Sam Brotman, JD, LLM, MBA August 24, 2014 5 min read

Employment Development Department Offer in Compromise – Part One

California Employment Development Department (EDD), like FTB, offers its own Offer in Compromise Program. Article 8, Sections 1870-1875 of the California Unemployment Insurance Code (CUIC) governs the EDD's Offer in Compromise program. This law permits the EDD to receive applications for Offers in Compromise that may enable a qualified tax debtor to eliminate an employment tax liability at less than full value.

A business must be inactive and inoperative to qualify for EDD's Offer in Compromise. An owner, partner or an individual assessed under Section 1735 of the CUIC may apply for offer in compromise. If business is still active and operative, then taxpayer may apply if he or she no longer holds controlling interest or is not associated with the business that incurred the liability.

Only non-disputed, final tax liabilities will be considered for compromise. Liabilities currently under petition or bankruptcy will not be considered by EDD. An applicant must not have access to income sufficient to pay more than the accumulating interest and 6.7% of the outstanding liability annually. Here is example provided by EDD, based on a liability of $5,000, which is provided as a guideline only:

Liability of $5,000 Annual Interest* x 7%
  $350.00
Liability of $5,000 x 6.7%  
  $335.00
  Total $685

 

Based on this example, the applicant must NOT have access to annual income sufficient to pay more than $685 annually or $57 per month. The applicant must not have prospects of increased income or assets which allow payment within a reasonable period and must not have assets which, if sold, would satisfy the liability. The amount offered by applicant must be more than what the EDD could expect to collect through involuntary means within four years of the time the offer is made. Offer in Compromise can not be obtained for liabilities assessed for fraud (Section 1128 of the CUIC) or where the employer has been convicted of a violation of the CUIC.

The Offer in Compromise Application (DE 999A) can be obtained by visiting local Employment Tax Office listed in the California Employer’s Guide (DE 44) and on the EDD website at www.edd.ca.gov/Office_Locator/. Applicant can also download the form on the EDD website at www.edd.ca.gov/Payroll_Taxes/Forms_ and_Publications.htm.

To fill out the form applicant will need social security number and EDD number. Applicant will need to provide reasonable offer and explain why offer should be accepted by EDD. Additionally, the form requires full financial disclosure, including information about community property. The application must be accompanied by cash, cashiers check or money order equal to amount offered. If applicant cannot pay the full amount at the time of offer, EDD may permit to pay the agreed amount in installments within no more than five-year period. When applicant submits payment with application, in the event an offer is not accepted, the amount will either be applied to the liability or refunded, at the discretion of the applicant submitting the offer. A determination by the EDD that it would not be in the best interest of the State to accept partial payment in satisfaction of a tax liability will not be subject to administrative appeal or judicial review. A separate application must be submitted for each EDD account to be compromised.

 

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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