OIC Guidelines
Examination of Doubt as to Collectability Offers
A. Considering a Doubt as to Collectability Offer
- A doubt as to collectability exists if a taxpayer establishes both of the following:
- The amount of the offer in compromise payment is the most that can be expected to be paid or collected from the taxpayer’s present assets or income; and
- The taxpayer does not have reasonable prospects of acquiring increased income or assets within a reasonable period of time that would enable the taxpayer to pay more of the tax debt than the amount offered.
- A taxpayer must submit a Form 5181, along with all required documentation and the required initial payment.
- Treasury will investigate the offer in compromise and evaluate whether acceptance is appropriate. Treasury will first determine if there is evidence that the taxpayer submitted the offer in compromise solely for the purposes of delaying collection of the tax debt. Treasury will also determine after a preliminary review of the taxpayer’s submitted financial information whether the taxpayer can clearly pay the tax debt in full. If the taxpayer can clearly pay the tax debt in full or Treasury determined that the taxpayer submitted the offer in compromise solely for the purpose of delaying collection, Treasury will reject the offer in compromise and initiate collection of the tax debt.
- An offer in compromise based on doubt as to collectability is presumed to be submitted solely for the purpose of delaying collection in the following circumstances:
- A taxpayer submits an offer in compromise that is not materially different from a previous offer in compromise that was rejected, and there are no material differences in the taxpayer’s financial situation from that which existed in the previous offer in compromise;
- A taxpayer submits an offer in compromise within a short period of time after defaulting on an accepted offer in compromise and the taxpayer’s financial situation has not materially changed since the offer in compromise was accepted; or
- The taxpayer had been contacted by Treasury collection personnel and informed that Treasury would begin collection of the tax debt through levy or seizure, and the taxpayer’s offer in compromise is clearly frivolous because it is significantly less than the taxpayer’s net worth or household resources, and/or significantly less than the taxpayer’s ability to make future payments.
- Treasury may request from a taxpayer any additional information necessary or useful to evaluate the offer in compromise and to issue a decision of acceptance or rejection.
- Treasury may contact the taxpayer and any designated third-party representative by phone, e-mail, or in writing to request information in order to evaluate the offer in compromise. Treasury will advise the taxpayer and any designated third- party representative of the information required, the deadline date for providing the requested information, and that the offer in compromise may be rejected if the information is not provided by the deadline date. Contacts or attempted contacts, including information requested, must be documented in the file history.
- If a taxpayer or any designated third-party representative does not respond to Treasury’s contacts or attempted contacts, Treasury will send a letter to the taxpayer and the designated third-party representative that lists the information needed, identifies the deadline date for providing the requested information, and states that the offer in compromise may be ineligible if the information is not provided by the deadline date.
- If a taxpayer or any taxpayer’s designated third-party representative requests an extension of time to comply with the request for additional information, a reasonable amount of time may be granted. Generally, a maximum of 30 additional calendar days will be allowed. A request for an extension of more than 30 calendar days will not be granted unless it is supported by specific reasons that justify the extension. However, if it appears that the taxpayer or any designated third-party representative is delaying the progress of the investigation of the offer in compromise or does not meet the deadline, the offer in compromise will be considered ineligible.
- An offer in compromise based on doubt as to collectability must offer no less than $100.00. 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.
- An offer in compromise based on doubt as to collectability must include all unpaid tax liabilities and periods and assessments for which the taxpayer is liable.
- An offer in compromise is effective for the entire assessed liability for tax, penalties, and interest for the periods covered by the offer. All questions of tax debt for the periods covered by an accepted offer in compromise are conclusively settled and are not subject to additional assessment or collection, unless the offer in compromise is revoked or the compromised tax is modified or adjusted as a result of information received from the Internal Revenue Service or as a result of an audit performed by or on behalf of the State of Michigan.
- Whether doubt as to collectability exists will be based on Treasury’s analysis of a taxpayer’s financial condition to determine whether the amount of the payment for the offer in compromise is the most that can be expected to be paid or collected from the taxpayer’s present assets or income and whether the taxpayer does not have reasonable prospects of acquiring increased income or assets within a reasonable period of time that would enable the taxpayer to pay more of the tax debt than the amount offered.
- Treasury will follow, where applicable, the guidelines set forth in Part 5, Chapter 8, Section 5 and Part 5, Chapter 15, Section 1 Financial Analysis Handbook of the Internal Revenue Manual of the Internal Revenue Service and Treasury’s forms, instructions and guidelines in analyzing a taxpayer’s financial condition to determine whether doubt as to collectability exists.
- he basis for each decision should be clearly evident and articulated in the case file documentation and should be supported by the known case facts, circumstances, and supporting documents. Each case will be evaluated on its own set of facts and circumstances. Treasury will follow, where applicable, the guidelines set forth in Part 5, Chapter 8, Section 5 and Part 5, Chapter 15, Section 1 Financial Analysis Handbook of the Internal Revenue Manual of the Internal Revenue Service when analyzing a taxpayer’s financial conditions.
- Treasury will place into the file of each offer in compromise documentation that includes, but is not limited to:
- Requests for information or documentation;
- Correspondence and communications with the taxpayer and any designated third-party representative;
- Results of the evaluation; and
- Decision regarding the offer in compromise.
B. Doubt as to Collectability Offer Accepted
- If a taxpayer’s offer in compromise equals or exceeds Treasury’s determination of a compromise amount that satisfies the standards for doubt as to collectability, then Treasury will send a Notice of Acceptance of Offer in Compromise letter to the taxpayer and any designated third-party representative accepting the offer in compromise. The acceptance letter will state the accepted offer in compromise amount and payment method (e.g., lump sum amount, payment plan).
C. Doubt as to Collectability Offer Amended (Addendum) and/or Rejected
- If Treasury’s analysis shows the taxpayer can fully pay the tax debt by liquidating assets without incurring economic hardship (which for an individual taxpayer is defined as being unable to pay reasonable basic living expenses and which for a business taxpayer is defined as resulting in imminent insolvency) and/or by making installment payments, Treasury may reject the offer in compromise or discuss with the taxpayer withdrawal of the offer in compromise and entry into an alternative plan to pay the tax debt in full
- Based on its analysis of a taxpayer’s financial condition, Treasury may determine an amount different than the offer in compromise amount submitted by the taxpayer that Treasury would consider as an acceptable revised offer in compromise by the taxpayer. In this situation, Treasury may send an Addendum to a Michigan Offer in Compromise to the taxpayer and any designated third-party representative that states the following:
- The amount of a revised offer in compromise that Treasury would consider acceptable;
- The reasons why Treasury’s analysis supports the revised offer in compromise as acceptable; and
- That the taxpayer must notify Treasury by signing and dating the appropriate Addendum to a Michigan Offer in Compromise and returning within 30 calendar days of the date of Treasury’s letter that the taxpayer agrees to and submits Treasury’s determined amount as the taxpayer’s revised offer in compromise, and that if the taxpayer does not do so, it will be deemed as a decision not to submit a revised offer and the taxpayer’s submitted offer in compromise is rejected.
- If Treasury rejects an offer in compromise, it will send a Notice of Rejection of Offer in Compromise letter to the taxpayer and any designated third-party representative. The letter must state that the offer in compromise is rejected, state the reasons for the rejection and that the taxpayer may request an independent administrative review of Treasury’s decision 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 rejection letter. Treasury may initiate collection activities after issuing the rejection letter. Once a taxpayer files a written request for independent administrative review, Treasury must suspend collection and may not levy against any property or assets to collect the tax 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 Treasury determines the need to issue a jeopardy assessment.