New York offer in compromise (NYS Department of Taxation and Finance)

The Tax Department's program page says it can consider offers from individuals and businesses that are insolvent or discharged in bankruptcy, and from individuals who aren't insolvent or bankrupt if full payment would create undue economic hardship. Only individuals can apply based on hardship, which can include business debts they're personally responsible for. The department analyzes whether acceptance is in the best interest of the state, which may require paying trust taxes such as sales or withholding tax in full.

Generally, it means you can't pay reasonable basic living expenses. New York looks to the IRS Collection Financial Standards and also weighs age, employment history, long-term illness or disability, obligations to dependents, and extraordinary circumstances like medical catastrophe or natural disaster. It generally doesn't allow private school tuition, college costs, charitable contributions, voluntary retirement contributions or credit card payments as necessary expenses.

You may be able to apply through Online Services if you're an individual, the debt is personal income tax only, you have no open protest or bankruptcy, and you owe the department $15,000 or less. Log in, select Payments, bills and notices, then Offer in Compromise. Applications not completed within 90 days are deleted.

Complete Form DTF-5 (Statement of Financial Condition) and either Form DTF-4.1 (for fixed and final liabilities — the most common) or Form DTF-4 (for liabilities still subject to administrative review). Include federal returns for the past three years, 12 months of bank, brokerage and retirement statements, a credit report less than 30 days old, and documents supporting your financial statement. Hardship applicants add a statement describing the hardship. Mail to NYS Tax Department, CED Offer in Compromise Unit, W A Harriman Campus, Albany NY 12227-5100.

The terms and conditions include fully complying with all tax laws for the next five years; allowing refunds and offsets for periods through the year of acceptance to be applied to the original liability (not counted toward the offer); waiving the right to contest the compromised liability and statute-of-limitations defenses; and forfeiting current capital loss or net operating loss carryovers on future New York returns. If you fail to comply, the department notifies you; if you don't fix it immediately, it can revoke the offer and reinstate the original liability minus payments.

New York offers installment payment agreements for taxpayers who can pay over time. See the Tax Department's installment payment agreement page, and our New York state tax relief overview. For sales tax debts, see our New York sales tax guide.