Examination of Offers Based on Grant by the IRS of Federal Compromise

A. Considering an Offer in Compromise Based on Grant of a Federal Offer in Compromise

1. A taxpayer may submit an offer in compromise of a tax debt if the taxpayer was granted a federal compromise of tax under section 7122 of the Internal Revenue Code for the same tax periods. Treasury may accept a taxpayer’s offer in compromise on this basis if the taxpayer has otherwise satisfied all of the conditions necessary to submit an offer in compromise under section 23a of the Revenue Act, MCL 205.23a.
2. A taxpayer must submit a Michigan Offer in Compromise (Form 5181) along with all required documentation and the required initial payment.
3. The state assessments a taxpayer claims are affected by the federal offer in compromise must be identified on Part 2 of Form 5181. A taxpayer must include a copy of the letter or other documentation provided by the Internal Revenue Service granting the federal Offer in Compromise.
   1. IRS Form 656
   2. IRS OIC acceptance letter
   3. IRS Addendum
   4. IRS Account Transcripts
4. The federal offer in compromise granted must be for the same tax types and year(s) as the assessments included in the taxpayer’s submitted Form 5181 and as accepted by the IRS.
5. The availability of an offer in compromise based on the grant of a federal offer in compromise is limited to tax liabilities for the individual income tax under MCL 206.1 to 206.532, withholding tax, MCL 206.701 to 206.713, and/or corporate income tax, under MCL 206.601 to 206.699.
6. Treasury may reject a taxpayer’s offer in compromise based on the grant of a federal Offer in Compromise if:
   1. Any of the conditions set forth in subsection A.1., above, does not exist:
   2. The circumstances for the grant of the federal Offer in Compromise are irrelevant to or have no bearing on the taxpayer’s tax debt owed to the State of Michigan;
   3. The federal tax to which the federal Offer in Compromise relates is not comparable to the tax for which the taxpayer submits a state offer in compromise; or
   4. The circumstances of the taxpayer that may have justified the grant of the federal Offer in Compromise are materially different from the circumstances facing the taxpayer at the time the taxpayer submits its offer in compromise. For example, if a taxpayer was granted a federal Offer in Compromise for a tax period due to the taxpayer’s financial situation at the time of the grant, but the taxpayer has since won the lottery or experienced a substantial financial windfall, then Treasury may reject the offer in compromise.
7. Treasury will place into the file of each offer in compromise documentation that includes, but is not limited to:
   1. Letter or other documentation granting the federal Offer in Compromise;
   2. Requests for information or documentation;
   3. Correspondence and communications with the taxpayer and any designated third-party representative;
   4. Results of the evaluation; and
   5. Decision regarding the offer in compromise.

B. Offer Based on Federal Offer in Compromise Grant Accepted

1. Treasury may compromise the tax debt for each year included in the taxpayer’s offer in compromise by applying the same percentage granted by the Internal Revenue Service. For example, if the taxpayer’s federal compromised tax liability was 35% of the total federal tax liability owed for that tax year, Treasury may compromise the taxpayer’s income tax liability and accept as a compromised tax 35% of the taxpayer’s total income tax liability for the same tax year.
2. Treasury also may compromise using a different percentage basis than the compromise percentage granted by the Internal Revenue Service based on Treasury’s analysis and determination under the guidelines for evaluating an offer in compromise based on doubt as to collectability.
3. If Treasury accepts an offer in compromise, it will send a Notice of Acceptance of Offer in Compromise letter to the taxpayer and any designated third-party representative. The acceptance letter will state the accepted offer in compromise amount and payment method (e.g., lump sum amount, payment plan).

C. Offer Based on Federal Offer in Compromise Grant Rejected

1. 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 the reasons for the rejection 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 the letter. Treasury may initiate collection after issuing the rejection letter. Once a taxpayer submits a written request for independent administrative review of the rejection, Treasury must suspend collection and may not levy against any property or assets to collect the liability 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.