NC Tax Offer In Compromise Overview
An NC tax offer of compromise (OIC) is when the North Carolina Secretary of Revenue decides to accept a settlement for back taxes for a lesser amount than what is due when the secretary determines that it is in the best interest of the state. Specifically, N.C Gen. Stat. § 105-237.1 provides authority for the Secretary of Revenue to consider an OIC. Consequently, the North Carolina Offer In Compromise program allows qualifying, financially distressed taxpayers the opportunity to pay off their tax liabilities through one lump sum. The benefits of the program include the ability for the taxpayer to settle their tax liability in full. The goal of the program is to resolve a tax liability in the best interest of the taxpayer and the State.
Qualifying Circumstances for an NC Offer In Compromise
To qualify for an Offer In Compromise, the Secretary of Revenue determines the OIC is in the best interest of the state and makes “one or more or the following findings:”
- Under the laws and facts, there is reasonable doubt as to the amount of the liability of the taxpayer
- The taxpayer is insolvent, and the Secretary could probably not collect an amount equal to or more than that offered in compromise. A taxpayer is insolvent if:
- A judicial proceeding determined the taxpayer to be insolvent
- It is “plain and indisputable” that the taxpayer is “clearly” insolvent and will remain so in the reasonable future
- It is improbable that the state will collect more than what the taxpayer offers in compromise, and a substantial portion of the funds used to make the offer are from sources the Secretary could not otherwise collect from
- The taxpayer had an OIC accepted by the IRS for a federal tax assessment “arising out of the same facts,” “on the same or similar basis as that proposed to the state” and the Secretary could probably not collect an amount equal to or more than the amount offered in compromise by the taxpayer.
- Collecting a greater amount than what the taxpayer offered in compromise would produce an unjust result “under the circumstances.”
Other Findings Considered Specifically Related to a Business
- “The taxpayer is a retailer or a person under Article 5 of this Chapter; the assessment is for sales or use tax the retailer failed to collect, or the person failed to pay on an item taxable under G.S. 105-164.4(a)(10) through (a)(15), and the retailer or person made a good-faith effort to comply with the sales and use tax laws. This subdivision expires for assessments issued after July 1, 2020.”
- “The assessment is for sales tax the taxpayer failed to collect or use tax the taxpayer failed to pay as a result of the change in the definition of retailer or the sales tax base expansion to (i) service contracts, (ii) repair, maintenance, and installation services, or (iii) sales transactions for a person in retail trade. The Secretary must determine that the taxpayer made a good-faith effort to comply with the sales and use tax laws. This subdivision applies to assessments for any reporting period beginning March 1, 2016, and ending December 31, 2022.”
North Carolina Offer In Compromise Basic Requirements
To qualify for an Offer in Compromise, you must provide financial documents that indicate that the state would probably not collect full payment in the foreseeable future.
You must also:
- pay all estimated payments (if required) for the current year
- file all required tax returns and reports
- have received a final notice of assessment for all North Carolina taxes that you owe
- not be the subject of an open or active bankruptcy case
- file the current year’s tax return(s) and paid any liabilities shown due in full. The current year’s tax return is the return most recently due.
Steps to Prepare and Submit OIC
To apply for an offer in compromise, a taxpayer must:
- Complete OIC-100 Form
- Complete your OIC-1062 if they are an individual or sole proprietor or OIC-1063 if they are a business (notate “NA” for any times that do not apply)
- If the source of funds for the OIC come from a third party, attach form OIC-102 to OIC-100.
- Provide supporting documentation
- NC will require the taxpayer to provide the last two months paystubs if they are a wage earner. Moreover, they will also need to provide copies of the previous three bank statements for all accounts, complete copies of last two federal income tax returns (if you had to file), and a current federal account transcript for each outstanding period and tax schedule for money owed to IRS. Furthermore, substantiation for any claims of special circumstances made in section 8 of OIC-100. Finally, the taxpayer must also substantiate claimed mortgages or vehicle liens.
- Ensure your liabilities have been finally assessed by the Department
- Pay a 20% down payment of the amount of your offer when you submit your OIC (that is non-refundable). Exceptions for this is when the taxpayer is below federal poverty guidelines or when the taxpayer submits form OIC-12 with the OIC.
- Provide a computation of claimed corrected tax due if the basis for your compromise is reasonable doubt as to the amount due
- Submit information to the service center that serves your county of residence. You can find these on page 12 of the OIC booklet.
Documents and Related Forms
You must complete an OIC-1062 if you are an individual or an OIC-1063 if you are a business. All business offers must attach an OIC-1062 form for each officer, partner, or member.
Everyone must fill out an OIC-100 Offer In Compromise. You should fill out the OIC 101A, OIC 101B, or OIC 101C depending on if you are an individual, business or sole proprietorship.
- RO-1062 Collection Information Statement for Individuals or Sole Proprietorships. Individuals need to complete sections one through eight. Proprietorships and the self-employed must complete sections one through ten.
- RO-1063 Collection Information Statement for Businesses (for corporations, partnerships, LLCs, etc.)
- OIC-100 Offer In Compromise
- OIC-101A Worksheet for an Individual
- OIC-101B Worksheet for a Business
- OIC-101C Worksheet for a Sole Proprietorship
- OIC-102 Third Party Affirmation (must be notarized)
Note: Information on OIC-1062 and 1063 help the state determine collection potential. If the state decides that you can pay your tax liabilities quickly or through the use of an installment payment agreement (payment plan), then NC will most likely deny your offer.
Financial Factors NC Secretary of Revenue Considers
The state will analyze liquid assets, real property, personal property, and all other property. Your asset values, minus any liens superior to the Department’s, will equal your total equity in assets. The Department calculates your monthly disposable income by subtracting the lesser of monthly allowable or actual expense from total income. It will also consider future disposable income. Total allowable monthly expenses are computed using the Collection Financial Standards provided by the IRS.
If the taxpayer’s income varies from month to month, the Department of Revenue may require a longer period of documentation.
If NC’s DOR accepts the offer, the taxpayer must pay the full amount of the OIC by the date specified in the acceptance letter (usually 30 days from the date of the letter).
The taxpayer must pay 20% of the amount offered in compromise in certified funds when the taxpayer submits the OIC. There is an exception if the taxpayer’s income falls below the federal poverty guidelines or if the taxpayer includes a Third Party Affirmation form with the offer. If the OIC is later denied, NC will not refund the 20% down payment.
If NC Accepts the Offer In Compromise
Payment of the accepted offer must be made in certified funds or by credit card by the payment due date as indicated on the acceptance letter (usually 30 days from the date of the acceptance letter). Furthermore, the total amount due will be the accepted offer amount less the 20% down payment. Payment plan payments currently in effect will have no impact on the remaining 80% due. If NC receives the remaining 80% due with the offer acceptance, DOR will release the recorded Certificate of Tax Liability
The Department does not accept payment plans on an offer in compromise.
NC’s DOR will not necessarily stop forced collection actions because an Offer In Compromise is submitted.
Reasons for Denial
The NC Department of Revenue may deny an Offer In Compromise if the taxpayer fails to meet the basic requirements discussed above. Other reasons for denial may include:
- Failure to provide the necessary documentation or providing insufficient documentation
- Omitting items from collection information statement
- History of noncompliance
- DOR determines the value of the property is different than what the taxpayer shows on financial statement
- If the tax debt is based on taxes collected from others and it is not remitted (payroll or sales taxes)
- If DOR determines they can collect more over the statutory period of collection than the amount offered
- Taxpayer’s current installment agreement will pay more over the statutory period of collection than the offer
North Carolina statutes make no provision for appeal of a denied offer. However, the Department may reconsider a denied OIC if there is a material change in the taxpayer’s circumstances, or if the Department misinterpreted information contained in the original offer. Most importantly, the denial letter will include contact information for the Revenue Officer assigned to your case for questions or clarifications.
The Bottom Line
NC’s Offer In Compromise program is a great option for financially distressed taxpayers to resolve tax liabilities. However, many do not qualify. Therefore, working with a licensed tax professional can help make the process easier. In other words, a licensed tax professional with experience in tax resolution can help improves a taxpayer’s chances for acceptance. A taxpayer is denied an offer in compromise, you can request to pay your liability through an installment payment agreement.
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.