Offer In Compromise of Tax Liability
Under certain circumstances the department may accept a taxpayer's offer to settle their tax liability for less than the full amount due. Taxpayers who meet the following qualifications may initiate the process by submitting the documentation listed below. The taxpayer bears the burden of establishing the grounds for a potential settlement and has no legal entitlement to have any tax liability settled through an Offer in Compromise (OIC).
Any submitted offer must reflect the taxpayer's maximum capacity to pay. The department reserves the right to conduct an independent examination of the taxpayer's financial condition in review of the documentation submitted to determine the veracity of the information contained therein. Any previously initiated collection activity will continue while a submitted offer is being considered. The state may rescind any acceptance of an offer if the taxpayer fails to comply with the required terms and conditions, if additional information becomes available or if the information provided by the taxpayer is found to be false.
The department will only consider a submitted Offer in Compromise if the following criteria are met:
- All required tax returns have been filed through the current period.
- The IRS has already accepted an Offer in Compromise covering the same years and liabilities.
- The State of Colorado has not previously accepted an Offer in Compromise from the taxpayer to cover prior liabilities
- The taxpayer has not previously received tax relief such as a tax liability discharged through bankruptcy, written off past statute, an innocent spouse relief or any prior settlement.
- The taxpayer cannot be reasonably expected to satisfy all outstanding delinquencies within the period for collection as prescribed by Colorado Revised Statute 39-10-101 (2)(b).
The following documentation must be included with the submission of an Offer in Compromise (OIC). Failure to include any of the following documentation will preclude the department from considering the submitted OIC.
- A copy of the IRS Form 656 stamped with the IRS Received Date.
- IRS Form 433 Collection Information Statement for Wage Earners and Self-employed Individuals
- Verification of IRS acceptance of a submitted Offer in Compromise
- Proof of payment for IRS Offer in Compromise
- An IRS "Record of Account"
- Any other relevant information pertaining to the Offer in Compromise agreement with the IRS
- The department's financial form Statement of Income and Expenses (DR 6596).
- Completed Offer in Compromise Terms and Conditions.
- A written statement detailing the circumstances that warrant special consideration for an Offer in Compromise as well as the amount being offered.
- Written disclosure of any transfer of real or personal property such as vehicles, cash or title transfer of property.
- Written disclosure of marital and filing status.
Acceptance and Payment
If an offer of settlement is extended, the taxpayer will be notified in writing and payment must be remitted in full within 15 days from the date of notice to the taxpayer, unless specifically stated otherwise by the department. No payment plans are allowed for less than the full taxes, penalty, and interest due. If a payment is made and the bank does not honor the check, the department will rescind the offer in settlement and the full tax liability including penalty and interest will be due.
Any overpayment of taxes for the following three years will be retained by the Colorado Department of Revenue and applied to the tax debt. The taxpayer may not reduce quarterly estimated payments or the amount of withholding during this time.