Louisiana State Offer in Compromise: How to Pay Less
The Louisiana Department of Revenue (LDR) has the ability to settle state tax liabilities up to $500,000 for less than you owe. The LDR will only settle tax bills when there is serious doubt of liability or doubt of collectibility. In other words, the state will only approve an offer in compromise if it believes that you are unlikely to owe the tax or unlikely to be able to pay the tax.
Typically, only a small number of taxpayers qualify for this program, and to get approved, you need to complete the application carefully and correctly. To learn more and to get help applying, contact a Louisiana tax professional today.
How to Apply for a Louisiana Offer in Compromise
To apply for an offer in compromise, individuals must complete Form R-20223 (Statement of Financial Condition for Individuals). Corporations, trusts, and estates should use Form R-20222 (Statement of Financial Condition for Businesses). Sole proprietorships and partnerships should submit both forms.
If you're applying based on doubt as to collectability, you also need to include all of the documents listed on Form R-20211 (Document Checklist for Offer in Compromise Based on Serious Doubt as to Collectability).
You can find all of these forms plus instructions in the Louisiana Department of Revenue: Offer in Compromise Program booklet. If you have applied for an IRS offer in compromise in the last three months, you can send that form to the LDR instead of the state forms. `
How to Fill Out the LA OIC Application
When filling out the offer-in-compromise application, you must include your name, business name, contact details, type of delinquent taxes, and the amount due. Then, you must make an offer and explain why you are requesting an offer in compromise.
Again, you can request an offer in compromise for the following two reasons:
- Doubt as to collectibility — you can't afford to pay the tax.
- Doubt as to liability — you don't believe you owe the tax.
Regardless of the reason you choose, you must write out a detailed explanation. Note that you cannot apply based on doubt as to liability if the tax has already been judged as final by a court or the Louisiana Board of Tax Appeals LaBTA. If you apply based on doubt as to collectibility, you must include detailed financial information about yourself and/or your business as well as a long list of financial documents with your application.
Finally, you must sign a document certifying that you understand the terms of the OIC program. Your signature also allows the LDR to pull your credit report and request financial documents from your bank or the IRS.
How Much Should You Offer When Trying to Settle LA Taxes?
The perfect offer is the lowest amount that is likely to be accepted by the state. But determining this number is tricky. To narrow in on the optimal offer, you need to understand what the LDR considers when assessing your offer.
To determine whether or not to accept your offer, the LDR looks closely at the details in your financial statement. If the state believes that your offer represents the most the state is likely to be able to collect, the LDR will accept your offer. If the state believes that you can pay more, your offer will be rejected.
This is why it can be critical to work with a tax professional. They understand exactly what the state is looking for. They can help you present your financial details and your offer in the most advantageous way possible.
Application Fees and Down Payments for the LA OIC
As of 2022, you must include a $186 application fee plus a down payment of 20% of the offer.
For instance, if you offer to pay $10,000, you must send $2,186 with your OIC application. That is 20% of the offer plus the application fee.
Financial Documents to Include with Your OIC Application
When you submit the OIC application to the LDR, make sure you include the following supporting documents:
- Federal tax return for the last two years.
- Bank statements for the last six months.
- Statements for retirement accounts and pensions for the past six months.
- List of securities you own and their market value.
- Life insurance policy statements.
- List of all items in safe deposit boxes.
- Statements for loans and lines of credit.
- Copies of all judgments from the last six years.
- Proof of employment or other income for taxpayer and spouse
- Denials of loan requests by two or more financial institutions.
What to Expect When You Apply for a LA OIC
When you apply for an offer in compromise, interest and penalties will continue to accrue on your account. If you are in a payment plan, the LDR expects you to continue making payments as usual. State tax liens will stay in place until your offer is accepted and paid in full.
If the LDR seizes your federal or state tax refunds, those amounts will not be included in your offer. Similarly, any amounts collected by the LDR while the offer is pending will not be included.
Here's a quick example. Imagine that you owe $20,000 in LA taxes. You offer $10,000 to settle your tax bill. While reviewing your OIC application, the LDR intercepts an IRS tax refund for $1500 and garnishes your $1000 of your wages. Those payments reduce your tax liability to $17,500, but they don't affect your offer. If the LDR accepts your offer, you still pay the full $10,000.
What Happens if the LDR Rejects Your Offer in Compromise
If the LDR rejects your offer, the tax liability is due in full, and the state has the right to start collection actions on your account. Your down payment will not be refunded. It will be applied to your account.
The LDR may reject your OIC application if any of the following apply:
- You're under criminal investigation or pending prosecution.
- You're filing bankruptcy.
- The application was missing details.
- The application didn't have the right signatures.
- Your offer was zero.
- Your offer includes an amount already collected.
- You have used the OIC program in the last 10 years.
- You didn't include all of the required financial statements.
- You forgot to include the power-of-attorney (POA) form if required.
- You didn't include the application fee or the down payment on the offer.
- Your offer is less than the LDR believes it will be able to collect on the tax liability.
You cannot appeal a rejected offer. To improve your chances of approval, you need to ensure you fill out your application carefully, and you may want to work with a tax pro.
What Happens If the LDR Accepts Your OIC Application
The LDR will notify you by mail if your offer is accepted. You must pay off the remaining balance by the date specified in the letter. If you fail to make the payment or if your check bounces, the state will void your OIC agreement.
A LA OIC gives you a fresh start. The state expects you to stay compliant with filing obligations after this date. If you fail to file a return or pay a tax owed in the next 10 years, the state can void your offer and demand full payment.
Contact a Louisiana Tax Pro for Help Today
An offer in compromise can help you save money on your state tax bill, but it isn't the right solution for everyone. To get help identifying the best resolution method for your LA state taxes, you need a tax professional experienced working with the LDR. Check out this list of LA tax pros in your area and get help today.