Offer in Compromise

Key Takeaways

• New York State Offer in Compromise – pay off tax debt for less than owed.
• Qualification requirements – Must be experiencing economic distress.
• If you don’t qualify – Look into monthly payments or other relief options.

Understanding the NYS Offer in Compromise

NYS OIC plans allow qualifying taxpayers to reduce their tax liabilities by agreeing to pay off a reasonable portion of their tax debt instead of the full amount they owe. This type of tax debt relief option isn’t available for everyone.

The OIC program is specifically designed to help taxpayers who are experiencing financial distress. If making the full tax payment would create an undue economic hardship for the taxpayer, they may qualify for an OIC agreement. 

The NYS OIC program is distinctly different and separate from the IRS OIC program. The NYS OIC agreement deals with state-level debt, while the IRS OIC program handles debt you owe to the federal government.

Eligibility Criteria

To qualify for an NYS OIC plan, taxpayers must meet multiple criteria related to their financial status and compliance with state tax regulations. Here are more details.

Tax filing compliance

Taxpayers must first ensure that they are compliant with all their tax filing requirements. If you aren’t up to date on filing your state taxes, you’ll need to handle that first before applying for a tax debt agreement. A tax attorney can help you prepare any returns you missed in the past.

Economic hardship or insolvency

Next, the taxpayer must be experiencing a financially distressing situation. In general, that means they fall into one of two categories:

• Experiencing an undue financial hardship
• Experiencing insolvency

Taxpayers who can show that paying off the full balance of the tax debt would cause an undue economic hardship generally qualify for this type of relief. Under NYS tax laws, an undue economic hardship is defined as a financial situation that prevents the individual from being able to reasonably afford their basic living expenses. This requires a deep analysis of household income and expenses.

For even more clarity, basic living expenses are defined as costs that are necessary and provide for the welfare, health, and production of income for an individual or family. The NYS tax agency uses the IRS Collection Financial Standards when determining what to allow as basic living expenses. These standards outline how much you should be spending on housing, transportation, medical care, and other essentials.

The other path to initial eligibility is to show that you are insolvent. This basically means that the sum of all of your debt (including your tax debt) is greater than the sum of all of your assets (like your home, your bank accounts, and your investments).

Extenuating factors

The NYS tax department will also consider your entire economic picture beyond what you pay for your living expenses. They will also factor in:

• Your age and employment history
• Any disabilities, medical conditions, or illnesses that may be preventing you from earning more income
• Any obligations to dependents
• Any other relevant situations that might impact your financial picture, like a recent medical catastrophe, experiencing a natural disaster, or incurring special educational expenses.

All that said, taxpayers who demonstrate paying off the full tax liability would cause them to falter on affording basic living expenses, will typically qualify for this relief. The tax agency does not consider other forms of expenses, like paying off credit card debt or paying college tuition, as basic or necessary.

Effect on state tax compliance

Finally, the state’s taxation agency will review the entire application to determine whether the offer could potentially undermine the state’s terms for compliance. Taxpayers must show a complete willingness and commitment to adhering to the state’s tax requirements in the future, too. If the tax department doubts the taxpayer’s promises based on provable past interactions, they might deny the application and recommend alternative tax debt solutions.

Application Process

You should consult with a tax attorney to find out if you are likely to be eligible for an NYS OIC plan. Then, you can let the attorney handle the process for you (recommended) or apply on your own as follows:

How to apply for a NYS offer through the mail

If you’re confident in handling things on your own, you’ll want to download the following forms to complete your application by mail:

• Form DTF-4.1
• Form DTF-4
• Form DTF-5

Collect all the detailed financial information that outlines, proves, or documents your income, expenses, liabilities, and assets. This includes your federal returns for the previous three years, all your bank account statements for the past 12 months, and a credit report from within the last month.

Individuals seeking to prove an undue economic hardship will need to demonstrate the hardship or situation. Any possible supporting documentation can help improve your chances of getting approved.

Once you’ve completed everything, you can mail the documents and application form to:

NYS Tax Department

CED Offer in Compromise Unit

W A Harriman Campus

Albany, NY 12227-5100

How to apply for a NYS offer online

Alternatively, you can complete your entire application online. First, you’ll need to navigate to the New York State Department of Taxation and Finance website. If this is your first time on this website, you’ll want to start by clicking on “Create Account”. Then, you’ll select whether you’re creating an individual or business account. You’ll need to enter financial details like your Social Security number to continue.

Once you’ve fully set up your account, you’ll navigate to the Services area on the menu. Select the option that says “Payments, bills, and notices”. There, you’ll see the “Offer in Compromise” option. Follow all the online prompts and instructions to complete your application through the online portal.

One added benefit of completing your application online is an immediate email confirmation that the agency has received your application. If you send your application by mail, the department will also mail you the acknowledgement letter confirming your application has been received; however, this can take several weeks. 

There is usually a significant wait between the time of application and when your offer is first reviewed by the DTF. This wait time is often 6-12 months, but can be unpredictable.

Evaluation of the Offer

Next, a DTF agent will review your application and either approve or deny your terms. During the review process, they will carefully consider your income level and the value of any assets you own. The tax agency will also consider potential future income that you might receive. While your case is under review, the DTF may ask you to send additional documentation.

Before approving your application, the tax department will also consider the reasonable collection potential (RCP) on your account. In other words, they’ll attempt to calculate the amount they can reasonably expect to collect from you over a period of time.

To properly calculate everything and evaluate your situation, the agency will also thoroughly consider personal factors like your age, health, and other circumstances.

Alternatives to Offer in Compromise

Do you think you might not qualify for an OIC? The good news is that there are many alternatives to an OIC arrangement if you owe a significant amount to the NYS Department of Taxation and Finance.

• • Installment Payment Agreement – One of the most common and attainable NYS tax debt options is to apply for an installment payment agreement (IPA). This type of plan allows you to pay off your full tax debt over a period of several years. You’ll make reasonable monthly payments, and you won’t face additional collection efforts.

• Income Execution – Some taxpayers who don’t qualify for an OIC and can’t afford the monthly payment of an IPA request an income execution instead. This is essentially a voluntary wage garnishment, which can be preferable to being at constant risk of levy and seizure.

• Penalty abatement – This type of relief can help reduce or remove penalties you’ve incurred if you have a reasonable reason for not being compliant.

Unfortunately, NYS does not have a pure hardship status, like the IRS has in its Currently Not Collectible status. NYS will almost always expect you to be paying something on your tax liabilities, even if your ordinary living expenses don’t seem to allow it. Failing to establish some type of resolution will leave you exposed to collection action like levies and asset seizures.

When to Seek Professional Assistance

Seeking the compromise of a serious tax debt can feel overwhelming, especially if you’re already dealing with a complex financial situation that demands a lot of time and attention. If you need help navigating the process, you should seek professional assistance from a tax attorney.

A quality attorney will ensure you complete your application accurately and efficiently the first time. They’ll also provide you with representation during any negotiations with NYS tax agents.

The more complex your financial situation is, the more sense it makes to get professional advice. Getting an expert’s help is always a good idea when your tax debt is high.

One of the best reasons to seek out a tax attorney’s help is to increase the odds of having your application accepted and approved the first time. A tax attorney can also help provide solid legal advice about alternative solutions if necessary in your situation.

Frequently Asked Questions

Do you have more questions about your potential New York State offer in compromise arrangement? In general, it’s best to discuss your specific situation with a tax attorney who can go over all the facts surrounding your circumstances. From there, they’ll be able to provide reliable, personalized legal counsel that will help you resolve your tax situation. That said, we’ll go over some basic answers to some of the most frequently asked questions about NYS OICs below.

What is the difference between an NYS OIC and an IRS OIC?

A NYS OIC plan helps you pay back state-level tax debt to the New York State Department of Taxation and Finance, while an IRS OIC plan takes care of federal-level tax debt. Otherwise, these two plans are very similar and have similar terms.

How long does the OIC process take in New York State?

The time it takes between initiating the OIC process and getting your final approval can vary significantly. The complexity of your financial situation can affect the time required to prepare your application as well as the review and negotiation by NYS. Often the most significant amount of time is spent waiting for the OIC unit to work through their backlog and review your application. This wait is often 6-12 months on its own.

Can businesses apply for an Offer in Compromise in NYS?

Yes. Businesses can apply for an OIC in NYS, but there is an important consideration. Only individuals can apply for an OIC based on an undue economic hardship, which could include business debts that the individual is personally responsible for. 

Businesses can’t file for an OIC exclusively based on an undue economic hardship. But businesses can apply for an OIC based on insolvency. To get a better picture of your options if you’re a business owner, consider consulting directly with a tax attorney about your situation.

What happens if my OIC application is rejected?

First, you will be notified in writing regarding the rejection. You then have up to 30 days to appeal the decision. You can also consider alternative tax debt solutions or reach out to a tax professional who can help you identify your options.

Is there an application for submitting an OIC in NYS?

Yes, DTF-4 is the form most commonly used to apply for an Offer in Compromise with New York State. You will also need to accompany your DTF-4 with a DTF-5 and its supporting documentation. Depending on your situation, you may be able to use the alternate OIC form, the DTF-4.1.

Get Help With Tax Settlements in New York

Navigating the NYS OIC process can be a struggle, but a qualified tax attorney can help regardless of how complex your situation has become.

Are you currently struggling with New York State tax debt? Do you think you might qualify for an offer in compromise? If so, then the team of tax professionals at McLaud Law P.C. can guide you through the process and help you find financial relief. Leave your contact information with us, and our team will reach out to you as soon as possible to get you started on your journey toward tax debt freedom. Better yet, give us a call today at 585-397-7785.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.