The Commissioner of DOR is authorized under Massachusetts General Laws, Chapter 62C, s 37A to accept a lesser amount than the tax liability owed if there is serious doubt as to whether the tax due can be collected. DOR has prepared the following information for accepting an Offer in Final Settlement (Offer) under this statute.
Instructions to Taxpayers
It is mandatory that tax returns for all non-filed periods be filed before making an Offer. Additionally, all liabilities not included in the Offer must be paid before the Offer can be considered for review.
Additional documentation, which may be requested by the case examiner, includes:
- Copies of current pay stubs for the last 4 pay periods.
- Copies of all asset account statements (checking/savings, Social Security, IRA, 401(k), etc.) for the last 3 months.
- Documentation of a recent (within the last 90 days) loan refusal from a financial institution for the amount of the liability.
- If applicable, a copy of the most recent mortgage statement(s) indicating the:
- Lender's name
- Address of the mortgaged residence and
- Current balance.
- If applicable, documentation of any medical condition cited in connection with the inability to pay the liability in full.
The following will result in the rejection of the Offer:
- Failure to comply with requests for additional information
- Submission of false information or
- Non-disclosure of material information.
DOR may, but isn't required to, accept an Offer. A taxpayer has no right to such a settlement. DOR doesn't negotiate on any Offer.
You aren't eligible for consideration of an Offer on the basis of doubt as to collectability if your Offer application is determined to be non-viable. Your Offer will be considered non-viable if:
- You haven't filed all state returns.
- You are involved in an open bankruptcy proceeding.
- Your liability is currently being appealed (Abatement, Appellate Tax Board, civil proceeding, etc.).
- You have filed Form DR-1, Request for Settlement Consideration to question the tax liability.
If your Offer application is reviewed and determined to be non-viable, DOR will send you a letter indicating why the Offer is not viable. The case will remain subject to collection activity.
The submission of an Offer will stop DOR's normal collection process only after the application has been:
- Initially processed and
- Placed in the Offer in Settlement inventory.
Until the inventory transfer is completed, interest and penalties will continue to accrue on any unpaid amounts the taxpayer is subject to other collection actions such as lien, levy or seizure.
It is important to note that discovery action will continue while the application is being processed. Discovery action includes, but isn’t limited to:
- Responsible Person determinations
- Return review.
The interception and application of any overpayments and/or refunds will also continue to take place.
For the period during which their Offer is pending, the taxpayers:
- Waive the benefit of any statute of limitations applicable to the assessment and collection of the liability sought to be settled
- Agree to the suspension of the running of the statutory period of limitations on assessment and collection.
In cases where the liability is reduced by more than half, or by $20,000 or more, the Attorney General of Massachusetts must review the settlement and has the authority to object to it.
Settlement agreements aren’t protected by the confidentiality provisions of the Massachusetts General Laws, Chapter 62C, §21.
The settlement agreement, signed by all parties and including the reasons for settlement, is a:
- Public record and
- Open to public inspection upon request.
A list of settlements is required to be published in the Department's annual report.
You may withdraw your Offer at any time up until a determination is made on your application.
Once an Offer takes effect, neither party may reopen the matter except for:
- Falsification or concealment of assets or
- Mutual mistake of material fact.
For more detailed information regarding the laws, regulation and administrative procedures, please refer to the following references: Massachusetts General Laws, Chapter 62C, §37A; and Administrative Procedure 634.
Documents and information to file
Please read A Guide to Offers in Settlement carefully and follow the instructions.
Listed below are the documents that are required when filing an Offer. All information must be filed in order for the Department to determine if the Offer can be processed:
- Form M-656: Offer in Settlement
- Signed copies of the last 3 years:
- IRS Form 1040 U.S.Individual Income tax returns including:
- All schedules and
- Any/all 1099’s and 1098’s
- IRS Form 1040 U.S.Individual Income tax returns including:
- Form M-433-OIS: Statement of Financial Condition and Other Information
- Form OIS/AB: Taxpayer’s Consent
- Form M-2848: Power of Attorney and Declaration of Representative
- You must file this if someone is acting as your attorney.
After you've completed the forms required, mail your Offer in Settlement application to:
Massachusetts Department of Revenue
P.O. Box 7021
Boston, MA 02204
Attn: Collections/OIS Unit/James Powers
Others factors for reviewing an Offer in Settlement
The Department considers other factors in determining whether or not to accept an Offer in Final Settlement.
- Repeated non-compliance or attempts to avoid paying an obligation weigh against accepting an Offer.
John has a history of repeatedly failing to file his tax returns, being audited and paying up only after the audit. This time, John submits an Offer in Final Settlement instead of paying the bill in full. The Offer may be rejected if John's compliance history indicates he will continue his historical pattern.
Mary has rebuffed all collection efforts until a notice of intent to seize is delivered to her business. Mary files an Offer in Final Settlement proposing to pay part of the amount owed two years after acceptance in full settlement of the liability. This Offer may be rejected as another attempt to avoid payment of the taxes due.
Kevin is the owner and manager of Kevin's Pub. Upon being notified that the Department believes he is the responsible person for the unpaid meals taxes, he transfers title to his house to his wife for nominal consideration and then files an Offer in Final Settlement not listing the home as an asset. This Offer may be rejected based on the apparent attempt to place assets beyond the Department's reach.
- Evidence that the taxpayer has the ability to pay the tax in full or to pay significantly more than the amount offered, either by liquidating assets, including pension funds, or by means of a payment agreement over a reasonable period of time may result in rejection of an Offer.
James has a retirement account worth $1,000,000 which is protected from his creditors but from which he is receiving monthly payments. He can withdraw funds if he chooses to pay his $50,000 tax bill. He proposes to make an Offer using funds received on a monthly basis from his retirement plan although he could pay in full by making a withdrawal. This Offer is likely to be rejected based on his ability to pay in full.
Karen has minimal assets but has a job that currently pays her $6,000 per month with the potential for her to earn more. Her normal living expenses are $3,500 although she is also paying $2,500 per month for the remainder of the year to settle a Federal tax obligation. Karen's Offer in Final Settlement on her $50,000 tax bill is likely to be rejected, as she could make a payment agreement that would allow her to pay in full fairly quickly once her IRS obligation is met.
- The potential for an increase in the taxpayer's earnings, the value of their assets or a decrease in expenses or the value of liabilities, particularly when collection activity has been pursued for only a limited period of time, may result in rejection of an Offer.
Mary was the general manager and responsible officer for MM, Inc., which has just been forced into Chapter 7 Bankruptcy. Mary is personally responsible for some unpaid sales and withholding taxes. Mary is also liable, as a guarantor, for most of MM's bank debt and the bank has a lien on her home to secure this. An Offer in Final Settlement submitted by Mary at this point may be rejected as premature because of the difficulty in evaluating what her earnings will be over the next several years and the difficulty in evaluating the value of her assets until the corporate bankruptcy is completed.
- The omission of information about assets or income on present or previously submitted financial statements may be grounds for rejecting an Offer in Final Settlement. Failure to respond to requests to clarify or document information on the financial statement may also result in rejection of an Offer in Final Settlement.
Anne submitted an Offer in Final Settlement failing to disclose her ownership of an expensive sports car. DOR discovered this during an investigation of her financial status and her Offer was rejected. Anne files a new, increased, Offer with a new financial statement that does list the automobile. This new Offer may be rejected because of the prior deliberate omission; the Department must be able to rely on the information provided.
Joseph submitted a financial statement which listed monthly expenses of $3,700 and monthly income of $1,900 from his business and $1,800 in gifts from friends and relatives. When asked to document the monthly gifts, Joseph failed to do so other than to reiterate that every month he did receive $1,800 from unnamed sources. Joseph's Offer in Final Settlement may be rejected due to unresolved doubts about the accuracy of the information he has submitted.
- Taxpayers currently in bankruptcy are not eligible to file based on doubt as to collectibility. A taxpayer may file for an Offer in Final Settlement for non-dischargable taxes after the bankruptcy case is completed. The financial statement should only list obligations not discharged.
Mary files for Chapter 7 and submits an Offer in Final Settlement. The offer will be rejected. Money due to the Commonwealth from the debtor's estate will come to the Commonwealth anyway. Mary may submit a new Offer in Final Settlement after the bankruptcy is completed. Mary's ability to pay the taxes may be increased by the discharge of her other liabilities.
- The best interests of the Commonwealth will be a factor in evaluating an Offer. For example, when the liability includes trust fund taxes collected from others (withholding and sales taxes), an Offer for less than the amount collected on the Commonwealth's behalf and still unpaid is rarely accepted.
XYZ Sports Cards has been collecting but not paying over the sales tax for two years. They file delinquent returns along with an Offer in Final Settlement proposing to pay only 25% of the amount collected. Due to the nature of the tax, this Offer may be rejected as not being in the best interest of the Commonwealth.
- Prior attempts by the Department to collect the tax. The longer and more thorough the history of collection activity by the Department, the more likely the collectibility of the account is considered doubtful.
Lisa has been subject to collection activity by the Department and by private collection agencies working for the Department over the past two years. She has made a payment agreement and broken it when she could not keep up with the monthly payments. She has been levied at her bank and at her place of employment, each of which generated some funds that were applied to the liability. She now files an Offer using funds borrowed from her parents. Lisa's collection history is a positive factor in evaluating the Offer.
Lisa's collection history would still be a positive factor if she had kept the agreement for two years but found that the liability was still outstanding because the amount she was able to pay under the agreement was not sufficient to amortize the debt. In this case, the fact that Lisa's ability to pay has not increased over the past two years suggests that it may never increase significantly and suggests that the Commonwealth may be better off accepting a lump sum.
- The amount of time remaining to collect the liability is a factor in evaluating the Offer in Final Settlement. Generally, the shorter the timeframe left for the tax to be collected, the more likely the Department will consider a taxpayer's Offer.