Maryland State Offer In Compromise Summary & Details
If you owe back taxes in the State of Maryland, an Offer in Compromise (OIC) can be a great option. Not only can you cease collection actions, but you could potentially save a significant amount of money. In this article, we discuss OICs, including the relevant procedures and the benefits of obtaining an MD OIC.
What is a Maryland State Offer In Compromise?
An Offer in Compromise (OIC) is a remedy for qualified individuals with back taxes to pay a settled amount for less than the total amount of the taxes owed. Maryland’s OIC program has similarities to the Internal Revenue Service’s (IRS) Offer in Compromise program. There are, however, some essential procedural differences between the two programs. For example, Maryland may not leverage the same financial standards the IRS uses in determining a taxpayer’s ability to pay.
What Types of Taxes are Eligible for an Offer in Compromise? Benefits?
In Maryland, the State Comptroller is the entity responsible for administering and collecting all taxes. The Offer in Compromise program can be used to settle any outstanding taxes owed to the Comptroller’s Office. Examples of commonly owed taxes include, but are not limited to, Income Tax, Sales and Use Tax, Admissions and Amusement Tax, and Withholding Taxes. Thus, the OIC program has widespread application throughout the State, helping both individuals and businesses to get out of debt and to avoid collection action.
Generally, with repayment plans, taxpayers are required to repay the entire outstanding balance of the taxes (not to mention interest and penalties). However, with an OIC, it is a form of lump-sum settlement that can result in saving thousands of dollars. Also, those taxpayers subject to collection actions by the Comptroller, such as garnishments or tax liens, can potentially cease such costly efforts.
Who is Eligible for an Offer in Compromise in Maryland?
A taxpayer can apply for a Maryland OIC based on a few reasons:
- doubt as to liability
- doubt as to collectibility (insufficient resources)
- Economic or other hardship
With regards to the two last reasons above, eligibility for an OIC in Maryland largely depends on the taxpayer’s financial situation and resources. Several formal requirements must be satisfied to qualify for an OIC:
- You have a delinquent tax liability and have received an assessment from the Comptroller’s Office;
- You have exhausted all possibilities for an administrative appeal. If there are any open issues that you can appeal, then you cannot apply for an OIC;
- At least two years must have passed since the state assessed the taxes;
- The taxpayer must have filed all returns for prior years;
- You cannot be involved in a pending bankruptcy case of any kind;
- You lack the financial means to make payment in full at any time in the foreseeable future; and
- You lack resources or are unable to apply your present and future resources to paying off your outstanding tax liability.
Every taxpayer’s financial circumstances are different. If you are unsure whether you are eligible to apply for an OIC with the Comptroller, contact an experienced Maryland tax professional.
When Should a Taxpayer Apply for an Offer in Compromise Over Other Tax Resolutions?
The eligibility requirements discussed above allude to the circumstances in which a taxpayer should apply for an OIC. There are generally three reasons that taxpayers can seek an OIC. The first, known as doubt as to liability, is where you do not believe that you owe the Comptroller the assessed amount. The second is known as doubt as to collectability. Fundamentally, the taxpayer believes he or she owes the tax but lacks the financial resources to pay the tax amount in full. Finally, an OIC can be submitted based on economic or other hardship. It occurs where the taxpayer may have sufficient resources to pay the total amount, but doing so would cause financial hardship or would be unfair.
As a practical matter, if a taxpayer is eligible, it is generally advisable to pursue an OIC over other remedies like repayment plans due to the potential for a reduction of the outstanding balance.
What Forms Does the Taxpayer Need to Complete to Apply for an OIC?
To apply for an OIC in Maryland, a taxpayer must complete two sets of forms. The first is an Offer in Compromise Application (Form 656). Form 656 requires the taxpayer to list his or her personal information, the applicable tax and period, select one or more of the three reasons for submitting an OIC (discussed above), and the proposed payment terms of the OIC. The taxpayer must also list the reasons for applying for the OIC.
The taxpayer must also complete a second form called the Collection Information Statement (CIS). For individual taxpayers, the appropriate CIS form is MD 433-A. Businesses must use Form MD 433-B. Both tax forms require the taxpayer to list detailed financial information. The purpose of a Collection Information Statement is for the Comptroller to analyze a taxpayer’s financial condition to determine whether or not the taxpayer is eligible for an OIC and if so, whether or not to accept the offer.
Are Any other Forms Required?
As a general matter, the Comptroller will want to see documents supporting the information listed on the Collection Information Statement. Depending on the taxpayer’s income, expenses and assets, such docs can include bank statements, pay stubs, credit card statements, car loan statements, mortgage loan statements, student loan statements, plus many others. For this reason, it is vital to accurately and fully complete all forms.
How Do I Apply for an Offer in Compromise?
To apply for an OIC, the taxpayer must submit Form 656 and Form MD 433-A (If a business use MD 433-B) to the Comptroller. Item 7 on the OIC form requires the taxpayer to specify how payment will be made. The taxpayer has several choices:
- Payment in full with the offer;
- A deposit pending acceptance by the Comptroller;
- No deposit with payment to be made within a specified period;
- $0.00 offer; and
- A request for a payment plan
The taxpayer must file all required forms and payment, if any, to the Comptroller at the following address:
Offer in Compromise Program
Comptroller of Maryland
301 West Preston Street, Room 203
Baltimore, MD 21201
What Will the Comptroller Do Once it Receives My OIC?
The Comptroller will review your OIC and Information Statement to determine whether you are eligible for an OIC. If the taxpayer meets the initial requirements, the Comptroller will take a more detailed look at the taxpayer’s circumstances to see whether an OIC is warranted. Some of the factors the Comptroller considers:
- Taxpayer’s health, age, and amount owed;
- Number of family members supported;
- Level of Education;
- Work history;
- Location of the taxpayer
- Source of income;
- Reasons for the tax liability;
- Past tax compliance; and
- Whether the state filed tax liens
Comptroller Will Review the Taxpayer’s Financial Situation
The Comptroller will take a detailed look at your income and expenses. Unlike the IRS, which has set numbers for housing and living standards, Maryland does not have its own Collection Financial Standards. However, at the Comptroller’s discretion, they may allow the taxpayer to claim the IRS limits.
If the Comptroller accepts your OIC, the taxpayer gets notified and placed on a three-year probationary period. It means you must make all scheduled payments on time and file all future tax returns on time. In other words, remain current with tax filing for three years. If you fail to abide by these terms, the Comptroller can demand that you pay the full amount of the outstanding taxes, including interest and penalties. Moreover, the Comptroller will likely commence collection action.
What If the Comptroller Denies the OIC?
If the state denies your OIC, the Comptroller may send you a written notice to submit a higher offer. The Comptroller may flat-out refuse an OIC. Such a decision can have consequences for the taxpayer. First, the Comptroller can elect to keep your down payment and apply it towards the outstanding balance. Secondly, the Comptroller’s decision is final, and the taxpayer cannot appeal. You may, however, be able to submit another OIC at a later date if your circumstances have changed. Thus, it is essential to make your first OIC a good one.
It is important to note that even if your OIC is accepted, the Comptroller can still attach a lien against your property. The tax lien serves to protect the Comptroller’s interests. Should the taxpayer timely make all payments under the OIC, the Comptroller will release all tax liens.
Work with an Experienced Tax Professional
If the taxpayer’s OIC gets denied, there may be other remedies available to such as a repayment plan. If you are unsure of your options, consult with an experienced Maryland tax professional. Above all, if you decide to pursue an Offer In Compromise with the State of Maryland, work with a licensed tax professional that has experience. Above all tax resolutions, applying for an OIC takes time, and it is one resolution whereby having a tax professional on your side can make a world of difference. To connect with a licensed tax professional experience with Maryland's Offer in Compromise, click here, or start your search below.