How Do You Make a New York Offer in Compromise?

February 12, 2018

As we’ve discussed before, an offer in compromise (OIC) is one of the best means to settle your back tax liability for less than the full amount. OICs have been used to help literally millions of Americans bring either their federal or state accounts up-to-date and begin on a fresh track. In New York State, taxpayers can submit an OIC to the New York Department of Taxation and Finance in order to address back taxes accumulated at the state level. For those who qualify, filing a New York Offer in Compromise may be one of the best financial decisions they can make.  

Just as with federal OICs, a New York Offer in Compromise is reviewed by an analyst who determines whether a given OIC will be accepted based on certain criteria. One of the central criteria is whether the OIC constitutes a “reasonable offer.” What is reasonable in the eyes of the State may be at variance with what seems reasonable to the typical person, and so in this post we will discuss in detail the contours of what is meant by “reasonable” for a New York Offer in Compromise. If you know what the State considers reasonable, you will ultimately save yourself time and money and also prevent unpleasant surprises. 

Reasonableness in a New York Offer in Compromise

When determining whether a given New York taxpayer’s offer is “reasonable” or not, the Department of Taxation and Finance performs a case-by-case analysis and looks at the entire set of facts presented by the taxpayer. However, the State always gives the same weight to the same things in all instances, and so it’s very possible to develop a sense of whether your OIC is likely to succeed or fail prior to submitting it to the State. In making its determination, New York considers two primary factors: the State’s ability to collect the existing debt through established legal channels, and the overall financial condition of the taxpayer. For a New York Offer in Compromise to be accepted, the taxpayer must show that paying the tax in full would create “undue economic hardship,” and so an offer isn’t reasonable unless it can be shown that acceptance of the offer is needed to prevent a dire financial situation. 

Your overall financial condition is computed by taking account of all of your relevant financial information. New York State Form DTF-5 is used to list the details of your financial condition.  Relevant information includes your annual income, your living expenses, number of dependents, earning potential, employment history and so forth. Your entire financial situation is considered when making a decision as to whether your OIC is acceptable. You must also include documentation to firmly back up everything you claim regarding your financial condition, otherwise your OIC will be rejected. 

Your assets are also factored in with your overall financial condition. Even if you have no income at the time you file your OIC,  if you have significant assets tied up in either real or personal property, the State may still reject your offer. If, when you add everything up, the value of all your assets exceeds the amount you owe in New York State back taxes, then your offer will be considered “unreasonable” because the State can simply seize your assets to satisfy the debt. 

A reasonable offer to the State, therefore, is one which accurately represents both your ability to pay the debt and the State’s ability to collect the debt. So, for instance, if you owe $50,000 in back taxes to New York State but you have assets totaling $100,000, your offer of anything less than full payment will be rejected very quickly. But, if you owe $50,000 and you have assets adding up to only $25,000, then your offer may be regarded as reasonable depending exactly on what amount you’re willing to settle on.  

The actual offer is made on one of two forms:  a New York State Form DTF-4 or Form DTF-4.1.  The Form DTF-4 is used for for liabilities that are not fixed and final, and still subject to administrative review.  The Form DTF-4.1, by contrast, is used for liabilities that are fixed and final.  New York State Publication 220 explains the details governing the State’s Offer in Compromise program.

As we can see, though reasonableness may seem like an easy enough concept to define in everyday conversation, it’s a bit trickier to nail down in the context of New York State Offers in Compromise. No matter what the specific facts of your situation may be, it’s best to always consult with a qualified New York tax attorney before you begin to prepare your OIC so you increase your odds of success. The professionals at Mackay, Caswell & Callahan, P.C. have substantial experience guiding taxpayers through both federal and New York Offers in Compromise and can assist you with any OIC-related inquiries. 

Image credit: Guido Barberis 


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