New York State Tax Laws and Regulations,Regulation,New York,Reg. Sec. 5005.1,Offers in Compromise of Fixed and Final Tax Liabilities (Tax Law, Sec. 171)
PRACTICE AND PROCEDURE—REGULATIONS, Title 20 Taxation and Finance, Chapter XIII Compromises, Part 5005 Compromises Under Subdivision Fifteenth of Section 171 of the Tax Law
“General.” Section 171 subdivision fifteenth, of the Tax Law allows for offers for any taxes or any warrant or judgment of taxes administered by the Commissioner of Taxation and Finance. Under section 171, subdivision fifteenth, an may only be made where the tax liability has been finally fixed and where the taxpayer has exhausted the taxpayer's protest rights.
“Grounds for compromise.”
A compromise under this section may only be made where the taxpayer has been discharged in bankruptcy or shown, by proof, to be insolvent. The amount acceptable in compromise cannot be less than the amount the Department of Taxation and Finance could collect through legal proceedings. An offer cannot be accepted because of hardship or any other issue which does not have a direct bearing on the department's legal ability to collect from the taxpayer. In the case of “trust tax liabilities” (“e.g.”, withholding or sales, but not use, taxes), an amount less than the tax, exclusive of penalties and interest, would not normally be acceptable. If, however, upon consideration of all factors, it is apparent that accepting an offer would be in the best interests of all parties, an offer may be accepted for an amount less than the tax as long as the amount offered reasonably reflects collection potential. In addition, with respect to “trust tax liabilities”, a responsible person of the taxpayer may make an offer to compromise such person's liability. A separate appraisal will be made of the ability of such responsible person to pay in determining if an individual offer should be accepted. Acceptance of an offer from one responsible person with respect to “trust tax liabilities” will not relieve any remaining responsible persons—nor the entity itself—from any outstanding balance due on the total liability.
For purposes of paragraph (1) of this subdivision, a taxpayer is “insolvent” where the taxpayer's liabilities exceed the fair market value of the taxpayer's assets. In determining the taxpayer's liabilities, all liabilities will be included, including the amount of the taxpayer's tax debt.
As provided in paragraph (1) of this subdivision, the amount to be offered in compromise must equal or exceed the amount the department would be able to collect, over a period of time, through legal proceedings. Therefore, when evaluating an offer , the department will consider the legal collection proceedings available to it. Under the Tax Law, where a taxpayer has failed to pay the taxpayer's outstanding tax liabilities, the department may file a tax warrant against the taxpayer with the Department of State and in the appropriate County Clerk's Office. A filed tax warrant is entered in the judgment docket and secures the State of as a lienholder of the taxpayer's personal and real property, and empowers the department to use the collection procedures set forth in article 52 of the Civil Practice Law and Rules relating to enforcement of money judgments. These collection procedures may result in, for example, the seizure and sale of the taxpayer's real and personal property, including but not limited to, seizure of money from the taxpayer's bank accounts and seizure of any motor vehicles which the taxpayer may own, or a levy against money that a third party owes the taxpayer, such as a loan or rent owed to the taxpayer. In addition, the department may issue an income execution against the wages of the taxpayer. Under an income execution, the department generally may take up to 10% of the taxpayer's gross wages to satisfy the tax liability.
“Submission of an offer.”
An offer must be filed on forms prescribed by the Commissioner of Taxation and Finance for such purpose at the address prescribed in the forms. The forms are available from the Commissioner of Taxation and Finance, or from such person as may be designated by the commissioner, upon request. An should generally be accompanied by a remittance representing the amount of the compromise offer or a deposit if the offer provides for future installments (see paragraph (d)(2) of this section). The compromise offer must be in addition to the total amounts previously paid, or collected, against the tax liability being compromised, if any. If the final payment on an accepted offer is contingent upon the immediate or simultaneous release of a tax lien in whole or in part, such payment must be in cash, or remitted by means, acceptable to the Department of Taxation and Finance, that assures unconditional and final payment, such as certified check, bank check or postal money order. (See paragraph (e)(3) of this section for a refund of remittance where an is not accepted.)
As a condition to accepting an offer , a taxpayer must submit a statement of financial condition and other information on the forms prescribed by the department for such purpose. Although current financial statements, which have been examined and upon which an opinion has been expressed by an independent licensed public accountant or an independent certified public accountant pursuant to an audit conducted by such accountant, will generally not be required, in some circumstances a taxpayer may be required to submit such statements. The statement of financial condition, and any other information submitted to support an , becomes the property of the department and cannot be returned to the taxpayer. The department may also require, as a condition of approval of an offer:
a signed agreement wherein the taxpayer agrees to pay over a fixed percentage of the taxpayer's future earnings or other income for a specific period of time;
where an offer is to be satisfied through periodic payments as provided in paragraph (3) of subdivision (d) of this section, collateral or other security pledged over the life of the installment payments; or
agrees that the Commissioner shall keep all payments, funds collected and other credits made to the liability for the periods covered by the offer, and all amounts to which the taxpayer may be entitled under the Tax Law, due through overpayments of any tax or other liability, including interest and penalties, for periods ending before or within or as of the end of the calendar year in which the offer is accepted (and which are not in excess of the difference between the liability sought to be compromised and the amount offered);
agrees to immediately return to the department any refunds of overpayments referred to in subparagraph (i) of this paragraph received by the taxpayer after the taxpayer's offer was filed;
agrees to not contest in court or otherwise, the amount of the liability sought to be compromised;
waives the running of the statutory period of limitations on collection of the tax liability involved for; the period during which the offer is pending; the period during which any installment remains unpaid; and for one year thereafter;
The taxpayer must make a good faith offer. Generally, taking into account the reason for denial, once an offer has been denied, another offer may be reconsidered only upon a showing of a material change in circumstances or if there is a meaningful increase in the offer. Additionally, the department may reconsider an offer that was previously denied due to a misinterpretation or a misunderstanding on the part of the department of the information contained in such offer. The Tax Compliance Division will work, to the extent possible, with the taxpayer to try to effectuate a compromise likely to be accepted by the Commissioner.
“Review of an offer.”
The commissioner, or such person as may be designated by the commissioner, will accept or reject the offer and the department will promptly notify the taxpayer in writing of such action.
Where the tax amount (exclusive of penalty and interest) to be compromised is more than $100,000, the offer accepted by the commissioner, or such person as may be designated by the commissioner, must be referred to a justice of the Supreme Court for approval prior to notification of acceptance by the commissioner, or such person as may be designated by the commissioner. Such an offer is not effective until approved by a justice of the Supreme Court.
Generally, within 60 days of notification of final approval of an offer, full payment of the compromised amounts must be made to the department. However, where a taxpayer can demonstrate the need for periodic payments over a period of time, the department has the authority to grant a reasonable period of time for repayment of an offer not to exceed two years. Where special circumstances are demonstrated, the two-year period may be extended at the discretion of the commissioner or such person as may be designated by the commissioner. In the case of periodic payments, interest will be due at the annual rate established under the Tax Law on any deferred amounts of the offer from the date of notice of acceptance until the offer is paid in full.
“Withdrawal or rejection.”
An offer may be withdrawn by the taxpayer making the offer at any time prior to its acceptance. Further, the department may hold an offer made by the taxpayer in abeyance if the application and any other required information/documentation are not complete. In such a case, the taxpayer will ordinarily have 30 days after notification from the department in which to submit the information required to complete the application and/or any other forms, unless the taxpayer can demonstrate to the satisfaction of the department that more time will be needed. If the required information is not timely submitted to the department, the will be deemed to be formally withdrawn.
failure to meet the statutory requirements (“e.g.”, the taxpayer has not been discharged in bankruptcy or is not insolvent and/or the department can collect more through legal proceedings than the amount being offered in compromise);
making a frivolous offer or filing an offer for the purpose of delaying the collection of tax liabilities;
failure to make full financial disclosure (“e.g.”, not fully disclosing all assets or income);
where the taxpayer has not demonstrated a good faith effort to repay/resolve the tax debt (“i.e.”, where the taxpayer has displayed a wanton disregard for the tax debt over an extended period of time and disposed of significant assets and other holdings); or
Receiving acceptance of an offer is a privilege, not a right, available to financially distressed taxpayers in order to put overwhelming tax liabilities behind them. In the event an offer is rejected, the taxpayer making the offer shall be promptly notified in writing. If an is withdrawn or rejected, the amount tendered with the offer shall be refunded without interest, unless the taxpayer has stated or agreed that the amount tendered may be applied to the liability with respect to which the offer was filed.
“Defaults.” Where a taxpayer does not comply with the conditions of the taxpayer's offer (including any requirements with respect to collateral agreements) as accepted by the department, or where there is evidence of a substantial misrepresentation of a material fact subsequent to the acceptance of the offer by the department, the department may reimpose the full tax liability (including all applicable interest and penalties), apply all amounts previously deposited under the offer against the amount of the liability sought to be compromised, and proceed to collect the balance of the original liability.
(Adopted June 30, 1999; amended October 5, 2005.)
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