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Consequences of Michigan back taxes and various resolution options
Michigan’s income tax, business tax, sales, use tax and many others are under the responsibility of the State of Michigan Department of Treasury. Within the Department of Treasury, there is a division known as the Collection Services Bureau, which is responsible for collecting the delinquent tax of Michigan. The DOT makes use of MACRS or the Michigan Accounts Receivable collection system. It is a private collection agency having the task of assisting in the collection of the delinquent tax, interest along penalties
In general, when an income tax liability is due because of either a taxpayer filing a tax return without doing payment or an audit by DOT results in assessment, a final notice is sent to the taxpayer for making the payment of the liabilities. Thus, when the taxpayer does not make payment in the given time as on the final notice, DOT forwards that account to the CSB for collecting the amount forcibly. Generally, before sending the taxpayer’s account to CSB, the taxpayer obtains a “Letter of Inquiry. Notice of Intent to Assess” and a “Bill for Taxes Due which is the final assessment.
Enforced collections – Michigan
Collection Services Bureau or CSB has several actions for collecting the due amount forcibly and they have the authorization from the Michigan law for using those actions to collect delinquent taxes. CSB has six years to collect the unpaid taxes. They can utilize any of those actions for enforced collection against delinquent taxpayers in this period of six years. Below are the specific actions that can be taken for enforced collection.
- Liens: Filing a tax lien on real or personal property will establish a record of the state of Michigan’s interest in the assets of the taxpayer. A tax lien might be shown on the credit reports of the taxpayer. In addition, a tax lien can hurt the ability of the taxpayer to obtain credit or sell or buy assets.
- Tax warrants: Tax warrants permit DOT to seize the business or personal property of the taxpayer. In addition, the DOT can also sell it to pay off or decrease the owed taxes.
- Wage levies: A wage levy needs the employer of the taxpayer to withhold some percentage of the wages of the taxpayer. The employer is required to remit this withhold amount to the DOT and then apply it against the delinquent tax liability.
- Financial institute levies: Financial institution levies are attached to the bank account of the taxpayer. They need the financial institution to pay all funds in either the bank account or the financial account, until the delinquent balance is due and then apply it against delinquent tax liabilities.
- Other levies: The CSB might make use of another kind of levies, which act in the same way as the financial institution levies, but not in favour of another source of income or any funds that are due and must be paid to the taxpayer. They are currently held by third parties who are not the employer of the taxpayer or any financial institution.
- Offset refunds: This action called offset refunds facilitates the state of Michigan to seize federal or other kinds of state tax refunds. Any kind of refund taken by the state can be applied against the delinquent tax liabilities.
Other kind of enforced collection actions
Refer the account to the collection agency: The DOR and CSB have the right to forward the account to the Michigan Account Receivable Collection or MARC system specifically. MARC is a Michigan Department of Treasury program managed by a privately owned collection agency.
Refer the account to the Michigan Department of Attorney General or MDAG: The state here refers your account to the MDAG for extra legal actions.
For businesses, the state taxation authorities can keep the business owners or the members, managers or partners of a corporation, LLC, LLP, LP or a partnership on hold. This is for those who are personally liable for tax liabilities and interest and penalties. In addition, the DOT can request revocation or non-renewal of the business liquor licenses by giving a request to the Michigan Liquor Control Commission.
Michigan Tax Resolutions options
If in case, individual taxpayers owe back taxes to the State of Michigan, here are some of the options that taxpayer can pursue or do an investigation:
- Offer in Compromise: With an offer in compromise, the taxpayer can request the MDT to compromise an assessed tax amount for an amount that is less than the full amount owed.
- Installment Agreement: Even though the taxpayer is first required to obtain a bill for due taxes, taxpayers can request doing monthly payment plan with the MDT for paying the taxes over time.
- Non-collectible status: This tax resolution keeps everything on hold. The taxpayer still keeps on accumulating interest and penalties. However, the DOT will not track enforced collections till the taxpayers have the capability financially to make the payment. To conclude, the taxpayer here has to prove the financial hardship by showing that their monthly expenses are exceeding monthly income. The economic standard of DOT is used to determination of the ability of the taxpayer to pay off the delinquent liabilities.
- Waiver of penalty: Some might think of this as penalty abatement. The taxpayer can request a penalty waiver with the State of Michigan. He or she has to show some relevant cause for not being able to file or make payment on time.
Below you can learn about some of the extra tax options.
As discussed earlier, the Michigan Collection Services Bureau has six years for the collection of tax liability of the taxpayer. A court judgement along with other actions can extend or increase the six years or statute of limitation on the collection of tax. In addition, the state has four years to assess a penalty, tax deficiency or interest from the set filing date of the required tax return or the real date when the return was filed, whatever comes later on.
The statute of limitation on collection of tax can also be extended through reaffirmation of the tax liabilities. Reaffirmation of the tax amount occurs when the taxpayer:
- Makes payment voluntarily
- Indicates the liabilities on the acknowledgement letter
- Agrees mutually for extending the signing of an agreement with the Commissioner of Revenue
- The statute might also be tolled when the department is not able to locate the taxpayer
Various other options available for taxpayers
A taxpayer can request a penalty waiver with the state of Michigan when one can show some relevant cause for failing to file or on-time payment. The DOT states that instances of reasonable causes are:
- Death of any serious illness of a taxpayer or the person who is specifically liable for filing returns and making tax payments
- Mitigating circumstances like fire, criminal acts against the taxpayer, payment misapplication by the DOT, theft etc.
- In addition, the DOT also states that no funds or bad bookkeeping practices are not constituted as reasonable cause.
The penalty waiver request must be made in writing. Taxpayers need to mail it to:
Michigan Department of Treasury
Collection Services Bureau
PO Box 30199, Lansing, MI 48909.
As per Michigan law, if in case, the personal income taxes have been given joint assessment to the spouse and one of the spouses has been allowed relief from the joint assessment under IRC 6015, then the DOT will provide relief for the respective Michigan liability. Moreover, Michigan will also make innocent spouse relief possible for those people who can’t establish that they have received the same tax relief from the Internal Revenue Service but meet the federal qualifications. The DOT will make use of the standards that have been outlined in IRC 6015 and other related federal provisions while making any kind of innocent spouse determinations.
The standards that have been outlined in IRC 6015 offer that for any taxpayer to become eligible for innocent spouse relief, here are some of the conditions that should be met:
- For the tax year in question, the taxpayer looking for tax relief should file a joint tax return
- There exists an understatement of the tax that is attributable to the profit items of the other spouse who is filing the joint return
- The innocent spouse establishes that in signing the tax return which he or she does not know and does not have the reason to know, of the understatement.
- By considering all facts and situations, it is not equitable to hold the individual responsible for the tax deficiency for such taxable year that is attributable to such kind of understatement.
- The innocent spouse is responsible for electing the benefits under this section which is not later than the date that is two years after the date on which the IRS starts the collection activity against the individual who is making the election.
Where taxpayers can mail their request for relief in writing?
Michigan Department of Treasury
Customer Service Center
Individual Taxes Unit
Treasury Building, Lansing, MI 48922.
Informal conferences and Appeals
If in case, the taxpayer has an Intent to Assess Notice for extra income tax due, they can look for an informal conference for raising any kind of disputes that can have. The taxpayer can attend the informal conference either in person or through telephone. In addition, the taxpayer is required to support their position with the documentation. Taxpayers are required to request the conference within the required timeframe offered by the statute governing the tax. In general, for any Intent to Assess or Refund Adjustment or Denial, the taxpayer needs to request the conference or any hearing within 60 days of the issuance of notice. The taxpayer can make the request either through mail or through fax. The informal conference does not cost anything for the taxpayer and The DOT approves a neutral hearing Referee. Furthermore, the hearing referees are the impartial attorneys who collect facts and offer all recommendations to the DOT about disputes between the taxpayers.
If the matter is not resolved and the DOT offers a final assessment to the taxpayer, then the taxpayer also has several other options. They can appeal to the Michigan Tax Tribunal. In alternate ways, the taxpayer can also appeal to the Michigan Court of appeals. If by that also, the taxpayer does not obtain any kind of resolution, the taxpayer can appeal to the Michigan courts.
Most people always have intention to pay the money that they borrow from some person or an organization. And same goes with the tax payment to the department. It is the money that you owe to them. So, it is same as taking debt from someone. Paying tax for that is just like paying your debt. Having said that, sometimes people fail to pay their taxes because of some or the other reasons. It can be anything unexpected that happens. This include the loss of job, serious illness, which may make you helpless and you are unable to make your tax payments. This is where bankruptcy comes in.
But, declaring bankruptcy has its own disadvantages. Some may feel that it is the best way out when you are failing to tax as you don’t have to pay money. However, it will ruin your credit score. It will make it difficult to keep credit cards or even bank accounts. This may lead to loss of valuable possessions of life and you will find it very difficult to get on with some necessities of life. You will find it difficult to get necessities of life such as buying a new house or car, or even renting these things can be difficult. You will not be get insurance and finding even a job will be difficult. You can say that bankruptcy is the last resort, which will be advised to you by your financial advisor. This is something that should only be carries out with the counsel of a professional and very experienced bankruptcy attorney. This is the step taken when all other efforts are failed.
Filing for bankruptcy and hiring a bankruptcy attorney can become expensive and cost you a lot of money. Thus, delinquent taxpayers with significant personal tax liabilities might need to consider this option. Taxpayers can also discharge some kind of Michigan back taxes in bankruptcy but not all. Like for instance, a taxpayer can’t generally discharge payroll or sales taxes. This, taxpayers, must seek assistance from any bankruptcy attorney if they think this option is right for them.
The Tax Amnesty program of Michigan
Michigan offers a “Tax Amnesty Program” in the year 2011. Mainly, this program was made available for those individuals and businesses who fail to report their income or who have not reported enough income. As a result, if these taxpayers enter the program, the DOT will waive all kinds of penalties that the taxpayers have filed or changed, their tax returns and have remitted all due amount of the total tax. Unluckily, now there are no active amnesty programs. But, if Michigan decides to restart the program. Delinquent taxpayers must look into it. There was a time when this program was active and thanks to this program many people who failed to report their income were benefited. Such programs are beneficial to those who somehow unable to report their income. This can happen to any one for any reason. That is why that program was introduced as the Tax Amnesty Program. It was a like a boon for those who were not reporting their income. What it means is that they were not paying taxes. Obviously, when you are reporting your income, how can you pay taxes? Having said that, this program is not available anymore. Though defaulters are looking for one such program, but it is still not available.
Some relevant tips
Taxpayers must take into consideration to escalate any problems to any supervisor or the manager within the DOT. In other words, a manager or a new personnel with authorization can assist in resolving the issues. If after having words with the supervisor, the taxpayer believes that they do not have any voice, or are discriminated against, their rules violated or the DOT is not following the Michigan law, then they have to contact the Office of Taxpayer Advocate.
The purpose of the Office of Taxpayer Advocate is to make sure that the rights of taxpayers are under protection. Furthermore, it also makes sure that the DOT is administering the process fairly. The Taxpayer can get more information about the Office of Taxpayer Advocate.
Lien Releases
After the payment of all due tax which also includes penalties as well as interests, the DOT will release the related tax liens. In addition, they will also release the tax liens when the tax amount due is satisfied through an Offer in Compromise Agreement. On satisfaction, the tax lien is released and the notification is sent to the Register of Deeds. One thing that needs to understand that a lien is only released once the payments are paid off. The payment not only includes the actual amount that needs to be paid, but it also includes all the penalties or interest that is charges due to not payment of taxes or any other reason.
Penalties and Interest
The penalty that is highly assessed against the taxpayers with Michigan back taxes is failing to file and also failing to pay off the penalty. Moreover, the failure to file a penalty and the failure to pay a penalty is 5% of the total tax due for about the initial two months, then 5% per month of the tax amount due with a maximum penalty of 25%.In addition, the interest is also applied for every month that a delinquent tax also goes unpaid. The existing interest rate is 5.9%.