October 30, 2022 | Offer in Compromise
The New York State offer in compromise program allows taxpayers to lower the amount of tax debt they owe the State when they can’t afford to pay it all when the taxes are owed. It goes beyond just needing a few months or years to pay, they need long term reliefThe program was developed to help insolvent New York taxpayers in need of tax debt relief because paying the full tax debt would create an undue economic hardship. With the tax debt resolved through this program, you typically have a settlement by paying a reasonable amount of the debt owed with a sixty (60) month payment plan (with Interest). More details of the program are described in Offer in Compromise Program Publication 220.
Back ground: Undue Economic HardshipUndue economic hardship is when an applicant taxpayer can’t pay their tax debt in full and meet all of their reasonable financial obligations. Therefore, it needs to be more than just a hardship to pay the taxes owed. Meaning its never fun to write the check to pay your taxes. Typically, it requires that the taxpayer is insolvent, which means that when you add up all of your assets and liabilities (including the tax debt), that when you subtract the liabilities from the assets that you have a negative number. It is important to note that if the State thinks your lifestyle is luxurious, it will deny the offer, or cause you to have a high settlement. Such lifestyle issues would be high private school tuition, fancy cars, college costs paid by without a loan, large contributions to retirement accounts, or large credit card payments for unnecessary expenses. The undue economic hardship rule only applies to individuals and not businesses. For a business, the central factor is whether the business is still open. Under the New York State offer in compromise program reasonable financial obligation includes but are not limited to:
- food, clothing, housing costs, auto, life insurance, etc.
- medical expenses for taxpayers or dependents.
- child support payments you must make under a court order, or other court ordered payments.
Taxpayer QualificationsTo qualify for a New York State OIC your total tax liability must typically exceed $25,000; and you have be up to date with filing your tax returns. If there are unfiled tax returns, we can file them as part of the application process. If you owe a smaller amount owed (under $15,000), there is an online procedure that you can probably handle yourself. It is also important that the tax debt does not relate to a crime, since in those cases as a matter of public policy the State will not settle and reduce the tax debt owed.
What tax forms need to be filed?In most cases, you will need to file form NYS Tax Form DTF-5 and DTF-4, Application for Reduction of Tax Dues through the Offer in Compromise program. To qualify for an offer in compromise the applicant must meet all eligibility criteria and provide supporting documentation with their application. The tax examiner assigned to your case will determine if your offer is accepted or rejected based on internal guidelines that are strictly followed by the NYS Department of Taxation and Finance personnel and how your case is presented to them by the written submission and verbal negotiations. If qualified, an approval can take up to 365 days from date of submission, but during that time period further collection activity will cease, and if your driver’s license has been suspended, we can often have that suspension removed while the offer in compromise is being considered. Supporting documents required with offer in compromise DTF-5 form.
- proof of income (tax returns for the past three years and one year of bank statements).
- proof of expenses (auto, home, utilities, food), and a recent credit report.
- valuations of Assets (auto and home value and mortgage documents and other loan documents, retirement account statments).
- A recent credit report (within the past 30 days).
- personal income tax (PIT)
- business tax liability, mostly sales tax and unpaid payroll tax debts. These are called “trust fund” taxes. In Trust Fund tax cases, they typically want the Trust Funds taxes owed as part of the settlement, and will eliminate the interest and penalties owed.
- estate tax.