Examination of a Doubt as to Liability Offer

A doubt as to liability does not exist where the liability for the tax debt has been established by a final decision or judgment of the Michigan Tax Tribunal or a court on the merits.

A. Considering a Doubt as to Liability Offer

1. A taxpayer must submit a completed Form 5181 along with all documentation and information the taxpayer wishes Treasury to consider in reviewing the offer in compromise based on doubt as to liability.
2. A doubt as to liability exists if Treasury concludes, based on its review of the evidence that the taxpayer would have prevailed in a contested case (an evidentiary hearing) if the taxpayer’s appeal rights to contest the existence or amount of the tax liability had not expired. There must be a genuine issue of dispute as to the existence or an amount of tax liability under law.
3. Treasury will consider and weigh the evidence provided by a taxpayer as well as information otherwise available to Treasury to determine whether doubt as to all or part of the liability exists and whether the taxpayer would have prevailed in a contested case had the taxpayer exercised appeal rights.
4. A taxpayer must demonstrate by clear and convincing evidence that the taxpayer would have prevailed in a contested case. In other words, a taxpayer must demonstrate that it is substantially more likely than not that the taxpayer is not liable for all or a portion of the tax liability.
5. An offer in compromise based on doubt as to liability must offer no less than $100.00, even where the taxpayer claims no liability for any of the tax debt. The initial payment is required with the application, Form 5181. The amount offered may not include expected future refunds, funds attached by a levy or any amount paid prior to submission of the offer in compromise.
6. Only tax periods and assessments identified in the taxpayer’s submitted Form 5181 will be considered. Assessments for other tax periods for which tax liability is not in doubt may not be included in the offer in compromise.
7. Treasury will first determine if any compliance issues are present, such as unfiled returns if required or defaulted agreements with Treasury, and if there is evidence that the taxpayer has submitted the offer in compromise solely for the purpose of delaying collection of the tax debt.
8. A determination that an offer in compromise is submitted solely for the purpose of delaying collection is appropriate in the following circumstances:
   1. A taxpayer submits an offer in compromise that is not materially different from a previous offer that was rejected;
   2. A taxpayer submits an offer in compromise within a short period of time after defaulting on an accepted offer in compromise; or
   3. A taxpayer’s presentation and position in support of its claim as to doubt as to liability is clearly frivolous because it is plainly unsupported by facts or law.
9. An examination of an offer in compromise based on doubt as to liability should be conducted in a manner similar to a determination of tax liability through a Treasury audit and through the application of law to the information provided by the taxpayer and otherwise available to Treasury.
10. The Form 5181 and all accompanying documents submitted by the taxpayer will be examined.
11. Conclusions made by Treasury in its evaluation of the offer in compromise for doubt as to liability will be documented and all arguments raised by the taxpayer will be addressed.
12. Treasury personnel must place into the file of each offer in compromise documentation that includes, but is not limited to:
    1. Requests for information/documentation;
    2. Correspondence and communications with the taxpayer and any designated third-party representative;
    3. Results of the evaluation; and d. Decision regarding the offer in compromise.

B. Doubt as to Liability Offer Accepted

1. If an offer in compromise for doubt as to liability is accepted, then the Treasury division assigned to review the offer in compromise based on doubt as to liability will adjust and/or correct the outstanding balance of the tax debt and will notify the Offer in Compromise Section of the acceptance. The Offer in Compromise Section will send a Notice of Acceptance of Offer in Compromise, letter to the taxpayer and any designated third-party representative.
2. If a taxpayer submitted an offer in compromise that was also based on doubt as to collectability, Treasury will evaluate the offer in accordance with the guidelines and standards for doubt as to collectability.
3. If a taxpayer did not submit the offer in compromise based on doubt as to liability based also on doubt as to collectability and cannot fully pay the compromised amount, Treasury may consider payment options, including use of an installment agreement, to permit the taxpayer to pay the compromised amount. However, the tax debt cannot be reduced further unless the taxpayer submits a subsequent offer in compromise based on doubt as to collectability that is accepted by Treasury.
4. Treasury will adjust the outstanding balance of the tax debt and will conduct collection consistent with the terms of an accepted offer in compromise and Treasury’s standard collection procedures.

C. Doubt as to Liability Offer Rejected

1. If a taxpayer’s offer in compromise based on doubt as to liability is rejected, the Treasury division assigned to review the offer in compromise will notify the Offer in Compromise Section of the rejection. The Offer in Compromise Section will send a Notice of Rejection of Offer in Compromise letter to the taxpayer and any designated third-party representative. The rejection letter will state the reasons why Treasury rejected the offer in compromise and that the taxpayer may request an independent administrative review by filing a written request on Request for Independent Administrative Review of Rejected Offer in Compromise (Form 5186) within 30 days after the date of Treasury’s rejection letter.
2. Treasury may initiate collection for the tax debt after issuing the rejection letter. Once a taxpayer submits a written request for independent administrative review of the rejection, Treasury will suspend collection and may not levy against any property or assets to collect the debt while the independent administrative review is pending, unless Treasury determines that the taxpayer’s offer in compromise was solely intended to delay collection of the tax or where Treasury determines the need to issue a jeopardy assessment.
3. If a rejection of the offer in compromise is affirmed by an independent administrative review, Treasury will reinstitute collection after Treasury issues notice affirming the rejection.