If you owe back taxes to New York State, an Offer in Compromise (OIC) may help you settle your debt for less than the amount owed if you qualify. Generally, taxpayers apply by mail, but starting October 2019, the State now allows certain taxpayers to take advantage of its online application process.
Qualifying for an OIC
The OIC program applies to:
- individuals and businesses that are insolvent or discharged in bankruptcy, and
- individuals who are not insolvent or bankrupt, if payment in full would create undue economic hardship. (Only individuals may apply for relief based on undue economic hardship, which may include relief from business debts they’re personally responsible for.)
Generally, undue economic hardship occurs when you are unable to pay reasonable basic living expenses. The State will consider your unique circumstances in determining your ability to pay.
Applying for an OIC
While anyone can apply by mail, the online application process only applies if:
- you are an individual,
- your debt is for personal income tax only,
- you do not have an open formal protest for any of your liabilities,
- you do not have an open bankruptcy, and
- the total amount you owe the department is $10,000 or less.
Since the State is settling for less than the full amount due, the Offer in Compromise process is thorough and often document-intensive. You will be asked for proof regarding your assets, liabilities, monthly income, and monthly expenses. Remember that the State will be looking at your basic living expenses, which include only expenses that provide for the health, welfare, and production of income for you or your family. These do not include costs related to maintaining an affluent lifestyle.
An experienced tax attorney can help you assess whether you qualify for an OIC, present a strong case to the State tax department for settlement, and advise you on other options if you do not qualify.
For more information on New York State Offers in Compromise, visit the Department of Taxation and Finance website or contact us for a consultation.