State of Michigan Offer In Compromise Overview
For taxpayers and businesses State of Michigan back taxes are stressful. They’re inundated with letters and notices containing threats of levy, lien, warrant or garnishment. For those with limited assets and future income prospects an offer in compromise (OIC) may be the solution to pay off the liability and get Michigan Treasury Collections off their back.
What is a Michigan Offer In Compromise?
Taxpayer can offer the state less than the actual liability to eliminate unpaid taxes if compromise is accepted. Unpaid taxes excluded from applying are residence exemption, unemployment insurance agency and homestead property. Under the program, taxpayer can claim financial hardship and if able to provide proof, offer the state a settlement for less than the actual liability.
How do I know if I qualify?
- Available to business and individual taxpayer
- Can’t have any open bankruptcy proceedings
- Must be current on all tax returns
- All opportunities for appeal of assessment must have expired
- For doubt as to liability final decision from Michigan Tax Tribunal or a court hasn’t been established
In addition, one or more of the following criteria must be met:
- Taxpayer has already been approved for OIC by the IRS. Approval must be for same tax period your applying for State.
- Doubt to Collectability exists. Taxpayer must show following under this circumstance:
a.) Amount offered is the most state can expect to collect from applicant’s present-day income and assets.
b.) Applicant prospects for future increased income or value of assets doesn’t exist. Therefore, taxpayer would be unable to pay a greater amount of unpaid taxes then being offered within reasonable period of time.
- For doubt to collectability the Michigan Department of Treasury performs analysis on whether taxpayer qualifies. The financial standards applied to analysis take into account living expenses deemed absolutely necessary for taxpayer to sustain themselves and family to live.
Doubt as to the Liability
Taxpayer provided evidence to treasury that disputes validity of liability. Taxpayer provides specific and compelling evidence that they would have won if case was disputed. Treasury determines taxpayer would triumph in a disputed case if appealed. It’s more obvious than not based on evidence presented taxpayer is not liable for all or part of the liability.
How to Apply
Taxpayer includes OIC offer the actual amount of tax owed and non-refundable payment of $100 or 20% of offer whichever is greater. Initial payment is applied to tax liability. All documents and information requested on required forms must be included. Provide all detail you can even if not requested if its relevant to your hardship.
OIC Received from IRS:
Submit form 5181 and form 5182, Schedule 1. Must include proof of IRS granting the Federal OIC.
For Doubt as to Collectability:
Individual: Submit form 5181 and form 5183, Schedule 2A
Business: Submit form 5181, form 5184, Schedule 2B
For Doubt of Liability:
Submit form 5181 and Schedule 3
Submit application and initial offer payment to:
Michigan Department of Treasury
Offer In Compromise
P.O. Box 30190
Lansing, MI 48909
What are my options when I make an Offer in Compromise ?
You can propose the following:
- Lump sum payment
- 5 or fewer monthly payments (payments can be unequal) after acceptance.
- Equal monthly payments over a period of 6 months or more after acceptance.
If no lump sum offer, your expected to pay off in as short a time as reasonably possible. Generally, no more than 24 months past acceptance.
How much should I offer?
Michigan determines whether an offer is acceptable or not based on taxpayers Reasonable Collection potential. You then need to calculate your necessary monthly expenses. Here are the financial standards used by state for allowable living expenses:
Calculate the amount of money/assets you have available. Then calculate monthly income before expenses. Following are sources of income you would include:
- Net Operating Income, if Business
- Retirement Accounts, Distributions
- Social Security
- Child Support
- Other Income
For example purposes, to compute an appropriate offer lets plug in some numbers.
|Value of Cash on Hand & Assets:||$9,300.00|
|Monthly Expenses Deemed Necessary by State:||($1,730.00)|
As a general rule of thumb, then we would base the offer on the following:
|Monthly Income Minus Expenses ($2,160-$1,730.00):||$430.00|
|Value of Assets:||$9,300.00|
Based on the number above you may offer:
|Value of Assets:||$9,300.00|
|Monthly Income x 12:||$5,160.00|
|Less Down Payment of 20%:||$2,892.00|
|24 Month Payoff:||$482.00/month|
Note: This is just a guideline for computing your offer. You may want to consult with an experienced Michigan Tax Lawyer to assist with the submission and offer amount.
If rejected for prior approval from IRS, doubt to collectability or as to liability taxpayer can request Administrative Review on Form 5186
Approved for OIC by IRS Offer
Treasury may apply same compromise percentage that IRS applied. Letter will state amount of payment and method required.
Reason for rejection will be stated in letter.
Doubt as to Collectability Offer
Letter will state amount of payment and method required.
- Treasury may discuss alternative plans for taxpayer to pay in full.
- May send counteroffer acceptable to treasury.
Doubt as to Liability Offer
- Taxpayer receives rejection letter from office of collections stating reasons why.
What else should I know?
Treasury will notify you when submission received.
- If rejected, can always reapply.
- Lien not released until OIC amount paid in full
- Upon receipt by treasury OIC considered eligible or ineligible
- If Eligible: Collection action ceases throughout review process.
- If Ineligible: Collection action continues.
- While OIC pending penalties and interest accrue.
- If in Installment Agreement (IA) with OIC pending, payments on IA not required.
- Revocation if:
- Taxpayer withheld relevant income and asset information from treasury.
- Taxpayer deceived state with false statements or destroying relevant information
- Taxpayer falls out of compliance with conditions of OIC or doesn’t file required returns.
Need assistance with a State of Michigan tax problem? Our qualified team of professionals including 3 lawyers, accountants and EA’s will get you the answers you need. Call (877) 500-4930 or visit us at our headquarters: 300 Galleria Officentre, Suite #402 Southfield, Michigan for your free consultation to get the answers you need.