A new law in Michigan will grant relief to qualifying taxpayers who have outstanding Michigan tax liabilities. Beginning January 1, 2015, Michigan will have an offer in compromise program that will allow taxpayers to lower their taxes due if one or more of the following three grounds exist:
1.) The Taxpayer Disputes that She Owes the Taxes Due
If doubt exists as to liability (whether the taxpayer actually owes the amount due), the taxpayer will qualify for a compromise if the state determines, based on evidence provided by the taxpayer, that the taxpayer would have won a contested case if the taxpayer’s appeal rights have not expired
2.) The Taxpayer Owes the Taxes Due, but Can’t Afford to Pay in Full
If doubt exists as to collectability (the taxpayer owes the taxes, but can’t afford to pay in full) the taxpayer will qualify for relief if the taxpayer establishes both of the following:
- the amount offered in 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 that would enable the taxpayer to satisfy a greater amount of the liability than the amount offered, within a reasonable period of time
3.) A Federal Offer in Compromise Has Been Granted for the Same Tax Years
If an offer in compromise for federal taxes has been accepted by the IRS for the same tax years, the state treasurer may compromise the outstanding balance of the state liability for each year by applying the same percentage as the federal liability compromised to the total federal liability.
Example: John owes the IRS $100,000 and the State of Michigan $50,000. His federal offer in compromise has been accepted and he now owes the IRS $20,000. Since John’s federal offer in compromise was accepted for 20% of the tax owned, his Michigan offer will likely also be accepted for 20% of the $50,000 tax amount owed.
Accepted Offers will be Subject to Ongoing Review
If the state accepts an offer in compromise, the offer will be subject to continuing review by the state. The state may revoke any accepted compromise, may reestablish the original amount of taxes due, and will not refund payments made during the compromise period if either of the following occurs:
- the taxpayer concealed assets from the state, or falsified/withheld/etc. any documents or oral statements
- the taxpayer fails to comply with any of the terms and conditions relative to the compromise or the taxpayer becomes delinquent on current tax filings and/or payments.
The state will disclose return information to members of the general public to the extent necessary to permit inspection of any accepted offer in compromise.
To apply for a compromise, taxpayer must submit the GREATER of $100 or 20% of the offer to the department. If the offer is accepted, the application fee will be applied to the reduced balance. If the offer is rejected, the application fee is non-refundable but will still be applied to the original balance due.
If you have any questions on how this applies to you, please feel free to give us a call.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.