If a taxpayer has a tax liability they can't pay or if paying a tax liability would create a financial hardship, the Internal Revenue Service (IRS) and most states have programs that allow taxpayers to settle their tax debt for less that the full amount owed. These offer-in-compromise programs are subject to certain qualifications and approval by taxing authorities and are designed to benefit both the taxpayer and the government.
Until recent events, Michigan was one of only a few states that did not have an offer-in-compromise program. On June 27, 2014, Governor Rick Snyder signed legislation allowing the State Treasurer to compromise all or any part of a tax liability, including any related penalties and interest, starting January 1, 2015.
The bill gives the State Treasurer the ability to develop the program and sets out requirements for implementing the new system in order to make a consistent and fair process for all. The legislation looked to the best practices of the IRS and requires the State Treasurer to establish guidelines by modeling those published by the IRS, where appropriate.
The first item the bill addresses is the criteria for when a tax liability may be compromised. The State Treasurer may compromise all or any part of a payment of tax if one or more of the following exists:
Additionally, the bill addresses the administrative aspects of creating this program within the state. These administrative topics focus on: