OFFER IN COMPROMISE INSTRUCTIONS
Generally.
The State Tax Assessor has the
authority under 36 MRSA §143 to settle (compromise) any tax
liability owed to the State of Maine. While anyone with an
existing tax debt may submit an offer in compromise of that
debt, the Assessor’s authority is wholly discretionary; no
taxpayer has a right to settle a state
tax debt. A settlement must be grounded upon doubt as to
liability, doubt as to collectibility or both. Please note the
following:
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“Tax liability” means all of
the tax, interest, and penalties owed by the taxpayer. In
some cases, it may also include certain fees and costs.
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“Doubt as to liability” means
there is reasonable doubt that you legally owe all of the
tax liability that has been assessed, based upon the facts
and circumstances of the specific case.
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“Doubt as to collectibility”
means there is doubt that you are able to pay the debt in
the foreseeable future; or the risk that the debt will
become uncollectible is sufficient to warrant acceptance of
less than the full amount owed.
Requirements for submitting an
offer.
The following requirements must be
met before your offer will receive consideration:
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You must generally have filed
all tax returns due, or show why the returns do not need to
be filed. This includes both individual income tax returns
and all business-related tax returns for which you are
responsible.
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A settlement offer based
wholly or partly on doubt as to liability requires a
detailed explanation and should be accompanied by documents
supporting your case. Remember that the essence of doubt as
to liability is that under the relevant law, there is at
least a reasonable argument that you don’t owe either all or
part of the assessed tax.
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An offer based wholly or
partly on doubt as to collectibility requires a complete and
accurate personal financial statement. If you own or control
a business, you may be required to submit financial
statements for your business as well. Your statements must
identify all of your income and all assets and liabilities.
A financial statement later determined to be false in any
material way may result in charges of perjury and may cause
the agreement to be set aside and the debt reinstated.
The State Tax Assessor will never
settle a tax liability if the assessor finds that the taxpayer
has acted with intent to defraud. Frivolous offers and offers
submitted to delay collection of tax will be rejected
immediately.
Factors considered.
The State Tax Assessor considers
many factors in determining whether or not to accept an offer in
compromise. Each case is evaluated on its own merits; Maine
Revenue Services (MRS) does not employ a formula in considering
offers. In one case a payment offer of 20% of the tax debt may
be deemed acceptable, while in another payment of 50% may be
considered in the State’s best interests, and in yet a third,
MRS may not settle for less than payment of all tax principal,
together with some or all accrued interest – or may decide not
to compromise the debt at all. When determining whether to
accept a compromise offer based wholly or partly on doubt as to
liability, the following factors will be considered:
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The likelihood of the State
prevailing on the issue were it to be litigated;
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Any ambiguity in the
applicable laws or rules, as demonstrated by both the laws
and rules themselves and the common interpretation and
application of the same among tax practitioners and/or
similarly-situated taxpayers; and
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Whether tax was collected but
not remitted to the State by the taxpayer.
In addition, the following factors
are important:
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Repeated non-compliance or
attempts to avoid paying a tax obligation over time;
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Evidence that the taxpayer has
the ability to pay the tax in full or to pay significantly
more than the amount offered, either by liquidating assets,
including pension funds, or by means of a payment agreement
over a reasonable period of time;
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The potential for an increase
in the taxpayer’s earnings, the value of their assets or a
decrease in expenses or the value of liabilities,
particularly when collection activity has been pursued for
only a limited period of time;
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The omission of information
about assets or income on present or previously-submitted
financial statements, or a failure to respond to requests to
clarify or document information on the financial statement;
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Prior attempts by MRS to
collect the tax. Generally, the longer and more thorough the
history of collection activity by MRS, the more likely the
collectibility of the account will be considered doubtful.
Where to send the offer:
Mail the offer to the address
noted below. You may attach a check payable to the Treasurer,
State of Maine, together with any supporting documents.
Maine Revenue Services
Compliance Division
PO Box 9113
Augusta, ME 04332-9113
If you know the name of the
examiner or agent handling your case, please include his/her
name in the lower left hand corner of the envelope.
Collection actions.
Merely submitting an offer will
not stop ongoing collection operations. If your offer is based
on doubt as to liability, you may request that collection
operations be suspended while the offer is being considered, but
the Assessor is not required to honor your request.
Acceptance or rejection. MRS may
accept your offer as presented, may make a counteroffer of an
acceptable amount or may reject your offer without explanation.
A decision to reject your offer is not subject to administrative
or judicial review under 36 MRSA §151. Generally, you will be
notified of the decision by mail.
If an agreement is reached, MRS
will prepare a written agreement for your signature. When the
agreement has been signed and returned, it will be authenticated
on behalf of the State Tax Assessor and a copy provided for your
permanent records. Keep the copy in a safe place along with
evidence of payment.
Interim billing.
You will remain responsible for
the entire tax liability until all terms and conditions of the
agreement have been met. MRS will not alter its records and
normal billing will continue during the time your offer is under
consideration and completion of the terms and conditions is
pending.
Form and amount of offer. The
offer should be submitted in the form of a letter detailing what
you are offering and why you believe that acceptance of the
offer is in the best interest of the State of Maine . Include
the following in your letter:
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The exact amount offered and
any proposed terms or conditions associated with your offer.
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If your offer is based on
doubt as to liability, include a detailed explanation of why
doubt exists and attach any available documents that show
that you do not owe the amount assessed.
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If your offer is based partly
or wholly on doubt as to collectibility, attach complete and
accurate financial statements. Personal financial statements
include the requirements that you attach a copy of your most
recent federal income tax return and, unless you are
self-employed, copies of two recent pay vouchers.
Upon request, MRS will provide you
with a detailed breakdown showing how much you owe by account
and period. Further, a list of unfiled returns will be provided
for all known accounts.
Payment.
The preferred method of payment
for any offer is a single payment in cash, certified or bank
check or money order within 30 days of reaching an agreement to
compromise a tax liability. When necessary, the terms of your
offer may include installment payments over a specific period of
time. Your ability to pay the debt will govern whether
installment payments are acceptable.
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Refunds, state or federal,
will be offset against state tax debts. A refund received or
setoff before completion of the terms and conditions of the
agreement will not be counted towards the agreement amount
unless specifically included in the agreement. Generally, to
be included in the agreement, you must provide evidence of
the amount of any expected refund.
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Installment payments received
prior to submission of the offer or while the offer is being
considered may not be counted against the agreement amount
unless specifically included in the agreement. Similarly,
payments received from levies issued prior to receipt of
your offer and received after the agreement has been reached
will not be applied against the agreement amount unless
specifically included in the agreement. MRS will not collect
more than the full amount of tax, interest and penalty that
is owed.
Responsible individuals and
business successors.
In some cases an individual
taxpayer may be assessed as a “responsible individual” for the
tax debts of a corporation, partnership or other business
entity. A person who has purchased a business that owes state
withholding and sales taxes may also be assessed for some or all
of those taxes if the buyer has failed to set aside money from
the purchase price. In some cases, more than one person will be
held responsible for the same debts and collection steps may be
taken against them jointly and severally. Your offer will
normally be construed to relate only to your own individual
responsibility for the tax debt. If an agreement is reached in
which an amount of the “responsible individual” debt remains
after the terms and conditions have been completed, MRS may
continue collection action against the other responsible
individuals in order to recover the remainder of the debt. If
you intend that your offer satisfy the debt for all responsible
individuals, you must clearly state that as a condition of your
offer. If acceptable to the State, this condition will be
included in the agreement prepared for your signature.
Liens. Liens filed in registries
of deeds or with the Maine Secretary of State will not be
released until all conditions of the agreement have been met. If
you need the liens released immediately upon payment, make the
payment by bank check and request copies of the lien releases be
sent to you.
Bankruptcy.
If you are the debtor in a Chapter
7 bankruptcy proceeding, MRS generally will not consider an
offer in compromise until you have received a discharge from the
Bankruptcy Court. If you are in a Chapter 13 or Chapter 11 case
and want to submit an offer in compromise, the matter will be
referred to the MRS General Counsel.
Conclusively settled.
Upon acceptance by the State Tax
Assessor, your liability will be conclusively settled and
neither you nor MRS may reopen the case unless there has been
falsification or concealment of assets on your part or there has
been a mutual mistake of a material fact. The State Tax Assessor
has discretionary authority to reopen the case if justice
requires.
Default.
If you default on the agreement,
you will be held responsible for the full amount of your tax
liability including any additional interest or penalty accruals.
Upon default, any payments made will be applied against your
original tax liability and enforced collection measures may be
used, without further warning, to collect the balance of the
debt.
Hypothetical Examples.
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Example 1: John has a history
of repeatedly failing to file his tax returns, being audited
and paying up only after the audit. This time, John submits
an offer in compromise instead of paying the bill in full.
The offer may be rejected if John’s compliance history
indicates he will continue his historical pattern.
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Example 2: Jane has rebuffed
all collection efforts until a notice of intent to revoke
her seller’s certificate is delivered to her business. Jane
files an offer in compromise proposing to pay part of the
amount owed two years after acceptance in full settlement of
the liability. This offer may be rejected as another attempt
to avoid payment of the taxes due.
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Example 3: Mike is the owner
and manager of Mike’s Pub. Upon being assessed by the state
as a responsible person for the unpaid sales and withholding
taxes, he transfers title to his house to his wife for
nominal consideration; he doesn’t appeal the assessment but
ultimately submits an offer in compromise, and doesn’t list
the house as an asset. This offer may be rejected based on
the apparent attempt to place assets beyond the State’s
reach.
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Example 4: Paul has a
retirement account worth $1,000,000 which is protected from
his creditors but from which he is receiving monthly
payments. He has the ability to withdraw funds if he chooses
to pay his $50,000 tax bill. He proposes to make an offer in
compromise using funds received on a monthly basis from his
retirement plan although he could pay in full by making a
withdrawal. This offer is likely to be rejected based on his
ability to pay in full.
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Example 5: Helen has minimal
assets but has a job that currently pays her $6,000 per
month with the potential for her to earn more. Her normal
living expenses are $3,500 although she is also paying
$2,500 per month for the remainder of the year to settle a
Federal tax obligation. Helen’s offer in compromise on her
$50,000 tax bill is likely to be rejected, as she could make
a payment agreement that would allow her to pay in full
fairly quickly once her IRS obligation is met.
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Example 6: Judy was the
general manager and responsible officer for XYZ Inc., which
has just been forced into Chapter 7 Bankruptcy. Judy is
personally responsible for some unpaid sales and withholding
taxes. She is also liable, as a guarantor, for most of XYZ’s
bank debt and the bank has a lien on her home to secure
this. An offer in compromise submitted by Judy at this point
may be rejected as premature because of the difficulty in
evaluating what her earnings will be over the next several
years and the difficulty in evaluating the value of her
assets until the corporate bankruptcy is completed.
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Example 7: Heather submitted
an offer in compromise failing to disclose her ownership of
an expensive sports car. MRS discovered this during an
investigation of her financial status and her offer was
rejected. Heather files a new, increased, offer with a new
financial statement that does list the automobile. This new
offer may be rejected because of the prior deliberate
omission; the State Tax Assessor must be able to rely on the
information provided.
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Example 8: James submitted a
financial statement, which listed monthly expenses of $3,700
and monthly income of $1,900 from his business and $1,800 in
gifts from friends and relatives. When asked to document the
monthly gifts, James failed to do so other than to reiterate
that every month he did receive $1,800 from unnamed sources.
James’s offer in compromise may be rejected due to
unresolved doubts about the accuracy of the information he
has submitted.
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Example 9: Sarah files for
Chapter 7 and submits an offer in compromise. The offer will
be rejected. Sarah may submit a new offer in compromise
after the bankruptcy is completed. Sarah’s ability to pay
the taxes may be increased by the discharge of her other
liabilities.
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Example 10: ABC Sports Cards
has been collecting but not paying over the sales tax for 2
years. They finally file delinquent returns along with an
offer in compromise proposing to pay only 25% of the amount
collected. Due to the nature of the tax, this offer may be
rejected as not being in the best interest of the State of
Maine.
Use the following address for
Rapid Delivery: For Express Mail, Courier and Package Delivery
Services:
Maine Revenue Services
Compliance Division (Cummings)
26 Edison Drive
Augusta , ME 04330
CONTACT:
TELEPHONE: (207) 624-9595
FAX:(207) 287-6627
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