Minnesota Tax Resolution Options for Taxpayers With Tax Issues
Minnesota taxpayers have various resources available to them when dealing with a back-tax issue concerning Minnesota state. Taxpayers should not ignore delinquent tax filings, and payment issues and the corresponding assessment or collection notices that they receive. This article serves as a general guide to taxpayers' options in these situations. Taxpayers are encouraged to seek a qualified tax professional to represent them in these matters.
Past due tax liabilities can become significant very quickly as penalty, interest, and collection fees increase the entire balance owed over time. Plus, if continually ignored, the state will begin enforced collection via liens, levies, and garnishments. The main resolution options available to taxpayers with delinquent Minnesota tax liabilities are to enter into a compromise or a payment agreement with the Minnesota Department of Revenue. The Department of Revenue also may suspend collection activity if the taxpayer can show financial hardship.
If you can afford to pay your taxes in full, then, you should contact the MN Department of Revenue and pay the bill. This resource explains how to pay taxes in Minnesota. However, if you can't afford to pay in full, you will need to take out a loan, use a credit card, or work with the department to set up one of the payment plans or relief options explained below.
The Minnesota Department of Revenue (MN DOR) has various enforced collection actions at its disposal for taxpayers who are unwilling to work to resolve their delinquent taxes. In Minnesota, these actions are called Enforced Collection Actions and consist of a levy on wages, levy on a bank account, seizing property, revoking or denying a business license, offsetting any payments owed to the taxpayer from the state, and revoking sales tax permits.
Before the MN DOR initiates any of the above actions, they are required by Minnesota law to provide the taxpayer with Due Process. The Department of Revenue defines this as providing proper notice to the taxpayer before taking any enforced collection action of delinquent tax. "Due process" begins when the Department of Revenue mails the taxpayer a bill that explains:
- What the taxpayer owes, including penalties, interest, and other charges
- Why the taxpayer owes
- The taxpayer’s rights during the collection process
- How long the taxpayer must pay
- What enforced collection actions the Department may take and how to avoid them
MN DOR by law must serve these Due Process rights by mailing the letter to the taxpayer’s last known address. As one can see, the Department of Revenue has numerous avenues available to them to unilaterally resolve a taxpayer’s delinquent taxes. Thus, it is important that taxpayers do not ignore these issues and get out in front of the problem via an available tax resolution, as discussed below.
The MN DOR has the authority to enforce a levy or garnishment for unpaid taxes, which can involve taking a portion of an individual's earnings or paycheck. The legal framework permits them to take up to 25% of a taxpayer's disposable earnings. Unlike the IRS, once the MN DOR initiates a wage garnishment, it stays in effect regardless if the taxpayer subsequently sets up an installment agreement (payment plan). The only basis for reducing the garnishment amount is the taxpayer's financial capacity to pay, which is determined after taking into consideration the necessary expenses from the remaining income. The state can also seize your assets for unpaid taxes. This includes your real and personal property.
Taxpayers have 60 days to appeal the assessment of tax or penalty. They may file an administrative appeal with the Department of Revenue or file with the Minnesota Tax Court. Taxpayers should appeal all assessed taxes and penalties that they disagree with and are within the 60-day timeframe to appeal. Taxpayers must make their administrative appeal request in writing and mail it to the Department of Revenue. The request must include:
- Taxpayer’s name and address
- If the appeal is for a corporation, the state of incorporation and its principal place of business
- Taxpayer’s Minnesota Tax Identification Number or Social Security number
- The tax type involved
- The date of the appeal
- The tax years or filing periods involved and the amount of tax or penalty for each one
- What is being disputed about the order
- A summary of the law or facts that support the taxpayer’s case
- Your signature or your duly authorized agent’s signature
- Any documentation or other information that supports the appeal
Information for filing the appeal with the Minnesota Tax Court can be found on their website here.
Some Tax Options for Minnesota Taxpayers That Owe Taxes
MN DOR has a similar program to the IRS Offer in Compromise called a "Compromise," specified in Minnesota Statute 270C.52. A Compromise the MN DOR defines as a "written agreement to settle" a tax liability "for less than the full amount due." The taxpayer can pursue a compromise on any Minnesota tax liability. Taxpayers need to complete a compromise application, including a financial statement (Form C58C) and a questionnaire. It requires taxpayers to provide a 250 dollar check payable to the Commissioner of Revenue with the proposal. Taxpayers also need to provide lease or rental agreements (if applicable), investment statements (if applicable), property tax statements (if applicable), medical documentation (if applicable), bank statements, and loan denial letters (from a minimum of two financial institutions) showing they cannot borrow money to pay off their balance. For taxpayers who filed jointly and owe taxes from a joint tax return or audit, they can request the Compromise together or separately. However, if they want to apply separately, they can. However, they must first apply for separation of liability. For more information on the Minnesota "Compromise" program, visit this link here.
If Minnesota taxpayers cannot pay off a tax liability or bill in full, they can request a payment agreement. Taxpayers could request a payment agreement online if they received a bill. However, if they did not receive a bill and want to set up a payment agreement, they can contact MN DOR by telephone or by email. You can find more about their payment agreement information here.
If a taxpayer is facing enforced collections, MN DOR may reconsider these actions if the taxpayer cannot meet basic living expenses. MN DOR will require documentation to substantiate that the taxpayer actually faces Financial Hardship. Basic living expenses include water, rent/mortgage, required medication, heat, food, and electricity. With businesses, showing that payroll checks were not honored would illustrate financial hardship. Businesses need to complete form C58B, and individuals need to complete a C58P form.
Penalties and Interest
The Department of Revenue will assess penalties and interest for late-filed tax returns and late tax payments. The late filing penalty is 5% of the tax due. The late payment penalty is 4% of the tax not paid and an additional 5% of the tax not paid within 180 days after filing the return or April 15, whichever is later. Interest is assessed on both tax and penalties when the tax balance is past due until it is paid in full. These charges vary annually. In 2023 the interest rate is 5%.
The Department offers a process for taxpayers to request penalty abatement. They allow taxpayers to make this request in one of two circumstances. The taxpayer has a reasonable cause for filing or paying late, such as circumstances beyond their control or the taxpayer received incorrect advice in writing from a Minnesota Department of Revenue employee. The taxpayer or their representative must make a penalty abatement request within 60 days after the taxpayer has been mailed a notification that a penalty has been imposed. Reasonable cause will be presumed if the late filing or late payment is a first-time occurrence based on the taxpayer’s previous history of filing returns and making tax payments. If reasonable cause is not presumed (i.e., the taxpayer has a history of late filing or late paying), then the reasonable cause must be based upon facts of specific events and circumstances that were beyond the taxpayer’s control. Examples of reasonable cause are:
- Death or serious illness of the taxpayer, or of an immediate family member (Covid-19 included)
- "Acts of God" or any unforeseen disasters, such as severe weather, fire, flood, or explosion, that result in loss of the taxpayer's home or place of business or personal or business records
- Theft, arson, or loss of data or records occurring during a move or when in the hands of a third party for computerization or processing. Generally, the fact that documents are in the hands of a tax return preparer does not constitute reasonable cause
- Criminal activity against the taxpayer, such as embezzlement or fraud by an employee of the taxpayer or other person responsible for filing the return or paying the tax
- The taxpayer's bank dishonors a check for payment of the tax, or an electronic funds transfer fails to be completed by the bank, through no fault of the taxpayer.
If the Department denies the taxpayer’s request for penalty abatement, the taxpayer has 60 days to file an administrative appeal with the Department of Revenue, or file in Minnesota state court if they prefer.
Innocent Spouse Relief
If a taxpayer files a joint tax return and is subject to delinquent taxes through no fault of their own, but because of their spouse or former spouse's actions, they may ask for relief from that tax liability via the innocent spouse program. To qualify, the taxpayer must meet all of the following requirements:
- The taxpayer qualifies for innocent spouse relief with the IRS
- The additional tax due resulted from an audit of a joint income tax return
- The underpayment of tax resulted from the spouse or former spouse's actions
- The taxpayer did not know about or benefit from the spouse or former spouse's actions
Taxpayers should make an innocent spouse relief request in writing to the Department of Revenue. After reviewing the request, they will send a final determination letter to both the taxpayer and the spouse, informing each of the new balance that each owes. Either the taxpayer or spouse may appeal the final determination to the Minnesota Tax Court.
Taxpayers in Minnesota have various rights reserved to them in interactions with the Department of Revenue. Taxpayers have the right to:
- Receive tax notices and bills that explain how much they owe in taxes, penalties, and interest – and why
- Know why the Department is asking for information and what will happen if they do not give it to them
- Receive prompt, courteous, and correct answers to their questions
- Expect that the Department will not disclose the information they give, except as authorized by law
- Have an accountant, attorney, or other eligible adult represent them at any time
- Record an in-person interview with a department employee if they notify the Department in advance
- Buy a copy of the Department’s recording if they decide to record the in-person interview and the taxpayer does not record it.
- Sue the Department (take them to court) for damages if they think any department employee recklessly or intentionally ignores the law while collecting their overdue taxes. However, if the court finds the lawsuit frivolous or intended to delay action, the court will issue a fine.
Taxpayer Rights Advocate
The Minnesota Department of Revenue Taxpayer Rights Advocate serves to ensure that taxpayer’s rights are upheld. The Taxpayer Rights Advocate office states they will help taxpayers with the following:
- Ensure fair and consistent application of Minnesota tax law and department policies
- Promote taxpayer issues and concerns to department policymakers and state legislators
- Provide a fresh look at individual tax situations that have exhausted all other administrative avenues
- Problem-solve and suggest options to taxpayer dilemmas
- Negotiate to resolve impasses between the department and taxpayer’s
- Provide an alternative to the standard lines of communications presently available to taxpayers within the department
- Provide another access point to department information
- Advocate for individual taxpayer concerns when "significant hardship" situations occur
- A “significant hardship” can mean situations that involve not being able to provide basic necessities for yourself and your family
- Review collection actions regarding other government liabilities
The Taxpayer Rights Advocate reports directly to the Commissioner of Revenue. Therefore, it serves as an independent department to provide an unbiased review of taxpayer requests for reconsideration and to resolve conflict with the other departments. An important role that they play in terms of tax resolution options is that they have the power to reconsider denials of both compromise and payment agreement requests.