A Review of Illinois State Offer In Compromise

The land of Lincoln, or the State of Illinois, does have an Offer in Compromise (OIC) program. The Offer in Compromise program allows IL taxpayers to negotiate a lump sum settlement of their delinquent income taxes. In other words, an OIC “is defined as a proposal by the taxpayer to pay a sum certain in full satisfaction to taxpayer’s unpaid amount of tax (including penalty and interest).” It is one way for taxpayers to pay less than they owe in taxes. However, taxpayers need to qualify.  The taxpayer follows a process similar to requesting penalty abatement.

The Offer In Compromise Process

For a taxpayer to request an Offer in Compromise, they must file a petition with the Board of Appeals (BOA). Specifically, the BOA is an administrative tribunal that is within the Illinois Department of Revenue (DOR). Moreover, three members make up the BOA, who are appointed by the director of the DOR. It has the authority in conjunction with the DOR Director to:

(1) waive penalties and interest based on reasonable cause, and
(2) reduce tax liability if it is likely the full tax amount cannot be collected (Offer in Compromise).

Taxpayers may request to have an oral hearing. However, the BOA does not require it. A hearing officer or board member conducts oral hearings of the BOA. The hearing provides the taxpayer with an opportunity to provide additional information and to explain the reasons why the BOA should grant the Offer in Compromise.

Tax Forms to Complete

To petition the BOA for relief under their Offer in Compromise powers, the taxpayer must fill out Form BOA-1 Board of Appeals Petition. In fact, the form is the standard petition form used for both penalty abatement requests and Offer in Compromise requests. The only requirement that the DOR provides to be eligible to file the form requesting an Offer in Compromise is that taxpayer file all tax returns.

Documentation

When using the form to make an Offer in Compromise request, the taxpayer must attach the following documents:

• The last three federal income tax returns and all schedules
• The previous three state income tax returns and schedules
• Bank statements and brokerage statements from all the taxpayer’s financial institutions summarizing the last six months’ activities;
• The two most recent paycheck stubs or current financial statements (if self-employed); and
• A completed Form BOA-4, Financial Information for Individuals or a completed Form BOA-5, Financial Information for Businesses (if self-employed)

Taxpayers should fax their completed Forms BOA-1 and BOA 4 or 5 to 312-814-3055. Alternatively, they can mail the forms to:

Illinois Department of Revenue
Board of Appeals
James R Thompson Center
Suite 7-356, 100 W Randolph Street, Chicago, IL 60601-3274.

Grounds for Relief & Considerations

Uncertainty as to collectibility is the only reason or grounds for relief that the Illinois BOA will consider. In other words, taxpayers can request a compromise of their liability due to reasons of financial hardship. The BOA examines the taxpayer’s financial situation and considers the following:

• taxpayer’s financial situation
• likelihood of future earnings
• probability of the DOR collecting the amount due

The DOR does not provide further guidance as to specific calculations or other considerations that taxpayers should follow. However, to put it very simply, the state will usually only accept an offer if it appears to be the most the DOR would be able to get. For instance, if you make an offer but the state knows that it could get more money by garnishing your wages, it won't accept the offer. 

After the Taxpayer Files the Petition

After the taxpayer files the petition, the BOA will ask certain DOR employees to provide information and a recommendation about the taxpayer’s request. Afterward, the BOA will review the case and hold the hearing, if the taxpayer requests one. Most importantly, for the DOR to grant the taxpayer the Offer in Compromise, two of the three BOA members must agree. In other words, the BOA will deny the petition if a majority of the members are not in agreement. If the BOA agrees, they give their recommendation to the Director of the DOR for final approval. If the Director signs off, then the BOA will issue an order granting relief. Taxpayers cannot appeal decisions made by the BOA.

Leverage the Expertise of a Tax Professional

Many taxpayers across the U.S. face tax problems with unpaid or unfiled taxes. If a taxpayer has a financial hardship and owes Illinois income taxes, they may want to consider an Offer In Compromise, installment payment agreement among other options. Furthermore, many taxpayers may find the OIC required documentation and forms cumbersome and challenging. Therefore, taxpayers first should find out if they are eligible and their potential tax options. Taxpayers should find a licensed tax professional with Illinois tax experience by clicking the link or by starting the search below.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.