In a procedure similar to the federal offer in compromise, the state of Indiana allows a taxpayer to be considered for a lesser payment, provided he makes full financial disclosure and is current on tax filings. According to the rules of the Department of Revenue, an offer in compromise can settle a debt which is owed for a lesser amount in two ways: 1) with a “one time” lump sum payment, or 2) with a short payment plan starting with an immediate down payment. If a payment plan is proposed, these offers are considered most favorably if they are for 24 months or less.
Of course, many taxpayers want to consider the offer in compromise after a levy of wages or a bank account freeze. Most often, this is an attempt at settlement that is “too little too late”. At this point, bankruptcy should be considered to stop the collection process. Bankruptcy is normally quite effective here, and I have used it personally many times as a negotiation tool, or as a remedy of last resort.
Nevertheless, if income is fully disclosed (including past tax returns), and income and expenses are documented in detail, an offer in compromise will be considered. At the time the offer is submitted, the specific down payment should be forwarded, along with the taxpayer’s proposal for a monthly payment amount. Note that the down payment must be received with that offer before it can be considered.
The Department of Revenue reserves the right to review these cases periodically even after they have been accepted and payments commenced. They may require updates on information previously submitted. However, if all future returns are filed on time and all amounts due are timely paid, the chances are good that a taxpayer who has had his offer in compromise accepted will be able to successfully complete the program.
Having reviewed a number of these situations with the Department of Revenue, it is my opinion that offers in compromise are difficult to achieve, through the Department of Revenue Taxpayer Advocate Office. Nonetheless, working with the revenue officer at the government center in downtown Indianapolis frequently will lead to a settlement that is effective for all parties.
Questions? Please don’t hesitate to call and talk to me personally, at (317) 266-8888.