The Internal Revenue Service offer-in-compromise allows one to settle his or her tax debt for less than the full amount owed. The IRS generally approves an offer-in-compromise when it cannot expect to collect any more than the amount offered within a reasonable period of time.
Beginning Jan. 15, 2015, the Michigan Department of Treasury (MDOT) plans to launch its own offer-in-compromise program allowing taxpayers to propose settlement of an assessed tax debt for less than the amount due. For purposes of the Michigan program, an assessed tax liability includes tax and any related interest and penalty.
The Michigan Chamber of Commerce (the Chamber) notes that 40 states already utilize these arrangements, which are different from amnesty programs because they are designed for people who are “truly in distress and unable to pay” due to circumstances like job loss, medical expenses, or bankruptcy. In contrast, the Chamber characterizes amnesty programs as “gimmicks used to collect delinquent taxes” from those who are capable of paying.
In order to submit the offer-in-compromise, the taxpayer must:
- Have filed returns for all tax periods;
- Have been assessed and the time period for all appeals must have expired; and
- Have no open bankruptcy proceedings.
According to the state’s guidelines, the MDOT will assess offers-in-compromise by considering whether:
- A doubt exists as to the liability based on evidence provided by the taxpayer;
- A doubt exists as to the collectability of the tax due based on the taxpayer's financial condition; and
- The taxpayer has received an offer-in-compromise from the Internal Revenue Service for the same tax periods for which the taxpayer is requesting state relief.
The MDOT cautions taxpayers seeking an offer-in-compromise that state law requires it to publish on its website a written report of each accepted offer-in-compromise; and upon request, disclose a certain amount of return information to members of the general public.
The published written report will contain, at a minimum, a statement of each of the following:
- The amount of tax assessed;
- The amount of interest or assessable penalty imposed by law on the person against whom the tax is assessed;
- The terms of the compromise and the amount actually paid in accordance with the terms of the compromise; and
- The grounds for the compromise.
The MDOT’s offer-in-compromise web page offers more detail on the guidelines, a checklist, and forms and instructions to assist taxpayers.