Oklahoma State Offer in Compromise: Understand How You Can Settle
The Oklahoma Tax Commission is willing to settle some back taxes for less than owed. To apply, you must submit a lengthy application and meet strict financial criteria. To give you a sense of whether or not an offer in compromise is the right option for your Oklahoma back taxes, this guide explains the rules and procedures of this program.
How to Apply for an Offer in Compromise in Oklahoma
To apply for an offer in compromise on Oklahoma back taxes, you must submit the following forms. You can download these forms and instructions from the Oklahoma Digital Prairie, the state's electronic library system.
- Form OTC-600 (Application for Settlement of Tax Liability)
- Form OTC-600-A (Statement of Financial Condition for Individuals)
- Form OTC-600-B (Statement of Financial Condition for Businesses)
- Form OTC-600-C (Worksheet to Calculate Collection Potential)
- Form OTC-600-D (Document Checklist)
- Form-OTC-600-E (Authorization to Release Financial Data)
- Form BT-129 (Power of Attorney)
You also must include the supporting documents listed on the document checklist as well as any other documents requested by the OTC. All of these forms and documents work together to convince the OTC to accept your offer. You can file them on your own, but to be on the safe side, you may want to work with a tax professional.
What Taxes Can You Settle in Oklahoma?
The OTC will consider settling tax liabilities if you are insolvent due to factors beyond your control or if paying the tax would cause you to declare bankruptcy. The OTC will also consider settlements in cases where the tax liability is due to another person's actions and it would be unfair to hold you responsible.
Finally, in the case of trust fund taxes, the OTC will only settle these taxes if you believe you didn't need to collect them and never collected them from customers. Sales tax, for example, falls into this category. If a business owner never collected sales tax from their customers and truly believed that they weren't supposed to, they may qualify for an offer in compromise. If you collected sales tax from your customers, you cannot qualify for an OIC settlement.
Eligibility Criteria for OK Offers in Compromise
Appointed or elected state officials cannot apply for an offer in compromise. Anyone else can apply as long as their tax liability falls into one of the above categories and they meet the following criteria:
- The tax liability is final.
- All appeals or other administrative remedies have been exhausted.
- You are not in an open bankruptcy case.
- You are not under criminal investigation or persecution by the state.
You also must stay compliant with state tax filing and payment obligations while the state reviews your application and until you have paid the settlement.
Supporting Documents to Include with OK OIC Application
If you're applying for an OIC due to potential bankruptcy or insolvency, you need to include supporting documents about your income and expenses. Even if you are the only person liable for the tax, you need to include income documents for everyone who lives in your home. The IRS uses that information to determine your share of the household expenses.
Business owners and self-employed taxpayers generally need to include both an individual and a business financial condition statement. Businesses often have to include individual financial condition statements from their corporate officers and partners.
If you have recently applied for an OIC through the IRS, you can use those financial statements instead of the state forms, but you still need to use the OTC's worksheet to compute your offer. Note that getting accepted for an IRS OIC does not mean that the OTC will approve your application. Oklahoma and the IRS use different criteria for these programs.
You do not need to include all of these financial documents if you're applying for a settlement based on someone else's actions or uncollected trust fund taxes. In these cases, however, you need to include a written explanation of the situation. You must make a compelling argument about why the tax liability should be reduced through an OIC.
How Much to Offer with an OK Offer in Compromise
When people apply for offers in compromise, this is one of their biggest questions — how much should I offer? Taxpayers often want to get out of the situation for the lowest amount possible. The state, on the other hand, won't accept an offer unless it represents the most the state is going to be able to collect.
To strike the right balance here, you need to understand how the OTC calculates your collection potential. For both businesses and individuals, the OTC looks at your monthly disposable income and your net worth. Your monthly disposable income is the amount left after paying bills, and your net worth is the difference between the value of your non-exempt assets and your liabilities.
For instance, if you owe $60,000 in credit card debt and have $65,000 in non-exempt assets, your net worth is $5,000. Then, if you have $100 left over after paying your bills, that's your disposable income.
The OTC believes that you should include four years' worth of disposable income in your offer if you can pay it off within 90 days. If you need longer, you have to take five years of disposable income into account. To continue with the above example, if you can pay off your settlement in 90 days or less, you multiply your disposable income ($100) by 48. Then, you add the result to your net worth. In this case, your collection potential is $9800. In most cases, the OTC won't accept an offer lower than that amount.
However, if you wanted longer to pay off the settlement, you need to multiply your disposable income by 60. Based on a disposable income of $100 per month, that increases that portion of your offer to $6,000. Then, when you add that amount to your net worth, you have a collection potential of $11,000.
What to Expect After You Apply for an OIC in Oklahoma
When you submit your application, the OTC will stop collection actions on your account. However, if the OTC believes that you're only applying for an OIC to delay collections, the agency can pursue collection activity. Interest and penalties will continue to accrue on your account while the OTC processes your OIC application. If you're in an installment plan, you should continue to make payments as usual until you get a response.
The Account Maintenance Division will review your application, and the Division may request additional information or verify the financial documents you have submitted. If the Division believes that a larger settlement is necessary, it will give you the chance to amend your application. Finally, the Division will recommend if the OTC should accept or reject the settlement.
When reviewing your offer, the OTC will also take extenuating circumstances into account. In particular, the agency will look at your history of tax compliance, whether or not you benefited from the unpaid taxes, and your involvement in the economic activity that lead to the tax debt.
If the savings on the settlement exceed $10,000, the Oklahoma County District Court must approve the settlement.
What Happens If the OTC Accepts Your Offer in Compromise?
The OTC will notify you by mail if it accepts your offer. At that point, you must pay the offer by the date printed on your notice. When you apply for the OIC, you select a timeline that varies from a lump sum payment to monthly payments over a two-year time period. Your due date will be based on the offer you made.
Once you pay the full offer, the OTC will remove any state tax warrants that have been issued against you. If applicable, you must provide a copy of the Oklahoma County District Court's approval of the agreement.
What Happens If the OTC Rejects Your Offer in Compromise?
The OTC will also notify you by mail if your offer has been rejected. Collection actions will restart on your account, and the balance will be due in full immediately. You can apply to set up a payment plan if desired.
If you send a down payment with your application, the OTC will apply the payment to your balance. Accepting the payment does not require the OTC to accept your offer.
Get Help Applying for an Oklahoma Offer in Compromise
Applying for an offer in compromise in Oklahoma can be a delicate and tricky process. State OIC programs vary drastically from federal OIC programs, and to protect yourself, you need to work with a tax professional who has in-depth experience with Oklahoma tax resolution practices.
At TaxCure, we know that it can be challenging to find local tax professionals so we set up a directory to help you. Using the TaxCure search feature, you can look for OK tax professionals with the experience you need. To get help with Oklahoma back taxes, find an OK tax pro today.