Tennessee Department of Revenue: Offer in Compromise
An offer in compromise is when the Tennessee Department of Revenue (TDR) lets you pay off your tax liability for less than you owe.
The TDR typically only accepts offers if it believes they represent the most money the agency will be able to collect over the next three to five years, and offers tend to be the most successful when the taxpayer shows a good faith effort to pay the tax liability and adjust their lifestyle to stay on top of future tax bills.
To help you understand the process, this guide explains how to apply for an offer in compromise in Tennessee and what to expect as you wait for your offer to be reviewed.
Qualifications for an Offer in Compromise in Tennessee
To qualify for an offer in compromise in Tennessee, you must meet the following conditions:
- Not involved in an open or active bankruptcy case.
- Filed all required tax returns and reports.
- Fully completed the offer-in-compromise application.
- Provided all supporting documents.
- Responded to all requests for additional information.
The TDR looks at each application individually, but it pays close attention to your ability to repay the tax liability now and in the future. In addition to looking at your income, expenses, assets, and liabilities, the agency also considers the potential for change and your likelihood of complying with tax laws in the future.
How to Apply for an Offer in Compromise in Tennessee
To apply, you need to fill out the Offer-in-Compromise Application and submit it to the TDR. The application is 25 pages long, but it includes detailed instructions and everything you need to disclose your personal or business financial situation fully.
Individuals must include Form CS-14B (Statement of Financial Condition for Individuals), while businesses should use Form CS-14C (Statement of Financial Condition for Businesses). Self-employed people and business owners must submit both of these forms.
How to Structure Your Offer in Compromise
The offer-in-compromise application requires you to note how much you are offering to settle your tax liability. Here are your options:
- Make an offer and include payment for the full offer
- Make an offer, include a downpayment, and agree to pay off the balance in 30 days.
- Make an offer and agree to make monthly payments of a certain amount over a three to five-year time frame.
If you include a payment, the state will keep the payment even if it doesn't accept your offer.
How Much to Offer for a Tax Settlement in Tennessee
So, how much should you offer to settle your tax bill? Tennessee applies a very straightforward formula to offers in compromise for both businesses and individuals, and you can use this formula to guide you to an offer. After taxes, the state takes your monthly disposable income, multiplies it by 60, and adds that amount to your total equity.
Here's an example. Imagine you have $200 per month left over after expenses, and you have $5,000 in equity. When you multiply $200 times 60, you get $12,000, and adding $5,000 brings you to $17,000. In this case, the TDR assumes that it can collect $17,000 over the next five years, and it may not accept an offer below this amount.
It's important to note that the TDR may not take all your expenses into account. If you send in an application that shows you have just $100 in disposable income per month, the state may decide that some of your expenses aren't valid, and it may claim that you have more disposable income every month.
Information Required on the Offer-in-Compromise Application
When making an offer in compromise, you must include your personal or business tax numbers and contact info, monthly income or revenue, monthly expenses, assets, liabilities, and dependents.
You also must note if you have made an offer of compromise to the Internal Revenue Service (IRS) and answer questions about the following:
- If you have disposed of assets in the last 18 months.
- If there are foreclosure proceedings on any real estate you own.
- If anyone is holding assets for you.
- If you're a party to a pending lawsuit.
- If you're likely to receive an inheritance in the next four years.
- If you've asked for an offer in compromise in the past.
- If you or your business are currently in bankruptcy.
- For business-related taxes, if the business has been discontinued.
Documents to Include With Your Offer in Compromise
When you make an offer in compromise in Tennessee, you need to include the following supporting documents with your application:
- Income tax returns for the last two years.
- Bank statements from all accounts.
- Credit and merchant card statements.
- Utility bills.
- Insurance statements.
- Life insurance statements with details about cash value, accumulated dividends, interest, and loans against proceeds.
- Statements from retirement accounts, investments, pensions, etc.
- Current credit report.
- Proof of employment.
- List of all assets.
- Accounts receivables for your business with the payor, account status, and account age.
- Profit and loss statement for your business for the last six months.
- List of all liens and judgments against you and your business.
- Statement of all IRS tax bills and proof of payment plans.
You also need to make a statement explaining how you incurred the tax liability and why you need a compromise.
The TDR does not take excessive expenses into account when assessing your ability to pay back taxes. It also does not consider liabilities such as credit card liabilities that would not prioritize the state's tax liens in a bankruptcy case.
The state uses the IRS's guidelines for expenses. Here are the allowable amounts as of October 2021.
Housing & Utilities
Food, Clothing, and Personal Care
Five or More
Add $378 for each additional person
You're also allowed the following expenses:
- Court-ordered child support
- Public transportation $224
- Loan or lease for one vehicle $521
- Fuel and operating costs for one vehicle $193
- Loan or lease for two vehicles $1042
- Fuel and operating costs for two vehicles $386
- Medical expenses for someone under 65 $56
- Medical expenses for someone age 65 or older $125
In extraordinary situations, the government will only consider expenses above these amounts or extra expenses such as cable TV, entertainment, legal fees, tuition, and personal loan payments. If you want the TDR to consider extra costs while assessing your offer, you need to attach a written explanation of why.
For example, if your rent or mortgage is $2,000, that exceeds the amount allowed for a single person, and if you want the TDR to consider this amount rather than the standard housing allowance, you need to explain in detail why this is a reasonable expense in your situation.
What Happens While TDR Reviews the Offer?
Submitting an offer in compromise does not stop the collection activity on your account, and if you're making installment payments, it doesn't change the terms of your payment plan. If you want to stop collection activities, you may want to set up a short-term Installment Payment Agreement (IPA) while the TDR reviews your offer, but even if you set up a payment plan, the TDR can still file a state tax lien.
Making an offer in compromise does not change the deadline for requesting an informal conference or filing a suit to challenge a proposed tax assessment. If you disagree with a proposed assessment, you still need to request an informal conference or submit a suit by the deadline noted on the assessment.
Tennessee Offer-in-Compromise Review Process
The Collection Services Division consults with legal counsel to decide if your offer is in the state’s best interest. Then, it makes a recommendation of acceptance or denial. The Commissioner of Revenue makes the final decision on most offers, but the Attorney General and Reporter and the Comptroller of the Treasury must approve some offers.
The TDR will notify you by mail if your offer has been recommended for approval or rejection, and then it will also let you know when the final decision has been made.
What Happens If Your Offer Is Accepted?
If your offer is accepted, you must pay the balance of the settlement as outlined in your offer. You must also stay compliant with tax reporting, filing, and payment obligations for the next five years, or your compromise will be voided, and you will owe the full amount.
What Happens If Your Offer Is Rejected?
If the TDR rejects your offer in compromise, the TDR will typically offer you a payment plan, and although you cannot contest the rejection, you can suggest an alternative payment plan.
Common reasons for rejecting offers in compromise include the following:
- The TDR believes you can pay more.
- You have omitted serious information from the application.
- You have a history of non-compliance or fraud.
- The tax is based on amounts you collected from customers and never remitted to the government — for instance, sales tax.
Tennessee Offer in Compromise Based on Legal Argument
An offer in compromise based on a legal argument applies when you request an offer in compromise because you believe that you do not legally owe the taxes. In this situation, you need to submit a written statement about your legal argument, but you do not need to fill out the application or provide financial disclosure.
Get Help Applying for an Offer in Compromise in Tennessee
Applying for an offer in compromise can be a tricky process, and for best results, you need to include the right information and detailed explanations about your situation. Ideally, you should work with a tax professional who understands how this state handles the process.
To get help with tax issues in Tennessee, contact a tax pro with experience negotiating with the TDR.