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Paying taxes is compulsory, but paying the wrong taxes isn’t.

An Offer In Compromise occurs when there’s an agreement between the taxpayer and the IRS, or with a state that provides an Offer in Compromise program at the state level, to pay a lesser amount in tax than what is presumed to be owed. This option comes as a boon for those who are under financial duress and are unable to pay their taxes.

What’s more, regular people and companies can both qualify for an Offer In Compromise. On the state level, this program was initiated by the Michigan Department of Treasury in early 2015 and has provided much-needed tax relief to the citizens of Michigan. 

So, let’s look at the State of Michigan’s Offer in Compromise policy in greater detail.

Reasons To Ask For An Offer In Compromise

1. Doubt As To Liability

This happens when the taxpayer feels that they have been taxed more than they should have, and their actual tax liability is less than the assessed tax liability. However, for this to succeed, the taxpayer must give a detailed explanation as to why this is so. 

Apart from that, the taxpayer must also provide documents to support that claim. Overall, convincing and unambiguous evidence is needed to establish this claim. Very few applications stating this reason are received since it is a comparatively tough claim to prove, and a taxpayer qualifies only after strict investigation.

If you wish to file a claim under this, file the Offer In Compromise (OIC) Form 5181 and Completed OIC Schedule 3 (Offer In Compromise based on Doubt As To Liability).

2. Doubt As To Collectibility

There could be unforeseen circumstances and incidents that may thoroughly shake up a taxpayer’s financial situation. So, under this provision, the taxpayer can claim that the amount they are offering to pay (which is less than their perceived liability) is the most that the taxpayer can manage.

Also, the taxpayer must prove that the taxpayer does not have any additional means to acquire assets or earn a monthly income, which would help them pay off their tax liability in full. 

To avail of relief under this provision, an individual must file an application under Form 5181 (Michigan Offer In Compromise) and 5183 Schedule 2A (Collection Information Statement for an Offer In Compromise.)  A business can apply for the same relief using Form 5184, Schedule 2B (Collection Information Statement for an Offer In Compromise.)

Individuals must furnish information about their status of employment, personal assets, and financial resources required for housing and similar expenditures. This can be done through paycheck stubs, real estate valuations, bank statements, copies of legal decrees, tax returns, etc.  As for businesses, similar documents are required, in addition to declarations of business assets.

3. An Offer In Compromise Approved By The IRS

This is virtually the easiest way to get one’s taxes reduced by the state. Although, one prerequisite for this is that the taxpayer’s tax liability must have already been assessed. Furthermore, all opportunities for contesting said liability to the Court of Claims or the Michigan Tax Tribunal must have expired or been exhausted. 

It’s also imperative to note that the taxpayer shouldn’t be a part of any ongoing bankruptcy proceedings and must have already filed all taxes rightfully for the preceding years. If all these conditions are satisfied, and one can prove that their tax liability should be reevaluated, then a successful Offer In Compromise is made with the IRS. 

Once that is done, the taxpayer can straightaway fill out the following documents:

  • Form 5181 (Completed Offer In Compromise), 
  • OIC Schedule 1 (Information Supporting a Michigan Offer In Compromise Based on an Accepted Federal Offer In Compromise, 
  • Form 5182, and 
  • An Authorized Representative Declaration.

These must also be accompanied by:

  • IRS Form 656
  • Any amendments or addendums to Form 656
  • IRS account transcripts for every year in the accepted form
  • And, of course, the accepted federal Offer In Compromise

The website of the Michigan government also provides an Offer In Compromise Checklist, which you can use to get all your documents in order.

Benefits Of An Offer In Compromise

There are many benefits of this compromise program. As for Michigan taxpayers, it helps prevent a buildup of arrears and unpaid tax liabilities. It also frees the taxpayer from constantly fretting about possibly getting a bank or a wage levy. 

Moving on, the state, too, benefits immensely from this program since it can now collect taxes from people who were previously defaulting due to an increasing tax backlog. It also reduces the effort spent by the state on looking for tax delinquents. 

This is because people will now come forward on their own to pay up since nobody likes to be in the bad books of the law! Lastly, since it helps taxpayers start with a clean slate, it will reassure the government that they will no longer default on future tax payments.

Conclusion

If you’re staring a huge tax backlog in the face or running into any other kind of tax problem, we can help. Our expert attorneys with years of experience will guide you in the right direction and resolve your issues swiftly and efficiently. So, give yourself peace of mind, and don’t hesitate to reach out to us!