I am doing an Offer In Compromise for California., form 4905-PIT. The 4905 PIT booklet is very vague. There are no detailed instructions on how to fill it out. There is really no explanation on how the offer amount is calculated, what is a reasonable amount for an expense, how many months receipts are needed, when are receipts not needed, definition of a household. I was told IRS Living Allowances are not acceptable. The OIC specialist has so much discretion. It seems there should be more in writing. So can you point me to any code, manual, regulation, case that can help to define the process? Also, what is the appeals process?
You are correct that the form and instructions are vague. My advice is to simply fill it out responding to each question as specifically and honestly as you can. As for the offer amount, fill in an amount that you can afford to pay. It is that simple. Sometimes, that will be 50% and at other times 1% of the amount owed. The FTB typically looks at what they can expect to receive over the next 5-7 years when reviewing your offer for reasonableness. So, if you're on an installment payment plan of $100 a month based on your financial situation, they expect $8,400 over 7 years. You then have to a apply a present day value of $8,400 to arrive at an offer that might be accepted. Lastly, you have to evaluate your available funds including any funds that might be borrowed. As for the documents that must be included, follow the instructions and if 3 months worth of bank statements must be provided, provide exactly what is asked for. Don't leave anything out or else you might get the OIC kicked back to you as simply incomplete. Sadly, there is no manual or regulation that provides more information than the instructions. As for the appeals process, it is very informal. The FTB or BOE will just ask for more if the offer is too low and you are expected to counter. I assist taxpayers with OICs all the time and highly recommend the OIC Program. If you're having problems, contact a state and local tax professional.
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California OIC's applications are very complex and better left to professionals who have experience in negotiating with the FTB, and BOE.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
Main: 323-292-4116 ❘ Cell: 562-505-1004
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