A state tax settlement is an agreement where a taxpayer and the state tax department come into agreement to settle a tax liability through one of the IRS or state programs.

Each state varies on what type of tax settlement program they offer and the guidelines in submitting them. In fact, most have very stringent guidelines when submitting a tax settlement.

Tax Settlement Categories

Basically tax settlements fall into 2 general categories:

1. The first type is where the tax liability cannot be paid back in full and the taxpayer may qualify to pay back less than the tax liability owed. This would include an Offer in Compromise, partial payment plan and abatement of penalties.
2. If the taxpayer does not qualify for a settlement for less than the amount owed, then there are two other options. One is an installment agreement where a monthly payment plan is setup to pay the tax liability back over a specified period of time. The other is uncollectible or hardship and is usually due to an extenuating circumstance where the taxpayer cannot pay anything at this time. It could be unemployment, family or medical condition. This is a temporary arrangement where the IRS or state stays collection action until the tax payer’s financial situation changes.  This will not eliminate the tax debt or stop interest from running.

Typically, when a taxpayer owes both state and IRS tax liabilities, the state liability is usually less. Most of the time, an installment agreement will need to be done with the state.

Offer In Compromise

However, there are taxpayers who cannot pay the state back in an installment and are looking for tax relief, typically in a tax settlement where less than the full amount of the tax liability is paid back. Typically, this is done through an Offer in Compromise.

An Offer in Compromise is an agreement between the IRS or state agency where the taxpayer pays less than the full amount of the tax liability.

Most states do have an Offer in Compromise program. Most states will require full financial disclosure when submitting an Offer in Compromise.

States make their decision on whether to accept an Offer in Compromise on various factors. These typically include the taxpayer’s income and expenses and assets. Other factors include, age, medical condition and circumstances that created the tax debt.

State agencies will also look not only on the taxpayers current financial condition and circumstances but what could be collected in the future given the taxpayers age, employment, medical condition and any other extenuating circumstances.

An Offer in Compromise with state agencies can usually take anywhere from a few months to over a year.

With over 20 years of Offer in Compromise experience, CKTax will thoroughly evaluate your unique tax situation to see if a state Offer in Compromise might be the right option for you.

If you have a state tax problem or have questions about state taxes, please contact us at 888-894-2005 or fill out the Free Evaluation form below.