WI State Department of Revenue Offer in Compromise Overview
For people who truly cannot afford to pay their tax liability, the Wisconsin Department of Revenue has an offer-in-compromise program. An offer in compromise is when you pay off your tax liabilities for less than you owe. This program has strict eligibility criteria and a lengthy application process.
A Wisconsin tax professional can help you apply, or you can work through the process on your own. To help you out, this guide provides an overview of the essentials for people who can't afford to pay their state taxes.
Who Can Request a WI Offer-in-Compromise?
In Wisconsin, individuals and businesses, including corporations, LLCs, and partnerships, can apply for an offer in compromise. The State of Wisconsin accepts offers on income tax, sales and use tax, withholding tax, premier resort area tax, local exposition area tax, rental vehicle tax, successor liability, and personal or partnership liability taxes.
How to Apply for an Offer in Compromise in Wisconsin
To apply for an offer in compromise, you need to file an application with the WI DOR. Individuals should use Form A-212 (Offer in Compromise for Wage Earners and Self-Employed Individuals). Businesses should use Form A-213 (Offer in Compromise for Business). You need to include a range of supporting documents with both applications.
How Does the WI DOR Decide on Offers in Compromise?
When you apply for an offer in compromise, the WI DOR looks closely at your financial situation. Essentially, the department wants to ensure that it is collecting the largest possible settlement for the state. It takes into account your current finances as well as your projected future situation.
While reviewing your offer-in-compromise application, the WI DOR works through the following types of questions:
- Can you sell some property to pay off your WI tax bill?
- Can you borrow against property to pay your tax liability?
- Can you use another type of loan or a credit card to cover your WI state taxes?
- Is your lavish lifestyle or unnecessary expenses preventing you from paying your tax bill?
- Do you have the ability to earn money to cover the tax liability in the future?
- Is your financial situation likely to improve soon?
For instance, if you have an unnecessary asset that you can sell to pay the tax liability in full, the WI DOR typically will not accept your offer-in-compromise request. Similarly, if you can borrow against the equity in your home or your retirement account, the DOR may expect you to do that. You may also be required to pay the full bill if you have enough disposable income to make regular monthly payments.
On the other hand, if the details on your application clearly indicate that you cannot afford to pay any more than the offer, the state is likely to accept it. Beyond your finances, the WI DOR may also consider extenuating circumstances such as medical conditions.
How to Fill Out Wisconsin Form A-212
Individuals, married couples, self-employed people, and sole proprietors who owe business taxes can apply for an Offer in Compromise using Form A-212 (Offer in Compromise for Wage Earners and Self-Employed People). This is an 11-page form that requires very detailed information about your finances.
You need the following details when applying to settle your Wisconsin tax debt:
- Your identifying details and contact information.
- Your spouse's information.
- Name, age, and relationship of everyone who lives in your home.
- Details about your wages.
- Balances in the bank, investment, and retirement accounts.
- Cash value of life insurance policies.
- Fair market value and amount owed on real estate.
- Fair market value and amount owed on vehicles, including cars, boats, motorcycles, ATVs, snowmobiles, etc.
- Lease information for leased vehicles.
- A list of any valuable items and copies of appraisals. This does not include clothing, furniture, personal effects, or items worth less than $1,000.
- Information about business assets.
- Monthly household expenses include rent, mortgage, food, clothing, utilities, transportation costs, loan payments, etc.
- Whether or not you're the beneficiary of a trust, estate, or life insurance policy.
- If you're currently in bankruptcy or filed for bankruptcy at any point in the last decade.
- Details about any assets worth over $1,000 that you or your spouse have transferred for less than their fair market value in the last four years.
- Business income and expenses if you are self-employed.
You also need to include documents that support all of this information. Then, you note all of your Wisconsin tax liabilities, and you make your offer. You can choose between paying the full offer 10 days after acceptance, or you can propose to make monthly, weekly, or bi-weekly payments on your offer. You also have to explain where you are getting the funds.
How to Fill Out Wisconsin Form A-213
With the exception of sole proprietors, businesses should apply using Form A-213 (Offer in Compromise for Businesses). This includes business trusts, common law trusts, cooperatives, corporations, general partnerships, limited liability companies, limited liability partnerships, limited partnerships, statutory trusts, and unincorporated associations.
To complete this form, you need detailed information about your business bank and investment accounts, capital assets, real estate, accounts receivables, and any other assets. You also need to detail your business income and expenses and include three years' worth of profit and loss statements.
In Wisconsin, the business offer-in-compromise application also requests the following details:
- If your business is a beneficiary of a life insurance policy.
- If your business is in bankruptcy.
- If your business has filed for bankruptcy in the past.
- If your business has transferred any assets worth $1,000 or more for less than their value in the last four years.
- If any partners, officers, employees, or other interested parties owe money to the business.
- If the business has funds held in trust by a third party.
Then, you note all of your business's Wisconsin tax liabilities, and you make your offer. You can make a lump sum offer that you must pay within 10 days of being accepted. Or you can request to pay your offer over a 24-month period. The payments must be monthly, bi-weekly, or weekly.
Collection Actions When You Apply for an Offer in Compromise in Wisconsin
When you apply for an offer in compromise in Wisconsin, the DOR will continue any collection actions that are already in place. For instance, if the department is garnishing your wages, that will continue. The state will only stop in-process collection actions if it's in the best interest of the state.
Wisconsin will not start any new collection actions when you apply for an offer in compromise. But the state may issue a tax lien against you. That is why, if possible, you should apply for an offer in compromise as soon as you can. By applying, you can delay or stop the state from taking collection actions such as garnishing your wages or seizing your assets.
Tax Refunds When You Apply for a WI Offer in Compromise
If you receive any tax refunds while your offer in compromise is pending, the state will take them. This includes refunds from the IRS, the WI DOR, and any other states. The WI DOR will also seize refunds until you have met all of the terms and conditions of your offer.
The state can also take lottery winnings, unclaimed property, and vendor payments. All seized refunds and other payments go toward your tax liability, but they don't count toward your offer in compromise.
Bankruptcy and Offers in Compromise in Wisconsin
The WI DOR has special rules for people who file for bankruptcy before meeting the terms and conditions of the offer. If you file for bankruptcy, the DOR can file a claim for the full amount of the tax bill plus interest, penalties, and collections costs. Businesses and individuals should not apply for an offer in compromise if they are in an open bankruptcy case.
What if the WI DOR Rejects Your OIC?
The WI DOR will notify you in writing when there is a decision about your OIC application. If the department rejects your offer, it may send you a counter offer. Generally, this only happens if your original offer is close to the amount the DOR is willing to accept. Otherwise, the DOR will refer you to a compliance agent to help you make other arrangements on your tax bill.
If Wisconsin rejects your offer, you can ask for a second review of your OIC application. You must do so in writing, and you should include any additional details that may affect your case. Request your review in writing and send it to the following address:
Compliance Bureau Director
Wisconsin Department of Revenue
PO Box 8901
Madison, WI 53708
You can also re-apply if the WI DOR rejects your offer. However, unless your financial situation has changed or you make a substantially different offer, you are not likely to be accepted. You may want to work with a Wisconsin tax professional for the best results.
What If the WI DOR Accepts Your Offer in Compromise
If the WI DOR accepts your offer, you typically must make the payment within ten days. As explained above, you can request to make payments instead of paying a lump sum. Businesses that want installment payments must pay off their offers within 24 months of acceptance.
For individuals, the WI DOR doesn't specify a timeline to make installment payments on an offer in compromise. Instead, you suggest what you can afford. Then, the DOR decides on a case-by-case basis.
Generally, once you pay off the offer, the state will remove any tax warrants against you. However, if the offer requires you to meet any conditions, tax warrants may still be in place until those obligations are met.
Here's an example. Imagine that you are required to file and pay the next three years of your Wisconsin state tax returns on time as a condition of your offer in compromise. The tax warrant may stay in place until that happens. Then, if you break the terms of your agreement, the state can act on the warrant. Note that this is not necessarily a condition used by the DOR. This is just an example to illustrate how OIC conditions can affect tax warrants.
The state will remove the warrant within 45 days of when you satisfy all of the terms of the offer in compromise.
Three-Year Review for WI Offers in Compromise
In most cases, once you pay your offer in compromise, you are done with that tax bill. However, the WI DOR has the legal right to revisit your account in three years. If your financial situation has improved, the state may require you to pay the offer in compromise.
To give you a very basic example, imagine that in 2018, you settle a $20,000 Wisconsin tax bill for $5,000. In 2020, you win $20 million in a lottery. In 2021, the WI DOR reviews your situation and sees that you have millions in the bank. At this point, the state can require you to pay the $15,000 that was settled in 2018. Note that this is a very rare occurrence.
Can You Pay for a WI Offer in Compromise With a Loan?
You can take out a loan to pay for the offer in compromise. If you can get approved for a loan, this option can help you save money.
To give you an example, imagine that you owe $15,000 in WI state taxes and you apply to settle your bill for $10,000. Your bank agrees to loan you the $10,000. Once the WI DOR accepts your request, you use the $10,000 to pay your tax bill. Then, you make payments on the loan over time. With this setup, you have saved $5,000. Note that these are just sample numbers.
At the same time, you may also save on interest. Most personal loans have interest rates that are anywhere from 1% to 20% depending on current interest rates and your credit rating. In contrast, as of 2022, the WI DOR charges 18% interest on unpaid state taxes.
Obtaining Loans After Paying an Offer in Compromise
As noted above, there are situations where the WI DOR will not satisfy the tax warrant when you pay off the offer in compromise. Because the lien is a public record, this can make it hard for you to obtain loans. When lenders search your credit profile, they may see the lien. In this situation, you can ask the WI DOR to write a letter saying that the lien has been satisfied.
Get Help Applying for an Offer in Compromise
You don't have to travel this path on your own. You can get help with your Wisconsin back taxes as various WI state tax resolutions are available. A local Wisconsin tax professional can help you apply for an offer in compromise since it is a complicated process. They can also look over your situation and help you decide if you should pursue other tax resolution options.
Ready to get help? Then, use TaxCure to search for a Wisconsin tax professional. TaxCure makes it easy for you to find a well-qualified, trustworthy local tax professional. You can search for tax pros who have experience working with the WI DOR, and you can even narrow down your results based on their experience with your particular tax problem.