A Review of Minnesota's Tax Compromise

Minnesota Tax Compromise

Taxpayers, if they qualify, among many other options, can pursue a Compromise with the Minnesota Department of Revenue if they cannot pay their taxes in full. Not all taxpayers qualify but this option allows taxpayers to pay less than they owe. Commonly known as an Offer in Compromise with the IRS and most other states, a Compromise as defined by the Department of Revenue is a written agreement to settle a tax liability for less than the full amount due. Further, MN DOR states generally that they may accept a Compromise when it is in the state’s best interest.

How to Apply for a Compromise

For tax liabilities that were jointly filed, either both taxpayers fill out the application and MN DOR uses the assets and income of both taxpayers in determining the ability to pay, or one of the taxpayers requests a separation of tax liability before applying. To request a Compromise with the Department of Revenue the taxpayer must submit a Compromise Application, with requested supporting documentation. Specifically, the application includes a Compromise Questionnaire and an individual financial statement or Form 58C. Because of the complexity in applying for a Compromise, taxpayers should work with a licensed tax professional that has experience applying for Compromises. Understand that sometimes a Revenue Collection Officer may contact the taxpayer to talk about any documentation submitted. Taxpayers who file the Compromise application taxpayers must agree to pay a $250 nonrefundable application payment, which is applied to the taxpayer’s tax liabilities regardless of whether the application is approved.

Financial Documentation MN DOR Reviews

The Department of Revenue requires taxpayers to show where all household income comes from and who pays the household expenses, including members of the household who may not be liable for the tax liability. Taxpayers should include supporting documentation such as:

Loan applications and credit denials from at least two financial institutions showing the taxpayer is unable to borrow to pay the full amount owed
Completed financial statement (Form C58C)
Verification of income
Verification of expenses
Bank account statements for the past 3 months
Current lease or rental agreements
Investment and retirement account statements
Verification of medical expenses or conditions that should be considered
Real property information

Mailing Address

Taxpayers or their representatives can send the application, supporting documentation, and $250 deposit to Minnesota Revenue PO Box 64447-CMP St. Paul, MN 55164 Taxpayers should keep copies of everything for record retention purposes.

The Review Process

Within 90 days after the taxpayer has filed the Compromise Application the Department of Revenue will notify the taxpayer of its decision. The Department states that it considers a range of factors, including:

Assets, earning potential, age, and health
Their potential to collect the tax liability in full
Who else is liable for the liability (spouse, business partner, or corporate officer)
Business tax liabilities and whether the business remains open and if the liability is a tax personally held or collected and sent to the Department (Sales Tax or Withholding Tax)
Taxpayer’s history of collection actions
How much has been paid towards the liability
Past or current bankruptcy

Once you apply, the DOR will not start any new collection actions against you. However, if the state is already garnishing your wages or seizing assets, those actions may continue to move forward. That's why it's critical to apply for a resolution to your tax problems before the state starts taking collection actions against you. If MN DOR accepts the Compromise request, they will prepare a written agreement all parties must sign. The agreement does not become effective until signed.

What If MNDOR Denies the Compromise?

If a Compromise is denied, taxpayers do not have the ability to appeal the decision. However, taxpayers can request a reconsideration by leveraging the Taxpayer Rights Advocate. However, if their circumstances change in the future, they have the ability to file a new application. Filing a Compromise application will not stop or reverse any enforced collection actions that have already been initiated. However, the MN DOR will take no new action to collect on the tax liabilities.

Words of Caution

As stated above, it is always a good idea to work with a tax professional who has experience submitting Compromise requests to MN DOR. Moreover, MN DOR does not consider the same factors the IRS does in determining whether to accept a Compromise or not. Furthermore, just because a taxpayer had an Offer in Compromise accepted by the IRS, does not mean that MN DOR will accept a taxpayer's Compromise request for state tax liabilities. Finally, taxpayers should understand that requesting a Compromise will not stop current or pending enforcement collections while MN DOR considers the request.