How Massachusetts Collects Taxes & the Programs for Tax Help & Tax Relief
The Collections Bureau of the Massachusetts Department of Revenue is responsible for the collection of back tax revenue owed to the Commonwealth. To ensure that all residents are following the law, the Department makes a habit of auditing tax returns and goes after anyone, including businesses that do not file their tax returns and/or pay what they owe. The Department is within its rights to use any legal means to collect unpaid taxes. Taxpayers who deliberately file false tax returns or misrepresent their financial situation may also be criminally prosecuted.
It’s very important that taxpayers respond to all communications from the Department of Revenue. If you ignore your tax bill and follow-up efforts to communicate you would be at risk of the Department placing a tax lien, issuing a levy, seizing and selling your assets and/or hiring a private collection agency to collect the money you owe. The repercussions are as follows:
Notice of Assessment
A tax bill is mailed to the taxpayer when the Commonwealth is trying to collect overdue taxes. This Notice of Assessment spells out the amount of tax due, plus any penalties accrued and 30-days interest. If the taxpayer does not pay what the Notice of Assessment says they owe, a Demand for Payment will be sent. Once you receive such a notice, it would be wise to consult with a reputable tax professional so that you can get the tax help and advice you need before you compound the problem.
Taxpayers may also be automatically charged with penalties for filing and/or paying their taxes late. If a tax return is filed late, the taxpayer is usually charged a penalty of 1% per month or fraction of a month, on the unpaid debt. Furthermore, interest will continue building up on unpaid tax, penalty fees and interest. Failing to pay the amount calculated on a tax return, and failing to pay the assessment of deficiency within 30 days of the date on the Notice of Assessment both generate a 1% penalty per month or fraction of a month on the amount due. Both the late filing and the late paying penalties will not exceed 25% of the overdue taxes.
Interest Charged on Unpaid Taxes
Any delinquent tax debt is subject to interest being charged on the amount due. Massachusetts charges interest on underpaid taxes equal at the same rate as the federal short-term rate (which can adjust quarterly) plus 4%, compounded daily. The Massachusetts tax code prohibits the Department from decreasing or waiving interest except when the underlying tax debt is abated. However, the Department will consider a request for the penalty charges to be waived if you can prove that the reason you failed to file and/or pay your taxes on time was reasonable. Later on in this article is a discussion on the Abatement of Tax Penalties.
As a last resort, the Department may have no choice but to seize a taxpayer’s assets to satisfy their tax liability. This could be vehicles, their business or other types of property. Unless there is a risk that the taxpayer will transfer or hide their assets to prevent this, the Department will send them a certified letter requesting full payment within 10 days and warning them if the tax debt is not settled their assets may be seized.
Power of Attorney
A taxpayer has the right to have someone else represent them before the Massachusetts Department of Revenue. In order to facilitate this, they must give Power of Attorney to that individual by completing and submitting Form M-2848. A signed Power of Attorney form will legally permit the Department to discuss your tax situation with your designated representative; however, the Department of Revenue can revoke your Power of Attorney at any time.
Programs Available to Massachusetts Taxpayers Offering Tax Help & Tax Relief
Similar to the Internal Revenue Service, the Department works with taxpayers who are having difficulty paying their taxes by offering them a number of tax help and/or tax relief solutions for getting their back taxes paid off so they can be in full compliance with the law.
Installment Payment Plans
When a Massachusetts taxpayer files their tax return on time, but cannot pay what they owe, the Department may offer him/her tax help by giving him/her more time to pay by agreeing to an Installment Payment Plan that generally does not exceed 24 months. If you are unable to fully pay your State taxes when due, you may qualify for a payment play, which would allow you to make monthly installment payments until your taxes are completely paid off.
The Department may deny a payment plan if the applicant taxpayer has made a habit of being delinquent, has the money or assets to pay what they owe or if the payment plan would risk collecting the entire amount due. Any liens that have been placed will remain until the entire tax debt is fully paid.
If the Department of Revenue has sent you a Notice of Assessment advising you of how much you owe in taxes, you can apply for tax help in the form of an Installment Payment Plan. If you are not sure that you can pay the full amount owed in monthly installments, you might want to consider other available options.
Before applying for this you must be sure that you can pay everything you owe in taxes plus the accrued interest and penalties. Massachusetts makes this type of tax help easy for taxpayers by allowing them to apply for an installment payment plan online. If your tax bill is no more than $5,000 you can apply for an Installment Payment Plan by doing the following:
Look at your Notice of Assessment and you will see your 12-digit billing number on the upper right side of your bill.
Go online to the Massachusetts Department of Revenue’s website under the Payment Agreement System for Individuals to apply. On the right side of your screen you will see a blue box and this is where you submit your request and make your payments.
If you owe $5,000 or more, you will need to phone (800) 392-6089 or (617) 887-6367 to request an Installment Payment Plan from a Department of Revenue customer service representative. If your wages have started being garnished, you can use either of these phone numbers as well.
The State does not offer information on how long it will take them to respond to your request for this type of tax help. You are welcome to phone (617) 887-6367 with any questions you have.
Offers in Final Settlement
In very rare circumstances, if there is a serious doubt that the entire tax debt can ever be paid by this taxpayer, the Commonwealth might offer tax relief by accepting a lesser amount to settle the tax debt once and for all. This is known as an Offer in Final Settlement. For information on coming up with an offer they might accept refer to their online pamphlet. Prior to submitting an offer, make sure you are up-to-date on filing your tax returns. Before considering your offer the Department of Revenue will check to see that all your tax liabilities not part of this offer have already been paid in full.
Requirements to be eligible for an Offer in Final Settlement
One of the following must apply:
Tax liability is in question: There is serious doubt that you owe the amount of tax you were assessed.
Collectability is in doubt: There is serious doubt that you could ever pay off the full amount of tax owed. This solution would be considered if your basic living expenses exceed your monthly income and the total value of all your assets would still not cover the tax amount.
Offer in Final Settlement Filing Requirements
If your reasons fall under category #1 in that you do not believe you owe the amount you have been assessed and want to be considered for tax relief by way of an Offer in Final Settlement, submit the following:
Send a Request for Settlement Consideration Form DR-1 to the Department of Revenue Office of Appeals with a detailed written explanation as to why you do not think you owe the full amount, or some portion of it.
If your reasons fall under category #2 in that you do not believe you will ever have enough money to pay off your Massachusetts state taxes and want to be considered for an Offer in Final Settlement, submit the following:
Send an Offer in Settlement Form M-656 to the Department of Revenue Office of Appeals with a full explanation as to why it would be impossible to collect this debt from you.
Send a Statement of Financial Condition Form M-433 that provides all the details of your current financial situation.
Send a Taxpayer’s Consent Form OIS/AB, which allows the Department of Revenue to use the money you are paying up front towards the deduced liability or to deposit it in an escrow account until a decision is reached on whether to accept your offer. Additional documentation, such as mortgage statements, bank statements, pay stubs and more may also be required.
Your request and supporting document should be sent to the following address:
Massachusetts Department of Revenue
Collections Department – Offer in Final Settlement
218 South Main Street
Fall River, MA 02721
If your settlement offer reduces your tax liability to less than half of what you owe, or reduces it $20,000 or more, the Attorney General must reviews your offer before it can be approved. It make take up to 180 days or more before a decision is reached, at which time you will receive a letter informing you of an acceptance or denial of your offer. Please call (617) 887-6400 with any questions.
Abatement of Tax Penalties
Massachusetts’ taxpayers are allowed to file for an abatement to eliminate the penalties they’ve been charged on unpaid taxes. This form of tax relief may be granted if the taxpayer’s cause for not filing or paying his/her taxes on time was reasonable. The taxpayer must also show that the cause was not willful neglect.
The following reasons constitute reasonable cause:
Cause of delay was serious illness or death: This could be the death of a family member or loved one. If the taxpayer was seriously ill or was taking care of someone seriously ill.
The person responsible for filing the taxes was unavoidably absent: They could have been incarcerated, abandoned in the desert, or any truthful reason that explains their unavoidable absence.
Destruction of property: This could be the result of a fire, natural disaster or some other cause.
Unavoidable delay: This could be from an inability to gather the necessary documents to figure out how much tax is owed.
Incorrect tax advice: The taxpayer got wrong advice from a tax professional and this resulted in the penalty charges.
Delay was because the tax law lacked clarity: The taxpayer wrongly interpreted the tax law due to a lack of clarity in the law.
Other reasons would be considered if the taxpayer could show that they exercised just as much care in getting their taxes filed and paid as any other taxpayer would if they were in the same situation. Under these circumstances the Department of Revenue would consider removing the tax penalties.
Requirements for Filing for an Abatement of Penalties
At the time of submitting the application for an abatement of penalties all tax returns must have been filed already. The application cannot be submitted until the amount of tax owed has been assessed.
The application must be filed no later than 3 years from when the tax return was due, no later than 2 years from the date on the Notice of Assessment or no later than 1 year from when the tax was paid (or whichever is later).
A Penalty Waiver Request must be submitted along with a signed statement with all the supporting facts showing that the taxpayer’s statement explaining that the reasonable cause for the his/her noncompliance is true.
The Commonwealth of Massachusetts has an Office of the Taxpayer Advocate for the sole purpose of helping taxpayers resolve their problems once they’ve been unsuccessful trying to resolve them through normal Department of Revenue channels. Agents in this office provide taxpayers with tax help by acting as ombudsmen or as independent voices when they work with individual taxpayers who have prolonged tax issues.
Contact information for the Office of the Taxpayer Advocate:
Phone: (617) 626-2280
Massachusetts Department of Revenue
Office of the Taxpayer Advocate
100 Cambridge Street, 8th Floor
Boston, MA 02210
Other important phone numbers:
Taxpayer Service Division: (800) 392-6089 or (617) 887-MDOR
Problem Resolution Office: (617) 626-3833
Collections Bureau: (617) 887-6400