13. Tax Collections in Massachusetts - What Should I Know

Industry Observer with Ocean Consulting Services LLC

So I owe taxes to the IRS and to Massachusetts. I provided a bunch of information to the IRS and they agreed to lower my tax debt through their Offer In Compromise program. I know that the IRS and MA share tax information. Does this mean MA will just settle my debt for less than I owe? Nope - these are two completely separate government operations. Settling a debt with one has no impact on a debt with the other group.

That being said many states do have debt settlement programs similar to those offered by the IRS. The most common of these being Installment Agreements (IA) and Offers In Compromise (OIC). While many of concepts are similar between the agencies (i.e. Reasonable Collection Potential, Statute of Limitations, etc) the programs each have their own rules and require separate application for relief.

Surprisingly the IRS is usually easier to deal with than the state taxing authorities - the IRS rules are typically more defined than the state rules and, in my experience, they tend to be more sympathetic to individual taxpayer situations. The states, like the IRS, have the power to levy and seize assets - you need to deal with both debts in order to resolve your tax debt situation.

In the vast majority of situations the state tax debt is significantly less than the federal tax debt. A common situation is one where we recommend full payment of the state debt or a request to pay the state debt over time at the same time a request is made to compromise the federal tax debt. There is no requirement to request the same type of relief between the IRS and the states.

If a tax debt is anticipated - you’ve prepared returns that reflect balances due but have not yet filed - you should not automatically file both tax returns at the same time. If you anticipate asking the IRS for relief under the OIC program there may be an advantage to filing the state tax return before the federal return. Letting the state “assess” their tax before the IRS puts the state ahead of the IRS in terms of legal collections.

As an example - you prepare tax returns and know that you will have balances due on each return once filed. You anticipate asking the IRS for an OIC. Due to the amount of tax owed to the state and the anticipated difficulty of obtaining a compromise with the state you determine that you will pay the state debt over time through an Installment Agreement (IA) with the state.

As discussed in previous posts the IRS will require an analysis of your Reasonable Collection Potential in order to evaluate your offer. In determining your net cash income the IRS does provide for an allowance for the payment of outstanding state tax debt. In most situations the IRS allows for a payment to the state that is less than the amount actually being paid - they essentially allocate your available cash income between the federal and state tax debt. However if the state tax authority assesses its tax before the IRS the entire amount of the state tax payment is allowed in the computation - since the state debt has legal priority over the federal tax debt.

Now let’s discuss tax debt relief specific to Massachusetts. The state offers both IA and OIC programs. Both programs are similar to their federal counterparts with important differences.

Installment Agreement

  • For debts of $5k or less - monthly minimum payment of $25 for a period up to 36 months - an agreement can be set up online - no financial statement is required

  • Debts over $5k - monthly minimum of $50 with no set time for repayment - a financial statement is required to be submitted in connection with the request for an agreement - the statement must include an explanation of how the proposed payment was determined - there is a requirement to provide certain supporting documents (i.e. bank statements)

The following is a summary of the MA OIC program compared with the federal program.

Offer In Compromise

  • Compliance - MA requires payment of the entire tax for the most recent year - the IRS does not require payment

  • Reasonable Collection Potential - MA uses the same concept as the IRS - net equity in assets plus projected future income - MA does use the IRS standards for expense amounts

  • Minimum Offer - MA requires that the offer must be at least $5,000 - the IRS has no minimum - MA may allow for an offer below the minimum in limited circumstances (i.e. economic hardship)

  • Lump Sum Payment Option - MA requires 20% of the total offer amount to be paid upfront with the balance due within 60 days of offer acceptance - the IRS requires 20% of the total offer amount to be paid upfront with the balance due within five months of offer acceptance

  • Installment Payment Option - MA and the IRS each require payment within 24 months - with the initial payment being made with the submission of the offer

This discussion is specific to the programs available in dealing with tax debts to the Commonwealth of Massachusetts. Many other states offer similar programs to deal with tax debts.

Any review of a tax debt situation must consider tax debts owed to the federal government along with any state obligation. Each government organization offers its own programs to deal with tax debts - taxpayers beware!

In our next blog post we’ll discuss SFR - Substitute For Return.

As always feel free to reach out if you need assistance - Contact The Author

Link to Outline Slides:  MA Collections - Outline

Link to Video:  Video - MA Collections

Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em:

Welcome to the Rain. Enjoyed your blog page, and I added you as a friend. I would love the follow back. Families on the move will appreciate your local real estate expertise. Bill

Jan 29, 2023 12:32 PM