A Review of Minnesota's 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, MDOR 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 MDOR 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 MDOR 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
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
If MDOR accepts the Compromise request, they will prepare a written agreement all parties must sign. The agreement does not become effective until signed.
What If MDOR 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.
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 MDOR. Moreover, MDOR 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 MDOR 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 MDOR considers the request.