Falling behind on your New York State taxes is all too easy when you’re struggling with federal taxes, other financial obligations, and the stress that comes with dealing with tax authorities. However, failing to take care of your New York State taxes can lead to tax warrants, loss of income, seized assets, loss of your license, and more.
The sooner you can address your tax debt, the sooner you can get the peace of mind that comes with knowing you are up-to-date on your taxes. Whether you owe business or individual taxes, you may want to look into New York’s offer in compromise program. Qualifying taxpayers can use this program to settle their tax debt for less than they owe.
Contact the Law Offices of Stephen B. Kass at 212-843-0050 for help with your NYS offer in compromise.
Key Takeaways
- A taxpayer may apply for a NY offer in compromise due to doubt as to liability or doubt as to collectibility.
- Doubt of liability is when there is a legitimate doubt that the tax is due.
- If there is doubt as to collectibility, the taxpayer must be bankrupt, insolvent, or in a financial situation where payment in full would cause undue economic hardship.
- You have to provide substantial financial documentation to qualify for an offer in compromise based on doubt as to collectibility.
- New York State requires five full years of tax compliance after an accepted offer in compromise.
What is an NYS Offer in Compromise?
New York’s offer in compromise program offers relief to taxpayers whose financial circumstances leave them unable to pay their tax debt in full and to taxpayers who may not actually be liable for the amount on their bill.
If a taxpayer’s offer in compromise application is approved, they will pay a smaller amount than they owe to settle the tax debt in full.
Reasons to Request an OIC
There are two main reasons to request an offer in compromise in New York State.
- You may apply for an offer in compromise if there is doubt as to liability. This only applies if there’s a genuine doubt regarding whether or not the tax debt is your responsibility.
- The more common reason taxpayers request an offer in compromise is doubt as to collectibility. If the Department of Taxation and Finance has reason to believe that what they will reasonably be able to collect from you is lower than what you owe, then they will accept an offer provided you meet the other qualification requirements.
Consider this from the state’s point of view: a taxpayer has $50,000 of tax debt but makes between $10,000 and $20,000 as a freelancer per year, depending on the year. From that amount, they still have to pay their living expenses. The Department knows that they have little chance of recovering the full $50,000, so it makes sense to collect what they can through an offer in compromise settlement.
Financial Standards and Living Expenses
When you apply because there is doubt as to collectibility—which is the more common option—you’ll need to demonstrate that you are financially distressed and that paying your tax debt in full would create undue economic hardship. This includes individuals who are considered personally responsible for business tax debt. Individuals and businesses that are insolvent or bankrupt can also request an offer in compromise.
The Department of Taxation and Finance (DTF) assumes that paying a tax debt would cause undue economic hardship if payment in full would leave you unable to pay your necessary basic living expenses. This includes any expense related to the health of your family, the welfare of your family, and your ability to produce an income. The Department uses IRS Collection Financial Standards to determine which allowable basic living expenses can be used in the calculation of your minimum offer.
While the allowable living expenses portion of this is fairly easy to calculate, the Department does account for other circumstances and factors, including obligations to dependents, age and employment status, long-term illness or condition leaving a taxpayer unable to work, special educational expenses, natural disasters, and an inability to borrow against assets due to hardship.
Although the Department of Taxation and Finance does not want to leave a family unable to cover their basic living expenses, that doesn’t mean that all pre-existing expenses can reduce your minimum offer or your ability to pay. They do not include expenses used to maintain an affluent or luxurious lifestyle. These expenses include private school tuition, college expenses, charitable contributions, voluntary retirement contributions, and credit card payments.
Eligibility Requirements
The Department of Taxation and Finance considers offers in compromise from taxpayers who meet specific criteria. Individual and business taxpayers who have gone through bankruptcy or are insolvent may qualify, as do individuals who would face undue economic hardship if they were to pay in full. However, taxpayers must have filed all required New York State tax returns to qualify.
The amount proposed as a payment must be what the state could reasonably expect to collect from the taxpayers. Of course, that last part is the most complex component—figuring out whether or not your situation could be considered “undue economic hardship” requires an in-depth look at your assets, equity, income, and potential future income. Let the Law Offices of Stephen B. Kass guide you through the eligibility process.
Forms and Documentation Needed
You will need to submit several forms to have your offer considered by the Department of Taxation and Finance:
- Form DTF-4.1 is required if your liability is fixed and final.
- Form DTF-4 is used if your liability is subject to administrative review.
- Form DTF-5 is a full and in-depth look at your financial condition.
- Supporting documents – along with DTF-5, include copies of your last three federal income tax returns, a credit report that is less than 30 days old, your last 12 months of statements from all banks or financial institutions where you have an account, and a statement outlining why paying in full would cause you undue economic hardship (if you are requesting an offer in compromise because of undue economic hardship).
We can work with you to gather and complete all necessary forms.
Offer Amount and Collection Potential
The amount you offer the Department must be greater than your Reasonable Collection Potential. This is similar to the standard used by the IRS. This calculation includes the net realizable equity in assets—how much you could get for your assets if you sold them within the next 90 days—as well as your disposable monthly income for the remainder of the collection period. It’s important to get this calculation right, as offering less than your RCP means that your offer will likely get rejected.
Considerations Before Submitting
Before choosing to move forward with an offer in compromise application, there are several important considerations that may affect your decision. First, applying for an offer in compromise does not lead to an automatic stay of proceedings.
Per New York Code 5000.3 of Title 20, the Department of Taxation and Finance does not stop collection proceedings just because an offer in compromise application was submitted. They may defer collection efforts if doing so will not harm the best interests of the Department.
You will be under strict scrutiny after an accepted offer in compromise, as there are numerous terms and conditions tied to your offer. You must be compliant with all tax laws and regulations for the next five years, which includes filing and paying all tax liabilities on time. If there are any funds the state can use to offset what you owe, they will do so. Any unclaimed funds, tax refunds, and lottery offsets from the years prior to your filing and the year of your filing can be applied to your tax debt. They do not apply to the amount listed in your offer in compromise.
When you choose to request an offer in compromise, you waive statute of limitations defenses against the assessment and collection of the tax debt you are negotiating. You also waive these defenses should you fail to comply with the terms of your offer, resulting in the Department issuing new assessments.
There’s a lot to consider when determining whether or not an offer in compromise is right for you. You can ensure a smooth filing process by working with the Law Offices of Stephen B. Kass.
Submitting Your NYS Offer in Compromise
Upon completing your forms, writing your statement, and gathering your necessary documents, you can mail them to this address:
NYS Tax Department
CED Offer in Compromise Unit
W A Harriman Campus
Albany, NY 12227-5100
You may be able to apply online if you are an individual requesting relief for income tax debt. You must not have any open protests for your tax liabilities, not have an open bankruptcy case, and owe $15,000 or less. If you meet these requirements, you can apply via the Online Services account.
The statement you attach to your documentation should explain why payment in full would cause you undue economic hardship and include any documentation supporting your case.
Common Rejection Reasons
Ideally, the Department of Taxation and Finance will receive your application, approve it, and you’ll have your tax debt settled within a matter of months. However, many applications are rejected, often for one of these reasons:
- You do not meet the qualifications, based on the financial documentation and information provided
- You did not make a full financial disclosure
- There is evidence that you transferred assets after finding out about your tax liability
- You did not show a good-faith effort to repay the liability
- Liability relates to a crime for which you pleaded or were found guilty
- Acceptance of the offer would undermine voluntary tax compliance
- The offer is not in the best interest of the state
You may be able to request a reconsideration of your offer if there is a material change in your circumstances, they misinterpreted the information you supplied, or you significantly increase the amount you offer.
Please note that if you made a payment at the time of your application, that amount will not be returned to you if your offer is rejected. It will simply be applied to your balance.
Applying for an offer in compromise can be complicated, but if you qualify, it can help you settle your tax debt and avoid more aggressive collection efforts. You do have to go through several steps to provide the necessary information and documentation, but doing so may pay off when that lingering tax liability is finally done hanging over you.
Contact the Law Offices of Stephen B. Kass today for professional assistance with your NYS offer in compromise—just call us at 212-843-0050 or reach out online.
Sources:
https://www.tax.ny.gov/enforcement/collections/oic.htm
https://www.tax.ny.gov/enforcement/collections/oic-terms.htm
https://www.tax.ny.gov/pdf/publications/multi/pub220.pdf
https://www.tax.ny.gov/pdf/current_forms/misc/dtf5_fill_in.pdf
https://www.law.cornell.edu/regulations/new-york/20-NYCRR-5000.3
https://www.tax.ny.gov/pdf/rulemaking/nov2513/offers%20in%20compromise/text.pdf
https://regulations.justia.com/states/new-york/title-20/chapter-xiii/part-5005/section-5005-1/
