South Carolina Department of Revenue: Offer in Compromise Program
Qualifying taxpayers can reduce their South Carolina tax bill with an offer in compromise. The South Carolina Department of Revenue (SCDOR) accepts offers in compromise on all individual and corporate taxes, except for sales and withholding taxes.
What's an offer in compromise? How can you reduce your state tax bill? An offer in compromise is when the state agrees to reduce your tax bill. Having an offer in compromise accepted can include removing penalties and reducing the tax bill itself. To use this program, you make an offer, and the SCDOR decides if it wants to compromise.
Qualifying for an offer in compromise is a tricky process, and for best results, you should consider working with a tax professional. They can help you apply, and if you're not eligible, they can direct you toward the best arrangement for your situation. Here's what you need to know.
Requirements for an Offer in Compromise in South Carolina
To qualify for an offer in compromise on South Carolina taxes, you must meet the following criteria:
- Owe at least $10,000.
- Be compliant with all current tax filing obligations.
- Made all current year withholding or estimated tax payments as required.
Additionally, the tax assessment cannot be related to a criminal investigation. If you have unfiled South Carolina returns, you need to file them before applying for an offer in compromise. Once you file unified returns, you can apply for an offer in compromise on all of your outstanding tax liabilities.
How to Apply for an Offer in Compromise
To apply for an offer in compromise, you must complete Form SC656 (Application for Offer in Compromise) and Form SC433-A (Collection Information Statement for Individuals) or Form SC433-B (Collection Information Statement for Businesses). These forms plus detailed instructions are available in the South Carolina offer-in-compromise pdf.
The offer-in-compromise application requires basic contact details about you or your business and information about your tax liabilities. Then, you note why you are requesting an offer in compromise and write out a detailed explanation of your circumstances. Finally, you make full financial disclosure on Form SC433A or SC433B and attach the requested supporting documents.
Reasons for Offers in Compromise
The SCDOR recognizes two valid reasons for offers in compromise:
- Doubt as to collectability
- Economic hardship
Doubt as to collectability refers to when the state doubts it will be able to collect more than the offer amount. Economic hardship applies when paying the entire tax liability would cause you financial distress.
When you fill out your offer-in-compromise application, you must note which of these reasons you're using. Then, you must explain why you should qualify. It's usually best to have a tax pro who understands the SC tax code write out the reason.
Making an Offer to the SCDOR
You must note the total offer and include a 10% downpayment when you make the offer. You also must tell the SCDOR how you obtained the funds.
When deciding whether or accept or reject your offer, the SCDOR considers the following elements:
- Your net equity in assets such as cash, bank accounts, investments, available credit, real property, personal vehicles, and personal assets.
- Disposable income which is defined as your income minus expenses.
- Lifestyle factors such as whether you made extravagant purchases instead of paying your taxes due.
The SCDOR can only accept offers if they're in the state’s best interest. Acceptable offers must represent the most money that the taxpayer would be likely to pay between now and the end of the statutory collection period.
If you can afford to make installment payments, the SCDOR will reject your offer. Similarly, if the state can garnish enough wages to cover the full tax liability before the collection statute expires, it will not accept an offer in compromise. Or, if the SCDOR knows that you can sell assets to cover your tax bill, it will also not accept your offer.
Examples of Offers in Compromise
To help you understand how the SCDOR reviews offer, here are a few basic examples of the decision-making process.
Imagine that you owe $20,000 in South Carolina back taxes, and you offer to pay the SCDOR $5,000. The SCDOR looks at your financial disclosure, and they see that you have a boat worth $15,000 and an extra income of $500 per month. In this case, the state will assume that you can pay the bill in full, and it will not accept the offer.
On the other hand, if you have no assets and no extra income but you can borrow $5,000 from a relative, the state may be more likely to accept your offer. Again, the application process can be complicated, and you should consider working with a tax pro.
What Happens If the SCDOR Accepts Your Offer in Compromise?
The SCDOR will notify you by mail if they accept your offer. If accepted, you must pay the offer plus accrued interest within 30 days. After you pay the offer plus any extra interest in full, the state will release any tax liens against your assets. The SCDOR maintains the right to audit you for the tax period related to the offer as long as the audit is within the statute of limitations.
Once you have made the payment, you must stay compliant with the terms of the offer, or the SCDOR will reinstate your tax liability and start the collection process.
What Happens If the SCDOR Denies Your Offer in Compromise?
If the SCDOR denies your offer, the state will notify you by mail, and the 10% downpayment will apply to your tax bill. SCDOR expects you to set up a payment plan within 30 days, and if you don't make arrangements, the SCDOR will resume collection actions on your account 30 days after they made the determination.
OIC and Statute of Limitations
In South Carolina, the state has ten years to place a lien on your property after assessing a tax. The collection period is called the statute of limitations, and if the state doesn't take action during this time frame, it loses its opportunity to collect the tax.
When you apply for an offer in compromise, the SCDOR pauses the statute of limitations on your account. The pause remains in place while the department reviews your application. Then, the statute of limitations continues to be paused until you pay the accepted offer and while you are completing the terms of your offer.
If you don't pay the offer, or break the terms, the collection period will start again. To give you an example, imagine that nine years have passed since the SCDOR assessed the tax. The state has one year left to collect your tax liability. You apply for an offer in compromise, so the state pauses the clock.
The state accepts your offer, and you pay it, but you forgot to file a tax return six months after your initial application. This breaks the terms of your offer. At this point, the clock starts running again, but the state still has a year to collect the outstanding balance. Because the statute of limitations was paused, the state has not lost that collection time.
Tax Refunds After Offer in Compromise
The SCDOR has the right to keep any tax refunds issued during the offer’s calendar year. For example, if the SCDOR accepts an offer in compromise in January 2022 and you have a refund when you file your state tax return in April of 2022, the SCDOR will keep that.
Bankruptcy and Offers in Compromise
If you file bankruptcy before the offer is completed, the SCDOR will file a claim for the entire amount of the tax liability.
Collection Actions With Offers in Compromise
In most cases, the SCDOR pauses collection actions on your account when you apply for an offer in compromise. Still, if needed, the department can continue collection activity while reviewing your offer in compromise.
If you have an existing payment plan, you must continue to make payments while the department reviews your offer-in-compromise application. The payments will not be considered part of the offer in compromise. Additionally, if the SCDOR has a levy in place, any funds collected from the levy will also not count toward the offer.
Get Help Applying for an Offer in Compromise
South Carolina is serious about collecting delinquent taxes, and if you want to try to reduce your tax bill, you should work with a professional who understands the state's tax code. At TaxCure, we have a directory of tax professionals from around the country. View this search here that shows the top-rated professionals that have experience in handling South Carolina offer in compromise submissions.