What is an Offer in Settlement?
A settlement is a compromise of differences in which the parties involved make mutual concessions. Under certain circumstances, such as extreme financial hardship, the inability to pay a tax debt in full, or a legitimate doubt that a liability is actually owed, the Kentucky Department of Revenue (DOR) may settle unpaid tax accounts for less than the full amount that is owed. This applies to all taxes (including any penalty, interest, or fees) arising under Kentucky tax laws that are administered by the DOR.
What can an Offer in Settlement do for me?
- Provide you with a “fresh start” towards tax compliance in the future, and place you back into good standing with the Department of Revenue.
- Resolve your tax debt for less than the amount you actually owe.
- Provide you a faster means of settling your tax debt than entering into a long-term payment agreement.
- Remove the economic burdens of state tax liens and levies.
What an Offer in Settlement CANNOT do:
- Delay or cancel existing collection action. If there is any indication that an offer is filed to delay collection of the tax, collection efforts will continue during review of the offer and the offer will likely be rejected.
- Void or write off your existing tax liabilities without any offer or payment from you. Tax liabilities cannot be forgiven in their entirety, therefore, "zero" offers are not considered.
- Release a lien, levy or other enforced collection action until the offered amount has been accepted and paid.
What is the criteria for submitting an Offer?
1. You must file all required income tax returns for all years that you were legally required to do so, prior to submitting an offer.
2. You cannot currently have an open bankruptcy proceeding, or plan to file in the immediate future while your offer is under review.
3. You must be current on all estimated tax payments, if you are required to make estimated tax payments.
4. You must submit all of the required information listed on the checklist (page 1) of the Offer in Settlement Application.
IMPORTANT! Please make sure that you read and understand the entire Offer in Settlement Application, and its terms and conditions, prior to submitting an offer! The offer form must be signed and dated on page 5.
How does the Offer process work?
Once an offer is received by the DOR, it is first reviewed to determine if all required documentation has been included, and if all prerequisites for submitting an offer have been met (see offer checklist on page 1 of the offer application). The offer will be returned to you if all documentation requested is not submitted, if all prerequisites are not met, or if all appropriate forms are not signed and dated. Upon a detailed review of the offer, additional information or verification may be requested. Each offer is considered on an individual basis, and can be submitted for one or both of the following reasons:
1. Doubt as to collectability (“I agree I owe the tax, but I cannot pay”): These offers are typically acceptable when there is sufficient evidence to show that the amount being offered in settlement exceeds the amount that the DOR could collect through other means. The taxpayer or entity must provide documentation demonstrating an inability to pay the liability in full. The amount offered must meet or exceed the taxpayer’s maximum ability to pay, taking into consideration future earning potential and total equity in all assets.
2. Doubt as to liability (“I do not believe I owe this tax”): These offers are typically acceptable when the taxpayer or entity provides sufficient documentation, and detailed evidence, to substantiate their claim that a doubt as to the validity of the liability exists, and can establish reasonable cause for a failure to produce corresponding documentation during the protest period. An acceptable settlement depends upon the degree of doubt found in each particular case.
What happens when a decision is made?
You will be notified in writing when a decision has been made. If the offer is accepted, you must remain current on all tax filing and payment requirements for a period of five years from the date the offer is accepted. The DOR will also offset state or federal refunds for tax periods through the tax year that the offer is accepted.
Once an offer has been accepted and paid according to the terms of the offer, any enforced collection activity (such as liens and / or levies) issued on the person(s) who submitted the offer will be released. Failure to remain in compliance with any of the terms and conditions of the offer will result in a default of the offer, and the liabilities will be reinstated and considered final, due and owing.
If the offer is rejected, you must make payment arrangements to pay the debt. If you do not, the case will be referred for further collection action as deemed necessary by DOR officials to collect the debt in full.
How do I apply for an Offer in Settlement?
Complete the following forms:
Offer in Settlement Application Form 23K (New Form 03/09!)
Statement of Financial Condition for Individuals 22K
If you are self-employed or own a business, complete:
Offer in Settlement Form 23K (New Form 03/09!)
Statement of Financial Condition for Individuals 22K
Statement of Financial Condition for Businesses 29K
Send all completed forms (signed and dated), and all required documentation to:
Division of Collections
Offer in Settlement Section
501 High Street, 8th Floor
PO Box 491, Station 41
Frankfort, KY 40602
For more information, see the “Frequently Asked Questions” on page 2 of the Offer in Settlement Application (Form 12A018), or call (502) 564-4921, and dial extension 5358.