I’ve been involved in the State Bar of Michigan Taxation Section, in a committee or Council role, for a number of years, and throughout that time we’ve had a few recurring hot topics on the agenda. One has been and continues to be Michigan tax reform (especially regarding the Tax Tribunal/Court of Claims filing and pre-payment rules), the other has been pursuing an Offer in Compromise process that would mirror the IRS program.
Why is it beneficial to have federal and state Offer in Compromise programs?
The Internal Revenue Service’s federal Offer in Compromise program allows taxpayers who meet certain criteria (one of the most critical is being up to date in filings and payments – if you haven’t filed several past years of Form 1040s, “no soup for you” until you come into compliance) the option of compromising (or settling) outstanding tax, penalty and interest if the taxpayer cannot pay or may legitimately argue that they are not liable for the tax debt, or, at the Service’s discretion, to advance administrative efficiency. It is not an easy process or one that offers guarantees or bargains, but for qualifying taxpayers who can provide documentation and advance the required payment with application it can provide a fresh start and chance to get past crippling tax debt.
Effective 2015, thanks to nearly 10 years of hard work by former Section Chair Wayne Roberts and others, Michigan finally has a way for taxpayers to compromise (or settle) taxes. Like the federal program, it is not a “get out of debt free” card – but it is better that the prior situation in Michigan where Treasury was barred from settling tax liability by statute.
Michigan’s OIC program may allow settlement and reduction of taxes in the following situation:
A doubt exists as to the liability based on evidence provided by the taxpayer.
A doubt exists as to the collectability of the tax due based on the taxpayer’s financial condition.
A federal offer-in-compromise has been given for the same tax year(s).
Who does this benefit? Anyone who has a good argument that they are not liable legally for the tax, anyone who cannot pay without incurring serious financial harm, or anyone who has already compromised federal taxes due to lack of liability or ability to pay. These beneficiaries can be anyone from owners of defunct businesses (where the business left tax debts) to working families of any economic class facing an extraordinary tax liability that is threatening to pull family finances under.
Michigan’s OIC program won’t be easy, immediate, or a “get out of debt free” card but in the right circumstances it – and the federal OIC program for federal tax debt – may be worth pursuing. Since we live in a “you get what you pay for” world, in complex situations, taxpayers will most likely do themselves favors by contacting real, live tax attorneys and accountants who can provide individual attention and solutions instead of tax resolution companies that rely on TV advertising and promise enormous discounts for minimal client costs. When in doubt ask for an estimate of fees and interview a few professionals before you commit.