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Why Michigan Needs an Offer In Compromise Tax Settlement Program

Why Michigan Needs an Offer in Compromise Program

blog 15Generally, the Michigan Department of Treasury is prohibited by law from compromising the tax or principal balance on debts owed to the State of Michigan. This means that the Offer in Compromise program is not allowed in the State of Michigan. An offer in compromise, or tax settlement, is an agreement between a taxpayer and the IRS that settles a tax debt for a fraction of what is owed. This program is, in essence, a fresh start. See more. How this works is the IRS looks at a taxpayer’s ability to pay their taxes, based on their assets, current income and living expenses, and future earning potential in deciding how much they will accept as a tax settlement. The federal government, on the other hand allows it through the IRS. This has been a long-standing offer-in-compromise program for individual taxpayers in appropriate cases. See more.

Michigan Shoots Down Amendments

As stated above, Michigan’s State Constitution prohibits settlements on debts owed to the State. Currently, there is no procedure for individual taxpayers to resolve Michigan tax liabilities for less than the full amount of the tax due. Over 40 other states provide this type of system. So, why not Michigan? There have been many attempts to amend this rule, but none have been successful. The state will not reduce the amount of any delinquent tax, and refuses any offers. The statute actually makes it illegal for anyone to reduce the amount of interest due on delinquent taxes owed the State of Michigan. The State Bar of Michigan Taxation Section approved the public policy position in support of an offer-in-compromise program for Michigan taxes in 2005 at the regular meeting of the Council. But, as it is hard to get an amendment passed, it failed. It was further resolved that the Chairman of the State and Local Tax Committee, the Chairman of the Practice and Procedure Committee, and the Legislation and Public Policy Liaison of the Council should draft proposed legislation to establish an offer-in-compromise program in Michigan, with assistance from other members of the Council and the Section so it can be submitted to the State Legislature for consideration. There is an exception for voluntary disclosure agreements, however, are intended primarily for out-of-state businesses with Michigan tax filing obligations. It is imperative that action is taken to further the process for a Michigan offer-in-compromise program, for the sake of our state’s economy.

What the Michigan Offer in Compromise would do…

While there have been many attempts at an offer-in-compromise program for Michigan, none have been successful. It’s necessary that we have one in order to move forward in collecting at least some amount of debts. Some is definitely better than none. Tax liabilities often go uncollected in Michigan. With an offer-in-compromise program in place, an opportunity would arise to recover a portion of tax liabilities that would otherwise go uncollected. This would add to the total amount of tax collected– in total and annually. Hence, adding to tax revenue. Win-win. There is no reason why Michigan shouldn’t have one. It would first, bring in uncollectable money and bring individuals and companies out of ‘hiding.’ This would give an option to those suffering to pay their debts. Some families are barely managing to get by, and often levies are imposed on wages, inflicting financial and emotional harm on people. Under this program, delinquent taxpayers would voluntarily disclose their tax delinquencies in effort to find a resolution. The system should be consistent and transparent. This would ensure fairness to all taxpayers. Since Michigan doesn’t have an Offer in Compromise program, delinquent taxpayers unable to pay in full have no incentive to pay anything, since voluntary payments automatically extend the statute of limitations on collecting the tax debt by another six years. Rather than encouraging taxpayers to stay out of compliance, Michigan should be offering a system to bring them into compliance. By doing this, the Department of Treasury would see an increase in collections, either through the offer program in Michigan or through increased amounts of installment agreements. In order for Michigan to boost our economy, which we desperately need, many things need to come into play. This would definitely be a step forward. The state would be collecting a reasonable amount of money rather than nothing at all. If you owe back taxes to the State of Michigan and would like to know more about how we can help you, please give us a call or send us an e-mail.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.