Offer in Compromise on Colorado State Taxes
In rare situations, the Colorado DOR allows taxpayers to settle their tax liabilities for less than they owe through the offer-in-compromise program. To qualify, taxpayers must meet strict criteria.
Here's an overview of the Colorado offer-in-compromise program and an explanation of what to expect if you apply.
How to Apply for an Offer in Compromise in Colorado
Before applying for an offer in compromise in Colorado, you must apply for an offer in compromise with the IRS. The CO DOR will not accept an offer in compromise unless the IRS has already accepted an offer for the same period and the same type of tax.
Once the IRS accepts your offer, you will need to send copies of your IRS application materials and several additional documents to the state. Here is what you need to send to the CO DOR:
- IRS Form 656 stamped with the IRS Received Date.
- IRS Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals)
- Proof that the IRS accepted an offer-in-compromise proposal on your federal taxes.
- Proof that you paid your IRS offer in compromise.
- A Record of Account from the IRS.
- CO DOR Form DR 6596 (Statement of Income and Expenses).
- A written statement describing any special circumstances about your offer.
- Written disclosure of any real or personal property you've transferred, including vehicles, cash, and property title transfers.
- Marital and filing status.
- Signed copy of the Offer in Compromise of Tax Liability Terms and Conditions — note that you must initial every term on this form in addition to signing at the bottom.
You should also include any other relevant information from the offer in compromise accepted by the IRS. The state has the right to request additional details as needed.
Qualifications for a Colorado Offer in Compromise
The CO DOR will only consider accepting an offer in compromise if the following conditions have been met:
- You have filed all required tax returns.
- The IRS has accepted an offer in compromise for the same year and tax type.
- You have not used the Colorado offer-in-compromise program before.
- You have not discharged tax liabilities through bankruptcy in the past.
- You have not had state taxes written off due to the expiration of the statute of limitations.
- You have not previously received innocent spouse relief.
Most importantly, you must prove to the state that you cannot afford to pay all of your outstanding tax delinquencies. The DOR will require you to submit detailed financial information. Still, the DOR also has the right to review the documents you submit and perform an independent examination of your financial situation.
While the state is reviewing your offer, it will continue any collection actions it has initiated on your account, but typically, the CO DOR will not start any new actions. For example, if your wages are being garnished, the garnishment will stay in place while the state reviews your application.
Acceptance of Colorado Offer in Compromise
The CO DOR will notify you in writing if your offer is accepted. At that point, you must pay the full offer within 15 days of the date on the notice. If you don't make the payment on time, the offer will be rescinded. Similarly, if your check doesn't clear, you will also lose your offer.
The state will keep any tax over-payments and apply them to your balance for the next three years. During this time, you are not allowed to reduce your quarterly estimated payments or the amount of withholding.
Denial of Colorado Offer in Compromise
If the state denies your application, your tax liability is due in full. You should make other arrangements such as a payment plan as soon as possible. Failure to make arrangements on your Colorado tax bill can lead to wage garnishments, asset levies, and other collection activity.
Offer in Compromise on Colorado Sales Tax
Generally, you cannot get an offer in compromise on Colorado sales tax. As indicated above, the CO DOR only accepts offers if the IRS has accepted an offer for the same type of tax during the same tax period. As the IRS has nothing to do with sales tax, that means that sales tax automatically doesn't meet this criterion. However, you may be able to get your sales tax bill reduced by asking for a penalty waiver. A tax pro can help you understand more about the situation.
Get Help With a Colorado Offer in Compromise
Applying for an offer in compromise can be a complicated process, and even a small mistake can cause the state to rescind your offer. Consider working with a tax professional to improve your chances of being accepted.
At TaxCure, you can search for tax pros who have experience dealing with the CO DOR. Contact a Colorado tax pro today to get help applying for an offer in compromise or to talk about other options.