Michigan taxpayers may be able to settle their IRS tax debt with an IRS Offer in Compromise. The Offer in Compromise or OIC allows a taxpayer to make an offer to the Internal Revenue Service (IRS) for less than the total amount of tax debt owed. This compromise offer, if accepted, will settle all outstanding tax debt outlined in the Offer in Compromise agreement. The IRS may be willing to accept an OIC if it allows Michigan taxpayers to meet all of their future tax liabilities. An Offer in Compromise may allow the IRS to avoid declaring debt as currently not collectible or extending the debt collection efforts through a protracted installment agreement.
The IRS has the authority from the federal government to collect taxes to fund the activities of the United States government. They also have sole discretion to accept or deny any OIC offers made by Michigan taxpayers. The IRS may accept an Offer in Compromise if they doubt their ability to collect the debt, believe there may be some discrepancy in the amount of tax owed or paying the debt may cause economic hardship for the taxpayer.
The IRS denies approximately eighty-percent of the Offer in Compromise offers at the application level (more are accepted after negotiations). If the IRS denies the Offer in Compromise offer they can use the information they have collected from the Michigan taxpayer to continue their tax collection actions. Michigan residents who are considering an Offer in Compromise should contact a tax professional. The Offer in Compromise process can be complicated, expensive and time consuming and may not be the best option for all Michigan taxpayers. Interest and penalties will continue to accrue while the OIC is under consideration.
Qualifying for Offer in Compromise in Michigan
All Michigan residents who are filing an Offer in Compromise must meet one of the following conditions:
Doubt as to Liability – Michigan taxpayers must prove the examiner has incorrectly interpreted the law, did not consider all the relevant Michigan taxpayer’s evidence, or the taxpayer can show new information proving the amount of tax liability which has been assessed is not correct.
Doubt as to Collectibility – The Internal Revenue Service must believe they will be unable to collect tax debt either now or in the future.
Effective Tax Administration- Michigan taxpayers who can prove paying federal tax debt will cause an economic hardship which would be inequitable or unfair may qualify for an Offer in Compromise. The elderly who can not find employment, individuals with disabilities or individuals who have exorbitant medical bills or who care for a sick family member all may meet this condition.
Rejection of Offer in Compromise in Michigan
The Internal Revenue Service will deny most Offer in Compromise offers. Offers which are denied may be negotiated or the Michigan taxpayer may make a formal appeal. The IRS must send the Michigan taxpayer written notification for the OIC denial which details the reason the Offer in Compromise has been denied and the amount the IRS would accept to settle the tax debt. Michigan taxpayers must resubmit the Offer in Compromise tax forms only if they have missed the appeal deadline or if their financial status has drastically changed. If the IRS does not provide information about the Offer in Compromise denial Michigan taxpayers have the legal authority to request information under the Freedom of Information Act.
Appealing an Offer in Compromise in Michigan
Michigan taxpayers can make an informal appeal to the IRS administrator who denied the OIC application. If negotiations fail, a more formal appeal can be made. The formal appeal must be made in writing within 30 days from the date of the Offer in Compromise denial letter. The IRS frequently negotiates with the taxpayer to find an offer which is agreeable to both the Internal Revenue Service and the taxpayer.
Completing an Offer in Compromise
Michigan taxpayers must complete the following tasks if they are applying for an Offer in Compromise:
- Michigan taxpayers must fill out and submit all of the appropriate OIC forms and financial information. Documentation can include: Michigan taxpayer’s pay stubs, bank records, and car information.
- Michigan taxpayers will have to file all IRS federal tax returns on or before the federal tax deadline for the next five years.
- All self-employed Michigan taxpayers must make estimated federal tax payments and file their tax returns each quarter.
- Michigan taxpayers must pay all IRS federal tax payments (excluding the amount outlined in the Offer in Compromise offer) for the next five years.
- Michigan taxpayers must agree to pay the amount outlined in the Offer in Compromise agreement.
- The Internal Revenue service will use all IRS tax refunds and apply them to the tax debt prior to accepting the Offer in Compromise offer.
- The IRS will apply any tax refund to the Michigan taxpayers back taxes for the calendar year that the Offer in Compromise is approved.
The Internal Revenue Service has the legal authority to revoke the Offer in Compromise if the taxpayer fails to meet all of the terms in the OIC agreement.
Offer in Compromise Forms
- IRS Form 656- Offer in Compromise. IRS Form 656 provides financial information to the Internal Revenue Service about the financial status of the Michigan taxpayer and their ability to repay their IRS tax debt.
- IRS Form 443 A- Collection Information Statement for Wage Earners and Self-Employed Individuals. Form 443-A provides additional financial information about the financial status of the Michigan taxpayer to the Internal Revenue Service.
- IRS Form 443-B- Collection Information Statement for Businesses. Form 433-B provides information about a Michigan taxpayer’s business finances. This form must only be submitted if the business tax debt is included in the Offer in Compromise.
- IRS Form 656-A- Income Certification for Offer in Compromise Application Fee and Payment. This form must be completed by Michigan taxpayers who are requesting an Offer in Compromise fee waiver.