Michigan Offer in Compromise Solution
Updated: Aug 2, 2019
Many taxpayers are concerned about resolving delinquent federal tax liabilities, and rightly so given the financial pain and disruption the IRS can create when collecting those tax debts. Taxpayers facing IRS penalties and interest will most likely also face state tax penalties and interest, along with the threat of liens and levies. For taxpayers in Michigan, a state level offer in compromise is available for those taxpayers who qualify. This blog post will provide an overview of the process and requirements for successfully applying for a Michigan offer in compromise.
Like an offer in compromise under the IRS program, the Michigan Department of Treasury may compromise or reduce an assessed tax liability for less than the full amount of tax owed. The total tax amount to be compromised includes interest and penalty.
Qualifying for a Michigan Offer In Compromise
There are three possible options to qualify for a Michigan offer in compromise. First, if the taxpayer has received an offer in compromise from the IRS for the same tax periods for an individual income tax or corporate income tax. Second, when there is no IRS offer in compromise but doubt as to collectability of the tax exists. A financial analysis is required to show limited financial resources to pay the debt and no reasonable future prospects of increased income or acquiring assets to pay more debt than the offered amount within a reasonable amount of time. Third, doubt as to the existence of the tax liability. In this case, the Michigan Treasury must determine that the taxpayer would likely prevail in a contested case if the assessment is appealed. Under these types of offers, the Treasury may impose conditions that must be satisfied, like timely future payments or compliance, or else the tax debt may be reinstated in full.
Taxpayers must also satisfy other requirements to make an offer in compromise. An offer in compromise application must include all documentation and Form 5181. Some requirements include filing all tax returns for periods included in the offer in compromise. A payment of the greater of $100 or 20% of the offer amount must be included with the application. A taxpayer may not be in a bankruptcy proceeding at the time the offer is made.
Payment Options Under A Michigan Offer In Compromise
Taxpayers have options regarding payment terms. A one-time lump sum payment may be made to satisfy the entire offer amount. Alternatively, a taxpayer may make a series of payments. These are similar to the IR.S. choices including a 20% payment plus up to five equal or unequal payments to be made no later than six months after the offer is accepted. Taxpayers may extend the payments up to 24 months after the offer is accepted by making equal monthly payments over that period. The Michigan Treasury is not bound by these options and may propose different payment terms if it believes the debt may be repaid over a shorter period than proposed by the taxpayer.
Pending Michigan Offer In Compromise
Once an offer is submitted, the Michigan Treasury will notify the taxpayer and review the application. Interest and penalties will continue to accrue during the time the offer is pending. Importantly, the Michigan Treasury will stop any levy actions against property or income of the taxpayer unless the Treasury determines the offer was submitted in bad faith to delay enforcement or where waiting to enforce the levy would jeopardize collections.
If an offer in compromise application does not include sufficient documentation or information to allow Treasury to make a determination, Treasury will request missing information or reject the application. Notice if the decision will be provided to taxpayers and their representatives in writing.
Withdrawal of Michigan Offer In Compromise
A taxpayer may decide to withdrawal an offer for a variety of reasons. There is no penalty other than losing the initial payment of $100 or 20% of the offer amount, which is applied to the taxpayer’s taxes owed balance.
Offer In Compromise Acceptance and Completion
After Treasury accepts an offer, a taxpayer must make all payments and continue filing returns as they become due and make current year tax payments. Once the tax debt is paid in full, the Michigan tax debt is settled for the periods included in the offer. It is important to consider the tax periods and who is liable for the taxes. If the tax debt relates to joint liability or for employment or Withholding taxes related to a responsible person, the tax debt itself my be satisfied for one person, but not for others. Care should be taken when considering who should file for the offer in compromise, as Treasury’ may go after other taxpayers.
If you are considering an IRS offer in compromise, and likely face Michigan back taxes, penalties and interest for the same periods, contact Steiger Tax Law to see if you are eligible for a Michigan offer in compromise or other Michigan tax resolution options. Attorney Andrew Steiger practices tax law and understands the details of Michigan tax law and will listen to your concerns and help develop options to resolve your tax debts.