senate Bill S3945A

Signed by Governor

Reforms the offer-in-compromise program

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed by Governor
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actions

  • 10 / Mar / 2011
    • REFERRED TO INVESTIGATIONS AND GOVERNMENT OPERATIONS
  • 24 / May / 2011
    • REPORTED AND COMMITTED TO FINANCE
  • 02 / Jun / 2011
    • AMEND AND RECOMMIT TO FINANCE
  • 02 / Jun / 2011
    • PRINT NUMBER 3945A
  • 07 / Jun / 2011
    • 1ST REPORT CAL.1101
  • 13 / Jun / 2011
    • 2ND REPORT CAL.
  • 14 / Jun / 2011
    • ADVANCED TO THIRD READING
  • 15 / Jun / 2011
    • PASSED SENATE
  • 15 / Jun / 2011
    • DELIVERED TO ASSEMBLY
  • 15 / Jun / 2011
    • REFERRED TO WAYS AND MEANS
  • 17 / Jun / 2011
    • SUBSTITUTED FOR A8180
  • 17 / Jun / 2011
    • ORDERED TO THIRD READING RULES CAL.447
  • 17 / Jun / 2011
    • PASSED ASSEMBLY
  • 17 / Jun / 2011
    • RETURNED TO SENATE
  • 05 / Aug / 2011
    • DELIVERED TO GOVERNOR
  • 17 / Aug / 2011
    • SIGNED CHAP.469

Summary

Reforms the offer-in-compromise program.

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Bill Details

See Assembly Version of this Bill:
A8180
Versions:
S3945
S3945A
Legislative Cycle:
2011-2012
Law Section:
Tax Law
Laws Affected:
Amd §171, Tax L

Sponsor Memo

BILL NUMBER:S3945A REVISED 06/06/11

TITLE OF BILL:
An act
to amend the tax law, in relation to reforming the offer-in-compromise
program

PURPOSE OF BILL:
This bill would reform the offer-in-compromise program of the
Department of Taxation and Finance ("Tax Department") by adopting
standards for assisting all deserving taxpayers, while at the same
time protecting the interests of the State.

SUMMARY OF PROVISIONS:
Section 1 of this bill would amend subdivision Fifteenth of Tax Law
171 to allow tax debtors to apply for an offer in Compromise for a
fixed and final liability of a tax or other imposition administered
by the Commissioner of Taxation and Finance if collection in full
would cause them undue economic hardship. This would be in addition
to those cases in which tax debtors may apply for an offer in
compromise under current law: when they are insolvent or discharged
from a bankruptcy proceeding to apply for an offer in Compromise. The
amount payable through an offer in compromise would no longer be
limited to the amount recoverable through legal proceedings but would
need to be an amount reasonably reflecting collection potential or be
otherwise justified by the tax debtor. No offer in compromise would
be acceptable if it would undermine tax compliance by other taxpayers
or be adverse to the interests of the State. The Commissioner of
Taxation and Finance would be required to promulgate regulations
defining what constitutes undue economic hardship. The inability to
maintain an affluent or luxurious lifestyle would not constitute
undue economic hardship. Finally, this section would retain the
threshold for requiring approval of an offer
in compromise by a New York State Supreme Court Justice of more
than $100,000, not including penalties or interest.

Section 2 of this bill would amend subdivision Eighteenth-a of Tax Law
§ 171 to modernize the language of the provisions for an offer in
compromise for liabilities that are not fixed and final, and to raise
the threshold for requiring an Opinion of Counsel to $50,000 or more,
including any penalties or interest. Tax Department regulations
currently apply the subdivision Fifteenth standards to offers in
compromise under subdivision Eighteenth-a, and the regulations would
be amended to take into account the new standards added to
subdivision Fifteenth by the bill.

Section 3 of the bill provides that it would take effect immediately.

EXISTING LAW:
Subdivision Fifteenth of section 171 of the Tax Law authorizes the
Commissioner of Taxation and Finance to compromise fixed tax
liabilities where the taxpayer has been discharged in bankruptcy or
is insolvent, but the amount accepted in compromise cannot be less
than the amount, if any, that is recoverable through legal proceedings.


Subdivision Eighteenth-a of Tax Law § 171 allows the Commissioner of
Taxation and Finance to compromise a liability before it becomes
final and is no longer subject to administrative or judicial review.
An Opinion of Counsel is required for liabilities of $25,000 or more,
including any penalties or interest. Pursuant to Tax Department
regulations, the standards for offer in compromise set forth in
subdivision Fifteenth are used in connection with the compromise of
liabilities that are not yet fixed and final under this subdivision.

LEGISLATIVE HISTORY:
This bill was proposed in the 2010-11 Executive Budget (S.6610/A.9710,
Part L), but was not enacted as part of the 2010 Budget.

STATEMENT IN SUPPORT:
The compromise provisions in subdivision Fifteenth of section 171 of
the Tax Law, along with those in subdivision Eighteenth-a, are
outdated and do not reflect current realities or the experiences of
the Tax Department in administering the offer in compromise program.
These provisions of the Tax Law deprive the Commissioner of Taxation
and Finance of the authority to provide relief to all deserving
taxpayers and inhibit the Department's ability to generate revenue on
otherwise uncollectible liabilities. In addition, the offer in
compromise process is often an ineffective or futile avenue for
relief of overwhelming tax debts.

Currently, subdivision Fifteenth authorizes the Commissioner to
compromise fixed and final tax liabilities, including penalties and
interest, only if: (1) the taxpayer has been discharged in bankruptcy
or been proven to be insolvent; and (2) the amount payable in
compromise equals or exceeds what the Tax Department could
conceivably recover through legal proceedings.
These restrictions require the Tax Department to assume a full exercise
of its levy and garnishment powers to establish a minimally
acceptable offer, even if specific circumstances render enforcement
of the debt impractical or unlikely to succeed. The existing
restrictions in subdivision Fifteenth contribute to a failure of the
offer in compromise program to reach its public policy goals, which
include: (1) resolving tax liabilities that cannot be satisfied in
full; (2) collecting what can reasonably be collected at the earliest
time possible and at the least cost to the State; (3) giving
taxpayers with overwhelming liabilities a fresh start, enabling them
to comply voluntarily with the tax laws and become productive,
taxpaying members of society; and (4) collecting funds that may not
be collectible by other means; thereby encouraging taxpayers to stay,
and keep their productive assets, in New York. Instead, the
statutory restrictions to compromise are contributing to an
increasing number of taxpayers facing overwhelmingly large, aging,
and uncollectible tax debts. This is particularly true since the
rapid accumulation of penalties and interest makes it impossible for
some taxpayers to keep up, over time, with their growing liabilities,
no matter how hard they try.

The new provisions in this bill are designed to address the unintended
negative consequences of the restrictions contained in subdivision
Fifteenth. Under the bill, the Commissioner of Taxation and Finance
would be authorized to consider an increased pool of applicants for
a potential offer, based not only on the tax debtor's status as


having been discharged in bankruptcy or having been proven to be
insolvent, but also on the undue economic hardship collection in
full would impose. Additionally, the bill would authorize the
Commissioner to compromise such fixed and final tax liabilities as
long as the amount payable in compromise reasonably reflects
collection potential or is otherwise justified by proofs submitted by
the taxpayer. These statutory modifications will allow the Tax
Department to bring more distressed tax debtors into the offer in
compromise program.

The provisions of the bill that will permit the Commissioner to accept
a lesser amount in compromise are designed to bridge the gap between
the collectibility requirement and accepting a fair offer in
extraordinary cases. The recognition that there is a need for
flexibility to craft compromises based on the unique facts of a
particular case derives from actual cases where, in the Tax
Department's experience, current standards do not allow it to reach
a fair result, given the extraordinary financial circumstances of the
taxpayer.

Under the bill, similar to federal procedures, an offer in compromise
will not be accepted for any reason where acceptance of such an offer
would not be in the best interests of the State or would undermine
voluntary compliance with the Tax Law. These standards also make it
clear that offers in compromise cannot be used as a tax planning
device by businesses or individuals.
In addition, the requirements of judicial oversight and an opinion of
counsel for larger amounts to be compromised have been retained and
updated.

BUDGET IMPLICATIONS:
There are no known budget implications associated with this bill.

EFFECTIVE DATE:
The bill would take effect immediately upon enactment.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 3945--A

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                             March 10, 2011
                               ___________

Introduced by Sen. DeFRANCISCO -- (at request of the Department of Taxa-
  tion  and Finance) -- read twice and ordered printed, and when printed
  to be committed to the  Committee  on  Investigations  and  Government
  Operations  -- reported favorably from said committee and committed to
  the Committee  on  Finance  --  committee  discharged,  bill  amended,
  ordered reprinted as amended and recommitted to said committee

AN  ACT to amend the tax law, in relation to reforming the offer-in-com-
  promise program

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Subdivision  fifteenth  of section 171 of the tax law, as
amended by chapter 513 of the laws  of  2002,  is  amended  to  read  as
follows:
  Fifteenth. Have authority to compromise any taxes OR OTHER IMPOSITIONS
or  any  warrant or judgment for taxes OR OTHER IMPOSITIONS administered
by the commissioner, and the penalties and interest in connection there-
with, if the tax debtor has been discharged in bankruptcy, [or] is shown
by proofs submitted to be insolvent,  [but]  OR  SHOWS  BY  PROOFS  THAT
COLLECTION  IN  FULL WOULD CAUSE THE TAX DEBTOR UNDUE ECONOMIC HARDSHIP,
PROVIDED THAT the amount payable in compromise [shall  in  no  event  be
less than the amount, if any, recoverable through legal proceedings, and
provided  that  where]  REASONABLY  REFLECTS  COLLECTION POTENTIAL OR IS
OTHERWISE JUSTIFIED BY THE PROOFS OFFERED BY THE TAX DEBTOR.   PROVIDED,
FURTHER, THE COMMISSIONER SHALL NOT ACCEPT ANY AMOUNT PAYABLE IN COMPRO-
MISE THAT WOULD UNDERMINE COMPLIANCE WITH THE TAXES OR OTHER IMPOSITIONS
ADMINISTERED  BY THE COMMISSIONER, NOR SHALL THE COMMISSIONER ENTER INTO
ANY OFFER OF COMPROMISE THAT WOULD BE ADVERSE TO THE BEST  INTERESTS  OF
THE  STATE. WHERE the amount owing for taxes OR OTHER IMPOSITIONS or the
warrant or judgment, exclusive of any penalties and  interest,  is  more
than  one  hundred  thousand dollars, such compromise shall be effective
only when approved by a justice of the supreme court.  THE  COMMISSIONER

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD09464-02-1

S. 3945--A                          2

SHALL  PROMULGATE  REGULATIONS  DEFINING WHAT CONSTITUTES UNDUE ECONOMIC
HARDSHIP. THE INABILITY TO MAINTAIN AN AFFLUENT OR  LUXURIOUS  LIFESTYLE
SHALL NOT CONSTITUTE UNDUE ECONOMIC HARDSHIP.
  S  2.  Subdivision  eighteenth-a  of  section  171  of the tax law, as
amended by chapter 577 of the laws  of  1997,  is  amended  to  read  as
follows:
  Eighteenth-a.  Have authority to compromise civil liability, with such
qualifications and limitations as may be established  pursuant  to  such
rules  and  regulations  as  the  commissioner may prescribe, where such
liability arises under [this chapter, or under a law enacted pursuant to
the authority of this chapter] A TAX OR OTHER IMPOSITION which is admin-
istered by the [department, or under  a  law  enacted  pursuant  to  the
authority of article two-E of the general city law] COMMISSIONER, at any
time  prior  to  the  time  the  tax, OTHER IMPOSITION or administrative
action becomes finally and irrevocably fixed and no  longer  subject  to
administrative  review. Upon acceptance of an offer in compromise by the
commissioner, the matter may not be reopened except upon  a  showing  of
fraud, malfeasance or misrepresentation of a material fact. The attorney
general may compromise any such liability after reference to the depart-
ment of law for prosecution or defense at any time prior to the time the
tax, OTHER IMPOSITION or administrative action taken by the [department]
COMMISSIONER is no longer subject to judicial review. Whenever a compro-
mise  is  made  by  the [department] COMMISSIONER of any such liability,
there shall be placed on file in the  office  of  the  commissioner  the
opinion  of  the  counsel  for  such department, with his OR HER reasons
therefor, with a statement of: (a) the amount of tax OR OTHER IMPOSITION
and any other issues which may be the subject of  such  compromise,  (b)
the  amount of interest, additions to the tax, or penalty imposed by law
on the taxpayer or other persons against whom the administrative  action
was taken by the department, and (c) the amount actually paid in accord-
ance  with  the  terms of the compromise.  Notwithstanding the preceding
sentence, no such opinion shall be required with respect to the  compro-
mise  of  any civil liability in which the unpaid amount of tax OR OTHER
IMPOSITION which was the subject of the administrative action (including
any interest, additions to tax, or penalty) is less  than  [twenty-five]
FIFTY thousand dollars.
  S 3. This act shall take effect immediately.

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