How the State of Michigan Collects Taxes & Programs Offering Tax Help
The Department of Treasury has responsibility for administering and enforcing Michigan State tax laws for individuals and businesses. Similar to the IRS, the Department of Treasury does have programs available to taxpayers having problems paying their taxes so they can again be in compliance with the tax laws of the State.
Process of Collecting Taxes
Taxpayers who have unpaid taxes owed to the Michigan Department of Treasury are given a total of 125 days from when the first billing letter is sent to them before the State begins taking aggressive actions to collect the overdue tax bill. If you are in this situation you cannot assume you are safe during this period because you are still going to be charged interest and penalties on the assessed amount.
Letter of Inquiry
If the Department of Treasury determines that you have underpaid your taxes, it will send you a Letter of Inquiry. You are required to respond within 30 days from the date on the Letter. Your response should be to pay the balance you owe; otherwise you will be sent a Notice of Intent to Assess.
If you cannot pay your State taxes in full, the Department of Treasury will at some point send you a Notice of Intent to Assess advising you of the amount you owe. You may either pay what you owe in full or dispute the amount. The Department gives you 60 days to file your appeal (dispute) in writing.
Interest & Penalties
Interest: Interest is computed from the due date of the taxpayer’s tax return and/or payment. The rate of interest for unpaid taxes is 1% more than whatever the adjusted prime rate is at the time.
Penalties: Penalty charges are commonly added in the following amounts for the following reasons:
- $10 per day, not to exceed $400 for each return for failing to file a return or required report
- 10% of tax owed for negligence
- 25% of tax owed for intentional disregard
- 25% of tax owed for frivolously protesting the amount owed
- 100% of tax owed for fraudulently evading the payment of taxes owed
Taxpayers are subject to being charged multiple penalties if they apply.
Liens & Warrants
If you do not respond to the Notice of Intent to Assess within 35 days and do not pay the assessed amount, the Collection Division is within its rights to file liens or warrants on your personal property. When a tax lien or warrant is issued it becomes public record and as such can affect your credit and possibly prevent you from selling or transferring ownership of your property.
If you owe back taxes to the State of Michigan you are at risk of having your paycheck or any benefits checks you receive garnished at some point. If you have been sent a Notice of Intent to Garnish or Levy or your wages are already being garnished it is time you found an experienced tax professional or CPA to meet with who can provide you with serious tax help and advice. It is much easier to prevent your wages from being garnished than to lift the garnishment order after it’s been issued, although it can be done in some cases.
The Department of Treasury has the legal right to levy your bank account(s) for unpaid back taxes, up to the full amount owed.
Levies on Accounts Receivables
A business that is delinquent in paying its Michigan State taxes risks having their accounts receivables levied. When one of the accounts that owes you money receives a levy they must by law send the money to the State instead of your business. This will undoubtedly have a serious effect on your cash flow, not to mention your business’ reputation and relationships.
If the Department of Treasury asks you which companies you do business with, to provide them with a list of your accounts receivables, or already has copies of your bank records, it would be a good time to consult with a professional tax advisor or CPA for their tax help and expertise. It is much easier to prevent your receivables from being levied than to lift receivables levies once they are in place, though not impossible.
Personal Liability for Business Taxes
When a business does not pay its taxes, it is possible to pierce the corporate veil. Corporate officers or those with the “power of the pen” during the time the tax debt was incurred are at risk of being held personally responsible for the unpaid taxes of the business, including interest and penalties.
Options Available to Michigan Taxpayers Needing Tax Help & Tax Relief
If the Department of Treasury sends you a notice advising you of the back taxes you owe and you do not have the money to fully pay your taxes, you should know what options are available to you. The information below explains how the Department of Taxation works to collect unpaid taxes and the payment options available offering tax help to taxpayers so they can get back into compliance with the tax laws of Michigan, even if they cannot fully pay their taxes.
Power of Attorney
Michigan taxpayers are entitled to designate a qualified professional to represent them in tax matters before the Department of Taxation. In order to effectuate this the taxpayer would need to sign and submit a Power of Attorney form before anything can be discussed with the representative.
If you receive a Notice of Intent to Assess from the Michigan Department of Treasury you have a right to appeal. You can also appeal a Final Assessment, better known as a Bill for Taxes due.
If you’ve been sent a tax bill that you dispute it is vital that you reach out to the Department of Treasury within 60 days of the date on your notice to let them know you disagree with their assessment and why. Respond to them in the following manner, giving them the information that supports your claim:
- Explain to them in writing why their tax assessment is incorrect. Include all the documentation you have that support the reasons provided in your letter. Make sure that you include your social security number or tax ID number, which would be your account number.
- Include a copy of the tax notice sent to you by the Michigan Department of Treasury
- Mail your packet to the address listed on your tax bill.
Any taxes you legitimately owe must be paid. If it is determined that you filed an appeal just to delay the collection process or for some other frivolous reason you could be charged an additional penalty of 25%.
Installment Payment Plans
Michigan Taxpayers who cannot pay their taxes in full may only request an Installment Payment Plan if they’ve already been sent a Notice of Intent to Assess from the Department of Treasury or a Final Bill of Taxes Due. If your financial situation is such that you cannot fully pay your tax debt within 24 months time, you must phone the Office of Collections at (517) 636-5265 before filling out and submitting your forms.
The Department of Treasury reviews all requests for an Installment Payment Plan. If the taxpayer is approved then the Department decides what their minimum monthly payment would be. If they are denied, the Department will inform them how to proceed in resolving their unpaid tax liability.
To gain approval for an Installment Agreement you will need to provide the State with complete up-to-date financial statements. Before entering into an Installment Agreement with the State it would be wise to consult with a reputable tax professional or CPA for any tax help and guidance they might be able to provide.
If you have already been contacted by the Michigan Accounts Receivable Collections System (MARCS) regarding your unpaid taxes, you must reach out to them directly before sending in a request for an Installment Agreement.
To request an Installment Payment Plan lasting up to 24 months, you must do the following:
- Complete Installment Agreement Form 990. You will find instructions for completing the form on page 3 of the form.
- Include a check for the first of your proposed payments made out to the State of Michigan – Collections Division.
- Don’t forget to include the payment coupon found on page 2 of the form.
To request an Installment Agreement lasting more than 24 months, do the following:
- Complete Installment Agreement Form 990, following the instructions on page 3 of the form.
- You must also complete a Collection Information Statement, listing your monthly income and expenses, as well as your assets and liabilities. You will need to reach out to the Office of Collections at (517) 636-5265 to request the required Collection Information Statement before filling out and submitting your forms.
Mail these items to the address listed on the first page of the tax notice you received from the Department of Treasury.
The Office of Collections will likely file liens against you to protect the State’s interests even if you have entered into an Installment Agreement with them. Furthermore, interest and penalties will keep accruing until your tax liability is fully paid.
If the Department of Treasury accepts your Installment Agreement, they will send you coupons to use for future payments. Each coupon will have a date for which the payment is due and you will need to abide by those dates when sending your payments. Remember to include the proper coupon with each payment. Send a check or money made out to the State of Michigan – Collections Division and note your account or assessment number on the check in the memo section. Send your payments to:
Michigan Department of Treasury
P.O. Box 30199
Lansing, MI 48909
If the Department of Treasury notifies you in writing that they have rejected your request for an Installment Agreement, you are obligated to pay the full balance when you receive the notification.
Under certain circumstances the taxpayer may get his/her penalties waived, but the request must be submitted in writing. In requesting a measure of tax relief through a penalty waiver a reason must be given as to why the penalty was incurred. The reason must be categorized as one or more of the following:
- The responsible taxpayer is suffering a serious illness or has died.
- The taxpayer’s financial records or business records have been destroyed in a fire, flood or other natural disaster.
- The responsible taxpayer is going through an unavoidable prolonged absence, causing them to be precluded from filing their taxes, due to circumstances beyond their control.
- The taxpayer can prove that their tax return or payment was mailed on time, but not delivered to the State.
- The taxpayer incurred penalty charges because they followed written advice from the State or the IRS that ended up being wrong.
Offer in Compromise
The State of Michigan started offering taxpayers who qualify an Offer in Compromise tax relief program in 2015. If approved, the taxpayer would be able to settle their entire tax debt for less than what they owe.
To be eligible you must meet the following qualifications:
- Doubt exists about the collectability of your tax debt.
- Doubt exists about whether you actually owe this amount of tax debt.
- You also have an Offer in Compromise with the IRS for these same tax years.
You are not allowed to submit an offer to settle your taxes under this program if you are presently involved in bankruptcy proceedings or if the Department of Treasury has not yet assessed your tax liability.
When the Department of Treasury is considering an offer, it will suspend the levying of the property and assets discussed in the offer, however interest and penalties will keep accruing on the tax debt. Before seeking tax relief through an Offer in Compromise it would be best to have the assistance of an experienced tax professional or CPA who can offer the kind of tax help and guidance you need to successfully navigate this option.
If you are considering this option you need to know that there are only three payment options available to you should your offer be accepted, as follows:
- Pay the amount of your offer in one lump-sum payment
- Make up to 5 monthly installment payments, not necessarily in equal amounts.
- Make 6 or more monthly installment payments in equal amounts.
You must include the following forms and documentation when submitting your offer:
- Form 5181, offer in compromise
- If your request is based on the fact that the IRS has accepted you for their Offer in Compromise program, you must complete Schedule 1 – Information Supporting a Request Form 5182 and follow all the instructions provided on the form.
- If your request involves doubting you owe the taxes, you must complete and include Schedule 3 – OIC Based on Doubt as to Liability Form 5185.
- You need to pay a $100 fee or 20% of your offer; whichever amount is greater. Send a check or money order made out to the State of Michigan – Offer in Compromise.
- Include all documentation listed on the Offer in Compromise Checklist as well as the Checklist itself.
Once you have your packet prepared, send it to:
Michigan Department of Treasury
Offer in Compromise
P.O. Box 30190
Lansing, MI 48909
When the Department of Treasury makes their decision, they will notify you in writing. If they reject your offer and you think this was caused by a mistake made by Treasury personnel, the Department of Treasury adopted the wrong principle, or this may be a fraudulent matter; you have the right to file an Administrative Review of Rejected Offer Form 5186 requesting a review of the decision. The Department must receive your request within 30 days from the date on your letter of denial.
Contact Information for the Michigan Department of Treasury
If you need information on a tax problem you are faced with you are more than welcome to contact the particular department within the Department of Treasury for help. When phoning, make sure you have your tax bill and documents handy. You will also be asked to provide your SSN or EIN.
Phone Numbers for Billing Information:
Income Tax: (517) 636-4486
Sales, Use & Withholding Tax: (517) 636-4730
Single Business Tax: (517) 636-4700
Michigan Business Tax: (517) 636-4657
For Questions Regarding Your Account or Payment of Back Taxes:
Michigan Department of Treasury: Collection Division
P.O. Box 30199
Lansing, MI 48909-7600
Phone: (517) 636-5265