently, the North Carolina Offer In Compromise program allows qualifying, financially distressed taxpayers the opportunity to pay off their tax liabilities through one lump sum.  The benefits of the program include the ability for the taxpayer to settle their tax liability in full.  The goal of the program is to resolve a tax liability in the best interest of the taxpayer and the State.

Qualifying Circumstances for an NC Offer In Compromise

To qualify for an Offer In Compromise, the Secretary of Revenue determines the OIC is in the best interest of the state and makes “one or more or the following findings:”

• Under the laws and facts, there is reasonable doubt as to the amount of the liability of the taxpayer
• The taxpayer is insolvent, and the Secretary could probably not collect an amount equal to or more than that offered in compromise. A taxpayer is insolvent if:
  • A judicial proceeding determined the taxpayer to be insolvent
  • It is “plain and indisputable” that the taxpayer is “clearly” insolvent and will remain so in the reasonable future
• It is improbable that the state will collect more than what the taxpayer offers in compromise, and a substantial portion of the funds used to make the offer are from sources the Secretary could not otherwise collect from
• The taxpayer had an OIC accepted by the IRS for a federal tax assessment “arising out of the same facts,” “on the same or similar basis as that proposed to the state” and the Secretary could probably not collect an amount equal to or more than the amount offered in compromise by the taxpayer.
• Collecting a greater amount than what the taxpayer offered in compromise would produce an unjust result “under the circumstances.”

Other Findings Considered Specifically Related to a Business

• “The taxpayer is a retailer or a person under Article 5 of this Chapter; the assessment is for sales or use tax the retailer failed to collect, or the person failed to pay on an item taxable under G.S. 105-164.4(a)(10) through (a)(15), and the retailer or person made a good-faith effort to comply with the sales and use tax laws. This subdivision expires for assessments issued after July 1, 2020.”
• “The assessment is for sales tax the taxpayer failed to collect or use tax the taxpayer failed to pay as a result of the change in the definition of retailer or the sales tax base expansion to (i) service contracts, (ii) repair, maintenance, and installation services, or (iii) sales transactions for a person in retail trade. The Secretary must determine that the taxpayer made a good-faith effort to comply with the sales and use tax laws. This subdivision applies to assessments for any reporting period beginning March 1, 2016, and ending December 31, 2022.”

North Carolina Offer In Compromise Basic Requirements

To qualify for an Offer in Compromise, you must provide financial documents that indicate that the state would probably not collect full payment in the foreseeable future.

You must also:

• pay all estimated payments (if required) for the current year
• file all required tax returns and reports
• have received a final notice of assessment for all North Carolina taxes that you owe
• not be the subject of an open or active bankruptcy case
• file the current year’s tax return(s) and paid any liabilities shown due in full. The current year’s tax return is the return most recently due.

Steps to Prepare and Submit OIC

To apply for an offer in compromise, a taxpayer must:

• Complete OIC-100 Form
• Complete your OIC-1062 if they are an individual or sole proprietor or OIC-1063 if they are a business (notate “NA” for any times that do not apply)
• If the source of funds for the OIC comes from a third party, attach form OIC-102 to OIC-100.
• Provide supporting documentation
  • NC will require the taxpayer to provide the last two months of paystubs if they are a wage earner. Moreover, they will also need to provide copies of the previous three bank statements for all accounts, complete copies of last two federal income tax returns (if you had to file), and a current federal account transcript for each outstanding period and tax schedule for money owed to IRS. Furthermore, substantiation for any claims of special circumstances made in section 8 of OIC-100. Finally, the taxpayer must also substantiate claimed mortgages or vehicle liens.
• Ensure your liabilities have been finally assessed by the Department
• Pay a 20% down payment of the amount of your offer when you submit your OIC (that is non-refundable). Exceptions for this are when the taxpayer is below federal poverty guidelines or when the taxpayer submits form OIC-12 with the OIC.
• Provide a computation of claimed corrected tax due if the basis for your compromise is reasonable doubt as to the amount due
• Submit information to the service center that serves your county of residence. You can find these on page 12 of the OIC booklet.

Documents and Related Forms

You must complete an OIC-1062 if you are an individual or an OIC-1063 if you are a business.  All business offers must attach an OIC-1062 form for each officer, partner, or member.

Everyone must fill out an OIC-100 Offer In Compromise.  You should fill out the OIC 101A, OIC 101B, or OIC 101C depending on if you are an individual, business or sole proprietorship.

• RO-1062 Collection Information Statement for Individuals or Sole Proprietorships. Individuals need to complete sections one through eight. Proprietorships and the self-employed must complete sections one through ten.
• RO-1063 Collection Information Statement for Businesses (for corporations, partnerships, LLCs, etc.)
• OIC-100 Offer In Compromise
• OIC-101A Worksheet for an Individual
• OIC-101B Worksheet for a Business
• OIC-101C Worksheet for a Sole Proprietorship
• OIC-102 Third Party Affirmation (must be notarized)

Note: Information on OIC-1062 and 1063 help the state determine collection potential. If the state decides that you can pay your tax liabilities quickly or through the use of an installment payment agreement (payment plan), then NC will most likely deny your offer.

Financial Factors NC Secretary of Revenue Considers

The state will analyze liquid assets, real property, personal property, and all other property.  Your asset values, minus any liens superior to the Department’s, will equal your total equity in assets.  The Department calculates your monthly disposable income by subtracting the lesser of monthly allowable or actual expense from total income. It will also consider future disposable income. Total allowable monthly expenses are computed using the Collection Financial Standards provided by the IRS.

If the taxpayer’s income varies from month to month, the Department of Revenue may require a longer period of documentation.

If NC’s DOR accepts the offer, the taxpayer must pay the full amount of the OIC by the date specified in the acceptance letter (usually 30 days from the date of the letter).

Payment Amount

The taxpayer must pay 20% of the amount offered in compromise in certified funds when the taxpayer submits the OIC.  There is an exception if the taxpayer’s income falls below the federal poverty guidelines or if the taxpayer includes a Third Party Affirmation form with the offer.  If the OIC is later denied, NC will not refund the 20% down payment.

If NC Accepts the Offer In Compromise

Payment of the accepted offer must be made in certified funds or by credit card by the payment due date as indicated on the acceptance letter (usually 30 days from the date of the acceptance letter). Furthermore, the total amount due will be the accepted offer amount minus the 20% down payment. Payment plan payments currently in effect will have no impact on the remaining 80% due.  If NC receives the remaining 80% due with the offer acceptance, DOR will release the recorded Certificate of Tax Liability

The Department does not accept payment plans on an offer in compromise.

Enforced Collections

NC’s DOR will not necessarily stop forced collection actions because an Offer In Compromise is submitted.

Reasons for Denial

The NC Department of Revenue may deny an Offer In Compromise if the taxpayer fails to meet the basic requirements discussed above. Other reasons for denial may include:

• Failure to provide the necessary documentation or providing insufficient documentation
• Omitting items from collection information statement
• History of noncompliance
• DOR determines the value of the property is different than what the taxpayer shows on the financial statement
• If the tax amount owed is based on taxes collected from others and it is not remitted (payroll or sales taxes)
• If DOR determines they can collect more over the statutory period of collection than the amount offered
• Taxpayer’s current installment agreement will pay more over the statutory period of collection than the offer

Taxpayer Appeal

North Carolina statutes make no provision for appeal of a denied offer. However, the Department may reconsider a denied OIC if there is a material change in the taxpayer’s circumstances, or if the Department misinterpreted information contained in the original offer. Most importantly, the denial letter will include contact information for the Revenue Officer assigned to your case for questions or clarifications.

The Bottom Line

NC’s Offer In Compromise program is a great option for financially distressed taxpayers to resolve tax liabilities. However, many do not qualify. Therefore, working with a licensed tax professional can help make the process easier. In other words, a licensed tax professional with experience in tax resolution can help improves a taxpayer’s chances for acceptance. A taxpayer is denied an offer in compromise, you can request to pay your liability through an installment payment agreement.

When considering an Offer in Compromise, it is prudent to work with a licensed tax professional who has experience with a North Carolina offer in compromise, click the link to see professionals with North Carolina OIC experience or start your search below. 

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

State of NJ Options for Back Taxes

The State of New Jersey, Department of the Treasury, Division of Taxation (the “Division”) is responsible for all facets of the state’s tax administration.
It manages everything from assessment to tax collection. With that said, the Division has chosen to contract with a private company to assist with collecting delinquent taxes. Currently, the Division employs Pioneer Credit Recovery for this task. Once a taxpayer’s case is with Pioneer they must deal with them directly to reach a tax resolution.

Once the Division generates an assessment for taxes owed to the State of New Jersey, it will review the taxes owed and assign a caseworker to the account. The caseworker will then mail an initial contact letter which includes a schedule detailing the amounts owed. If a taxpayer does not respond to the initial contact letter, the caseworker will attempt to contact the taxpayer via telephone. If the taxes owed still has not been resolved, the Division will issue a Certificate of Liability (“COD”) with the Clerk of the New Jersey Superior Court.

For practical purposes, a COD is the New Jersey equivalent of a tax lien. If the Division issues a COD, the state will also begin to assess a Cost of Collection Fee. The collection fee becomes part of the liability owed. Further, the State of New Jersey adds penalties and interest to taxes owed. Moreover, it may add a Referral Cost Recovery Fee of 10.7% for cases sent to Pioneer Credit Recovery.

NJ State Individual Tax Options

Taxpayers who owe back taxes to the State of New Jersey have three main options available to reach a tax resolution. These are:

• Installment Agreement (Payment Plan),
• Closing Agreement, and
• Penalty Abatement

An Installment Agreement is also known as a Payment Plan. It is a payment arrangement where the taxpayer makes a series of monthly payments to the Division until the taxpayer satisfies the past due tax liability. A Closing Agreement is a program similar to what the Federal Government and other states call an Offer in Compromise. Here, the taxpayer may offer to settle their delinquent tax liability for less than what the taxpayer owes. Finally, a request for Penalty Abatement is a written request asking for relief with tax penalties. In other words, the taxpayer asks the Division to waive some, or all, of the tax penalties it has assessed.

Statute of Limitations

Arguably, the first thing a taxpayer must consider before pursuing a resolution is to determine the taxpayer’s legal rights under New Jersey law concerning the statute of limitation rules for the collection of back taxes.

In New Jersey, the Division has six years from the date of the first assessment to file a COD with the New Jersey Superior Court against the taxpayer for the delinquent tax due. Additionally, the State Attorney General may bring an action against the taxpayer in New Jersey Superior Court for the recovery of taxes owed that has been assessed in the six years before the commencement date of the action. Finally, New Jersey law only requires that the COD be renewed by the Division every 20 years. Moreover, it also provides for no limitation on how long the Division may keep the COD issued. The only method for having a COD released by the Division is to satisfy the taxes fully.

Innocent Spouse

The Federal Government and most states have innocent or injured spouse programs. These programs provide tax relief for these taxpayers who otherwise are not responsible for their spouse’s taxes iwed. Unfortunately, the state of New Jersey is one state that does not provide this program. Taxpayers who believe they are not liable for taxes based on innocent spouse principles must timely challenge the assessment. Otherwise, they can make their case through the Closing Agreement Request process.

Alternative Options That May Be Available

Contest the Assessment

If the taxpayer has a proposed assessment for additional income tax due as a result of a State of New Jersey audit, they have the opportunity to appeal the proposed assessment. The taxpayer has three appeal options:

(1) protest and request an informal administrative conference with the Conference and Appeals Branch,

(2) file an appeal with the required fee to the Tax Court, or

(3) a taxpayer who paid the entire assessment within the one-year appeal period may file a refund claim after that.

The taxpayer may not resolve their tax situation with the Conference and Appeals Branch. If so, the taxpayer may appeal to the Tax Court. The Conference and Appeals Branch is an informal body, while the New Jersey Tax Court is an administrative, judicial body. While a taxpayer may represent oneself in New Jersey Tax Court, it is advised to hire a licensed attorney who has experience practicing in the Tax Court.

Bankruptcy

Bankruptcy can be expensive. Therefore, this option is generally feasible for taxpayers who have personal liabilities in addition to their unpaid tax liabilities. Some taxpayers can discharge state taxes owed through bankruptcy proceedings. Taxpayers should contact an experienced bankruptcy attorney if they want to pursue this option.

The New Jersey Tax Amnesty Program

The State of New Jersey has conducted numerous tax amnesty programs. Currently, there are no active programs. The state did run a program in the past that ended January 15, 2019. This program was available for individuals and businesses with taxes owed. The Amnesty Program encourages delinquent taxpayers to become current. The state will waive penalties, and cut interest for those who file and fully pay their taxes owed. It is a program that most delinquent taxpayers should pursue.

Appeal Rights

As discussed herein, New Jersey law does not provide taxpayers with the right to appeal determinations of the Division concerning the collection of taxes owed. However, there are a couple of practical tips that the taxpayer, or their representative, should follow.

First, do not be afraid to escalate contentious issues to a manager within the Division. Often, a fresh set of eyes and the authority and experience of a supervisor can help resolve the matter amicably.

Second, if you believe that your case manager is not following New Jersey law, or discriminating against you, file a request for assistance with the Office of the Taxpayer Advocate (OTA). OTA helps taxpayers end their tax problems by:

• Helping taxpayers who are experiencing “undue hardship” as a result of Division actions;
• Working with taxpayers whose problems fall within the Division’s jurisdiction; and
• “Identifying systemic challenges within the Division that increase the burden on, or create certain issues for taxpayers. When appropriate, OTA will recommend administrative or legislative solutions.”

You can find more information about this on the Office of the Taxpayer Advocate website.

Certificate of Liability (COD)/Lien Releases

The Division will only release a COD in different situations. First, if the taxes owed, including any penalties, interest, and collection fees, has been paid in full. Second, it may release a COD if the taxes owed is satisfied through a Closing Agreement or Penalty Abatement.

Conclusion

Taxpayers have many tools at their disposal when dealing with back taxes in the State of New Jersey. With that said, New Jersey has a statute of limitations to hold open filed CODs. Additionally, the penalty, interest, and collection fees system results in reasonable taxes owed ballooning into crippling liabilities. Therefore, taxpayers should consult with a qualified tax professional as soon as these problems arise to determine which course of action is most appropriate for their situation. You can also find the top-rated professionals by license type below.

• Top-Rated New Jersey Enrolled Agents
• Top-Rated New Jersey CPAs

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

New Jersey State Tax Payment Plan Options

The State of New Jersey offers individual taxpayer's options for those who cannot pay tax liabilities in full. One option for taxpayers is the ability to pay off their balance over a series of monthly payments. It is known as a payment plan, but it is also called an installment agreement. With a payment plan, you generally will end up paying more in the long run because of interest and penalties.

Duration of a New Jersey Tax Payment Plan

3 to 60 Month Payment Plan

The State of New Jersey will accept tax payment plans from 3 to 60 months. Generally, NJ will allow payment plans for 36 months or less, without the need to review the taxpayer’s financial status. It means the taxpayer must agree to a monthly payment amount that pays off the entire tax amount owed. Also, the payment amount must cover penalties, interest, and fees, within 36 monthly payments.

Up to 60 Month Payment Plan Under the Financial Hardship Scenario

If the taxpayer cannot afford to pay off the tax amount in 36 monthly payments, and otherwise does not qualify for any other form of relief, the Division may accept a lesser monthly payment figure if the taxpayer can establish financial hardship. Taxpayers illustrate a financial hardship by providing financial information which shows they are unable to pay off the taxes owed in the standard 36-month payment terms. The Division states they will consider granting payment plans for up to 60-month payment terms under the financial hardship scenario.

Overview of Some Requirements

Before the taxpayer may enter into an Installment Agreement, the taxpayer must file all necessary tax returns. Taxpayers must have taxes owed of $500 or more, and the monthly payment amount must be at least $25. Furthermore, taxpayers must include all unpaid balances in the plan. Taxpayers will still be subject to all set-off programs (set-off programs allow the state to apply your refunds to the taxes owed) until the unpaid balance is paid in full. Also, the Division will continue to add interest and collection fees until the taxpayer satisfies the outstanding balance in full.

NJ Usually Will File a COD

Usually, NJ’s Division of Taxation will automatically file a Certificate of Liability (“COD”) with the  New Jersey Superior Court’s Clerk if the taxes owed is higher than $5,000 and the taxpayer seeks a payment plan greater than 12 months. A COD is the New Jersey equivalent of a tax lien. If the Division issues a COD, the state will also begin to assess a Cost of Collection Fee. The State of NJ adds the collection fee to the amount of taxes owed.

Guidelines to Setup a Plan

Taxpayers, or their representatives, can set up an Installment Agreement with the State of New Jersey by contacting their assigned caseworker or by preparing and filing a Payment Plan Request Form.  Taxpayers may also want to consider penalty abatement when appropriate. Taxpayers, or their representatives, should be mindful to attempt to include a hold or stay. The hold, or stay will pertain to enforced collection as part of the written payment agreement to protect the taxpayer from later being subject to enforced collection.

It is always a great idea to contact a licensed tax professional with experience in resolving NJ state tax problems. You can find a list of qualified tax professionals that solve NJ state tax problems here or start your search below.

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.

New Jersey Closing Agreement Overview

The State of New Jersey does not have a formal “offer in compromise” agreement program like the Federal Government. What they do have is a program where the taxpayer can ask the Division to accept a “Closing Agreement.” In effect, a Closing Agreement is the same general idea as an offer in compromise (OIC). In other words, the taxpayer is asking the state to accept a lesser amount than their full delinquent tax liability. The arrangement will include the delinquent tax due, as well as, penalties, interest, and any collection fees that have accrued.

The Division only provides general guidance as to what specific criteria a taxpayer must meet to qualify. New Jersey law gives the Division full discretion to accept Closing Agreements. The guidance reads as follows:

“[F]or any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the director that the state of New Jersey will sustain no disadvantage through consummation of such an agreement.”

The code section does not elaborate on specific criteria or processes that must be, or should be, implemented to determine when resolving taxes owed would be an advantage to the State of New Jersey.

Further, the Division does not give guidance as to how it implements the above-stated law. However, they provide some detail as to general eligibility requirements, submission requirements, and financial documents needed. We discuss these items in more detail below.

Eligibility

The New Jersey Closing Agreement statute allows the Division to enter into Closing Agreements with taxpayers for any state tax administered by the Division for any taxable period ending before or after the date of the agreement.

Requirements

The following are the requirements for submitting a Closing Agreement Request:

• The taxpayer must complete and submit NJ Form 906 – Closing Agreement Request. This application can be found here: https://www.state.nj.us/treasury/taxation/pdf/other_forms/special_pro/906.pdf.

Required Documents

The following the Division needs the taxpayer to include with the submission of a Closing Agreement request:

• NJ Form 906 – Closing Agreement as to Final Determination Covering Specific Tax Matters.
• A copy of the taxpayer’s individual IRS tax returns and Corporate tax returns for the last two years (if applicable)
• A copy of filed Federal tax liens, if applicable.
• Copies of the most recent real estate mortgage statements with monthly payment amount and current balance due, if applicable.
• A copy of court-ordered judgments owed (other than federal and state), if applicable.
• Copies of monthly bills for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous – if amounts exceed nationally allowed standards (discussed in more detail below).

Filing Process and Considerations

The State of New Jersey requires that the taxpayer submit the completed Closing Agreement in paper copy. Taxpayers should send their request and supporting documents to:

New Jersey Division of Taxation
Closing Agreements, 9th Floor,
PO Box 245, Trenton, NJ 08695-0245

Taxpayers should be aware that the submission of a Closing Agreement Request does not prevent the Division from filing a COD, tax refund offsets, or stay any enforced collection actions, including garnishments or foreclosures. Further, the filing of a Closing Agreement Request does not protect the taxpayer from otherwise making payments under a previously negotiated Installment Agreement.

Taxpayers should be aware that the Division reserves the right to use any information the taxpayer provides in the Closing Agreement Request for liability collection purposes.

Review and Determination

Once the Division has received the Closing Agreement Request and supporting materials, they will review it. The Division will accept, reject or counter-offer. It generally will make this determination and notify the taxpayer within 3-6 months.

The Division reviews the following financial information during the review of a Closing Agreement Request:

• Employment Information
• Spouse’s Employment Information (including non-liable spouses)
• Dependent Information
• Monthly Income and Expense Information
  • Taxpayers will be allowed the national standards for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous, based on their family size, without question (a copy of the standards is attached to the NJ Form 906). If the monthly expense amounts exceed the national standards, the taxpayer must provide documentation to substantiate those expenses are necessary living expenses. Generally, the total number of persons allowed for family size are the same as those allowed as exemptions on the taxpayer’s most recently filed tax return.
• Assets
  • Cash, bank accounts, stocks, bonds and other securities, cash value life insurance, motor vehicles (owned and leased), liabilities owed to you, household furniture and goods, items used in a trade or business, real estate, and all other assets not already listed.
• Liabilities:
  • Bills owed, installment liabilities, federal taxes owed, state taxes owed, real estate mortgages, loans payable, judgments owed, and all other liabilities not already listed.

A Decision Within Three to Six Months

The Division will issue a notice to the taxpayer stating whether the Closing Agreement Request has been accepted, rejected, or a counter-offer proposed. Taxpayers will usually receive this notice within 3-6 months after the filing of their Request. The taxpayer does not have the right to appeal a denial of a Closing Agreement Request. However, they do have the ability to refile the application if their circumstances change. Furthermore, the tax liability will not be subject to audit, and the taxpayer cannot claim a refund.

Guidance

If you have a state tax problem with New Jersey's DOR, reach out to a licensed tax professional that has experience resolving NJ state tax problems, or start your search below. Realize that if you do not qualify for a closing agreement, NJ's DOT offers payment plans among other resolution options.

Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.