According to Michigan.gov, in the State of Michigan, an Offer in Compromise is a taxpayer’s request to the Michigan Department of Treasury in order to compromise the total tax liability to be less than the full amount that was stated. Pursuant to the Public Act (PA) 240 of 2014, The Michigan Department of Treasury Offer in Compromise was established. It amended the Revenue Act, PA 122 of 1941.
Grounds for Submitting State of Michigan Offer in Compromise
In order to have the availability of being eligible in OIC from the Michigan Department of Treasury, these grounds shall be presented upon submission:
- Offer in Compromise from Internal Revenue Service
The taxpayer shall have received an Offer Compromise from the IRS in the same tax period the payer is requesting OIC in the Michigan Department of Treasury. However, only those who have debt for individual income tax and corporate income tax are eligible for OIC under this type of ground.
- Doubt as to the Collectability
On this ground, the existence of doubt as to the collectability can be a basis for eligibility in the State of Michigan Offer in Compromise. The taxpayer must show the following requirements for this ground: a.) the offered amount of the taxpayer for OIC is what they can pay in accordance with their assets and income; b.) The taxpayer has no ability to look for other sources of income that will allow them to pay the amount that is greater than what he offered upon submission of the Offer in Compromise.
- Doubt as to the liability
If a doubt to the liability exists, the Michigan Department of Treasury will determine the taxpayer’s willingness to prevail in the contested case if they appeal for OIC.
The Michigan Department of Treasury gives certain power to the state treasurer in order to reject or accept a taxpayer’s state of Michigan Offer in Compromise.
Accepting an Offer in Compromise may come up with certain conditions. A compromise may require the taxpayer to make payments on a timely basis. The Michigan Treasury may also require timely filing of future tax returns. If a taxpayer fails to comply with stated conditions by the treasury, the approved Offer in Compromise will be rejected, and the remaining tax debt will be reinstated. Aside from that, the Treasury will take full action just so the taxpayer can pay the reinstated tax debt.
State of Michigan Offer in Compromise—Process
In order to be under the program of Offer in Compromise in the State of Michigan, here are the things that are needed to be done for a successful application:
- Taxpayers are required to submit form 5181 or also known as Michigan Offer in Compromise. In this form, the taxpayer will state the amount that he offers in order to pay a tax debt. Form 5181 will also require a few documents that are needed to be attached, and it is required that every document needed shall be submitted.
- Upon submission of Form 5181, the Michigan Department of Treasury will require a non-refundable initial payment of 100 dollars or 20% of the taxpayer’s offer. This payment will be forwarded to the outstanding tax debt.
- If the taxpayer who applied for an Offer in Compromise has failed to submit every required document by the treasury, the application will be rejected.
- Upon submission of the Offer in Compromise to the Michigan Department of Treasury, the taxpayer needs to assess its truthfulness from these conditions:
- Assessment of the taxpayer for tax liabilities specified in the OIC.
- If the ground basis of an application for Offer in Compromise is on doubt as to liability, the OIC shall be submitted prior to the expiration of the taxpayer’s opportunities to contest his or her tax debt.
- The taxpayer shall file returns for all taxes in every outstanding tax period.
- There shall be no records of bankruptcy of the taxpayer upon submission of Offer in Compromise
- The taxpayers shall agree to every condition stated in Form 5181 for Offer in Compromise. Upon signing the form under penalty of perjury, the taxpayer believes that everything included in the form is true, correct, and complete to the best of the signer’s knowledge and belief. Failure to sign will result in the rejection of OIC.
- Every taxpayer who is a party to the OIC shall also sign the form personally. A form 5181 from a business entity shall be signed by a representative who has the authority to act on behalf of the business entity. If in the estate of a deceased taxpayer, Form 5181 must be signed by the administrator, executor, or other person authorized for the estate. A person who represents an incapacitated or deceased taxpayer shall submit proof of authorization for signing the Offer in Compromise. What proof could be used? It may be a letter of authority from a recognized document or a power of attorney.
- If a taxpayer is legally competent, taxpayers should personally sign the OIC, even though there is a third party authorized to discuss and receive information regards the Offer in Compromise.
- Offer in Compromise may propose payments based on the following types:
- lump sum amount;
- Payment in 5 or fewer equal or unequal monthly installments.
- Payment in equal monthly installments made over a period of 6 months or more.
- In the submission of an Offer in Compromise, the interest, and penalties on the outstanding tax liability are not suspended until approval of OIC.
Pending Offer in Compromise
What are the things needed to be remembered for a pending Offer in Compromise?
- OIC becomes pending if Form 5181, together with required schedules and documented files, and the required payment (as previously stated), was received by the Michigan Department of Treasury.
- The Michigan Department of Treasury will not impose a collection of tax debt as stated in OIC while it is in pending review and decision.
- The Michigan Department of Treasury will send a notification letter if the submission for Offer in Compromise has been received.
- If the Michigan Department of Treasury finds that the submission for OIC is incomplete, they will notify the taxpayer and any third party involved through writing. In the letter, the statement of the treasury would be that; a. The Offer in Compromise is rejected, or; b. Provision of lists of additional information needed to be provided so that the submission for Offer in Compromise would be considered for evaluation.
State of Michigan Offer in Compromise—Coast One Tax Group
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