New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter XIII - Compromises › Part 5005 - Compromises Under Subdivision Fifteenth Of Section 171 Of The Tax Law › Section 5005.1 - Offers in compromise of fixed and final tax liabilities

Current through Register Vol. 46, No. 28, July 10, 2024
Tax Law, § 171(15th)
(a)
General.
Section 171  subdivision fifteenth of the Tax Law allows for
				  offers in compromise for any taxes or other impositions or any warrant or
				  judgment of taxes or other impositions administered by the Commissioner of
				  Taxation and Finance. The provisions of section 171, subdivision fifteenth and
				  this Part apply to any tax or other imposition administered by the
				  commissioner. Under section 171 subdivision fifteenth, an offer in compromise
				  may only be made where the liability has been finally fixed and where the
				  taxpayer has exhausted the taxpayer's protest rights.
(b)
Grounds for compromise.
(1) A compromise under this section may be
				made where the taxpayer has been discharged in bankruptcy or is shown by proof
				to be insolvent, or where an individual taxpayer shows by proof that collection
				in full would cause the taxpayer undue economic hardship. The amount acceptable
				in compromise must reasonably reflect collection potential or be otherwise
				justified by proof offered by the taxpayer. In the case of trust tax
				liabilities (
e.g.,
withholding or sales, but not use, taxes),
				an amount less than the tax, exclusive of penalties and interest, would not
				normally be acceptable. If, however, upon consideration of all factors, it is
				apparent that accepting an offer would be in the best interests of all parties,
				an offer may be accepted for an amount less than the tax as long as the amount
				offered reasonably reflects collection potential. In addition, with respect to
				trust tax liabilities, a responsible person of the taxpayer may make an offer
				to compromise such person's liability. A separate appraisal will be made of the
				ability of such responsible person to pay in determining if an individual offer
				should be accepted. Acceptance of an offer from one responsible person with
				respect to trust tax liabilities will not relieve any remaining responsible
				persons - nor the entity itself - from any outstanding balance due on the total
				liability.
(2) For purposes of
				paragraph (1) of this subdivision, a taxpayer is insolvent where the taxpayer's
				liabilities exceed the fair market value of the taxpayer's assets. In
				determining the taxpayer's liabilities, all liabilities will be included,
				including the amount of the taxpayer's tax debt.
(3) Undue economic hardship.
(i) Undue economic hardship occurs when a
				taxpayer is unable to pay reasonable basic living expenses. The determination
				of a reasonable amount for basic living expenses will be made by the department
				and will vary according to the unique circumstances of the individual taxpayer.
				The inability to maintain an affluent or luxurious lifestyle does not
				constitute undue economic hardship. Because economic hardship is the inability
				to meet reasonable basic living expenses, it applies only to individuals,
				including sole proprietorship entities. Undue economic hardship does not apply
				to corporations or other non-individual entities. The taxpayer's financial
				information and special circumstances will be examined.
(ii) Financial information. The taxpayer's
				income and basic living expenses must be considered to determine if the
				taxpayer qualifies for an offer in compromise due to undue economic hardship.
(a) Basic living expenses are those expenses
				that provide for the health, welfare, production of income of the taxpayer and
				the taxpayer's family. The department will look to national and local standard
				expense amounts used by the Internal Revenue Service as a guideline to provide
				accuracy and consistency in determining a taxpayer's basic living
				expense.
(b) Expenses that are not
				generally allowed as necessary living expenses unless the taxpayer can show
				that the expenses are necessary for the health and welfare of the taxpayer or
				the taxpayer's family or for the production of income include but are not
				limited to:
(1) tuition for private
				schools;
(2) public or private
				college expenses;
(3) charitable
				contributions;
(4) voluntary
				retirement contributions;
(5)
				payments on unsecured debt, such as credit cards; or
(6) other similar expenses.
(iii) Other factors. In
				addition to the basic living expenses, other factors are considered that can
				impact a taxpayer's financial condition, including:
(a) taxpayer's age and employment status and
				history, and the taxpayer's ability to earn;
(b) number, age and health of
				dependents;
(c) cost of living
				where the taxpayer resides;
(d)
				extraordinary circumstances such as special educational expenses, a medical
				catastrophe or a natural disaster;
(e) any other fact that the taxpayer claims
				bears on economic hardship.
(iv) Factors that support an undue economic
				hardship determination may include:
(a) The
				taxpayer is incapable of earning a living because of a long term illness,
				medical condition or disability, and it is reasonably foreseeable that the
				taxpayer's financial resources will be exhausted providing for care and support
				during the course of the condition.
(b) The taxpayer has a set monthly income and
				no other means of support and the income is exhausted providing for the care of
				dependents.
(c) The taxpayer has
				assets, but is unable to borrow against equity in assets, and liquidation to
				pay the outstanding liability would render the taxpayer unable to meet basic
				living expenses.
(4)
(i)
				Reasonable collection potential is based on the total realizable value of the
				taxpayer's assets and the amount that could reasonably be expected to be
				collected from the taxpayer's anticipated future income, after giving effect to
				all priorities granted to New York State and applicable statutes of limitations
				on collections.
(a) The realizable value of
				the taxpayer's assets is the amount that could reasonably be expected from the
				sale of the assets within 90 days or less (quick sale value) minus any amount
				owed to a secured creditor with priority over the department's interest. Assets
				such as real property, personal and business assets, and vehicles will
				generally be valued at 80 percent of fair market value to determine the quick
				sale value.
(b) Generally,
				anticipated future income is calculated over the remainder of the collection
				period, but no less than a period of 5 years and no more than a period of 10
				years, unless there are circumstances indicating that a significant recovery
				can reasonably be expected if a longer period is used. Other circumstances,
				including the age of taxpayer, the age of the liability, and the best interests
				of the State are also considered. In addition, collateral agreements, such as
				agreements pertaining to payments from future income, may also be required
				based on the facts in a particular case.
(ii) When evaluating an offer in compromise,
				the department will consider the legal collection proceedings available to it.
				Under the Tax Law, where a taxpayer has failed to pay the taxpayer's
				outstanding liabilities, the department may file a tax warrant against the
				taxpayer with the Department of State and in the appropriate county clerk's
				office. A filed tax warrant is entered in the judgment docket and secures the
				State of New York as a lienholder of the taxpayer's personal and real property,
				and empowers the department to use the collection procedures set forth in
				article 52 of the Civil Practice Law and Rules relating to enforcement of money
				judgments. These collection procedures may result in, for example, the seizure
				and sale of the taxpayer's real and personal property, including but not
				limited to, seizure of money from the taxpayer's bank accounts and seizure of
				any motor vehicles which the taxpayer may own, or a levy against money that a
				third party owes the taxpayer, such as a loan or rent owed to the taxpayer. In
				addition, the department may issue an income execution against the wages of the
				taxpayer. Under an income execution, the department generally may take up to 10
				percent of the taxpayer's gross wages to satisfy the liability.
(5) An offer in compromise will
				not be accepted for any reason where acceptance of such an offer would
				undermine voluntary compliance with the taxes or other impositions administered
				by the commissioner or would not be in the best interest of the State. Factors
				indicating that an offer would undermine voluntary compliance or would not be
				in the best interests of the State may include a taxpayer's overall history of
				noncompliance, a taxpayer's deliberate actions to evade payment, and a
				taxpayer's encouragement of others to refuse to comply with the tax
				laws.