New York State Back Taxes Options

New York State has a tax resolution framework for taxpayers struggling with back taxes. The NY State Department of Taxation and Finance (DTF) has a reputation for being consistent and reliable. Some of the tax programs available help taxpayers pay off their balance over time. Other options are available to help financially strapped taxpayers settle for less than they owe. If you are struggling with New York State back taxes, the overview below will provide you with some direction on the resolution options. Then, the guide takes a look at what can happen if you don't pay your NY state taxes. Keep in mind that programs and laws change, so it is always a good idea to contact a licensed tax professional.

NY State Individual Tax Resolution Options

NY Installment Payment Agreement (IPA)

DTF offers different types of payment agreements for those who cannot pay their taxes in full. They will look at a taxpayer’s compliance history, current financial state, and adherence to department requirements to determine whether to accept an IPA. Remember, that you will be paying your taxes over a series of monthly payments. Interest and penalties still accrue.

Read more here about the different IPAs available and how to apply.

12-Month Currently Not Collectible Status (Hardship)

If you do not qualify for an IPA, you can look to apply for hardship status. Generally, a hardship status is good for one year.  You must complete a financial form and disclose financial information annually. The disabled or retired, greatly benefit from this option because they don’t expect their financial situation to change in the future. However, a tax lien, or a tax warrant, usually will be filed.

It is comparable to obtaining a CNC status from the IRS. Unlike the IRS, the DTF does not publicly discuss this option, and there are no formal procedures. However, it is available for taxpayers facing difficult situations. For example, unemployment, illness, family issues, fire or floods, and severe decreases in income.

Offer In Compromise (OIC)

It is very similar to an IRS Offer in Compromise.  NYS is a little more selective when it comes to who qualifies. It is available to individuals and businesses that are insolvent or were discharged in a bankruptcy proceeding. It is also possible for individuals who are solvent, but payment would create “undue economic hardship.” With a NY OIC, taxpayers make an offer that represents the equity in their assets and future disposable income.

Read more here about the NYS offer in compromise program, who qualifies, and how to apply.

Innocent Spouse Relief (ISR)

NYS does offer Innocent Spouse Relief as an option for spouses or former spouses who filed a joint tax return. There are three types of innocent spouse relief options available:

• Innocent Spouse Relief
• Separation of Liability
• Equitable Relief

Generally, ISR is best for spouses or former spouses who did not know and had no reason to know a joint tax return they signed had an omission or error. Furthermore, the spouse believes that DTF should not hold him or she responsible for the understatement of tax.

NY Business Tax Options

In NY state, withholding tax and sales taxes are “trust” fund taxes. Businesses collect the former taxes on behalf of consumers or employees and submit them to the state. Therefore, unpaid trust fund taxes are a serious matter to New York. Generally, these tax cases are handled on a case-by-case basis. Here are some of the paths frequented by businesses that owe taxes.

Installment Payment Agreement – IPA

In most cases, NY State requires a down payment of around 20% before they agree to an IPA. However, DTF may still grant an IPAs without a down payment.

Offer In Compromise

As discussed above, businesses that are insolvent or bankrupt may apply for the OIC program. NYS usually will not approve an offer for less than the amount of trust fund taxes owed. However, you can make an offer for the principal excluding penalties and interest. However, income taxes are different. Therefore, if a business is still active, an IPA with a down payment is usually the best option. However, if NYS assessed a “responsible person” personally for business taxes owed, then that individual may apply for the OIC program if he or she qualifies.

Voluntary Disclosure Program

The New York Department of Taxation and Finance offers a Voluntary Disclosure and Compliance Program. This is similar to a permanent tax amnesty program for people who are behind on their taxes. If you owe NY state back taxes and have unfiled returns, the voluntary disclosure program allows you to get caught up without facing penalties or criminal charges.

To apply, you have to contact the department and outline which taxes you owe. Then, you must pay the taxes and agree to pay all future taxes. You can apply for voluntary disclosure online or contact a tax professional to help you. If you have undisclosed investments in a Passive Foreign Investment Company, you can start the voluntary disclosure application, but don't submit any tax returns right away. Instead, wait for the NY DTF to contact you.

NY State Tax Audits

A New York State audit can be a stressful process. The NY DTF may select you for an audit if you have unfiled returns, unreported income, excessive credits or exclusions, or fraudulent returns. The state also compares information from the IRS, and if there are discrepancies, it may select you for an audit. 

During an audit, you have to prove the information on your return. You may also have to argue with the audit examiner if they claim that your return should be different. If you're not careful, audits can lead to unexpected tax liabilities. A tax professional can be invaluable if you're being audited.

NY State Statute of Limitations for Tax Collection

New York or the DTF has 20 years to collect tax liabilities. It is 20 years from the date the DTF could file a warrant. While the IRS has ten years to legally collect the taxes, NY State has 20 years.

The first date a warrant can be filed is different depending on the situation:

• If there is no right to a hearing concerning the demand for payment, the day would be the day after the payment demand letter specifies.
• If there is a right to a hearing, it would be the first day after the deadline to request a hearing.

Remember, NY State and the taxpayer can agree to extend the time to collect on a tax warrant.

New York State Debt Collection Actions

As indicated above, New York State has up to 20 years to collect a tax debt. You won't be able to "hide" from the state until this time frame expires. It's simply too long. The best option is to contact a tax pro and set up one of the tax resolution plans to deal with your NY back taxes. But what if you don't? What happens if you don't pay your NY State taxes? Here is an overview of how the Department of Taxation and Finance can involuntarily collect your back taxes. 

New York State Tax Warrant

A New York State tax warrant is a lien against your real or personal property. It gives the state the right to seize your property and garnish your wages. Even if the state doesn't move forward with the seizure, the tax warrant can affect your ability to buy and sell property and take out loans. 

If you sell property while there is a tax warrant, the state has the right to the proceeds of the sale, up to the amount of your tax bill plus penalties, interest, and collection costs. Once a warrant is in place, it can be difficult or impossible to remove unless you pay your state tax bill in full. The best option is to make arrangements on your state taxes before the New York Department of Taxation and Finance issues a tax warrant. 

Tax Levies in New York

A levy is typically the next step after a tax warrant. A levy is when the New York DTF seizes your bank accounts. The state will contact your bank and give them a 90-day warning. If you don't pay your tax liability, the bank will send the funds in your account to the state at the end of the 90 days. 

In New York, the state generally uses the term "tax levy" to refer to bank account levies. When the state levies physical assets, it refers to the process as a seizure. When it levies wages, it uses the phrase income execution.

Income Executions

An income execution is when the department requires you to pay a portion of your wages toward your state tax bill. Initially, the state will ask you to voluntarily pay 10% of your gross wages or 25% of your disposable wages every time you get paid. If you don't comply, the department will send an income execution order to your employer. Then, your employer will withhold this amount from your paycheck and send it to the state every pay period. In other states, this is called a wage garnishment. 

Seizures

After New York State files a tax warrant, it may seize your assets and sell them at auction. The state can take personal and business assets. When taking business assets, the department can change the locks at your place of business, deny you access, and take all of your business assets and merchandise. 

NY Driver License Suspension

If you owe more than $10,000 in NY state back taxes, the Department of Taxation and Finance can suspend your driver's license. The department will send you a Notice of Proposed Driver's License Suspension. You can avoid the suspension by paying the tax in full or setting up an installment plan. If you have a commercial driver's license, you may be exempt from this collection action. You can also get an exemption if your wages are being garnished for taxes, you pay court-ordered child support, you are on public assistance, or you receive Supplemental Security Income (SSI). 

Private Debt Collection for New York State Back Taxes

If you have unpaid taxes, the state can send your file to a private debt collection company. The Department of Taxation and Finance will send you letter DTF-975.1) to alert you that your account has been referred for private collections. 

How do I know if this collection agency works for the State of New York? You can ask them for your collection case ID number to confirm that they are legitimate. Or you can contact the DTF to check. As of 2022, the New York State Tax Department uses Coast Professional, Inc based in Wst Monroe, Lousiana to collect back taxes. 

Tax Refund Offsets

Why didn't I receive my NY tax refund? If you have back taxes, the state can keep your tax refund. NY DTF also keeps state tax refunds to cover IRS debts and debts from several other agencies. This is called the tax refund offset program. 

Generally, you cannot get offsets back. However, if you filed a joint return and the refund was seized because of a bill due exclusively to your spouse, you can apply for nonobligated spouse relief. File Form IT-280 (Nonobligated Spouse Allocation) to apply. 

Get Help With Back Taxes and Other Tax Problems in New York

If you are struggling with New York State back taxes, it is generally a good idea to connect with a licensed tax professional or a tax firm with experience resolving NY tax problems found in the link or start your search below. You can also find the top-rated tax professionals by license type below.

• Top-Rated New York Tax Attorneys
• Top-Rated New York CPAs
• Top-Rated New York Enrolled Agents
  • Brooklyn New York Enrolled Agents
  • New York, New York Enrolled Agents
• Overall Top-Rated Professionals in NY that help with tax problems

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.

A Review of Common Maryland State Tax Resolution Options

Dealing with Maryland back taxes? If you have delinquent tax liabilities in the State of Maryland, some options can help you avoid collection actions and save you money. Short of making a lump sum payment to satisfy the taxes in full, in Maryland, here are some standard tax resolution options:

• Enter into an Individual Payment Agreement
• Submit an Offer in Compromise (OIC)
• Request Penalty Abatement
• Request Innocent Spouse Relief
• Request Hardship Status (short-term)

We discuss these options in some more detail below. However, realize these are not an exhaustive set of options. Therefore, work with a professional tax firm or licensed tax professional to ensure you understand all tax options.

Who is Responsible for Collecting Taxes in the State of Maryland?

In the State of Maryland, the Office of the Comptroller is the entity responsible for collecting taxes. In fact, Maryland is one of only nine states that use the title of Comptroller – an archaic term meaning “financial officer.” The Office of the Comptroller collects some $16 billion each year in state taxes. Furthermore, in addition to individual and business income tax, some other forms of taxes that the Comptroller collects include sales and use, estates, admissions, and amusement, and alcohol and tobacco.

If you owe back taxes in Maryland, the Comptroller is the entity that will attempt to collect. However, the Comptroller may assign some cases to an external collection agency instead.  The Comptroller’s initial collection efforts will consist of a formal notice (Personal Income Tax Balance Due Notice) advising you of the back taxes and requesting payment. Many taxpayers make the mistake of ignoring these notices, which can result in more aggressive collection efforts down the road.

What Can the Comptroller do if I Fail to Pay Back Taxes?

Like the Internal Revenue Service (IRS), the Comptroller has broad collection powers. As stated in the previous section, the Comptroller’s initial collection efforts will consist of a series of written letters demanding payment. Consequently, if you fail to pay the balance or work out another payment arrangement, the Comptroller will attempt to collect the taxes.

The Comptroller’s office can do any of the following to collect:

• File a tax lien against your property
• Garnish your wages (wage garnishment)
• Execute a bank levy
• Prevent you from renewing your driver’s license or vehicle registration
• Prevent you from renewing a professional, occupational, or business license
• Take your state or federal income tax refunds
• Publish a list online listing your name as a delinquent taxpayer
• Take other legal actions against you

In addition to the above, the Comptroller can charge you 13% interest per year and up to 25% in penalties until the taxpayer pays the taxes in full.

Time for the Comptroller to Assess and Collect Maryland Back Taxes?

The Comptroller’s ability to collect back taxes is generally not limited. The Statute of Limitations (SOL) is essentially a period prescribed by law in which certain kinds of legal action must be brought. If the claim in a timely fashion, it will be waived forever. With regards to assessing taxes in Maryland, usually, the Comptroller’s Office has three years to make an income tax assessment from:

• the date the taxpayer files the return or
• from when the taxes were initially due, whichever is later

In some cases, MD may make an income tax assessment at any time if:

• If the taxpayer files a false tax return with the intent to evade the tax
• The taxpayer makes a willful attempt to evade the tax
• The taxpayer does not file a tax return when it is required
• MD state receives an incomplete tax return for the taxpayer
• A report of federal adjustment is not filed within 90 days of issuance. If the taxpayer does file in these 90 days, the Comptroller must assess within one year after receiving the report.

Statute of Limitations on Collections

With regards to the statute of limitations on collection for income tax, you could not wait out Maryland.  In theory, the collection SOL is seven years from the date of assessment, but for all practical purposes, there was no SOL until recently. Why? Once the state filed a tax lien, they could not collect indefinitely unless the tax lien became satisfied or released. Governor Hogan signed a new law (effective July 1st, 2019) stating that certain tax liens on personal or real property would terminate 20 years from the date of assessment. Therefore, there is a 20 year SOL. Exceptions include whether the law specifies another time or for if it is for inheritance tax. Moreover, the new law does not specify if the changes take effect retroactively.

What are my Options if I Owe Back Taxes in the State of Maryland?

If you or your business owe back taxes to the Comptroller, you have options that can help you avoid or cease the collection actions listed above. The following options apply if you owe the amount that the Comptroller is claiming. If you receive a notice from the Comptroller’s Office and you do not agree that you owe the taxes, or if the amount is incorrect, you have the right to appeal the assessment. Taxpayers must file appeals within 30 days of receiving the initial notice from the Comptroller. Following the appeal, the Comptroller will hold an informal hearing to consider the merits. If the Comptroller rules against you, you have the right to appeal the decision to the Maryland Tax Court.

If you owe back taxes, there are several options available to you. The availability and usefulness of each remedy depend primarily on your personal and financial circumstances. If you are unsure which option is the best for you, consult with an experienced Maryland tax professional.

Individual Payment Agreement

In similarity to the IRS, the state of Maryland allows taxpayers to pay off their taxes over time in some instances. An Individual Payment Agreement will enable you to pay off past due MD taxes over a series of months. While short-term repayment plans are generally freely given, more extended duration plans can present more of a challenge. The most crucial factor the Comptroller will consider when applying for an Individual Payment Agreement is your ability to pay the outstanding taxes. You may be required to complete a Collection Information Statement (MD 433-A) when applying. The statement requires a detailed list of your assets and income.

Repayment terms can vary. Durations of 36 to 60 months are possible. Generally, if you don’t have a lien, you can get a 36-month payment plan with no financial required (MD 433-A). If you already have a tax lien, taxpayers can set up a 60-month payment plan with no financials.  In cases involving financial hardship, the state may grant repayment terms of up to 99 months but usually requires manager approval. You can read more about payment plans here.

Offer in Compromise

An Offer in Compromise (OIC) allows qualified taxpayers to pay a settled amount for less than the total amount of the taxes owed. Unlike Individual Payment Agreements where you repay the full balance over time, an OIC is a form of lump-sum payment arrangement. Most importantly, the OIC program applies to all tax types handled by the state. The significant advantage that an OIC has over other remedies is the Comptroller will agree to accept a lesser amount, potentially saving you a lot of money.

Not every taxpayer is eligible for Maryland’s Offer in Compromise program. The state has specific requirements. For example, the OIC program has time limitations. Moreover, it requires all tax returns filed, and the taxpayer must have exhausted other options to resolve their tax liabilities.

You could apply for an OIC if you doubt you owe, doubt the state will collect what they owe, or if you would face financial hardship if you paid.  To apply for an OIC, you must submit several forms, such as an Offer in Compromise Application (Form 656) and a Collection Information Statement. Furthermore, you must comply with some critical procedural requirements. Also, the Comptroller’s Office will likely ask for supporting documentation, like credit card statements, pay stubs, and bank statements.

If you are eligible, an OIC may be the best option to help you affordably resolve your taxes.

Penalty Abatement

As mentioned above, the Comptroller can tack on an additional 25% in penalties to your outstanding taxes. As a result, tax penalties can make it very difficult for you to pay off what is owed, not to mention you will end up paying much more. It is possible to have penalties abated in full or in part. Generally, to qualify for penalty abatement, you will need to demonstrate sufficient grounds for your inability to pay. Some examples include unemployment, major health issues, and even the loss of tax records due to a natural disaster. While you will still be required to repay the outstanding principal balance, penalty abatement can save you a lot of money and help pay off your balance faster.

Innocent Spouse Relief (ISR)

Innocent Spouse Relief is a remedy available when your back taxes are the result of your spouse’s errors or fraud. You must show that you were not aware of the mistakes at the time that you signed your return and that you were not otherwise involved in the misconduct. If you meet the requirements, you may not owe any back taxes to the Comptroller.

The Comptroller generally mirrors the decision the IRS made with regards to Innocent Spouse Relief. In other words, to request ISR from the Comptroller, you need to send the letter showing the IRS determination on the matter.

If you owe back taxes to the State of Maryland and are unsure of your rights, contact an experienced Maryland tax professional today for assistance.

Hardship Status

Unlike the IRS, a hardship status granted from the Comptroller does not last very long. Generally, hardship status will last only for a few weeks or months. The taxpayer usually must complete the appropriate 433 Form and submit it with other documentation to substantiate certain financial information. It requires managerial approval.

What About Sales and Use Taxes?

With sales and use taxes, or trust fund taxes, Maryland state may allow taxpayers to enter into a payment plan or consider an offer in compromise. Above all, it usually depends on the taxpayer’s tax and financial situation. However, generally, some tax professionals will say to at least offer the amount you owe in taxes as your offer (the tax amount). You can pay off the offer sometimes over a period of years.

Connect With Tax Professionals When In Doubt

A licensed tax professional will have your best interests at heart in determining the best tax resolution for your situation. Certainly, the state wants you to pay as much as possible and as quickly as possible. Having an experienced tax resolution professional working on your behalf can save you money and stress. You can find a list of tax professionals that resolve Maryland state tax problems here.

Overview of Maryland State Tax Payment Plans

The State of Maryland, like the Internal Revenue Service (IRS), can be aggressive in its efforts to collect back taxes. The Comptroller of Maryland is the entity that is responsible for collecting state taxes. If you did not pay your MD taxes in full or did not file a Maryland tax return (and you should have), you may receive a notice from the Comptroller’s Office. Many taxpayers make the mistake of ignoring the initial letter from the Comptroller. As a result, the balance can grow exponentially due to penalties and interest. Also, the Comptroller’s collection efforts will likely become far more aggressive. Many taxpayers are unaware that there are options available to them to both avoid, or cease, the collection process and repay their past-due taxes. One of those options is a Maryland tax payment plan.

What is a payment plan? What term does the state use?

A taxpayer that owes past-due state taxes in Maryland can set up an Individual Payment Agreement with the Comptroller’s Office. Much like an IRS Installment Agreement, an Individual Payment Agreement allows a taxpayer to pay their tax liabilities off over time. You will receive a notice from the Comptroller’s Office informing you of the balance owed in back taxes. Once you receive a notice from the Comptroller, below are some options you have:

• Do Nothing
• Pay the tax balance in full
• File an Appeal
• Set up an Individual Payment Agreement
• Apply for an offer in compromise (if eligible)
• You can find other options here

Do Nothing

Doing nothing is easily the worst option. Not only will you face the possibility of significant collection proceedings, such as a garnishment or bank levy, but you will incur interest and penalties. The Comptroller can charge you double-digit interest per year and up to 25% in tax penalties. Over time the past due balance can grow substantially, making it far more difficult for taxpayers to get caught up.

Paying in Full

Paying the past due balance in full is a great option. Not only will you avoid collection proceedings and penalties, but you can quickly put the matter behind you. However, paying past-due taxes in full is often not a realistic possibility for most taxpayers.

File an Appeal

Like the IRS, the Comptroller grants taxpayers the right to appeal tax assessments. Taxpayers must file an appeal within 30 days of receiving the initial notice from the Comptroller. The Comptroller will hold an informal hearing to consider your appeal. If the Comptroller rules against you, you have the right to appeal the matter to the Maryland Tax Court. Appeals are useful if you believe the assessed amount is incorrect. They also have the added benefit of buying additional time since the Comptroller will not take collection action while an appeal is pending.

Set Up a Payment Plan

Setting up an Individual Payment Agreement is often the most feasible and best option for taxpayers. The durations of payment plans vary depending on both the taxpayer’s financial situation and the stage of the collection proceedings.

Consider an Offer in Compromise (OIC)

Not everyone qualifies for an Offer in Compromise. A taxpayer may consider an Offer In Compromise if he or she doubts the tax liability is correct. Many taxpayers file for an OIC because they don’t believe they can pay off their tax liabilities or if paying it would create an economic hardship. Taxpayers who cannot pay MD state in full should work with a licensed and experienced tax professional. You can read more about an MD offer in compromise by visiting the link above.

Common durations for an MD tax payment plan?

While the Comptroller’s Office is readily amendable to short-term repayment plans, more extended duration plans can be more challenging. Payment plans range from 2 to 99 months. Typically, the Comptroller’s Office will consider your ability to pay before agreeing to a long-term repayment plan. Individual taxpayers may be required to complete and submit a Collection Information Statement (MD 433-A) to the Comptroller’s Office. Businesses would use Form MD 433-B. Both forms require a detailed list of the taxpayer’s assets and income. While there are no set durations for repayment plans publicly stated, the following are some guidelines:

• No Existing Lien and Form 433-A  – Up to 36 Months
• Existing Lien and No Form 433-A – Up to 60 Months
•  Form 433-A Submitted Documenting Financial Hardship – up to 99 Months (Note: Requires Manager Approval)

In some cases, Maryland may require a down payment before granting a payment plan. In many cases, individuals have had the down payment requirement waived. However, businesses have a tougher time getting this policy waived.

For more information on durations of tax payment plans consult with an experienced tax professional.

Can a Payment Plan Help You Get Drivers License Renewal?

One of the primary motivations for taxpayers to get caught up on back taxes is an inability to renew a Maryland driver’s license or vehicle registration. State law requires that both individual taxpayers and businesses that have outstanding taxes or unemployment insurance contributions satisfy those liabilites before Motor Vehicle Administration (MVA) renewal.

A payment plan can be an indispensable tool to renew your driver’s license and registration. If your driver’s license currently has an MVA hold, you can get it released by setting up an Individual Payment Agreement. Generally, to remove an MVA hold, a taxpayer is expected to make a down payment between 10% and 50% of the outstanding taxes. The taxpayer is required to make the payment in person and will be given a receipt to provide to MVA to obtain a release. A down payment of less than 10% may be possible for those taxpayers than enter into a 99-month repayment plan. Like the 99-month payment plan, the reduced down payment also requires manager approval.

For those taxpayers that get a second, or even third, MVA hold, the required down payment usually increases substantially. With a second MVA hold, the minimum down payment to obtain a release is 25%. For the third MVA hold, the minimum down payment amount increases to 50%. Again, many of these numbers are based on experience and may change. When in doubt, consult with a tax professional.

Negative consequences that can ensue from obtaining a Maryland tax payment plan?

Tax repayment plans can be an essential tool to help taxpayers resolve back taxes. However, it is critical to note that merely entering into a tax payment plan does not prevent the Comptroller from taking further collection action. For payment plans under six months, the Comptroller will typically not file a lien against the taxpayer’s property. However, for longer-term tax payment plans, the Comptroller could file a tax lien. A tax lien can attach to all of the taxpayer’s assets, as well as property acquired in the future. The Comptroller will file a notice of tax lien with the clerk of the circuit court in the county where the taxpayer resides.

A tax lien can make disposing or selling of property difficult. Also, the tax lien is a public record and may limit the taxpayer’s ability to obtain credit. Moreover, interest can continue to accrue during the life of the repayment plan, although at a significantly reduced rate.

Various ways someone can apply for a Maryland tax payment plan?

Typically, the Comptroller will send you a notice informing you that you owe back taxes. The notice will provide instructions to set up an Individual Payment Agreement. The easiest way to set up a payment plan is to visit the Comptroller’s website. Taxpayers can set up payment agreements online. You will need the notice number from one of the notices that you received from the Comptroller’s Office. Without this number, you will be unable to complete the process online.

As mentioned above, to qualify for a longer-term repayment plan, you may be required to complete a Collection Information Statement. Once the state of Maryland accepts a payment plan, the taxpayer can make payments by a personal check, money order, or credit card. Taxpayers can also set up a recurring payment plan which will deduct a predetermined amount from your bank account on the same day each month. Recurring payment plans are a good option since missing payments can result in a default and cancelation of your payment plan.

What factors could lead to a payment plan being defaulted automatically or denied by the state?

If you enter into a repayment plan and miss any scheduled payment, it could result in the cancellation of your repayment plan. Once canceled, the outstanding balance will begin incurring substantial interest and penalties. The Comptroller’s Office will likely resume collection efforts.

The denial of your repayment plan could happen if the Comptroller determines that you have sufficient assets or disposable income to satisfy your taxes. Obtaining a Maryland Tax Payment Plan can be confusing for those unfamiliar with the process.

Best practices for contacting the comptroller?

If you call the Comptroller to set up a payment plan or for another reason, be polite. Moreover, ensure you take note of the name of the representative you speak with on the phone. For help with a tax payment plan or to understand your best tax options, request reach out to a licensed tax professional with experience in resolving Maryland state tax issues. A tax firm or licensed tax professional can help you navigate to your best tax resolution. Or you can start your search below.

Maryland State Offer In Compromise Summary & Details

If you owe back taxes in the State of Maryland, an Offer in Compromise (OIC) can be a great option. Not only can you cease collection actions, but you could potentially save a significant amount of money. In this article, we discuss OICs, including the relevant procedures and the benefits of obtaining an MD OIC.

What is a Maryland State Offer In Compromise?

An Offer in Compromise (OIC) is a remedy for qualified individuals with back taxes to pay a settled amount for less than the total amount of the taxes owed. Maryland’s OIC program has similarities to the Internal Revenue Service’s (IRS) Offer in Compromise program. There are, however, some essential procedural differences between the two programs. For example, Maryland may not leverage the same financial standards the IRS uses in determining a taxpayer’s ability to pay.

What Types of Taxes are Eligible for an Offer in Compromise? Benefits?

In Maryland, the State Comptroller is the entity responsible for administering and collecting all taxes. The Offer in Compromise program can be used to settle any outstanding taxes owed to the Comptroller’s Office. Examples of commonly owed taxes include, but are not limited to, Income Tax, Sales and Use Tax, Admissions and Amusement Tax, and Withholding Taxes. Thus, the OIC program has widespread application throughout the State, helping both individuals and businesses to get out of tax liabilities and to avoid collection action.

Generally, with repayment plans, taxpayers are required to repay the entire outstanding balance of the taxes (not to mention interest and penalties). However, with an OIC, it is a form of lump-sum settlement that can result in saving thousands of dollars. Also, those taxpayers subject to collection actions by the Comptroller, such as garnishments or tax liens, can potentially cease such costly efforts.

Who is Eligible for an Offer in Compromise in Maryland?

A taxpayer can apply for a Maryland OIC based on a few reasons:

• doubt as to liability
• doubt as to collectibility (insufficient resources)
• Economic or other hardship

With regards to the two last reasons above, eligibility for an OIC in Maryland largely depends on the taxpayer’s financial situation and resources. Several formal requirements must be satisfied to qualify for an OIC:

• You have a delinquent tax liability and have received an assessment from the Comptroller’s Office;
• You have exhausted all possibilities for an administrative appeal. If there are any open issues that you can appeal, then you cannot apply for an OIC;
• At least two years must have passed since the state assessed the taxes;
• The taxpayer must have filed all returns for prior years;
• You cannot be involved in a pending bankruptcy case of any kind;
• You lack the financial means to make payment in full at any time in the foreseeable future; and
• You lack resources or are unable to apply your present and future resources to paying off your outstanding tax liability.

Every taxpayer’s financial circumstances are different. If you are unsure whether you are eligible to apply for an OIC with the Comptroller, contact an experienced Maryland tax professional.

When Should a Taxpayer Apply for an Offer in Compromise Over Other Tax Resolutions?

The eligibility requirements discussed above allude to the circumstances in which a taxpayer should apply for an OIC. There are generally three reasons that taxpayers can seek an OIC. The first, known as doubt as to liability, is where you do not believe that you owe the Comptroller the assessed amount. The second is known as doubt as to collectability. Fundamentally, the taxpayer believes he or she owes the tax but lacks the financial resources to pay the tax amount in full. Finally, an OIC can be submitted based on economic or other hardship. It occurs where the taxpayer may have sufficient resources to pay the total amount, but doing so would cause financial hardship or would be unfair.

As a practical matter, if a taxpayer is eligible, it is generally advisable to pursue an OIC over other remedies like repayment plans due to the potential for a reduction of the outstanding balance.

What Forms Does the Taxpayer Need to Complete to Apply for an OIC?

To apply for an OIC in Maryland, a taxpayer must complete two sets of forms. The first is an Offer in Compromise Application (Form 656). Form 656 requires the taxpayer to list his or her personal information, the applicable tax and period, select one or more of the three reasons for submitting an OIC (discussed above), and the proposed payment terms of the OIC. The taxpayer must also list the reasons for applying for the OIC.

The taxpayer must also complete a second form called the Collection Information Statement (CIS). For individual taxpayers, the appropriate CIS form is MD 433-A. Businesses must use Form MD 433-B. Both tax forms require the taxpayer to list detailed financial information. The purpose of a Collection Information Statement is for the Comptroller to analyze a taxpayer’s financial condition to determine whether or not the taxpayer is eligible for an OIC and if so, whether or not to accept the offer.

Are Any other Forms Required?

As a general matter, the Comptroller will want to see documents supporting the information listed on the Collection Information Statement. Depending on the taxpayer’s income, expenses and assets, such docs can include bank statements, pay stubs, credit card statements, car loan statements, mortgage loan statements, student loan statements, plus many others. For this reason, it is vital to accurately and fully complete all forms.

How Do I Apply for an Offer in Compromise?

To apply for an OIC, the taxpayer must submit Form 656 and Form MD 433-A (If a business use MD 433-B) to the Comptroller. Item 7 on the OIC form requires the taxpayer to specify how payment will be made. The taxpayer has several choices:

• Payment in full with the offer;
• A deposit pending acceptance by the Comptroller;
• No deposit with payment to be made within a specified period;
• $0.00 offer; and
• A request for a payment plan

The taxpayer must file all required forms and make payments, if any, to the Comptroller at the following address:

Offer in Compromise Program
Comptroller of Maryland
301 West Preston Street, Room 203
Baltimore, MD 21201

What Will the Comptroller Do Once it Receives My OIC?

The Comptroller will review your OIC and Information Statement to determine whether you are eligible for an OIC. If the taxpayer meets the initial requirements, the Comptroller will take a more detailed look at the taxpayer’s circumstances to see whether an OIC is warranted. Some of the factors the Comptroller considers:

• Taxpayer’s health, age, and amount owed;
• Number of family members supported;
• Level of Education;
• Work history;
• Location of the taxpayer
• Source of income;
• Reasons for the tax liability;
• Past tax compliance; and
• Whether the state filed tax liens

Comptroller Will Review the Taxpayer’s Financial Situation

The Comptroller will take a detailed look at your income and expenses. Unlike the IRS, which has set numbers for housing and living standards, Maryland does not have its own Collection Financial Standards. However, at the Comptroller’s discretion, they may allow the taxpayer to claim the IRS limits.

If the Comptroller accepts your OIC, the taxpayer gets notified and placed on a three-year probationary period. It means you must make all scheduled payments on time and file all future tax returns on time. In other words, remain current with tax filing for three years. If you fail to abide by these terms, the Comptroller can demand that you pay the full amount of the outstanding taxes, including interest and penalties. Moreover, the Comptroller will likely commence collection action.

What If the Comptroller Denies the OIC?

If the state denies your OIC, the Comptroller may send you a written notice to submit a higher offer. The Comptroller may flat-out refuse an OIC. Such a decision can have consequences for the taxpayer. First, the Comptroller can elect to keep your down payment and apply it towards the outstanding balance. Secondly, the Comptroller’s decision is final, and the taxpayer cannot appeal. You may, however, be able to submit another OIC at a later date if your circumstances have changed. Thus, it is essential to make your first OIC a good one.

It is important to note that even if your OIC is accepted, the Comptroller can still attach a lien against your property. The tax lien serves to protect the Comptroller’s interests. Should the taxpayer timely make all payments under the OIC, the Comptroller will release all tax liens.

Help With a Maryland Offer in Compromise and TaxCure

If the taxpayer’s OIC gets denied, there may be other remedies available to such as a repayment plan. If you are unsure of your options, consult with an experienced Maryland tax professional. Above all, if you decide to pursue an Offer In Compromise with the State of Maryland, work with a licensed tax professional that has experience. Above all tax resolutions, applying for an OIC takes time, and it is one resolution whereby having a tax professional on your side can make a world of difference. At TaxCure, we have a large network of licensed tax professionals and only particular professionals have experience with Maryland OICs. Our algorithm has ranked the professionals that have the most experience with this type of solution, you can view top Maryland's Offer in Compromise professionals here, or start your search below.

AZ State Tax Payment Plan: An Option If You Can’t Pay in Full

A tax payment plan or installment payment agreement is the Arizona Department of Revenue’s (ADOR) version of an IRS installment agreement. A taxpayer may consider a payment plan if they do not have funds to pay the ADOR at once but can afford to pay over time. A taxpayer can propose to pay a certain amount every month until the liability is paid.

Duration of the AZ State Payment Arrangement

ADOR sets the length or duration of an AZ payment arrangement by the taxpayer’s total liabilities.  Below you find a breakdown of the details:

AZ Tax Payment Arrangement Durations

Amount Owed	Duration
$100 or Less	None. Must pay in full.
$101 to $1000	6 Months
$1001 to $2500	9 Months
$2501 to $4999	12 Months
$5,000 or More	May have to call but generally up to 24 months

 

If a taxpayer owes $100 or less, he or she must pay in full.  For balances between $101 and $1,000, the taxpayer may pay in a 6-month installment plan.  If the taxpayer owes between $1,001 to $2,500, he or she may pay in a 12-month installment plan.  If the taxpayer owes $5,000 or more, he or she should call the Arizona Department of Revenue at (602) 542-5551 to set up an individualized payment plan or have a tax professional work on their behalf.  Generally, ADOR will allow up to a 24-month payment plan for larger liability amounts.

Some Guidelines and Requirements

Collection Information Statement

To approve a payment arrangement, ADOR may ask the taxpayer to complete a Collection Information Statement (CIS) before granting an installment agreement.  Consequently, a CIS or the written financial statement helps ADOR assess the taxpayer’s monthly income, expenses, assets, and liabilities. The form helps them understand how the taxpayer can pay. If ADOR thinks the taxpayer can secure a loan to pay off their tax liabilities, they may ask the taxpayer to do so. If the taxpayer can show that they cannot afford to pay their tax liabilities in full, ADOR may grant a payment arrangement.

The ADOR may review payment arrangements at any time and ask for updated financial information.

30 Days to File All Delinquent Tax Returns

The ADOR provides taxpayers 30 days to file all delinquent tax returns. Taxpayers can find returns and forms here.

Other Important Considerations

• Taxpayers need to make payments on www.AZtaxes.gov
• The taxpayer needs to make all payments on time. If a taxpayer cannot pay on time, they will need to contact ADOR asap.
• ADOR may file a tax lien in certain situations
• Interest still accrues during the payment arrangement
• Refund offsets will occur and ADOR will apply it to the taxpayer’s delinquent tax liability
• The taxpayer cannot add future tax balances to the agreement
• ADOR will cancel the payment arrangement for returned payment or insufficient funds
• Defaulting on the payment plan may lead the ADOR to pursue enforcement actions such as filing a levying a taxpayer’s wages, bank accounts or other assets.

Applying for an AZ Payment Arrangement

A taxpayer can apply for a payment plan by filling out an Individual Income Tax Installment Agreement Request form 140-IA or by requesting a payment plan online).  The ADOR may ask the taxpayer to provide detailed financial information such as income and employer, spouse’s income and employer, number of dependents, expenses, and banking information.  They may also be asked to provide a complete written financial statement, known as the Collection Information Statement (as discussed above).

Taxpayers should send their completed applications to the Arizona Department of Revenue via fax at (602) 542-4771 or by mail to:

Arizona Department of Revenue
Collections District
PO BOX 29070
Phoenix, Arizona 85038-9070.

An agent of ADOR may call and ask for more information. A licensed tax professional can also help you set up a payment arrangement and help you file any delinquent tax returns. There are no application or processing fees to apply for a payment arrangement.

Notification of Acceptance or Denial

Taxpayers will receive a letter to notify them if ADOR has approved their payment plan request. The taxpayer needs to pay their monthly installment payment on the date they proposed on the form until the taxpayer receives a confirmation letter. An agent of ADOR may call and ask for more information.

There are no application or processing fees to apply for a payment arrangement.

If a taxpayer’s request to pay in installments is denied, he or she has the right to petition the Taxpayer Assistance Office to review the decision.  The Taxpayer Assistance Office has the authority to change the Department of Revenue’s decision. The taxpayer can also consider other tax resolution options.

Altering, Modifying, or Terminating a Payment Arrangement

As stated above, ADOR can change, modify, or terminate an installment payment arrangement for many reasons. Here are some reasons ADOR make take such actions:

• If you fail to make an installment payment or a payment when a tax liability is due.
• You fail to file a tax return or a report on time
• ADOR makes a request for further information and the taxpayer fails to comply within 30 days
• The ADOR feels the collection of tax is in jeopardy

If a taxpayer disagrees with a decision by the ADOR regarding a payment plan determination, the taxpayer can petition the Problem Resolution Officer.

In Conclusion

Without a doubt, one potential option for taxpayers who can’t pay in full consists of a monthly installment plan or tax payment plan with ADOR. As a practical tip, working with a licensed tax professional can help taxpayers reach the best resolution. For example, the taxpayer may want to consider an Offer in Compromise, a TAO, Innocent Spouse Relief, among other options. Leverage the search below or click here to find tax professionals with experience in working with the Arizona Department of Revenue.

Disclaimer: The content on this website is for educational purposes only. It does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.

Arizona Offer in Compromise Overview

If a taxpayer does not have the financial resources available to pay their tax liability, they may want to consider applying for an Offer in Compromise (OIC) over other options. Specifically, an Offer in Compromise is a proposal from an Arizona taxpayer to pay the Arizona Department of Revenue (ADOR) a smaller amount than they owe in full satisfaction of their tax liability.

An offer in compromise works by submitting an Offer in Compromise Statement of Offer form along with other documentation.  Therefore, if the Arizona Department of Revenue accepts a taxpayer’s offer and they fulfill the terms of the agreement, the ADOR will discharge forgive the taxpayer’s remaining tax liability. A person may apply for an Offer in Compromise over other resolution options if they owe more tax than they have the ability to pay. Alternatively, you can contact a licensed tax professional to check balances as well.

Eligibility Questions for an OIC Provided by ADOR

The Arizona Department of Revenue advises taxpayers to ask themselves the following questions:

• Do I receive Social Security income, Social Security disability, pension payments or public assistance?
• Am I over age 60?
• Are my total assets worth less than I owe?
• Have I had a significant reduction in income?
• Is my tax owed older than seven years?
• Are my tax returns in full filing compliance?
• Is the business that I was a principal member of defunct and closed?

If a taxpayer answers yes to two or more of these questions, he or she may be eligible for an Offer in Compromise.

Qualifying for an Arizona Offer In Compromise

To qualify for an Offer in Compromise, a taxpayer must meet the criteria set forth in Arizona Revised Statutes (ARS) § 42-1004.B.  ADOR must deem the liability uncollectible or the administrative costs of the collection must exceed the amount of the liability.

To be eligible for an Offer in Compromise, a taxpayer must be in full reporting compliance.  All income tax returns for the last three years must be filed.  If you are operating a business, all business tax filings and licenses must be current.

When taxpayer signs and submits their offer, they agree to the waiver and suspension of any statutory periods of limitations for assessment and collections of the tax liability while:

• the Offer in Compromise is pending
• during the time the offered amount remains unpaid, and
• for one year after the satisfaction of the terms of the agreement.

Applying for an AZ Offer In Compromise

To apply for an offer in compromise, a taxpayer needs to complete the Statement of Offer and send it with any appropriate attachments to the ADOR.  It can be delivered in person, given to any field representative, emailed, or mailed to:

Arizona Department of Revenue
Attention: Field Collections
PO Box 29070
Phoenix, AZ 85038-9070
Telephone: (602) 716-7787
Email: oicprocessing@azdor.gov

Taxpayers or their representatives must complete the application for an Offer in Compromise of individual and/or business tax liabilities. Taxpayers need to make an offer amount and indicate how they will pay the offer including the source of funds. Moreover, taxpayers should indicate any tax liabilities with the IRS and the current status of the account. There are no application fees associated with an AZ Offer in Compromise.

Further Guidance for Businesses

Businesses need to include a signed Statement of Offer, with all responsible parties signing like a partner or corporate officer(s), including:

• a completed Collection Information Statements (financial statement business – Form 10847) and attachments
• a copy of your last federal return,
• a copy of the taxpayer’s IRS Offer-in-Compromise agreement (if applicable),
• all bank statements 90 days prior to the close of operations for all bank accounts held,
• and copies of credit card statements for all credit cards held.

OIC Guidance for Individuals

Individuals need to provide a signed Statement of Offer. All responsible parties must sign (for example, a spouse). Moreover, the taxpayer(s) need to include the following:

• a completed Collection Information Statements (financial statement personal – Form 10896) and attachments
• social security statement of benefits or disability income for all submitting parties
• copies of the taxpayer’s last federal tax return for all submitting parties
• a copy of the taxpayer’s IRS Offer-in-Compromise agreement (if applicable),
• last three consecutive pay stubs for all parties submitting the offer,
• all bank statements for the last 90 days for all bank accounts held by all submitting parties
• copies of medical bills not covered by insurance,
• statements for court-ordered restitution, fines, child support, alimony, and student loans
• statement of any applicable prognosis from a doctor,
• copies of credit card statements for the last 90 days for credit cards held by all submitting parties,
• list of accounts receivable,
• copy or rental/lease agreements for property the taxpayer owns and leases, and
• copies or statements of dividend, trust income, 401K, or other retirement accounts for all submitting parties.

AZ Offer In Compromise Formula

Arizona does not specify the exact formula that it uses to determine if an offer is sufficient, but the ADOR requires that you include a copy of your IRS Offer-in-Compromise agreement with your application. The state most likely takes the IRS Offer In Compromise formula into consideration.

The IRS calculates an acceptable Offer In Compromise amount by first calculating how much they think you can pay them every month through an installment agreement by looking at your paystubs or profit and loss statement and subtracting your reasonable living expenses.  The result is your monthly cash flow.

If you can pay the IRS the settlement amount within five months after acceptance, the IRS values your monthly cash flow by multiplying it by 12.  If you cannot pay the settlement off within five months, the IRS will grant you 24 months to pay. However, they will instead multiply your monthly cash flow by 24.  The IRS will also look at the value of all of your assets, and discount most assets by a value of 20%.  Your cash flow multiplied by 12 or 24 (depending on the time in which you could pay the IRS) plus your asset value is the minimum amount that the IRS will typically be willing to accept.

Other Considerations Regarding an AZ OIC

ADOR will notify the taxpayer of acceptance or denial via snail mail. Furthermore, if an offer in compromise is rejected, there is no right to contest the amount of the tax liability in court or otherwise. An Offer in Compromise can be paid in full or paid in full within 30, 60, or 90 days of the acceptance of the offer.  If the taxpayer was previously on an AZ Installment Agreement or payment plan, the taxpayer must continue to make payments until written notification of an OIC acceptance. Installment agreement payments do not count toward the offer amount. Moreover, the state will take any amounts due to the taxpayer for overpayments of tax before the OIC is fully satisfied.

While ADOR reviews a taxpayer’s OIC,  the Arizona Department of Revenue may withhold activities unless the department finds that collection may be jeopardized by a delay.  The decision to resume collection activities, including the filing of liens, may be appealed to a Problem Resolution Officer.  The decision of the Problem Resolution officer is final.

If a taxpayer is denied an offer in compromise, he or she may want to pursue a Payment Arrangement to pay in installments over a specific period of time.

Conclusion

Taxpayers who cannot meet the terms of an AZ installment payment plan may want to consider an Arizona OIC. Moreover, because of the complex paperwork and cumbersome process, taxpayers should work with a licensed tax professional or tax relief firm. To see if you are a good candidate for an Offer in Compromise. To find a tax professional with experience in resolving Arizona state tax issues with an Offer in Compromise, visit here, otherwise start your search below.

Disclaimer: The content on this website is for educational purposes only. Moreover, it does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.

Review of Some Arizona State Tax Resolutions for Back Taxes

Do you have Arizona state back taxes?  If you’ve gotten behind on your state tax obligations, don’t despair.  You have a few different options if you cannot immediately pay the state in full.

In Arizona, the Arizona Department of Revenue (ADOR) is responsible for administering Arizona’s tax laws and collecting them.  Moreover, if you owe back taxes to the Arizona Department of Revenue but can’t pay in full right away, you may qualify for programs such as a:

• Payment Arrangement – A taxpayer agrees to pay his or her tax liability through monthly installment payments over a specified period. Therefore, if a taxpayer follows the terms of the Payment Arrangement, the taxpayer will pay off the taxes owed. See the previous link to read more details.
• Offer in Compromise (OIC) – Taxpayers who owe more tax than they can afford to pay can submit an offer to the Arizona Department of Revenue to pay a specific amount of money instead of the total tax liability.  Consequently, if the ADOR accepts that offer and the taxpayer fulfill the terms of the agreement, the remaining tax liability falls off.  Generally, the ADOR offers 24-month payment plans.  See the previous link to get more details.
• Apply for a Taxpayer Assitance Order (TAO) – Taxpayers may apply for a Taxpayer Assistance Order using Form 91 (discussed below). Specifically, taxpayers can pursue this option if the taxpayer can not resolve tax issues through normal administrative channels.
• Innocent Spouse Relief – Allows individuals to request relief from tax liability if they think that only their spouse or former spouse should be held liable (discussed below).

Statute of Limitations

The Arizona Department of Revenue has ten years to collect any tax, interest, or penalty required to be collected by the department for any tax period once it becomes final.  Therefore, if the ADOR fails to collect within those ten years, the taxpayer’s obligations to pay are extinguished unless:

• the department has commenced a suit to collect the taxes pursuant to section 42-1114
• the taxpayer has agreed in writing to extend this time period before the time period expires
• enforced collection has been stayed by the operation of federal or state law during this period. The period of limitations prescribed by this section is extended by the period of time that the department was stayed from engaging in enforced collections.

Requesting a Taxpayer Assistance Order (TAO)  

If a taxpayer is facing significant hardship, he or she may apply for a Taxpayer Assistance Order (TAO) using Form 91. In short, the TAO can provide for a temporary suspension of departmental actions when the Problem Resolution Officer (PRO) reviews the case. Specifically, the PRO can grant three types of temporary relief:

• Release a levy on the taxpayer’s property
• Stop any action from the ADOR or
• Prevent the ADOR from initiating further action

In other words, the PRO can ask ADOR to stop certain collection activities (liens, levies, and seizures, for example) while the PRO reviews the taxpayer’s case.

Arizona TAO’s helps taxpayers who may face significant hardship.  Significant hardships include:

• an immediate threat of adverse action
• a delay of more than 30 days in resolving your account problems
• incurring costs if ADOR does not grant relief
• and irreparable injury or a long-term adverse impact if ADOR does not grant relief

Someone would apply to give themselves and their Problem Resolution Officer time to review their case to see if there are alternatives that can help to relieve the hardship. Above all, PROs make findings of significant hardship on a case-by-case basis. Thus, if a PRO does not grant a TAO, a taxpayer may consider a payment arrangement or an OIC.

A TAO suspends the applicable statute of limitations. In other words, the statute of limitations is suspended from the date you apply for the order or the date the order is issued, whichever is earlier, until the order’s expiration date, modification date or rescission date.

Common Factors a PRO Considers With Significant Hardship

Common factors that a Problem Resolution Officer may consider when making a significant hardship determination include:

• whether there is a likelihood that hardship will result before normal procedures have time to take effect
• the taxpayer’s ability to retain housing, utilities, or employment is affected
• there is a change of irreparable damage to your credit rating
• the taxpayer’s ability to obtain food, clothing or medical treatment is affected
• there is a likelihood of serious financial hardship, such as an imminent bankruptcy or inability to meet payroll
• or there is the possibility of the loss of opportunity to provide education for the taxpayer or the taxpayer’s family.

Your PRO will not consider or respond to frivolous arguments made by taxpayers.

Applying for a TAO:

Someone can apply for a TAO using Form 91.

The quickest way to submit Form 91 is to fax it to the PRO at: (602) 542-4772.  Alternatively, you can also mail the form to:

Problem Resolution Officer
Arizona Department of Revenue
1600 W Monroe
Phoenix, AZ 85007

There are no application or processing fees to apply for a TAO.

Innocent Spouse Relief (ISR)

Typically the ADOR holds spouses who file joint income tax returns jointly liable for any tax liability.  However, if a taxpayer believes that they should not be held responsible for the tax liability that their spouse incurred, they may be eligible for innocent spouse relief.

Arizona offers innocent spouse relief, which allows individuals to request relief from tax liability if they think that only their spouse or former spouse should be held liable. Moreover, Arizona offers three different types of innocent spouse relief:

• separation of liability
• innocent spouse relief, and
• equitable relief.

When to Apply for Each Type of ISR

To request for separation of liability, a taxpayer must have filed a joint return that has an understatement of tax due to an item of your spouse.  Alternatively, for an innocent spouse relief request, a taxpayer must have filed a joint return that has an understatement of tax due to an incorrect item of your spouse.  Finally, to request equitable relief, a taxpayer must have filed a tax return that has either an understatement or an underpayment of tax; or the taxpayer was issued a joint assessment for them and their spouse. In addition, taxpayers should apply for innocent spouse relief as soon as you become aware of an unpaid tax liability that you think that your spouse or former spouse should pay.

A taxpayer would apply for one or more of the three types of relief if there was an understatement of tax due to an item of their spouse, an understatement or underpayment of tax or ADOR issued the taxpayer a joint assessment.

If ADOR grants a taxpayer relief for underpaid tax, the taxpayer becomes eligible for a refund of separate payments that he or she made. However, the taxpayer doesn’t receive refunds of payments made with the joint return, joint payments, or payments that their spouse or a former spouse paid.

If ADOR grants the taxpayer relief for an understated tax, the taxpayer becomes eligible for a refund of certain payments made under an installment agreement that they entered into with the department if they have not defaulted on the installment agreement.

How to Apply for ISR

To request innocent spouse relief the taxpayer needs to fill out Arizona Form 200.  Furthermore, once the taxpayer fills out the form, ADOR will review the form, contact your spouse or former spouse, and make a decision. You then need to mail the form to the Arizona Department of Revenue at:

Individual Income Tax Audit
Attention Form 200
Arizona Department of Revenue
PO Box 29084
Phoenix, AZ 85038-9084

If the taxpayer obtained ISR from the IRS, then the taxpayer must send a copy of any IRS letter granting you innocent spouse relief and a copy of your completed Federal Form 8857 to the Arizona Department of Revenue. Furthermore, there are no application or processing fees for obtaining innocent spouse relief.

Injured Spouse Relief

Injured spouse relief is for taxpayers whose share of an overpayment shown on a joint return was or is expected to be applied against their “spouse’s past-due state taxes, child support or spousal maintenance, or taxes owed to another Arizona state agency.”

If a taxpayer becomes an “injured spouse,” they may be entitled to receive a refund of their share of the overpayment. For taxable years beginning on or after January 1, 2017, an injured spouse must use Arizona Form 203 to make a claim.  In addition, the taxpayer and spouse must file a joint income tax return and include a completed Form 203 with that return.

Other Tax Resolutions for Arizona State Back Taxes

Penalty Abatement (PA)

Penalty abatement is when a taxpayer requests the ADOR to abate a tax penalty if the conduct or lack of conduct that caused ADOR to impose the tax penalty was due to reasonable cause and not due to willful neglect. The Penalty Review Unit (PRU) administers the penalty system and receives requests for penalty abatement.

To apply for Penalty Abatement, a taxpayer will have to fill out Arizona Form 290

You must mail or fax the completed form to:

Penalty Review Unit, Division 9
Arizona Department of Revenue
1600 W Monroe Street
Phoenix, AZ 85007-2612
Fax Number: (602) 716-6787

It will take the Arizona Department of Revenue up to six weeks to process the form. Moreover, taxpayers need to provide documentation that supports the basis of your request, such as:

• front and back copies of canceled checks
• tax returns
• medical reports
• death certificates or any other pertinent documents

ADOR will not abate the following:

• Interest
• Transaction privilege tax licensing fees and penalties
• Assessed penalties from an audit
• Transaction privilege tax licensing penalty

Tax Consequences for Arizona State Back Taxes

It’s important to file and pay your income taxes on time in Arizona.  If you fail to file your income tax returns and pay the amount owed on time, you will be subject to late penalties.

Failure to Pay Penalty

If you fail to pay your taxes on time, ADOR will assess .5% of the tax due on the return per month.

Underpayment Penalty

Taxpayers are also subject to penalties for underpayment of estimated taxes.  If their Arizona gross income exceeds the prescribed thresholds for the current or prior taxable year for a person’s filing status, Arizona requires that an individual make estimated payments to cover the amount not covered by withholding during the taxable year.  Estimated payments are due quarterly.

If a taxpayer files an extension, the taxpayer is required to pay 90 percent of the tax shown on their return by the original due date of the tax return.  Therefore, if the taxpayer fails to pay that 90 percent, an extension underpayment penalty of .5 percent of the tax unpaid per month will be charged from the original due date until the date paid.

The underpayment penalty is .5 percent of the tax that is unpaid for each month or a fraction of a month the tax remains unpaid.

Taxpayers should use Form 221 to calculate if they paid enough estimated income tax and to determine if they are subject to penalties for late or underpaid payment.

Failure to File Penalty

There is a late filing penalty of 4.5 percent of the tax required to be shown on the return for each month or fraction of a month that the tax return is late.

Interest

The ADOR charges interest for any unpaid tax from the due date of the return until the date of the payment.  Specifically, Arizona’s interest rate matches the federal interest rate.

Enforced Collections for Arizona State Back Taxes

Wage Garnishment

Arizona allows wage garnishments for unpaid income taxes.  The amount of money ADOR can garnish from each paycheck in Arizona is governed by federal law.  In fact, out of a taxpayer’s nonexempt disposable earnings, creditors can only take the lesser of 25% of your non-exempt weekly earnings or the amount of your non-exempt weekly earnings that exceed 30 times the federal minimum wage.

If you have more than one garnishment, the total amount the state can garnish is limited to 25%.

Tax Liens

Depending upon the amount owed and the length of time it will take to repay a liability, the Arizona Department of Revenue may choose to file a tax lien. Moreover, the ADOR may file a tax lien when the taxpayer has set up an installment agreement.

Bank Levies

Arizona has the power to levy your bank account to satisfy unpaid taxes.  In other words, it means the ADOR can take the money in your bank account to satisfy the unpaid taxes.  Specifically, a levy may be initiated against you if you fail to make a payment arrangement with the ADOR, fail to respond to a final demand notice, fail to fulfill the terms of your payment arrangement, or fail to provide financial information to the ADOR upon request.

If the state levies your bank account, the bank is required to hold the funds you have on deposit. Generally, they must hold up to the amount you owe for 21 days.  Therefore, twenty-one days provide taxpayers time to:

• resolve any errors about the levy
• make arrangements to pay the amount due, or
• seek advice from a legal or tax professional about the best course of action.

Arizona does not suspend or not renew professional licenses for unpaid taxes. Moreover, they do not suspend drivers' licenses for unpaid taxes.

General Recommendations

If you have any questions or concerns about Arizona state back taxes, it is advisable to work with a tax professional.  Moreover, if you are applying for an Offer In Compromise or Payment Arrangement, consult with a tax professional. Tax professionals can ensure you are filling out the forms correctly and proposing an arrangement that the Arizona Department of Revenue is likely to accept. Leverage this link to find tax professionals who specialize in resolving issues with the Arizona Department of Revenue. If you are looking for tax professionals located in Arizona, you can view the top-rated Arizona tax problem professionals. 

Disclaimer:  The content on this website is for educational purposes only. It does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.

Details Regarding Michigan’s Installment Agreement

Taxpayers (individuals and businesses) who cannot pay Michigan income taxes in full may want to consider an installment agreement (IA). The Michigan Department of Treasury (DOT) offers installment agreements or payment plans. An installment agreement is simply a payment plan with the DOT that allows the taxpayer to make monthly payments on the taxes owed. However, taxpayers who pursue this option need to consider the interest and penalties that continue to accrue. Taxpayers who cannot pay in full should compare the installment agreement option costs with other alternatives. For example, personal loans, home-equity loans, and borrowing from friends and family.  Taxpayers who have had a Michigan offer in compromise (OIC) rejected or who do not meet the OIC requirements may also want to consider an installment agreement.

Suspension of Enforced Collections

While the taxpayer actively has an installment agreement with the DOT, the DOT will suspend all enforced collection actions. However, if the state of Michigan has not already filed a tax lien at the time the taxpayer applies for the installment agreement, the DOT will file it with the acceptance of the installment agreement. Further, penalties and interest will continue to accrue. The DOT will also apply income tax refunds (offsets) or any credits to the taxpayer’s liability. If a taxpayer with an active installment agreement later submits an Offer in Compromise and the DOT confirms receipt, the taxpayer does not need to make installment agreement payments while the OIC is pending.

Installment Agreement Durations

The taxpayer (business or individual) needs to receive Form 168 – Intent to Assess, or Form 168 – Final Assessment from the CSB (Collection Services Bureau), to meet one of the eligibility standards for an Installment Agreement. Moreover, it is advised that the taxpayer file all unfiled tax returns to ensure all tax liabilities are included within the installment agreement. Lastly, if a taxpayer still has an open bankruptcy, the DOT cannot set up an installment agreement.

24-Month Installment Agreements

The DOT will accept all installment agreement applications without further financial inquiry where the taxpayer will pay the taxes owed in full within 24 months. In other words, the taxpayer does not need to substantiate expenses and income. Unlike the streamlined IRS installment agreement, the DOT does not provide a liability threshold for setting up this plan. I. As discussed above, penalties and interest will continue to accrue. Furthermore, the taxpayer needs to complete Form 990 – Installment Agreement. The taxpayer will need to propose a payment amount for approval and make payments as proposed during the period for which the DOT reviews the IA.

Installment Agreements Longer Than 24-Months

For installment agreement requests where the taxpayer will not pay the taxes owed in full within 24 months, the DOT will conduct a financial review of the taxpayer. Individual taxpayers need to file Form 990 and Form 3189 – Collection Information Statement – Individual with the installment agreement application. The DOT will use the information contained in Form 3189 to conduct a financial analysis. The financial analysis helps the DOT determine the maximum amount that the taxpayer can afford to pay per month. The DOT leverages “Financial Standards” similar to what the IRS uses for housing, utilities, food,  housekeeping supplies, apparel, and so forth. Taxpayers can find the DOT’s Financial Standards here.

Where to Mail the Installment Agreement Request

Taxpayers should mail the installment agreement application to:

State of Michigan – OC
PO Box 30199
Lansing, MI 48909.

The taxpayer can also call 517-241-5060. Alternatively, they can connect with a licensed tax professional to have them set up a plan on their behalf. If the Michigan Accounts Receivable Collection System contacted the taxpayer, the taxpayer should contact them directly to request or set up an installment agreement.

Taxpayer Notification and Other Factors

Once the DOT approves an IA request, the taxpayer will receive a confirmation letter. The confirmation letter describes the due date, the monthly payment amount, and includes payment coupons. Taxpayers paying by check or money order, need to make the check out to the “State of Michigan – OC” and include their account number on their check. The account number may be a social security number, FEIN, or DOT account number. Taxpayers can also pay by ETF or electronic funds transfer. If taxpayers prefer this method of payment, they need to fill out Form 3798 and include it with the Installment Agreement submission. Lastly, taxpayers can make installment agreement payments via the web as well.

If the taxpayer receives a rejection letter, the letter will direct the taxpayer as to how to proceed.

Have a Licensed Tax Professional Negotiate For You

If a taxpayer owes the state of Michigan back taxes, working with a tax professional can simplify the process. A tax pro can assess if an IA is the best option to pursue based on the taxpayer’s tax and financial situation. If you need an IA for longer than 2 years, the DOT will consider your income, expenses, and assets. It is essential to ensure taxpayers accurately present their financial information to the DOT. The DOT will utilize this information to determine what you can afford. To request a free quote or a tax consultation with a tax professional that has experience with Michigan State tax issues, click here, or start your search below.

Disclaimer

Reading this article does not create an attorney-client relationship. Moreover, 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. If you are facing Michigan back taxes problems, contact a licensed tax professional.

Review of Some Michigan Back Taxes Resolutions

The State of Michigan Department of Treasury is responsible for Michigan’s income tax, business tax, sales and use tax, and more. Within the Department of Treasury (DOT), a division called the Collection Services Bureau (CSB), has the responsibility to collect Michigan’s delinquent taxes. The DOT also leverages MACRS or the Michigan Accounts Receivable Collection System. It is a private collection agency tasked with helping collect delinquent tax, penalties, and interest.

Generally, when an income tax liability becomes due as a result of either the taxpayer filing a tax return without payment or a DOT audit leads to an assessment, the taxpayer will receive a final notice to pay the liability. Therefore, if the taxpayer fails to make a tax payment within the time prescribed on the final notice, DOT will forward the account to CSB for enforced collection. Usually, before sending a taxpayer’s account to CSB, the taxpayer will receive a “Letter of Inquiry, Notice of Intent to Assess,” and/or a “Bill For Taxes Due (Final Assessment).”

Michigan’s Enforced Collections

CSB has various enforced collection actions that they are authorized by Michigan law to utilize to collect delinquent taxes. CSB has six years to collect on unpaid taxes. They can use any of these enforced collection actions against delinquent taxpayers during the six years. Specifically, these enforced collection actions are:

• Liens – Filing a tax lien on real or personal property will establish a record of the State of Michigan’s interest in the taxpayer’s assets. A tax lien may show on the taxpayer’s credit reports. Moreover, a tax lien can negatively affect the taxpayer’s ability to obtain credit or sell or buy assets.
• Tax Warrants (Seizure of Property) – Tax warrants allow the DOT to seize a taxpayer’s business or personal property. Furthermore, the DOT can then sell it to pay off or reduce the taxes owed.
• Wage Levies – A wage levy requires the taxpayer’s employer to withhold a percentage of the taxpayer’s wages. The employer needs to remit this withholding to the DOT and apply it against the delinquent tax liability.
• Financial Institution Levies – Financial Institution Levies attach to a taxpayer’s bank account(s). They require the financial institution to remit all funds in the bank or financial account, up to the delinquent balance due and apply it against the delinquent tax liability.
• Other Levies – The CSB may use other levies, which act in the same manner as financial institution levies, but against other sources of income or funds that are due to be paid to the taxpayer and that are currently held by third parties who are not the taxpayer’s employer or financial institution.
• Offset Refunds – A Refund Offset allows the State of Michigan to seize federal or other state tax refunds.  Any refunds taken by the state gets applied against the delinquent tax liability

Other Enforced Collection Actions

• Refer the Account to a Collection Agency – The DOR and CSB reserve the right to forward the account to the Michigan Account Receivable Collection System (MARCS). Specifically, MARCS is a Michigan Department of Treasury program operated by a privately owned collection agency.
• Refer Account to Michigan Department of Attorney General (MDAG) – The state can refer your account to the MDAG for additional legal actions.

For businesses, the state taxation authorities can hold the business owner or members, manager, or partners of a corporation, LLC, LLP, LP or a partnership personally liable for tax liabilities as well as interest and penalties. Moreover, the DOT can request a revocation or non-renewal of business liquor licenses by sending the request to the Michigan Liquor Control Commission.

Some Possible Michigan Tax Resolutions

If individual taxpayers owe the state of Michigan back taxes, here are a few options taxpayers may pursue or investigate:

• Offer in Compromise (OIC) – With an OIC, the taxpayer requests the MDT to compromise an assessed tax amount for less than the full amount owed.
• Installment Agreement (IA) – Although the taxpayer first needs to receive a bill for taxes due, taxpayers can request a monthly payment plan with MDT to pay taxes off over time.
• Non-Collectible Status – This tax resolution puts everything on hold. The taxpayer will still accrue penalties and interest. However, the DOT will not pursue enforced collections until the taxpayer has the financial ability to pay. In summary, the taxpayer must prove financial hardship by showing their monthly expenses exceed their monthly income. The DOT’s financial standards are used to determine the taxpayer’s ability to pay a delinquent liability.
• Penalty Waiver – Some may refer to this as penalty abatement. The taxpayer can request a penalty waiver with the State of Michigan. He or she must show reasonable cause for failing to file or pay on time (discussed below).

Below you will find additional tax options. Moreover, to find more information on each one of the solutions listed above, visit the corresponding link.

Statute of Limitations (SOL)

As discussed above, Michigan’s Collection Services Bureau has six years to collect a taxpayer’s tax liability. A court-judgment, among other actions, can extend the six years or statute of limitations on collection. Moreover, the state has four years to assess a penalty, interest, or tax deficiency from the date set for filing the required tax return or the actual date the return was filed, whichever comes later.

The statute of limitations on collection may also be extended by reaffirmation of the tax liability. Reaffirmation of tax amount will occur if the taxpayer:

• Makes voluntary payments
• Signifies to the liability on a letter of acknowledgment
• Mutually agrees to extend by signing an agreement with the Commissioner of Revenue.
• The statute may also be tolled if the Department is unable to locate the taxpayer.

Other Options Taxpayers May Want to Pursue

Penalty Waiver

A taxpayer may request a penalty waiver with the State of Michigan if one can show reasonable cause for the failure to file or pay timely. The DOT states that examples of reasonable cause are: death or serious illness of the taxpayer or the individual primarily responsible for filing returns and making tax payments; extenuating circumstances (such as fire, theft, or criminal acts against the taxpayer; or misapplication of payments by DOT). Further, the DOT states that lack of funds or poor bookkeeping practices will not constitute reasonable cause.

The penalty waiver request must be made in writing. Taxpayers need to mail it to:

Michigan Department of Treasury
Collection Services Bureau
PO Box 30199, Lansing, MI 48909.

Innocent Spouse Relief (ISR)

According to Michigan law, if personal income taxes have been jointly assessed to spouses and one of the spouses has been granted relief from the joint assessment under I.R.C. § 6015, then the DOT will give relief for the corresponding Michigan liability. Furthermore, Michigan will still make innocent spouse relief possible for those who cannot establish that they have already received similar tax relief from the Internal Revenue Service but meets the federal qualifications. In fact, the DOT will use the standards outlined in I.R.C. § 6015 and related federal provisions when making innocent spouse determinations.

The standards outlined in I.R.C. § 6015 provide that for a taxpayer to qualify for innocent spouse relief, all of the following conditions must be met:

• For the tax year in question, the taxpayer seeking tax relief filed a joint tax return.
• There is an understatement of tax attributable to erroneous items of the other spouse filing the joint return
• The innocent spouse establishes that in signing the return he or she did not know, and had no reason to know, of the understatement
• By taking into account all facts and circumstances, it is inequitable to hold the individual liable for the deficiency in tax for such taxable year attributable to such understatement, and
• The innocent spouse elects the benefits under this section not later than the date which is two years after the date on which the IRS first began collection activity against the individual making the election.

Where Taxpayers Can Mail Their Request for ISR

Taxpayers should mail their request for relief in writing to:

Michigan Department of Treasury
Customer Service Center
Individual Taxes Unit
Treasury Building, Lansing, MI 48922.

Informal Conferences and Appeals

If the taxpayer has an Intent to Assess Notice for additional income tax due, they may seek an informal conference to raise any disputes they may have. The taxpayer can attend the informal conference in person or by telephone.  Furthermore, the taxpayer will need to support their position with documentation. Taxpayers need to request the conference within the timeframe provided by the statute governing the tax. Generally, for an Intent to Assess (Bill for Taxes Due) or Refund Adjustment or Denial, the taxpayer must request the conference or hearing within 60 days of notice issuance. The taxpayer can make the request by mail or by fax.  The informal conference does not cost the taxpayer anything and the DOT assigns a neutral Hearing Referee. Moreover, hearing referees are impartial attorneys who gather facts and provide recommendations to the DOT regarding disputes between taxpayers.

If this does not resolve the matter and the DOT issues a Final Assessment to the taxpayer, the taxpayer has other options. They may first appeal to the Michigan Tax Tribunal. Alternatively, the taxpayer can appeal to the Michigan Court of Appeals. Still, if the taxpayer does not get a resolution, the taxpayer may appeal to the Michigan courts.

Bankruptcy

Filing for bankruptcy along with hiring a bankruptcy attorney can cost a lot of money. Therefore, delinquent taxpayers with substantial personal tax liability may want to consider this option. Taxpayers can discharge some types of Michigan back taxes in bankruptcy but not all. For example, a taxpayer cannot usually discharge payroll and/or sales taxes. Hence, taxpayers should reach out to an experienced bankruptcy attorney if they believe this option is right for them.

The Michigan Tax Amnesty Program

Michigan offered a “Tax Amnesty Program” in 2011. Specifically, the program was available for individuals and businesses who failed to report income or who did not report enough income. Consequently, if these taxpayers entered the program, the DOT would waive all penalties if the taxpayers filed, or amended, their tax returns and remitted the total tax due. Unfortunately, no active amnesty program exists currently. However, if Michigan ever decided to restart the program, delinquent taxpayers should look into it.

Practical Tips

Taxpayers should consider escalating any issues to a supervisor or manager within the DOT. In other words, sometimes a manager or new personnel with authority can help resolve issues. If, after speaking with a supervisor, the taxpayer still believes that he/she has no voice, was discriminated against, had their rights violated, or the DOT is not following Michigan law, they should contact the Office of Taxpayer Advocate.

The Office of Taxpayer Advocate’s (OTA) purpose is to ensure that taxpayer rights are protected. Moreover, it ensures that the DOT’s fairly administers processes. The taxpayer can find out more information regarding the Office of Taxpayer Advocate here.

Lien Releases

Once a taxpayer pays all taxes owed including interest and penalties, the DOT will release the associated tax liens. Moreover, they will also release tax liens if the tax amount owed becomes satisfied through an Offer-in-Compromise Agreement. Upon satisfaction, the tax lien will be released, and the Register of Deeds notified.

Penalties and Interest

The most frequently assessed penalties against taxpayers with Michigan back taxes are the failure to file and the failure to pay penalty. Furthermore, the failure to file penalty and the failure to pay penalty is 5% of the tax due for the first two months, then 5% per month of the tax due, with a maximum penalty of 25%.

Additionally, interest is applied for each month that a delinquent tax goes unpaid. The current interest rate is 5.9% (May 2019).

Conclusion

If you are facing a Michigan back taxes issue, connect with a licensed tax professional. Specifically, a licensed tax professional (EA, CPA, or tax attorney) can diagnosis your specific concerns. They can help you formulate the best course of action for resolving your tax problems. Therefore, connect with a licensed tax professional with experience in resolving Michigan state tax problems by clicking here, or by starting your search below.

Disclaimer

The content on this website is for educational purposes only and does not serve as legal or tax advice. Moreover, 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. If you are facing Michigan back taxes problems, contact a licensed tax professional.

Summary of Michigan’s Offer In Compromise Program

Delinquent taxpayers should consider whether they qualify for Michigan’s Offer in Compromise (OIC) program. An OIC is a settlement program where the DOT will accept an amount that is less than what the taxpayer currently owes. However, the taxpayer must meet specific requirements. We discuss these requirements in more detail below. Let’s review first some general rules related to the OIC application process.

General Rules Regarding an MI OIC

The settlement will include delinquent tax, interest, and any accrued collection fees. The DOT will accept OIC applications that offer either a lump-sum payment, a payment in 5 or fewer, equal or unequal, monthly payments, or equal monthly payments made over six months or more, but not more than 24 months, absent special circumstances. Further, the DOT may accept an OIC but only with the taxpayer’s agreement to abide by certain conditions. The submission of an OIC will stop enforced collection actions while the OIC is pending a determination. However, it does not stop penalties and interest from accruing. Moreover, the six-year statute for collection will be tolled (suspended) while an OIC application is pending.

Michigan Offer In Compromise Eligibility

The DOT states that one of the following must exist for a taxpayer to be eligible for a Michigan OIC:

1. For the same tax periods in question, the IRS has already accepted an OIC.
2. The taxpayer can establish that there is a doubt as to the collectability of the taxes owed, or
3. The taxpayer can establish that there is a doubt that the liability exists.

For most delinquent taxpayers, the eligibility criteria will depend on whether doubt as to collectability exists. However, the submission requirements and required documents for each eligibility criterion above will be discussed in more detail below.

OIC Submission Requirements

The following are the requirements for submitting an Offer in Compromise:

• The taxpayer must complete and submit Form 5181, Michigan Offer in Compromise.
• The taxpayer must make a 20% down payment on the OIC amount, which is non-refundable.
• All tax periods specified in the OIC application must be delinquent tax liabilities that have already been assessed.
• The taxpayer must not have ongoing bankruptcy proceedings.
• The taxpayer must be current and in compliance with all tax filing and payment obligations.
• If the basis for the OIC is “doubt as to liability,” all opportunities to contest the liability must have expired.
• The taxpayer must sign the Offer-in-Compromise application under penalties of perjury.

The taxpayer will receive a notice in writing that the DOT has received the OIC application. If the OIC is deemed by the DOT to be incomplete, the DOT may either reject the OIC or reach out to the taxpayer to seek the additional information that is required. It is essential for taxpayers to remember that the 20% deposit is non-refundable. Meaning, if the DOT rejects an OIC for being incomplete, the taxpayer will lose that deposit. The money will be applied against the taxes owed. However, the taxpayer will have to submit a new OIC application with a new 20% deposit. Therefore, it is crucial for taxpayers to make sure that they submit all required documentation so that the DOT does not reject their OIC application for being incomplete before a review is even conducted.

OIC Required Documents

The following is a list of documents that the State of Michigan requires to be included with the submission of an Offer-in-Compromise Application or Form 5181, Michigan Offer in Compromise, based on Eligibility criteria 1, Accepted Federal OIC:

• A copy of the IRS accepted OIC (Form 656), including any addendums or revisions
• Completed Form 5181 – Offer in Compromise
• Completed Form 5182 – OIC Schedule 1
• An IRS acceptance letter copy for an OIC
• For each tax period and tax type included on the IRS Form 656, DOT will require a copy of IRS Form 1040 Account Transcripts

Required Documents Based on Doubt as to Collectibility

The following is a list of documents that the State of Michigan requires with the submission of an Offer in Compromise Application or Form 5181, Michigan Offer in Compromise, based on Eligibility criteria 2, Doubt as to Collectability:

• Completed Form 5181 – Offer in Compromise
• Completed Form 5183 – OIC Schedule 2A (Individuals) Collection Information Statement for an OIC based on Doubt as to Collectability
• Copies from each employer (if applicable) of the last three months recent earnings statement
• Bank statement copies for all accounts for the previous or most recent three months
• List of all stocks, bonds, or other securities/investments owned. Include the current value of each as well.
• Most recent statements any life insurance policies with a cash value or cash loan value
• List of all real estate owned, in whole or in part, with appraisals and payoff statements for any mortgages.
• Recent statements with payoff information, from any lending institutions or creditors that clearly indicates the current balance owed and payment schedule
• A complete inventory of asset-bearing items, with fair market values, contained in all safe deposit boxes
• For the past six years, a copy of any judgments or legal decrees, including bankruptcy
• Self-employed or individuals with interest in a business:
  • Must include a list with the fair market value for all business assets
  • An Accounts receivables list showing the amount due, the payer, account age, and status
  • A list showing all businesses in which the taxpayer has an interest, including ownership percentage in each
• Other attachments as listed on the forms (utility bills, court orders, etc.)

Required Documents Based on Doubt as to Liability

The following is a list of documents that the State of Michigan requires to be included with the submission of an Offer in Compromise Application or Form 5181, Michigan Offer in Compromise, based on Eligibility criteria 3, Doubt as to Liability:

• Completed Form 5181 – Offer in Compromise
• Completed Form 5185 – OIC Schedule 3 – Offer in Compromise Based on Doubt as to Liability
• An explanation of why the taxpayer does not owe all or any part of the tax and any supporting documentation

The taxpayer should mail all forms, schedules, supporting documentation, and the 20% down payment to:

Michigan Department of Treasury
Offer in Compromise
PO Box 30190
Lansing, MI 48909.

Review and Determination

Once the DOT receives an OIC application, they conduct an intake review and will assign the OIC application to an appropriate department depending on the basis for the OIC. This DOT department will then conduct a complete review and notify the taxpayer as to acceptance, acceptance with conditions, or rejection. The next paragraph provides general guidance that is provided by the DOT concerning their review under each of the criteria for OIC submission.

General DOT Review Guidance for Each of the Criteria

Criteria One – Accepted Federal OIC

When reviewing a submitted OIC based on criteria 1, Accepted Federal OIC, the DOT states that they generally will accept the OIC. However, they will typically not accept it when the circumstances for the grant of the federal OIC no longer exist or are now irrelevant or have no bearing on the taxpayer’s taxes owed to Michigan.

Criteria Two – Doubt as to Collectibility

When reviewing a submitted OIC based on criteria 2, Doubt as to Collectability, the DOT states that doubt as to collectability will exist if the taxpayer can establish that:

• the amount of the OIC payment is the most that can be expected to be paid or collected from the taxpayer’s present assets or income, and
• the “taxpayer does not have reasonable prospects of acquiring increased income or assets within a reasonable period of time that would enable the taxpayer to pay more of the taxes owed than the amount offered.”

Criteria Three – Doubt as to Liability

When reviewing a submitted OIC based on criteria 3, Doubt as to Liability, the DOT states that doubt as to liability exists if the DOT concludes, based on the review of the evidence, that the taxpayer would have prevailed in a contested case if the taxpayer’s appeal rights had not expired.

Notifying the Taxpayer

The DOT will send a letter to the taxpayer via mail as to their determination. Furthermore,  if the DOT accepts the OIC or accepts it with conditions, the acceptance letter will state the reasons for acceptance, list the proposed conditions if any, and state the payment terms of the accepted OIC. If the DOT rejects the OIC, the rejection letter will state the reasons for rejection and provide the taxpayer with information regarding his/her ability to appeal the rejection.

Appealing an MI Rejected Offer in Compromise

When the taxpayer has received a rejection of their proposed OIC they may request an “independent review.” This is the only method for appealing a rejected OIC application in the state of Michigan. To make this request the taxpayer must file Form 5186 – Request for Independent Administrative Review of Rejected Offer in Compromise. The taxpayer has 30 days from the date on the rejection letter to file this request. An “independent review” is a form of administrative appeal which asks the DOT Office of Legal Affairs to review the determination. This review, however, will only set aside an OIC rejection if the taxpayer can establish the rejection was the result of fraud or adoption of a wrong principle or error of law by the DOT. Naturally, this is a high standard to meet.

Leveraging a Tax Professional

Most taxpayers will find the process of applying for a Michigan Offer in Compromise cumbersome. Therefore, because of the time involved in applying for a Michigan OIC, taxpayers should first check their eligibility. They can do so by reaching out to a licensed tax professional with experience in working with Michigan’s DOT. You can find a list of tax professionals who resolve Michigan state tax problems here, or you can start you search below. If you are unable to pursue an Offer in Compromise, consider an installment agreement or payment plan among other options.

Disclaimer

Reading this article does not create an attorney-client relationship. Moreover, 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. Therefore, if you are facing Michigan back taxes problems, contact a licensed tax professional.