New York State Offer in Compromise Program

Offer in Compromise Program

The New York State Offer in Compromise Program allows qualifying, financially distressed taxpayers the opportunity to putoverwhelming tax liabilities behind them by paying a reasonableamount in compromise.

The Tax Department will not necessarily,however, accept every offer in compromise (also referred to asoffer throughout this publication).The Commissioner of Taxation and Finance is empowered tocompromise taxes for qualifying taxpayers under Tax Lawsections 171.15th, for liabilities considered fixed and final;171.18th-a, for liabilities still subject to administrative review;and 171.18th-d, for certain joint personal income tax liabilities.Under section 171.15th, if the tax portion of the liability is morethan $100,000 (not including penalties and interest),compromises must be approved by a New York State SupremeCourt justice. Other standards set forth in the Tax Law, andrequirements in Parts 5000 and 5005 of the New York StateOfficial Compilation of Codes, Rules, and Regulations(NYCRR), are described below.In most cases, to be eligible for an offer in compromise,taxpayers must be insolvent (liabilities exceed assets), and theTax Department’s ability to collect more than the amount offeredmust be in doubt. In addition, taxpayers making an offer musthave filed all applicable New York State tax returns.The taxpayer should make a reasonable monetary offer basedon his or her financial situation. If an offer is withdrawn orrejected, any money sent in by the taxpayer with the offer incompromise will be promptly refunded without interest or, atthe taxpayer’s request, applied to the tax liability. In addition,collection activities may continue while an offer is under review.InsolvencyA taxpayer is considered insolvent when the taxpayer’sliabilities, including tax liabilities, exceed the fair market value ofhis or her assets.The taxpayer must conclusively demonstratethis insolvency.

Collectibility

The department, after an evaluation, determines an amount thatit realistically expects could be collected within a reasonableperiod of time from the taxpayer’s assets.The amountacceptable in compromise cannot be less than what could beexpected to be collected from the taxpayer over that periodthrough legal proceedings, such as levies, income executions,and seizures.Offer in compromise formsForm DTF-4, Offer in Compromise, or DTF-4.1, Offer inCompromise – Fully Determined Liability, must be filed torequest an offer in compromise.A completed Form DTF-5, Statement of Financial Condition andOther Information, must be submitted with the last three yearsof federal income tax returns, a credit report less than 30 daysold, the last 12 months of bank statements, and Form DTF-4 orDTF-4.1 to:NYS TAX DEPARTMENTOIC PROGRAMPO BOX 5100ALBANY NY 12205-0100Offers in compromise when the liabilities areconsidered fixed and final (Tax Law section 171.15th)Offers under this subdivision apply to tax liabilities for whichfurther administrative or judicial review is not available.Therefore, the primary consideration is collectibility. An offerwould be considered if the taxpayer has been discharged frombankruptcy within the last year or is shown to be insolvent.Theamount accepted cannot be less than what could realistically beexpected to be collected from the taxpayer through legalproceedings.Offers in compromise when the liabilities are stillsubject to administrative review (Tax Lawsection 171.18th-a)Offers under this subdivision apply to tax liabilities that are stillsubject to administrative review, and are not fixed and final. Theoffer may be based on doubt as to the taxpayer’s liability for thetaxes due, or doubt as to the taxpayer’s ability to pay the taxesdue, in full, over a reasonable period.Trust tax liabilitiesFor trust tax liabilities (e.g., withholding tax, sales tax), anamount less than the tax amount owed, exclusive of penaltiesand interest, will not normally be accepted. However, uponevaluation of the facts of the specific case, the department maydetermine that a lesser amount is acceptable if it is in the bestinterest of all parties concerned.The department considerswhether the business is still in operation, and whether the trusttaxes were actually collected.Joint income tax liabilitiesFor joint income tax liabilities, the taxpayers may file an offerjointly on one Form DTF-4 or DTF-4.1, or may each file aseparate offer. If only one taxpayer’s offer is accepted and paid,the remaining taxpayer continues to be liable for the outstandingbalance of the liability. An accepted offer forgives furtherpayment only for the taxpayer whose offer was accepted.Responsible personA taxpayer assessed as a responsible person liable for thecollection and payment of trust taxes for a business maycompromise his or her trust tax liability separately from thebusiness. Any or all of the responsible persons may apply for anindividual offer in compromise.The department will make aseparate determination on each offer, based on thecircumstances of each responsible person who applies. If theoffer is accepted, the payments made toward the offer willreduce the business’s liability by that same amount. While thetaxpayer’s responsible person assessments are abated upon fullpayment of the accepted offer, the business’s assessments andthe assessments of any other responsible person will remainopen and collectible, less all payments made under the offer.If a business applies for an offer in compromise and theresponsible persons do not apply individually, acceptance of the
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Internet access:www.nystax.govAccess our Answer Center for answers tofrequently-asked questions; check your refund status;check your estimated tax account; download forms,publications; get tax updates and other information.Fax-on-demand forms: Forms areavailable 24 hours a day,7 days a week.1 800 748-3676Telephone assistance is available from 8:00 A.M.to 5:00 P.M.(eastern time), Monday through Friday.Refund status:1 800 443-3200(Automated service for refund status is available24 hours a day, 7 days a week.)To order forms and publications:1 800 462-8100Personal Income Tax Information Center:1 800 225-5829From areas outside the U.S. and outside Canada:(518) 485-6800Hearing and speech impaired: (telecommunications device for the deaf(TDD) callers only): 1 800 634-2110 (8:00 A.M. to 5:00 P.M., eastern time).Persons with disabilities: In compliance with theAmericans with Disabilities Act, we will ensure that ourlobbies, offices, meeting rooms, and other facilities areaccessible to persons with disabilities. If you havequestions about special accommodations for persons with disabilities,please call 1 800 225-5829.Need help?business’s offer would have no effect on a responsible person’sliability other than reducing his or her individual liability by anamount equal to that paid by the business.Offers in compromise when the liabilities concerncertain joint personal income tax liabilities(Tax Law section 171.18th-d)To qualify for an offer under this subdivision, a taxpayer musthave a liability on a previously filed joint income tax return and,at the time of the offer, the taxpayer and his or her spouse mustbe separated under a decree of divorce or separatemaintenance or a written separation agreement, or a judicialdecree of separation, or living apart and not considered marriedunder section 7703(b) of the Internal Revenue Code. It mustalso be determined that the collection of the spouse’s share ofthe liability from the taxpayer cannot be accomplished within areasonable period without imposing substantial economichardship on the taxpayer.Offer in compromise withdrawalThe taxpayer or the taxpayer’s representative may withdraw anoffer before an official review has been completed and before afinal decision has been made on the offer. In some cases, suchas when a taxpayer fails to supply requested information, thedepartment considers the offer to be withdrawn as incompleteand advises the taxpayer in writing of the decision.Offer in compromise acceptanceUpon acceptance of an offer, written notification will beprovided to the taxpayer or the taxpayer’s designatedrepresentative specifying the terms and conditions. Under theterms of the accepted offer, the taxpayer agrees to remainfully compliant with all Tax Law requirements, including filingreturns and paying tax when required for the next five years.Any state tax refunds payable to the taxpayer for periodsprior to and including the calendar year in which the offer isaccepted will be applied to the original outstanding liability.Any excess will be refunded to the taxpayer.Offer in compromise rejectionWritten notification is provided if an offer is rejected.Examples of reasons for rejection include, but are not limitedto:• The taxpayer does not meet the statutory requirements setforth in the New York State Tax Law.• The taxpayer submits false or misleading information.• The taxpayer submits a frivolous offer.• The taxpayer fails to make full financial disclosure.• There is evidence that assets were transferred for less thanthe fair market value.• The taxpayer shows a lack of a good faith effort to repaythe liability.• The tax liability sought to be compromised directly relatesto a crime for which the taxpayer has pleaded or beenfound guilty.Publication 220 (6/04) (back)Depending on the circumstances, the department mayreconsider a rejected offer if there is a material change in thetaxpayer’s circumstances, if the department misinterpretedinformation contained in the original offer, or if the taxpayeroffers a substantial increase in the amount that was originallyoffered.Defaulted offersIf a taxpayer fails to abide by all of the terms and conditions ofthe offer in compromise, the offer is in default. Upon default andrevocation, the original liability is reinstated, including allappropriate penalty and interest, minus any payments receivedon the offer.Offers made to the Internal Revenue ServiceThe New York State Offer in Compromise Program is distinctfrom similar programs offered by the federal government. Forexample, the guidelines for the acceptance of offers differ.However, the department will accept a copy of the federal offerin compromise collection information statement as part of theapplication process.If you have questions about the NewYork State Offer inCompromise Program, please call (518) 457-9086 from8:00 a.m. to 4:25 p.m. (eastern time), Monday through Friday.For forms and other information, see Need help? below.