Review of IRS Offer in Compromise
If you have settled your individual income tax debt with the Internal Revenue Service, you may ask the Colorado Department of Revenue to conduct a review. Under certain circumstances the Department may evaluate the terms of the IRS’ Offer in Compromise (OIC) and consider them in resolving your outstanding Colorado individual income tax debt.
The Department is not bound by or required to extend a settlement option due to an IRS Offer in Compromise. The Department does not unilaterally enter into or offer an OIC. Based on a review of an approved IRS’ Offer in Compromise and all required documentation, the Department may consider a settlement for the Colorado tax liabilities. For consistency of terminology, the Department will refer to such settlements as an OIC.
The taxpayer bears the burden of establishing grounds for a potential settlement and has no legal entitlement to have any tax liability settled through an OIC.
Any review request must reflect the taxpayer's true ability to pay. The Department reserves the right to conduct an examination of the taxpayer's financial condition to determine the accuracy of the information contained in the request. The Department may continue to collect upon the outstanding Colorado tax debt and may keep any associated funds until such time that the OIC review is completed.
Eligibility Requirements
To be eligible for an OIC review all the following criteria must be met:
- The IRS accepted your OIC for the same tax periods and liabilities as your outstanding Colorado tax debt;
- The Department has not previously agreed to an OIC to resolve prior Colorado tax debt;
- The taxpayer has not previously received any adjustments or relief such as a bankruptcy discharge, innocent spouse claim, penalty waiver, or any prior settlement or past statute write-off;
- All required Colorado individual income tax returns have been filed, including the current tax period;
- All Colorado estimated tax payments are up to date;
- You are not party to an open bankruptcy proceeding; and
- You cannot reasonably be expected to satisfy all outstanding delinquencies within the period for collection as prescribed by §39-10-101(2)(b) and §39-21-107(2), C.R.S.
To Request a Review of an IRS Offer in Compromise:
The following documentation must be included with your review request. Failure to include any of the following documentation will preclude the Department from considering the IRS’ Offer in Compromise.
- A copy of the IRS Form 656 stamped with the IRS received date;
- IRS Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals;
- Verification of IRS acceptance of a submitted Offer in Compromise;
Proof of payment for the IRS Offer in Compromise; - An IRS tax account transcript (aka: record of account);
- Any other relevant information pertaining to the IRS’ Offer in Compromise agreement;
- The Department's Statement of Economic Hardship (DR 6596);
- The Department’s Offer in Compromise Terms and Conditions (DR 3023);
- A written statement detailing the circumstances that warrant the Department considering the IRS’ Offer in Compromise well as the amount being offered to resolve your outstanding Colorado tax debt;
- Written disclosure of any transfer of real or personal property such as vehicles, cash, or title transfer of property; and
- Written disclosure of marital and filing status.
Acknowledgement and Payment
If the Department extends an OIC to resolve your Colorado tax debt, the taxpayer will be notified in writing. Taxpayers must respond within 15 days from the date of notice with certified funds for the full amount due and must also include a signed copy of the acceptance letter. No payment plan or installment agreement is allowed. Failure to completely respond on time will result in the Department rescinding the acknowledgment and making the full tax liability, including penalty and interest due once again.
The Department may rescind the Colorado OIC if the taxpayer fails to comply with the required terms and conditions, if additional information becomes available, or if the information provided by the taxpayer is found to be false.
Effective March 1, 2024, any overpayment of taxes (refund) for the following one year will be retained by the Colorado Department of Revenue and applied to the tax debt. The taxpayer may not reduce quarterly estimated payments or the amount of withholding during this time.