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Tax Law

Offer in Compromise Legislation: What is it and what does it change?

Governor Rick Snyder signed significant tax legislation, making official the Offer In Compromise Legislation (OIC), also known as Michigan Public Act 240 of 2014. The Michigan Department of the Treasury will be able to offer compromises beginning in January of 2015.

Michigan will now join at least 40 other states in creating a system of compromise for taxpayers in addition to or in lieu of tax delinquency or amnesty programs.

Jeffrey D. Moss, Dawda Mann tax attorney, “welcomes the addition of an OIC program in the state of Michigan so that taxpayers with a legitimate reason to obtain a reduction in federal tax payments can also obtain a similar reduction from the state of Michigan. It was frustrating to clients that the IRS would work with them but Michigan would not.”

The ability to offer a compromise is to be used under the following conditions:

  • The tax liability of the taxpayer is under question
  • The taxpayer truly is unable to pay the taxes owed due to an unforeseen circumstance, like loss of income, bankruptcy or medical emergency
  • The offering of the tax compromise appears to be the fairest way to proceed

When a taxpayer begins the OIC process, they shift from being “delinquent” to being “compliant” while the OIC is in force. Written explicitly in the OIC legislation is the right of the Department of Treasury to revoke the compromise if its officers believe the compromise was proffered due to falsification of records or false statements.

The State Treasurer is now obligated to establish guidelines for the new program, including a review process for rejected offers, creation of an appeals process, as well as a plan to collect the taxes.

The Michigan Chamber of Commerce has vociferously supported the OIC, noting that it brings in revenue to the state coffers and encourages compliance unlike other programs which don’t require exigencies.  The Chamber also hopes that this will end the use of levies against taxpayers who truly are unable to pay and have to go to extraordinary measures to have the levies released like producing an eviction notice or utility shut-off notice or worse, a bankruptcy filing (which can be difficult to afford in extreme situations).

Currently, if a taxpayer is delinquent but unable to full amount of the tax liability, they can make partial payments. One issue is that taxpayers extend the statute of limitations regarding their tax liability for each payment they make, not matter how small. This component of the current tax law is a disincentive for taxpayers to come forward, especially prior to the OIC legislation.

It is hoped that the OIC legislation will allow for a better utilization of Department of Treasury workers, as offering the compromise would use less personnel time than the discovery process involved in chasing down tax delinquents.

A taxpayer who wishes to invoke their OIC right must make application to the Department of Treasury, be accepted and agree to the specific components of the compromise.