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.