Guide & Help with Missouri Department of Revenue Offer in Compromise

If you have unpaid taxes in Missouri, you may be able to reduce your tax bill through an offer in compromise. An offer in compromise is when the state agrees to settle your tax bill for less than you owe. Essentially, you make an offer, and the state decides if it wants to compromise.

Missouri has strict qualification criteria for offers in compromise, and you may want to work with a tax professional when applying. So that you know what to expect, here is an overview of the process.

missouri offer in compromise

Reasons for Offer in Compromise

The MO DOR may be willing to accept offers in compromise for the following reasons:

Doubt as to collectability — There is doubt that you will be able to pay the full tax due.
Severe economic hardship — Paying the total tax due would cause you extreme financial hardship.
Doubt as to liability — There is a significant doubt that you owe the tax.
Exceptional circumstances — Exceptional circumstances such as a natural disaster or a severe illness prevent you from paying the tax in full.
Low income — You cannot afford the tax in full due to having a low income.

The application process varies slightly depending on your situation.

How to Apply for an Offer in Compromise in Missouri

You can use these forms to apply for an offer in compromise in Missouri:

Form MO-656 (Missouri Individual Income Tax Offer in Compromise)
Form MO-656B (Missouri Business Tax Offer in Compromise)
Form MO-656A (Exceptional Circumstances or Low-Income Offer in Compromise)

If you're applying based on doubt as to collectability or severe economic hardship, you should complete all of Form MO-656 or MO-656B. You only need to complete sections one and two if you're applying based on doubt as to liability or exceptional circumstances. Low-income applicants should complete Form MO-656A.

Requirements for an Offer in Compromise

The state will only consider your request if you meet the following criteria:

You have filed all required tax returns.
You do not have an open bankruptcy proceeding.
You are current on all estimated tax payments.
You have included all the documents listed in the application checklist.

You do not need to meet these requirements if you're applying based on doubt as to liability. In that situation, you need to prove to the state that you don't owe the tax, but you can still qualify if you have unfiled returns or are in the midst of bankruptcy.

Filling Out the Missouri Offer-in-Compromise Application

The application for an offer in compromise in Missouri requests basic information about you or your business in section one. Then, in section two, you explain why you need an offer in compromise, and you make your offer.

The remaining sections require you to provide in-depth details about your personal and/or business finances. You must list all of your assets, liabilities, income, and expenses. You also need to include proof of income, bank statements, and credit card statements from the last three months. The state may request additional documents if needed.

Making an Offer on Missouri Back Taxes

You can offer to make a one-time payment within 30 days. Or you can offer to do a short-term deferred payment plan of x amount per month over x number of months.

If you send a down payment with your offer, the MO DOR will keep the payment. If the offer is accepted, the payment goes toward your offer. However, acceptance of the payment does not require the state to accept your offer. If your offer is not accepted, the payment reduces your balance.

Reasonable Collection Potential

Typically, the state will only accept an offer in compromise if it represents the account's reasonable collection potential (RCP). The RCP is the most amount of money the state is likely to collect on the account. The DOR looks at your assets, current income, and future income to determine your RCP and then subtracts basic living expenses.

For example, if you have non-exempt assets worth $20,000 and you only owe $5,000, the state is unlikely to give you an offer in compromise. However, if you can show that your assets and income are not enough to cover your full tax liability, the MO DOR may be willing to settle your tax liability.

Common Reasons for Rejections

The MO DOR will reject offers in compromise if any of the following situations apply:

The offer is not fair or reasonable.
The application is incomplete.
You have not attached the required documents.
You have not filed all required tax returns.
You have a history of non-compliance.
The tax is related to a crime to which you pleaded guilty.

The state automatically rejects any offers of $0. Again, if you are applying for an offer in compromise, you should try to offer an amount equal to the account's RCP.

Appealing a Rejected Offer in Compromise

If the MO DOR rejects your offer in compromise, the decision is final. You do not have the right to appeal a rejection.

Collection Actions After an Offer is Accepted

Once you pay an accepted offer in compromise, the state will release any liens or levies issued against you. However, the state has the right to take any state or federal tax refunds for tax periods through the tax year that the offer is accepted.

Here's an example. Say that you owe $10,000, and in 2021, the MO DOR agrees to accept $5,000. When you file your 2021 tax return, you receive a federal refund of $1,000 and a state refund of $300. The MO DOR will take both of those refunds. Note that the state will not take any amounts that exceed the amount settled.

Default After Acceptance

If the offer is accepted, you must remain compliant with state tax filing and payment requirements for the next three years. If you miss a filing or payment obligation, the Missouri DOR will retract the offer, and you will owe the original balance plus interest and minus any payments you made.

Alternatives to Offer in Compromise

If you cannot qualify for an offer in compromise, you may want to request a payment plan or look into other resolution options. A tax professional can help you negotiate an arrangement with the MO DOR.

Get Help With Missouri Back Taxes

Dealing with back taxes can be scary and frustrating. If you don't make arrangements on your tax bill, the MO DOR may seize your assets, garnish your wages, or take other collection actions.

Protect yourself, your finances, and your business by reaching out to a tax professional. At TaxCure, we have a directory of tax professionals from around the country — contact a Missouri tax pro for help today that has experience with Missouri DOR offer in compromise filings.