At the present time, when a taxpayer has back taxes and the amounts are not disputed, the case goes from the field agent to the collections division. The collections division does not have the authority to compromise the amount of tax, meaning that once the collections division has the past due bill, they are directed to pursue collecting the full amount.
Now on the Federal side of things, the IRS has the ability to reduce the amount of tax, penalties and interest under the “Offer in Compromise” Program. The program has been in place for quite some time, and during that time the effectiveness has been measured for efficiency and effectiveness.
Michigan HB4003 in its current state, and is making its way through the House and Senate is essentially adopting the Federal program. In fact, part of the bill says that if the taxpayer is granted relief under the Federal offer in compromise program, the taxpayer is (almost) automatically a good candidate for the new Michigan program. (1)
The bill has not received much, if any opposition. There a numerous groups that have publicly stated that they support the bill. (2)
From the information that I have gathered, I do not see an analysis that shows the projected fiscal impact, although the initial reaction is that the program will generate some revenue for the short term, but the long term is not yet known.
Tax practitioners like me, who specialize in representing taxpayers, agree that this is a fantastic piece of legislation – and long overdue. At present time, there are almost no options when trying to resolve collection issues between the taxpayer and the State.
When I have worked with the State and have (on numerous occasions) come to a complete “dead end”, when the taxpayer owes a lot of money and simply does not have the ability to pay it. It doesn’t always end up this way, but the State usually enters into an installment payment agreement, with a very small payment amount, that continues forever. From my vantage point, the State is saying that we may never collect the full amount that you owe, but if you ever win the lottery, the State will be in touch.
I think that this is a good thing. Feel free to give me your comments
Doug Zandstra CPA
(1) Hb 4003 Sec.23(a)(5) THE FACT THAT A TAXPAYER RECEIVED A FEDERAL COMPROMISE OF TAX IN A TAX YEAR IS PRIMA FACIE EVIDENCE THAT THE SAME TAXPAYER IS ENTITLED TO A COMPROMISE OF ANY SIMILAR OR COMPARABLE MICHIGAN TAX LIABILITY THAT EXISTS, AT LEAST IN A PROPORTIONAL AMOUNT, FOR THE TAX YEAR IN WHICH THE FEDERAL COMPROMISE WAS GRANTED.
(2) The Michigan Chamber of Commerce supports the bill. (6-12-13) The National Federation of Independent Business supports the bill. (6-12-13) The Michigan Association of Certified Public Accountants supports the bill. (6-12-13) The Detroit Regional Chamber supports the bill. (6-19-13) The Department of Treasury is neutral on the bill. (6-19-13)