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 in Maryland. 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.

Payment Plans for Business Taxes

Businesses may be allowed to set up payment plans on some business taxes in Maryland, such as sales and use tax. Typically, you must be able to pay off the tax, penalties, and interest within six months. To apply, contact the DOR's Small Business department at cdcollectionbizz@marylandtaxes.gov.

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.

State of Georgia Tax Payment Plans Overview

Payment Agreement (Installment Agreement)

Georgia’s Department of Revenue (DOR) offers taxpayers who owe GA state income taxes payment plans for those that cannot pay in full. The DOR refers to these payment agreements also as an Installment Agreement.  These agreements provide taxpayers the ability to pay off their tax balance over a series of monthly payments. Payment plan agreements generally do not have durations longer than 60 months and they must satisfy penalties and interest. Taxpayers can request a payment plan, however, situations exist whereby a taxpayer will not qualify.

Situations Where DOR Will Not Approve a Payment Plan

Just like most state tax payment agreements, the DOR has a list of situations for when they will not approve a payment agreement or installment agreement.

In order for the DOR to review a request for a Payment Agreement the following must be met:

• The taxpayer must not be in bankruptcy,
• The taxpayer must not have a pending Offer-in-Compromise application filed,
• All of the taxpayer’s state tax returns required to be filed must be filed (usually the last five years), and
• The delinquent taxes owed must not have been assigned to a private collection firm
• The taxpayer must agree and meet all future tax obligations (estimated taxes on time, filing on time)

How to Request and Set Up a Payment Plan With DOR

Individuals and businesses who owe the state of Georgia can set up a payment plan in a few different ways. The state requires a minimum payment amount of $25 dollar per month.  DOR doesn’t seem to have set a liability limit threshold (like the IRS does) in requesting a tax payment plan. Moreover, taxpayers should always consider other alternatives since interest and the late payment penalty continues to accrue.

Leverage a Licensed Tax Professional

Taxpayers can reach out to a licensed tax professional who has experience resolving tax problems with Georgia's DOR. Using a tax professional will not only generally reduce the amount of time required by the taxpayer, but it will also generally lead to better results.

Submit a Request Through the Georgia Tax center

The DOR provides taxpayers a way to request a payment agreement online. Taxpayers can request their payment plan online using the Georgia Tax Center. Once logged into the system, individuals and businesses can propose a payment amount and schedule.

With payment sent by electronic funds transfer (EFT), DOR charges a $50 dollar fee to set up the payment agreement. If the taxpayer remits monthly payments via paper check, the setup fee rises to $100. If the taxpayer qualifies as low-income, the DOR may reduce the fee to $25 dollars. In either case, the fee is non-refundable and gets added to the taxpayer’s overall tax balance in figuring out the monthly payment amount.

Submit a Paper Application

DOR encourages taxpayers to use the Georgia Tax Center to request a payment plan. However, they will accept paper applications that taxpayers can mail. Although the paper application doesn’t seem to be up to date with the 60-month new duration threshold, taxpayers can still utilize it. Taxpayers can find the paper application here.

Once complete, taxpayers can mail the request to:

Georgia Department of Revenue
Processing Center
PO Box 740396″
Atlanta, GA 30374-0396

Notification of An Accepted Payment Plan Agreement

Whether utilizing the online or paper application, the DOR will notify the taxpayer if they accept or deny their payment plan. The DOR states that taxpayers should expect to be notified as to the status of their Payment Agreement applications within 30 days after the DOR has received the application. If the DOR accepts the proposal, the taxpayer gets notified via mail. The letter will include the duration (number of monthly payments). It will also tell the taxpayer the amount of each monthly payment, and when the taxpayer must make the first payment.

Additional Notes

Interest will continue to accrue on the taxes owed. The DOR may still confiscate state or federal refunds, and it can issue a state tax execution (also known as a tax lien). However, all other forms of enforced collection will be suspended as long as the taxpayer stays current with the terms of the payment agreement.

Modifying An Existing GA Tax Payment Plan

If a taxpayer accrues a new balance or cannot make the monthly minimum payment on their existing agreement, DOR usually requires a new agreement. In this case, the DOR charges the taxpayer with a new setup fee. However, if the taxpayer simply needs to change their bank and routing number, they must notify DOR at 404-417-2122 at least five days before the next draft.

Insufficient Funds

If the taxpayer has a check or draft fail for insufficient funds, the taxpayer will receive a “Cure/In Grace letter.” The letter will let them know when payment is due by with an additional $25 dollar return fee to prevent the agreement from going into default.

In summary, the DOR offers payment agreements for both businesses and individuals. DOR gives GA state taxpayers this option if they cannot pay their balance in full. When in doubt, leverage a licensed tax professional by starting a search below or contact the DOR directly.

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

Georgia State Tax Resolution Options for Taxes Owed

Common GA Tax Resolutions

The Georgia Department of Revenue (the “DOR”) is responsible for collecting all the State’s taxes, including the income tax.

Once a tax liability becomes due through a taxpayer filing a tax return with no payment, or an audit assessment, the DOR will mail an Official Assessment. The taxpayer has 30 days to either pay or appeal the Official Assessment. If the taxpayer does not pay or appeal within 30 days, then the DOR will issue a State Tax Execution and impose a 20% collection fee. The DOR records the State Tax Execution in the county public records – which acts as a lien on the taxpayer’s property. Further, after the issuance of a State Tax Execution, the DOR may begin enforced collection actions.

Enforced collection actions include garnishment, the seizure, and sale of personal property, a levy placed on bank accounts, Treasury Refund Offsets (seizure of federal tax refunds), and the use of collection agencies. Therefore, it is essential for taxpayers with delinquent taxes to attempt to resolve their outstanding liabilities.

Taxpayers who owe delinquent income taxes to the State of Georgia have a few main options available to reach a reasonable resolution. Although not exhaustive, here a few options:

Payment Agreement (Installment Agreement)

• A payment agreement/installment agreement is an arrangement where the taxpayer reaches a deal with the DOR to make monthly payments until they pay in full the past due tax liability. Generally, the DOR will offer payment plans or installment agreements for up to 60 months. In other words, taxpayers must pay off the balance, including interest and penalties within 60 months.

Offer-in-Compromise

• A Georgia Offer-in-Compromise is an agreement where the taxpayer agrees to pay a lump sum in settlement of the entire tax liability. The program offered by the DOR is very similar to the Offer In Compromise program provided by the IRS. Not all taxpayers meet eligibility standards as the DOR has specific requirements that the taxpayer must meet. Taxpayers in many cases can end up settling their tax liabilities for less than they owe.

Penalty Abatement

• Penalty abatement is a request asking the DOR to waive some, or all, of the assessed tax penalties. In similarity to the IRS, “reasonable cause” must exist. In other words, willful neglect or disregard of law does not constitute reasonable cause. Reasonable cause exists when circumstances outside of the taxpayer’s control lead to non-compliance.

Georgia Department of Revenue Contact Information

Alternative Options That May Be Available

Innocent Spouse Relief

The State of Georgia offers Relief from Joint Liability for certain taxpayers who filed joint returns. Innocent Spouse Relief is available in certain circumstances to taxpayers whose taxes owed attributable to their spouse. Taxpayers who file jointly are both responsible for the joint tax liability. Therefore, in certain situations, the DOR may relieve one taxpayer on the joint tax return if he or she is not responsible for failing to pay or report the tax due on a joint income tax return.

A taxpayer must meet the following conditions for Innocent Spouse Relief eligibility:

• A joint tax return that resulted in additional tax liabilities because the income of one person was reported incorrectly or not reported at all
• The individual seeking relief can prove he or she had no knowledge and reason to know income was not reported or erroneously reported; and
• Under the circumstances, it is unfair to hold the person accountable for tax on the omitted or incorrectly reported income.
• Tax taxpayer has already obtained relief from a Federal taxes owed under Section 6015 of the Internal Revenue Code

The DOR generally will not consider a person for Innocent Spouse Relief unless the individual was treated as an Innocent Spouse under IRS guidelines.  Therefore, to request Innocent Spouse Relief taxpayers are instructed to contact the DOR at 877-423-6711, and the information needed to submit a relief request will be given to them. The taxpayer must provide documentation establishing the IRS granted relief for the tax period in question.

Appeal Rights

As discussed herein, the taxpayer may appeal Proposed Assessments via the internal DOR protest process. Further, taxpayers may appeal Official Assessments and State Tax Liens to the GTT. The GTT generally has jurisdiction over appeals of tax matters involving the DOR. It includes the authority to review decisions of the DOR concerning all of Georgia’s taxes. Taxpayers can appeal further the decisions of the GTT to a local Georgia Superior court. Furthermore, under certain circumstances, taxpayers may appeal directly to a Georgia Superior court.

Challenge the Assessment/State Tax Execution

Proposed Assessments: If the taxpayer has a proposed assessment for additional income tax due, they may file a protest with the DOR within 30 days from the date of the proposed assessment. Taxpayers can request this protest online via their Georgia Tax Center accounts or by mail (complete the following form). Taxpayers cannot appeal proposed assessments to the Georgia Tax Tribunal.

Official Assessments: Official assessments can be appealed to the Georgia Tax Tribunal (GTT) or in a local Georgia Superior court within 30 days from the issue date on the official assessment notice.

State Tax Execution: As discussed above, if a taxpayer does not appeal or pay an official assessment within the 30 days the DOR may issue a state tax execution (a state tax lien). Taxpayers can appeal this action with either the GTT or in an appropriate Georgia Superior court.

Taxpayers can find more information regarding filing appeals with the GTT here. While taxpayers have the option to file in Georgia Superior court, there are particular requirements for doing so. Taxpayers considering this option should consult with an attorney.

The Georgia Voluntary Disclosure Agreements

The DOR has a Voluntary Disclosure Agreement (VDA) program designed for taxpayers who have had no contact by the DOR and have unfiled or underreported unpaid taxes. If these taxpayers come forward, they will usually receive a waiver of all penalties and an extended time limit to pay their back taxes. The DOR refers to this extended period as the “look-back period,” which DOR usually grants for three years.

Taxpayers who believe they qualify for this program should apply via mail or e-mail. Taxpayers can find more information on the application process and procedures for filing a VDA program application here.

Bankruptcy

Bankruptcy is not inexpensive. Taxpayers with substantial personal liabilities in addition to taxes owed may want to consider this option. Generally, taxpayers can discharge some state taxes owed through bankruptcy proceedings. Therefore, taxpayers should contact an experienced tax and bankruptcy attorney to pursue this option.

The Statute of Limitations (SOL)

A taxpayer should first determine their legal rights concerning Georgia law concerning the statute of limitation rules for the collection of unpaid taxes. In Georgia, the DOR has seven years from the date of assessment to file a lien if the assessment was issued before February 21, 2018. The DOR has five years from the date of assessment to file a tax lien if the assessment was issued on or after February 21, 2018. Once the DOR files a tax lien, they have ten years from that date to collect the unpaid taxes. The 10-year time clock may be tolled (paused) under certain circumstances. For example, when the taxpayer is in a Payment Agreement with the DOR or when the taxpayer has filed bankruptcy.

Lien Releases

The DOR will only release a tax lien after they have received confirmation that the past due liability has been paid in full or satisfied via an approved Offer-in-Compromise payment. However, you may be able to get a partial release or a lien subordination. Check out our guide to GA tax liens to learn more. 

Practical Considerations

As a useful tip, the taxpayer should not hesitate to raise disagreements to a supervisor within the DOR. Often, a different person and the authority and experience of a supervisor can help resolve tax issues amicably.

Additionally, Georgia has a Taxpayer Resolution Unit that serves to ensure that taxpayer rights are protected and that they receive timely and courteous service from the DOR. The Taxpayer Resolution Unit states that if all administrative options have been exhausted, they can help facilitate rapid and equitable resolution. Taxpayers can contact the Taxpayer Resolution Unit at taxpayer.resolution@dor.ga.gov.

Conclusion

Taxpayers have many options to resolve outstanding tax liabilities with the State of Georgia. As a result, taxpayers should resolve taxes owed sooner rather than later. The longer a taxpayer takes to resolve unpaid tax liabilities, the higher penalties and interest go. Therefore, taxpayers should consult with a tax professional that has experience with the Georgia Department of Revenue.  A licensed tax professional can help taxpayers navigate possible options and find the most appropriate plan of action. 

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

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.

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. The DOT does not provide a liability threshold for setting up this plan. 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 or a top tax relief firm with Michigan-focused experience 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.

Summary of Michigan’s Offer In Compromise Program

Whenever feasible, you should pay your MI state taxes in full, but sometimes, that's just not possible. If you get behind, don't ignore the situation or you may risk wage garnishments and asset seizures. Instead, look into options such as an offer in compromise.

Michigan's 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 at least one of the following must exist for a taxpayer to be eligible for a Michigan OIC:

1. The IRS has already accepted an OIC for the same tax periods and tax types in question.
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, and state the OIC amount they offer to pay.
• The taxpayer must make a non-refundable down payment of $100 or 20% of the OIC amount, whichever is greater.
• 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.
• Each taxpayer who is party to the Offer-in-Compromise must personally sign the 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:

• Completed Form 5181 – Offer in Compromise
• Completed Form 5182 – OIC Schedule 1
• A copy of the IRS accepted OIC (Form 656), including any addendums or revisions.
• 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 Collectability

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 Collectability

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, and unfortunately, small mistakes or misunderstandings about the process can quickly compromise your chance at success. Therefore, because of the time and complexity 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, a list of Michigan's top resolution firms here, or you can start your 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.

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. Want help with Michigan tax problems? Check out our post on Michigan's top tax relief firms.

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 tax 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

Contact Michigan Department of Treasury:

• Individual Tax Inquiries: 517-636-4486
• Business Tax Inquiries: 517-636-6925
• General Information: 517-335-7508
• Collections: 517-636-5265
• Michigan Department of Treasury Website: www.michigan.gov/taxes

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.

Illinois: Consequences of Back Taxes and Tax Relief Options

The Illinois Department of Revenue (the “DOR”) has the job of collecting all the state’s taxes. It includes the income tax as well. Once taxes become due either because of an audit assessment or due to the taxpayer filing a tax return without paying any tax due, the DOR will send a collection notice to the taxpayer. If the taxpayer does not respond to the letter by the due date, the DOR will begin enforced collection activities. These actions may include a tax lien placed on assets, a bank account levy, or wage garnishment. It can also include the seizure of personal property and revocation or suspension of business licenses, and the utilization of collection agencies.  Therefore, it is essential for taxpayers with taxes owed to proactively resolve their outstanding tax liabilities.

Contact the Illinois Department of Revenue for Assistance:

• Individual: (800) 732-8866
• Business: (800) 732-8866
• General: (800) 732-8866
• Collections: (217) 785-2698
• Liens: (217) 785-5299
• Pay Plans: (217) 785-8556
• Website: Illinois Department of Revenue

Tax Relief Options for Illinois Back Taxes

Taxpayers who owe delinquent income taxes to the State of Illinois have four standard options available to reach a reasonable resolution. These are:

• Installment Payment Plan – An Installment Payment Plan is a monthly tax payment plan. In other words, an arrangement where the taxpayer reaches an agreement with the DOR to make a series of monthly payments until the taxpayer pays their taxes in full (including penalties and interest).
• Offer-in-Compromise (OIC) – An OIC is an agreement where the taxpayer agrees to settle their taxes owed by paying a lump sum in settlement of the entire tax owed. In other words, the taxpayer pays less than they owe.
• Penalty Abatement – It is a request by the taxpayer asking the DOR to reduce or eliminate tax penalties assessed.
• Innocent Spouse Relief -A request by a taxpayer who filed jointly with their former spouse or current spouse and believes their spouse has the sole responsibility for paying the tax liability.

You can find more information about each option discussed by following their respective links above. However, taxpayers can find innocent spouse relief details and other options below.

Innocent Spouse Relief

Illinois offers Relief from Joint Liability for taxpayers who filed joint returns but should not be held liable for their spouse’s delinquent taxes. Generally, spouses who file a joint return for a tax year are each responsible for paying the entire joint tax liability no matter who generated the income. One exception to this rule is achieved through one spouse requesting Innocent Spouse Relief (ISR). With ISR, one spouse may avoid paying the joint liability when the other spouse is responsible for failing to pay the tax shown due on a joint income tax return or for failing to report all taxes due.

Taxpayers can apply for Innocent Spouse Relief if:

• the taxpayer filed a joint return with their spouse for a tax year,
• at the time the taxpayer signed the joint tax return, they did not know their spouse “omitted income, claimed false deductions or credits, or otherwise prepared a fraudulent return; and”
• the taxpayer believes “the sole responsibility for paying the tax liability belongs to their spouse”

Documents Need for Innocent Spouse Relief Request

To request Innocent Spouse Relief taxpayers must complete Form IL-8857, Request for Innocent Spouse Relief. Taxpayers must complete it for each year in which the taxpayer requests relief. The taxpayers must attach the following to their request:

• A copy of original U.S. and Illinois income tax returns
• A copy of any amended U.S. and Illinois income tax returns
• Any final determination of the taxpayer’s federal or Illinois tax liability that was received. This includes any grant or denial of innocent spouse relief, and
• Any other supporting documentation that would assist in determining eligibility
• A copy of U.S. Form 8857, Request for Innocent Spouse Relief, if the taxpayer also requested relief from the IRS

The taxpayer seeking ISR has the burden of proof in establishing that they are not liable for the taxes owed. Once the DOR has received the Innocent Spouse Relief request, they will send a notice to the other spouse listed on the joint return for the tax years at issue. The notice will state that a taxpayer filed a request for innocent spouse relief. At this point, the other spouse has 60 days from the date of the notification to submit documentation or additional information that may assist the DOR in coming to a determination. It is important to note that while the other spouse has the opportunity to submit documentation, they will not be allowed to otherwise participate in the proceedings.

Once the DOR Decides

Once the DOR has made a determination, they will send a notice to both spouses stating the effects of the proceedings on each spouse’s joint return liability. An innocent spouse may have a claim for refund for any overpayment that resulted from the granting of innocent spouse relief. There is no limitation period for making an “innocent spouse” election. However, the DOR will not issue a refund of taxes paid by a spouse making the election unless the taxpayer files the election within the applicable period for filing a claim for refund of income taxes.

If the taxpayer has already received Innocent Spouse Relief from the IRS, the validity of the innocent spouse request is conclusively presumed to be correct.

Taxpayers should mail the completed form IL-8857, along with supporting documentation to:

Illinois Department of Revenue
Problems Resolution Division
PO Box 19014, Springfield, IL 62794.

Statute of Limitations

Taxpayers should understand their legal rights concerning Illinois law regarding the statute of limitation rules for the collection of unpaid taxes. In Illinois, the general collection statute of limitation is 20 years from the date of assessment. However, the 20 years may be reduced if one of the following applies:

• The DOR filed a tax lien
• The Attorney General entered a judgment
• Certain other enforcement actions were used

Other Options That May Be Available

Challenge the Assessment

Taxpayers can appeal a proposed assessment to the Independent Tax Tribunal if they have a proposed assessment for additional income taxes owed from the result of a State audit and the amount of tax is $15,000 or higher. The taxpayer can file the petition online here. If the taxpayer does not come to a resolution with the Independent Tax Tribunal, the taxpayer can appeal to the Illinois Circuit Court.

Bankruptcy

Taxpayers may want to consider bankruptcy if they have notable personal liability in addition to taxes owed. Bankruptcy is usually expensive. Furthermore, it can lead to taxpayers still owing taxes after the bankruptcy comes to a close. In other words, the taxpayer may not eliminate some taxes through bankruptcy proceedings. Therefore, taxpayers who owe want to consider it should reach out to an experienced bankruptcy attorney.

The Illinois Tax Amnesty Program

Illinois has a history of offering tax amnesties. The last tax amnesty program offered by the State took place in 2019. A Tax Amnesty Program offers taxpayers a way to reduce or eliminate some or all penalties and interest in exchange for getting into filing and payment compliance. Currently, Illinois does not have one of these programs open. However, delinquent taxpayers should be aware that these types of programs exist and check to see if the state currently has one active.

However, Illinois does offer a Voluntary Disclosure Program. To participate, you must reach out to the DOR before they contact you about an audit, tax assessment, or investigation. Then, you submit a voluntary disclosure application. If the state accepts your application, you only have a four-year lookback period, meaning that you only have to file four years of missing returns. You also don't incur any penalties.  

Appeal Rights

As discussed herein, the DOR has a Board of Appeals that was established as a unit within the DOR to be responsible for the review of Penalty Abatement requests and Offer-in-Compromise requests. The decisions of BOA cannot be appealed. Therefore, they are final, leaving requesting taxpayers with denials very few options.

Alternatively, as a practical tip, the taxpayer should not hesitate to raise controversial issues to a DOR supervisor. Often, a new representative and the authority and experience of a supervisor can help resolve tax issues.

Lien Releases

The DOR will only release a tax lien after:

• they have received confirmation that the past due liability has been paid in full or
• satisfied via an approved Offer-in-Compromise payment.

Consequences of Not Paying Taxes in Illinois

In Illinois, individuals must pay state income tax, and businesses must deal with sales tax, withholding tax, and possibly corporate income tax or industry-specific taxes. It's critical that you understand your tax obligations and that you file and pay on time. If you don't pay your taxes when you file your tax return, the Illinois Department of Revenue will send you a bill. The agency will also send you a bill if you made a mistake on your tax return and you owe additional tax. The first bill explains how much you owe, and it outlines your rights. If you don't pay your tax by the due date, the department will send additional notices, but it will also start collection actions against you.

Here's what can happen if you don't pay taxes in Illinois.

Illinois State Tax Liens

A tax lien secures the state's interest in your unpaid tax debt. The lien is for the amount of your past due taxes plus interest and penalties, and it attaches to all of your real and personal property. A lien can make it very difficult to sell or take loans against your assets. Once issued, it stays in place for 20 years. Typically, the lien does not show up on your credit report, but it is a public record so lenders will find it when they search for you. Additionally, if you try to sell your assets, buyers will see that there is a lien against your assets. 

Asset Seizure for Unpaid Illinois Taxes

The Illinois Department of Revenue can also seize your personal and business assets. The department must give you a 10-day notice before a seizure. If you don't pay in the 10-day time frame, the state can take your assets. Then, it must hold them for 20 days before auctioning them off. However, if you have perishable assets such as food inventory from a restaurant, the state can auction those assets off within 24 hours of the seizure.

Asset and Wage Levies in Illinois

When you have unpaid taxes in Illinois, the IL DOR can also levy your assets and wages. Levy is another word for seizure. The state may garnish your wages, or it may seize the funds in your bank account. Bank account seizures may take the funds in your checking or savings accounts as well as CDs, interest from insurance policies, contractual payments, interest on bonds, or rent that your tenants owe you. Once a levy has occurred, it can be difficult if not impossible to remove. For best results, you should reach out to an Illinois tax pro before a levy takes place.

Personal Liability for Business Taxes

In Illinois, the state can hold you personally responsible for business taxes. The liability may apply to business owners partners, officers, and anyone responsible for filing and paying sales and withholding taxes.

Loss of Sales Tax Certificate

If you have unfiled sales tax returns or delinquent sales taxes, the state can revoke your sales tax license. This makes it impossible to make taxable sales. If you continue to make sales, you may be charged with a Class A misdemeanor. The Department of Revenue can also post a notice on your business premises that you have unpaid sales tax and that it is illegal for your to operate.

Liquor License Revocation

Similarly, the state can also revoke your liquor license. This can happen if you don't pay sales tax or other business taxes such as Illinois state withholding taxes. Once you have lost your license, you will not be able to buy inventory — it's illegal for wholesalers, brewers, and manufacturers to deliver products to businesses that don't have a valid liquor license.

Loss of Other Illinois Business Licenses

Failure to pay business taxes in Illinois can also lead to other penalties. In particular, you may lose your lottery license, your corporate charter may not be renewed, and the Secretary of State may not renew your dealer's license. In other words, not paying your taxes can make it impossible to operate your business.

Offset for Back Taxes in Illinois

The IL DOR also uses offsets to collect back taxes. That means if you file a state tax return with a refund, the state can keep your refund and apply it to your tax bill. If you owe taxes in Illinois but not to the IRS, the IRS will send your federal refund to the IL DOR.

The IL DOR can also refer your delinquent tax bill to a collection agency. In this case, you will owe the tax, interest, and penalties, but you will also incur all of the collection agency fees. Additionally, the state can put your name on a delinquent taxpayer list, and in some cases, the state may even send a collector to your home or business.

Get Help With Illinois Back Taxes

Taxpayers have many different options to resolve unpaid taxes with the State of Illinois. With that said, Illinois has up to 20 years to collect past-due liabilities. It has much longer than most other states and the federal government to collect. Additionally, taxes owed can become quite large quickly because of associated penalties, interest, and collection fees. Therefore, taxpayers should contact a licensed tax professional or tax resolution firm to determine which option(s) to pursue. To connect to a tax professional with Illinois DOR experience, visit this link today, or start your search below.

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

A Review of Illinois State Offer In Compromise

The land of Lincoln, or the State of Illinois, does have an Offer in Compromise (OIC) program. The Offer in Compromise program allows IL taxpayers to negotiate a lump sum settlement of their delinquent income taxes. In other words, an OIC “is defined as a proposal by the taxpayer to pay a sum certain in full satisfaction to taxpayer’s unpaid amount of tax (including penalty and interest).” It is one way for taxpayers to pay less than they owe in taxes. However, taxpayers need to qualify.  The taxpayer follows a process similar to requesting penalty abatement.

The Offer In Compromise Process

For a taxpayer to request an Offer in Compromise, they must file a petition with the Board of Appeals (BOA). Specifically, the BOA is an administrative tribunal that is within the Illinois Department of Revenue (DOR). Moreover, three members make up the BOA, who are appointed by the director of the DOR. It has the authority in conjunction with the DOR Director to:

(1) waive penalties and interest based on reasonable cause, and
(2) reduce tax liability if it is likely the full tax amount cannot be collected (Offer in Compromise).

Taxpayers may request to have an oral hearing. However, the BOA does not require it. A hearing officer or board member conducts oral hearings of the BOA. The hearing provides the taxpayer with an opportunity to provide additional information and to explain the reasons why the BOA should grant the Offer in Compromise.

Tax Forms to Complete

To petition the BOA for relief under their Offer in Compromise powers, the taxpayer must fill out Form BOA-1 Board of Appeals Petition. In fact, the form is the standard petition form used for both penalty abatement requests and Offer in Compromise requests. The only requirement that the DOR provides to be eligible to file the form requesting an Offer in Compromise is that taxpayer file all tax returns.

Documentation

When using the form to make an Offer in Compromise request, the taxpayer must attach the following documents:

• The last three federal income tax returns and all schedules
• The previous three state income tax returns and schedules
• Bank statements and brokerage statements from all the taxpayer’s financial institutions summarizing the last six months’ activities;
• The two most recent paycheck stubs or current financial statements (if self-employed); and
• A completed Form BOA-4, Financial Information for Individuals or a completed Form BOA-5, Financial Information for Businesses (if self-employed)

Taxpayers should fax their completed Forms BOA-1 and BOA 4 or 5 to 312-814-3055. Alternatively, they can mail the forms to:

Illinois Department of Revenue
Board of Appeals
James R Thompson Center
Suite 7-356, 100 W Randolph Street, Chicago, IL 60601-3274.

Grounds for Relief & Considerations

Uncertainty as to collectibility is the only reason or grounds for relief that the Illinois BOA will consider. In other words, taxpayers can request a compromise of their liability due to reasons of financial hardship. The BOA examines the taxpayer’s financial situation and considers the following:

• taxpayer’s financial situation
• likelihood of future earnings
• probability of the DOR collecting the amount due

The DOR does not provide further guidance as to specific calculations or other considerations that taxpayers should follow. However, to put it very simply, the state will usually only accept an offer if it appears to be the most the DOR would be able to get. For instance, if you make an offer but the state knows that it could get more money by garnishing your wages, it won't accept the offer. 

After the Taxpayer Files the Petition

After the taxpayer files the petition, the BOA will ask certain DOR employees to provide information and a recommendation about the taxpayer’s request. Afterward, the BOA will review the case and hold the hearing, if the taxpayer requests one. Most importantly, for the DOR to grant the taxpayer the Offer in Compromise, two of the three BOA members must agree. In other words, the BOA will deny the petition if a majority of the members are not in agreement. If the BOA agrees, they give their recommendation to the Director of the DOR for final approval. If the Director signs off, then the BOA will issue an order granting relief. Taxpayers cannot appeal decisions made by the BOA.

Can you apply for an offer on delinquent sales tax?

Yes, you can, but approval tends to be rare. Generally, you can only settle sales tax if you're experiencing genuine financial hardship or possibly if the tax is in dispute. In most cases, you can only settle these taxes if you're no longer operating or if your business meets certain criteria. Talk with a tax attorney if you want to learn more about dealing with IL sales tax or other business tax concerns. 

Leverage the Expertise of a Tax Professional

Many taxpayers across the U.S. face tax problems with unpaid or unfiled taxes. If a taxpayer has a financial hardship and owes Illinois income taxes, they may want to consider an Offer In Compromise, installment payment agreement among other options. Furthermore, many taxpayers may find the OIC required documentation and forms cumbersome and challenging. Therefore, taxpayers first should find out if they are eligible and their potential tax options. Taxpayers should find a licensed tax professional with Illinois tax experience by clicking the link or by starting the search below.

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