An Offer in Compromise (OIC) is an agreement between the taxpayer and the government to settle a tax debt for less than what is owed. They afford the taxpayer an opportunity to clear the balance at a discount while the tax collector is ensured as to the collectability of at least a portion of a debt that realistically will never be paid in full. The federal government and most state governments provide Offers in Compromise as an option for taxpayers who qualify.
A thorough understanding of the options available for Offers in Compromise at the state level is valuable because it is not uncommon for a taxpayer with a federal tax liability to be similarly situated as to their state tax obligations.
There are twelve states that do not have Offer in Compromise as an option to resolve tax debt:
- New Mexico
- North Dakota
- South Carolina
- South Dakota
All other states do have a procedure for a taxpayer to request an OIC or an equivalent to settle a tax liability for less than what they owe. The following list provides some general information as to each program, as well as links to state websites and relevant forms. This should serve as a useful starting point for any taxpayer considering an OIC as a potential option to resolve a state tax debt.
Arizona statute § 42-1004(B)(1)(a) authorizes the government to “Abate any balance owed by taxpayer if the balance is uncollectible.” For information on how to determine eligibility check out the Arizona Department of Revenue’s Website, and for requirements and instructions for submitting an offer consult form 11005.
In Arkansas, Offers in Compromise fall under § 26-18-705 which states that the tax-collecting authorities “may enter into an agreement to compound, settle, or compromise any controversy relating to state tax.” A useful description of the program can be found here, and for an outline of relevant procedures look to form 2000-4.
Offers in Compromise in California are governed by revenue and taxation code § 43522.5. The statute provides that the Department of Tax and Fee Administration may compromise any final tax liability. The requirements are different for liabilities that fall above or below $7,500. The relevant application forms are available by request and there are separate forms for individuals and for business entities.
Colorado allows for compromise of tax liabilities under § 39-21-106 of the tax code. Tax officials “may compromise any civil or criminal case arising under any tax.” Qualifications, required documents, and general information can be found here.
In Connecticut “An offer of compromise may be made or entertained if it is based upon doubt as to the taxpayer’s liability for the amount in controversy, or doubt as to the collectability of such amount” § 12-2d. The procedures and forms necessary to make an offer can be found on Connecticut’s Official State Website.
The Delaware Division of Revenue is willing to resolve the tax debt of a citizen facing bankruptcy. A taxpayer facing hardship and considering bankruptcy petition may be able to have a portion of their tax liability discharged in a way that resembles an Offer in Compromise. Visit the Division of Revenue website for more information.
Where there is doubt as to liability of collectability, the Georgia revenue commissioner can “settle and compromise any proposed tax assessment” § 48-2-18.1. General information can be found in this useful Offer in Compromise Booklet, and the form to apply is CD-14C.
HI ST § 231-3 (10) specifically authorizes compromises for any tax liability that exceeds $50,000. The procedure for how to submit a request for compromise is outlined in § 231-9.2, and form CM-1 can be used to apply.
Illinois Department of Revenue Regulations § 210.115 allows a taxpayer to file a petition for an Offer in Compromise on the grounds of uncertainty as to collectability. Form BOA-1 is the relevant document for both OIC’s and penalty abatement requests.
An Indiana taxpayer who may not be able to pay his or her tax liability can file form FS-OIC. General information on eligibility and procedure can be found here.
In Iowa, a taxpayer seeking to take advantage of the OIC program must attain an Offer in Compromise packet. Packets are available only via the Iowa Department of Revenue and can be requested from an assigned agent or collector. General information can be found on Iowa’s state website.
Kansas allows for settlement of tax debt in the form of an abatement: “Any taxpayer … may petition the secretary to abate all or part of any final income tax liability to the taxpayer” KS ST 79-3223a. The statute also lists the information that should be provided in the petition. Additional information and step-by-step instruction can be found on the Kansas Department of Revenue website.
The Kentucky Department of Revenue allows taxpayers to apply for an offer in settlement, which functions as an OIC. The prerequisites and required documentation can be found on the application form.
For taxpayers with five-hundred-thousand dollars or less in tax debt, Louisiana tax code § 1578 (4) authorizes the submission of an OIC where there is significant doubt as to collectability. Note that the offer must be accompanied by a non-refundable down payment of twenty percent of the offer’s value. The form to file is R-20212.
Maine’s State Tax Assessor “may compromise a tax liability … upon the grounds of doubt as to liability or doubt as to collectability, or both” ME ST T. 36 § 143. General information and detailed instructions are provided at maine.gov.
Maryland’s OIC program becomes available when the taxpayer cannot pay in full two years after the tax liability accrues. Additional eligibility requirements and instructions can be found here.
Settlement of a tax liabilities in Massachusetts occurs under M.G.L.A. 62C § 37A. The statute provides the conditions necessary to qualify. More information and filing requirements are available at mass.gov, as well as a series of helpful examples.
One unique aspect of Michigan’s OIC program is that a federal compromise can serve as a basis to attain a state compromise. Under the Revenue Act MCL 205.23a (1)(c), the state Treasurer “may compromise the outstanding balance of the liability for each year by applying the same percentage as the federal liability compromised to the total liability.” The statute can be read in full here, and more information is located at michigan.gov.
In Minnesota Offers in Compromise are authorized pursuant to Minnesota Statutes § 8.30, which grants the attorney general the power to settle tax liabilities. Information on how to request a compromise can be found here, however the link to the compromise application is not functioning properly. Contact the Minnesota Department of Revenue to obtain one.
Mississippi House Bill No. 1095 instructs The Commissioner of Revenue to “develop procedures for the receipt and consideration of offers in compromise and settle doubtful claims”. The procedures are different for individuals and business entities.
Missouri citizens who cannot afford to pay their tax liability can submit an offer using form MO-656. General information as to eligibility and more detailed instructions can be found on the Missouri Department of Revenue website.
Nebraska REG-36-017 gives the revenue department the option to settle a delinquent tax account by means of an Offer in Compromise. The taxpayer must not be disputing the tax and cannot be currently in a bankruptcy proceeding. There is no relevant form because the process must be initiated by the state. More information can be found here.
The Nevada Tax Commission may compromise with a taxpayer to clear a tax debt. The Nevada Department of Taxation website provides the relevant authority and clearly outlines the three situations where a liability can be settled for less than what is owed. The form to file an offer can be found here.
An Offer in Compromise in New Hampshire is called a Settlement Agreement Offer. Taxpayers can apply using form CD-410. Unfortunately, the state website provides little information as to eligibility and the criteria for acceptance. The Department of Revenue Administration has discretion to accept or reject an offer.
New Jersey taxpayers have the option to request a Closing Agreement, which operates in the same way as an Offer in Compromise. New Jersey law provides only general guidance as to eligibility and grants broad discretion to the New Jersey Division of Taxation to accept or reject any offer. The relevant statutory authority and procedures for filing are all found on form 906.
Under N.Y. Tax Law § 171, New York State may consider an Offer in Compromise for individuals and businesses that are insolvent as well as for individuals who are not insolvent but would face undue economic hardship if required to pay their tax liability in full. Tax.ny.gov defines “economic hardship” and has useful information on how to apply. New York allows taxpayers to apply for an OIC either online, or by mail using form DTF-4.1.
NC Gen. Stat. § 105-237.1 authorizes the Secretary of Revenue to accept full settlement of a liability for a lesser amount than is due. The NC Department of Revenue provides procedural details in an OIC Instruction Booklet and even has a useful checklist of documents that the taxpayer may need to file. General information and additional forms can be found on ncdor.gov.
The Attorney General of Ohio may compromise tax liabilities under Ohio Revised Code sections 131.02 and 5703.06. Offers in Compromise are considered for taxpayers claiming economic hardship, doubt as to the liability, or innocent spouse. Details concerning eligibility and instructions on how to begin on the Ohio Attorney General’s website. There are separate forms for each of the three possible claims which can be found at that same address.
Pursuant to Okla. Stat. tit. 68 § 219, “The Oklahoma Tax Commission is authorized to … settle or compromise any controversy relating to taxes.” Details about eligibility can be found here. Oklahoma taxpayers who wish to apply will need Packet S, which contains instructions and the appropriate forms.
The best place to start for information on Oregon’s Offer in Compromise program is the Department of Revenue’s Settlement Offer Application. The packet includes general information, frequently asked questions, and instructions. Note that filing of an application requires a non-refundable payment in the amount of five percent of the settlement offer.
Pennsylvania taxpayers can include a request for an Offer in Compromise when they appeal a tax assessment. This must be done by filing a petition with the Board of Appeals. General information about the appeals process can be found on revenue.pa.gov. The form to request a compromise is DBA-10.
Under RIGL 44-1-10, The Tax Administrator of Rhode Island can compromise tax liabilities if they are determined to be uncollectible, illegal, or excessive in whole or in part. General information can be found here. Taxpayers will need to file form RI 656 accompanied by form RI 433 to apply.
General information and instructions regarding Tennessee’s Offer in Compromise program can be found on the application itself. Additional details and the relevant statutory authority can be found on the Tennessee Department of Revenue website.
Utah taxpayers can submit an Offer in Compromise when there is doubt as to their tax liability or if the liability cannot be realistically collected. Instructions about who qualifies and how to file can be found on form TC-410.
Virginia will consider Offers in Compromise for waiver of penalties greater than $2,000, as well as for doubtful liability or doubtful collectability. The necessary form varies with what is being claimed and whether the taxpayer seeking the OIC is an individual or a business. Links to the forms can be found on tax.virginia.gov.
An Offer in Compromise in Washington State is known as a rule 100 settlement. The criteria for who qualifies for a settlement can be found here. Note that inability to pay on its own is not a valid reason to receive a settlement. Detailed information can be found in the actual statute: WAC 458-20-100. To apply use form 50 0006.
Under W. Va. Code § 11-10-5q(c), the West Virginia State Tax Commissioner may compromise a tax liability. Taxpayers can apply using form CD-3, which includes the considerations for acceptance as well as additional instructions.
The Wisconsin Department of Revenue will consider an Offer in Compromise for a taxpayer who cannot realistically pay their debt. A useful page of frequently asked questions about the program can be found on the Department’s website. The page includes information about who may qualify and how to apply. There are separate application forms for individuals and businesses.