Minnesota DOR Tax Compromise: Rules and How to Apply

Minnesota Department of Revenue Tax Compromise

If you owe more Minnesota tax debt than you can reasonably pay, a tax compromise may be the solution for you. The Department of Revenue (DOR) allows certain tax debts to be settled for less than the full amount if you’re unable to pay or if paying would cause financial hardship.

While this isn’t an option for everyone, it can lead to significant tax savings for those who qualify. Learn more about the compromise option offered by the DOR, and to discuss your case in greater detail with our experienced tax team, call BestTaxPro™ at 763-477-4205.

Key Takeaways

• The Minnesota (MN) Department of Revenue allows eligible taxpayers to settle their state tax debts with a tax compromise.
• The MN compromise is similar to the IRS offer in compromise (OIC), but there are several key differences.
• Given the differences between the IRS OIC and MN compromise application requirements, acceptance for one doesn’t guarantee acceptance for the other.
• Anyone considering a Minnesota compromise to resolve their tax debt is advised to consult with a tax professional for guidance during the application process.

What Is a Tax Debt Compromise With the Minnesota DOR?

A tax debt compromise essentially settles your tax debt forless than you owe. It’s similar to the offer in compromise program offered by the IRS, but only for Minnesota state tax debts. While the DOR would prefer to collect all tax debt in full, they recognize that this isn’t a viable option for all taxpayers, so they’re willing to compromise by settling for the amount they could reasonably collect from you.

Minnesota Statute 270C.52 gives the Department of Revenue the legal authority to accept a compromise payment when a taxpayer’s financial situation doesn’t allow them to pay in full without suffering financial hardship.

Who Qualifies for a Minnesota Tax Compromise?

The DOR accepts tax compromise applications from both individuals and businesses, although restitution debt does not qualify for a tax compromise. If a taxpayer owes debt as part of a joint tax return or audit, they may request a compromise jointly or separately. To apply separately, you must first apply for a separation of liability through the DOR.

In determining whether a taxpayer can afford to pay their tax debt in full, the Department of Revenue looks at the full scope of their financial circumstances. Some of these circumstances include your income, any equity held in assets, liabilities, and expenses.

The DOR also uses federal and state expense guidelines to determine reasonable living expenses when analyzing your offer. Housing and utility expenses are broken down by county and family size.

For example, a taxpayer with a family size of three in Ramsey County could exempt up to $2,461 in housing expenses. Allowable living expenses calculated at the federal level include food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous expenses.

It’s important to note that the Minnesota Department of Revenue is fairly strict when it comes to this program. You’ll be asked to provide proof of all assets you own, as the DOR expects you to liquidate those to pay your debt rather than rely on a tax compromise. Even if giving up certain assets means a change in lifestyle and standard of living, the DOR expects full payment if reasonably possible.

MN DOR Compromise vs. IRS Offer in Compromise

While there are significant similarities between a Minnesota tax compromise and an IRS offer in compromise, they’re not the same. These are some of the similarities shared by these programs:

• Extensive documentation required: Both programs require extremely detailed financial disclosures. Financial documentation is required because both the IRS and the DOR want to verify that you have exhausted every other payment option before asking to settle your tax debt.
• OIC Lump sum and payment plans available: The IRS explicitly allows one lump-sum payment or periodic payments spread out over 24 months. The DOR generally expects lump-sum payments but is open to payment plan suggestions during the OIC application process.
• Low acceptance rates: In both of these programs, you’ll find low acceptance rates. Neither agency wants to lose more money in tax settlements than it has to, and so they only accept tax compromises when it’s in their best interest to do so.

There are also several ways that these programs are different:

• Eligibility standards: The Minnesota Department of Revenue generally accepts tax compromises only when there’s a doubt that the agency can collect the full amount owed. The IRS has additional acceptance criteria where the IRS may accept applications if there’s doubt as to liability or for effective tax administration.
• Turnaround time: The IRS offer in compromise program is often very backlogged, with some taxpayers waiting upwards of one full year for a response. In comparison, the Minnesota Department of Revenue often reviews tax compromise applications within 90 days of receipt.
• Level of detail required: Extensive financial disclosures are required for both programs, but the IRS’s application goes into even greater detail. For example, the MN DOR application asks for the make and model of your vehicle, current monthly payment, and equity in the vehicle. IRS Form 433-A (OIC) also requests the mileage, license, and tag number, whether you own or lease, the name of the creditor, and the date purchased.
• Application fee: The IRS application fee is $205 plus either one periodic payment or a 20% down payment. The Minnesota DOR only charges a $250 fee that is applied to what you owe.

How to Apply for a Tax Debt Compromise

The application process for a Minnesota tax compromise is straightforward, although it requires a lot of supporting documentation and financial information:

1. Fill out the necessary paperwork. The Compromise Questionnaire and Application is required for all applicants. Active businesses must also complete Form C58B – Business Financial Statement.
2. Attach supporting documentation. The forms include the supporting documentation you must provide, including two current paystubs, three months’ worth of bank account statements, current billing statements for liabilities, and documentation of any expenses over the federal or state exemptions.
3. Pay the application fee. You can either pay online or via check payable to the “Commissioner of Revenue.”
4. Submit your application. You can apply online or via mail.
5. Wait for an acknowledgement letter and decision. The DOR will send a letter acknowledging receipt of your application. They will then send a final decision within 90 days.
6. Pay the remainder you owe if accepted; consider applying again if rejected. If your offer is accepted, pay the remainder that you owe as a lump sum or in payments approved by the DOR. In some cases, the MN DOR will respond with a counteroffer. If your application is rejected, you may apply again if you have new information.

Can You Settle IRS Debt and MN DOR Tax Debt?

You may be able to settle both your IRS debt and your Minnesota DOR tax debt with an OIC. However, it’s important not to assume that getting an application approved through one agency means that you’ll be approved by the other. There are some differences in qualifications and requirements, and failing to account for those differences could lead to an incomplete tax strategy that only addresses part of your tax debt.

This is why we recommend a coordinated strategy that considers both your state debt and your federal debt. At BestTaxPro™, we are fully versed in the different requirements for a Minnesota tax compromise and an IRS offer in compromise. That experience allows us to build a tax relief plan that tackles all of your tax debt in a way that is financially reasonable for you.

Work With BestTaxPro™ for Your MN DOR Tax Compromise

Led by Joshua A. Webskowski, an Enrolled Agent with over 20 years of tax experience, BestTaxPro™ has the knowledge needed to tackle complex tax problems—including tax debt spanning state and federal agencies. Joshua is also a United States Tax Court Practitioner, which allows him to represent you in Tax Court if needed.

Our knowledge of federal offer in compromise requirements and MN DOR policies means that we can detect weak spots in your applications, supplement them with evidence, and ensure that your application is as strong as possible before submission. Instead of guessing throughout the entire process, you can get personalized guidance from start to finish.

At BestTaxPro™, we’re committed to helping taxpayers like you find solutions that fit their financial needs, tax situations, and long-term goals. Whether you only need to pay off Minnesota tax debt or you also owe the IRS money, we’re here to work with you and give you the peace of mind you deserve. Take the first step toward tax relief now. Call us at 763-477-4205 or contact us online to schedule a consultation.