Settle Utah State Taxes for Less Than Owed

Utah State Tax Commission Offer in Compromise

The State Tax Commission may let you settle your Utah state tax liability for less than owed if you don't really owe the tax or if you can't afford to pay the tax. In both cases, the burden of proof is on you, and to improve your chances of success, you should strongly consider working with an experienced Utah tax professional.

In the meantime, here's an overview of how to apply for a settlement in Utah, what to expect during the process, and alternatives. 

Key takeaways

• Offer in compromise - settle Utah state taxes for less than owed.
• Requirements - be up to date on filing returns, not be in bankruptcy, and prove that you can't afford (or don't really owe) the tax.
• How to apply – File an offer in compromise request with a collection information statement.

What is a Utah Offer in Compromise?

An offer in compromise is when the Utah State Tax Commission agrees to settle your taxes for less than owed. The Commission may settle taxes if:

• You can't afford to pay – doubt as to collectability
• You don't really owe the tax – doubt as to liability

The state approves requests for settlements on a case-by-case basis, and if you apply because you can't afford the tax liability, you will need to send in detailed information about your income and assets. If you're applying based on doubt as to liability (aka you don't really owe the debt), you will need to establish why you don't owe the tax. This requires strong knowledge of the state tax code, so you should work with a professional.

Most offer-in-compromise applications are based on an inability to pay the tax debt. By extension, the majority of this article focuses on that type of offer in compromise, unless indicated otherwise. For specific concerns, consult with a licensed Utah tax professional.

Which taxes can be settled in Utah?

You may be able to settle individual income tax, corporate income tax, withholding tax (state payroll tax), and/or sales tax. The application process may vary based on the type of tax involved. 

For example, if you're applying for a settlement on individual income tax, you will need to share detailed information about your personal finances. If you're applying for a settlement of business taxes, you will need to share info about your business's finances, and depending on the situation, the agency may not agree to the settlement if you're still in operation. 

Requirements for an Offer in Compromise

Typically, you must meet the following base requirements before the agency will even review your offer in compromise application:

• Filed all Utah state tax returns
• Not involved in an open bankruptcy case
• Not able to pay the tax liabilities in a reasonable time frame
• Have explored all collection options
• Have completed and filed all application requests and included supporting documents.

How to apply for a Utah OIC

To apply, file these forms:

• TC-410 (Offer in Compromise Request) – Basic info about you and the tax due, the amount of your offer, a written explanation of why you need the offer, and where you're getting the funds.
• TC-805 (Collection Information for Individuals) – Required for individual applicants. A full accounting of your income, expenses, debts, and assets, including bank accounts, investment accounts, retirement accounts, life insurance policies, and real and personal property.
• TC-803 (Collection Information for Businesses) – Required for business applicants. A list of owners or shareholders. Detailed statement of revenue and expenses, as well as liabilities and all business assets, including real estate, equipment, inventory, accounts receivable, bank accounts, etc.
• TC-737 (Power of Attorney and Declaration of Representative) – You must include this if you have a tax pro representing you in front of the Tax Commission.

You also must include documents that back up the information reported on your collection information statement(s). That may include pay stubs, copies of bills, bank or investment account statements, and profit and loss reports and balance sheets for businesses. If applicable, you should also include paperwork related to how you're obtaining the money for the offer – for example, if you're selling property or taking out a loan, you should include related documents with your application.

You should also include documents showing that you tried to obtain funds and couldn't get them. For example, if you applied for a loan and were rejected, you should include proof of that.

Where to send the Offer in Compromise application

If your account has been assigned to a collection officer, give them the application. They'll let you know how to submit it. Otherwise, you can mail OIC paperwork to:

OIC/Waiver Unit
Utah State Tax Commission
210 N 1950
Salt Lake City, UT 84134

What happens next?

After you submit your offer, the Utah STC will review it and send you a response. If you don't meet the basic criteria – for example, you have unfiled returns or didn't complete the paperwork properly – the agency will send you an Unmet Criteria Letter. If you've met the basic terms, they may ask for additional information. Otherwise, they'll send you an approval or denial notice once they complete their review.

The State Tax Commission will generally stop all collection actions while they review your application and for 30 additional days if they deny your application. However, they will not stop collection actions if the following apply:

• Your offer seems frivolous, or you just applied to delay collections.
• You're on an active installment agreement – in that case, just keep making payments while they review your OIC application. 
• Your wages are being garnished -- although you can't stop the garnishment by applying for an offer in compromise, you may be able to get relief by establishing immediate financial hardship.

What if the state approves your offer?

If the state approves your request for an offer in compromise, the STC will send an approval letter. Then, you have 30 days to pay the offer. After you pay, the STC will release all state tax liens against you within 30 days – if you need the liens released faster, you should pay with cash or certified funds.

What if the state denies your offer?

If your offer is denied, you must pay in full or contact the agency to request monthly payments or other arrangements. The STC says that there are no appeal rights for denied offers, but you can consider these options:

1. Submit a new application with a higher offer amount.
2. Ask the collection agent for more details on why they didn't accept your offer.
3. Request a final review with the Taxpayer Services Division Management. 

As indicated above, the state will pause most involuntary collection actions for 30 days after denying your offer in compromise. However, once that period ends, the STC can go after your wages, bank accounts, or personal assets. To protect your assets, you should make payment arrangements as soon as possible.

Alternatives to Utah tax settlements

If you cannot get approved for an offer in compromise, you may want to consider:

• Monthly payments: The STC may approve installment agreements (monthly payments) on individual or business taxes.
• Penalty abatement: The STC may be willing to waive penalties in certain cases, helping to reduce the total amount owed.
• Bankruptcy: Be careful with this option, as you can generally only discharge income taxes that are at least three years old in bankruptcy.

Talk with a tax pro for more options. They can look at your unique situation and tailor their advice accordingly.

Special consideration for certain business taxes

If you're applying for an offer in compromise on withholding or sales tax, be aware that those are trust fund taxes. That means you collected those taxes from another party but didn't remit them to the government – for example, you withheld state income tax from an employee's paycheck or collected sales tax from a customer but never paid it.

The STC will accept offers on trust fund taxes on a case-by-case basis, but the state also has the right to assess a trust fund penalty of 100% of the unpaid taxes against responsible individuals. If you or your business is applying for a settlement of these types of taxes, there's a significant possibility that the STC may assess the trust fund penalty so that they can collect as much of the unpaid tax as possible. 

You may be able to get a settlement on a trust fund penalty, but the STC can assess this penalty against multiple people to increase the chances that they get paid.

What if you owe IRS taxes as well?

You can also apply for an offer in compromise on IRS taxes, and the rules are very similar. However, you should talk with a tax pro about how to approach the application process when you're dealing with both state and federal tax liabilities at the same time.

What if you get audited after the offer is accepted?

If the State Tax Commission audits your return after the offer is accepted, they may assess tax against you, and then, you will owe that additional liability. This can only happen if you settle taxes related to a return that's still eligible to be audited – generally, the state has three years to audit returns, but there are exceptions.

Get Help Now With Utah State Taxes

If you're dealing with Utah state tax liabilities, you need a professional who understands the tax laws and collection procedures in this state. Unfortunately, the big tax relief firms often lack state-specific experience, and even with IRS tax problems, they tend to overpromise and underdeliver. 

To get high-quality, legitimate help for your tax problems, use TaxCure to search for a tax professional. Then, narrow down the results based on the agency you're dealing with (for example, Utah State Tax Commission), the problem you're having (for example, unpaid taxes), and/or the solution you want (for example, state offer in compromise). 

You deserve peace of mind and a sustainable solution to your tax problem – let TaxCure help you find the guidance you need. Start your search for a Utah state tax professional below.