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The Department of Treasury has announced that it is providing an "offer in compromise" program beginning Jan. 1, 2015. The program allows for a taxpayer to submit an offer to lower the amount of a tax liability for less than the full amount due. A tax liability includes the tax and any related interest and penalty. A summary of the official guidelines, "Guidelines for Offer in Compromise Program, 12/16/2014", is as follows:


To submit an "offer in compromise", one or more of the following grounds must exist:


The taxpayer has received an offer in compromise from the IRS for the same tax periods for which the taxpayer is requesting state relief. Only tax debt for individual income tax or for corporate income tax is eligible for compromise under this ground.

  • A doubt as to the collectability of the tax debt exists.
    • The taxpayer must show both the amount offered is the most that can be expected to be paid or collected from the taxpayer's present assets and income; and
    • The taxpayer does not have reasonable prospects for acquiring increased income or assets that would enable the taxpayer to pay a greater amount of the tax debt than the amount offered, within a reasonable period of time.       
  •  A doubt as to the liability of the tax debt exists. 
    • Based on a review of the evidence provided by the taxpayer, Treasury must determine that the taxpayer would have prevailed in a contested case if the taxpayer had appealed the assessment.

Key items of the submission process:

  • The offer must be submitted using Form 5181.
  • A non-refundable payment of $100 or 20 percent (whichever is greater) of the offer must be made. The payment will be applied toward the outstanding tax debt.
  • Submission of the offer does not suspend interest or penalties from accruing.
  • All of the following statements must be true:
    • The taxpayer must have been assessed for the tax liabilities;
    • Opportunities to contest the tax debt and appeal an assessment must have expired;
    • The taxpayer must have filed returns for all taxes for all outstanding periods;
    • The taxpayer cannot have open bankruptcy proceedings; and
    • The taxpayer must agree to all the conditions of the offer, as stated in Form 5181.

Once an offer is approved, the payment of tax debt can be in one of the following ways:

  • A lump sum amount;
  • In five or fewer equal or unequal monthly installments; or
  • In equal monthly installments made over six months or more.
  • Note: The taxpayer is expected to pay the entire amount of the offer in as short as time as possible and generally not more than 24 months past the acceptance date.

Acceptance and rejection of an offer by the Department:

  • Acceptance is conveyed by the Department of Treasury sending the taxpayer a letter of acceptance.
  • Rejection of the offer primarily results when the taxpayer has not followed the submission process, provided correct documentation or made false statements. If rejected, an independent administrative review of the rejection is available upon request by the taxpayer.
  • Any compromise is subject to continuing review by Treasury. The Department may revoke an accepted compromise if any of the following occurs:
    • Concealed property or income belonging to the taxpayer, the estate of the taxpayer, or any other person liable for the tax;
    • The taxpayer intentionally misled the Department by withholding, destroying, falsifying documents submitted or made false statements, relating to the estate or financial condition of the taxpayer to induce a compromise; or
    • The taxpayer fails to comply with any of the conditions that were part of an accepted offer or fails to file required returns or pay tax liabilities after an accepted compromise within 20 days after Treasury issues a notice and demand to the person stating that the failure to comply with the conditions of the accepted offer in compromise or the continued failure to file the required returns or pay the tax may result in the revocation of the compromise.
    • Note: If a revocation is determined, Treasury will send a letter revoking the offer and reinstating the uncompromised tax debt. 
For additional information on Michigan's offer in compromise program, please contact your local UHY LLP tax specialist.