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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:

  • A doubt exists as to the liability
  • A doubt exists as to the collectability if the taxpayer established both of the following: a.) the amount offered in payment is the most that can be expected to be paid or collected from the taxpayer's present assets or income, and, b.) the taxpayer does not have reasonable prospects of acquiring increased income or assets that would enable the taxpayer to satisfy a greater amount of the liability that the amount offered, within a reasonable period of time
  • A federal compromise of tax under IRS §7122 has been granted for the same tax years 

Additionally, the bill addresses the administrative aspects of creating this program within the state. These administrative topics focus on:

  • Publishing written reports outlining the basis of each compromise and its terms
  • Continued review of any compromises, including reestablishing or revocation of any compromise
  • Establishing guidelines 180 days after the date of enactment for: a.) the program itself, modeled after the IRS program, b.) the officers and employees within the department to use when making decisions on whether an offer-in-compromise is appropriate, and, c.) procedures for independent review of rejections
  • Public disclosure
  • Additional assessment or collection
  • Stay of collection while an offer is pending
  • Nonrefundable minimum payments
  • Rejection of offer-in-compromise not subject to further challenge