A compromise is a written agreement to settle an unpaid tax debt for less than the full amount owed; it does not include the penalty and interest accrued. The Commissioner of Revenue can compromise tax debts when it is in the state’s best interest to do so. View the statute (Minnesota Statutes, section 270C.52).
Compromise requests can be made at any time; however, a lack of funds is not just cause. A compromise is rarely agreed upon with an active business.
The department and Internal Revenue Service (IRS) apply different factors when considering a compromise offer. Consequently, a compromise that was approved by the IRS may not be approved by the department. Compromise requests for other agency debts
must be directed to the referring agency for determination.
If a debtor is seeking a compromise for a jointly filed debt the compromise can be pursued together or separately. If pursued jointly, both debtors complete the application, and the assets and income of both filers are used to determine the ability to pay.
When reviewing a compromise request, the department considers the following:
Each compromise request must include a $250 nonrefundable application fee, which is applied to the debt regardless of whether the compromise is accepted.
The department processes compromise requests within 90 days, once all the required documentation is received. Any current or pending collection actions will continue while the department reviews a debtor's compromise request.
If there is a tax lien prohibiting the debtor from obtaining a loan, the department can supply the lender with a letter explaining that the lien will be released upon receipt of secured funds
in the amount specified. The lender may issue payment directly to the department and then loan money to the debtor.
Considerations before Submitting a Compromise
Offers are only considered when they are in the state’s best interests. The department’s Collection Division has five years to collect tax debts, and filing a lien
extends the ability to collect those debts an additional 10 years. A lien can also be renewed.
It is important that the debtor completes the financial statement and compromise questionnaire accurately and honestly. If the information is not complete, or if it is discovered that the debtor did not disclose all assets or income, the request will likely be denied.
To assess a debtor's ability to pay, the department must establish where all household income comes from and who is paying the expenses. This assessment includes members of the household who may not be liable for the tax debt. The debtor is not legally required to provide this information; however, if not provided, the department may not be able to make an accurate determination of ability to pay, and the request may be denied.
The debtor must declare on the compromise questionnaire the maximum amount of funds available to pay for the debt. If the amount listed is not within 25 percent of what the department calculates as could be collected by liquidating assets, a loan, a payment agreement
or a levy
, a denial will be issued. If the amount listed and the calculations made by the department are relatively close, further negotiations are warranted, but an agreement is not necessarily certain.
The department requires full payment of the compromised amount no later than 30 days after acceptance of the offer. If payment is not received within 30 days, the compromise is no longer valid.
Decision by the Department
If a compromise is accepted, the department will prepare a written compromise agreement for signatures. This agreement does not take effect until all parties have signed it. The compromise payment must be made within 30 days in one lump sum with secured funds.
If the department or the Attorney General rejects a compromise proposal, the decision cannot be appealed. However, the debtor may request reconsideration by the Taxpayer Rights Advocate