Five Solutions To Deal With Your Minnesota Tax Debt
When you owe a tax debt to the Minnesota Department of Revenue, it is crucial that you immediately deal with the issue. In the event, you do owe taxes; you will receive a bill for the amount of taxes you owe. If you haven’t followed up with Minnesota Revenue within 30 days, you will be sent a demand for payment letter. Failure to address the issue within 60 days of receiving your first tax notice could result in wage garnishments or bank levies.
If you do have a Minnesota tax debt, you have five options, including:
- Filing your back Minnesota tax returns
- Minnesota Tax Settlement (Offer in Compromise)
- Minnesota Hardship (tax collection deferment)
- Removal of Minnesota Tax Penalties
- Agreeing to a payment plan with Minnesota
1. Filing Your Back Minnesota Tax Returns
Your first option in regard to dealing with your tax debt involves filing any back tax returns. This is crucial because you need to be in compliance with Minnesota Revenue to improve your chances of getting full consideration of all your potential tax resolution options.
In addition, you may find that including your relevant tax credits and deductions when filing your tax returns decreases the amount you owe. In fact, filing your back tax returns can substantially decrease your tax liability, particularly if the Minnesota Revenue filed your return on your behalf. When this occurs, it is referred to as a Commissioner Filed Return (CFR). Minnesota Revenue files your return based on what little information they have.
When Minnesota Revenue files a CFR, they are usually concerned about your income and don’t have access to information regarding tax credits and deductions that you would’ve taken had you filed your taxes yourself.
On a final note, if you file a return and find that you are eligible for a refund, you are only given 3 ½ years from the tax return due date to collect your refund. A refund could offset any current tax debts you have.
To complete your back Minnesota tax returns, it is strongly recommended that you work with a professional company, such as MWB Tax Solutions. We will work with you until all back returns are complete. This process includes:
Collect all tax information and documents: If necessary, we can request some information on your behalf, and we will also assist you in ordering information from financial institutions and past employers. In some instances, we may need to contact the Social Security Administration to order your W-2s.
Complete a tax organizer: There is necessary to ensure that our tax preparer is aware of
any important tax credits, deductions, and issues that will impact your Minnesota tax return.
Fill out your tax return: In almost all cases, a federal return must be completed first. The information on your federal return will be used to complete your Minnesota tax return.
Mail or e-file your tax returns: If possible, we will take care of electronically filing your tax returns. In the event, they are too old to be e-filed, we will mail them.
It is impossible to stress just how important it is to file your back tax returns to get yourself in compliance with Minnesota Revenue. This is a crucial aspect of finalizing a tax resolution with Minnesota Revenue.
2. Minnesota Tax Settlement (Offer in Compromise)
Minnesota Revenue does offer a tax settlement program, referred to as Minnesota Offer In Compromise. This involves a written agreement between yourself and Minnesota Revenue in which they agree to accept a one-time payment to settle all of your Minnesota back taxes. The best candidate for Minnesota Tax Settlement is someone suffering a financial hardship with minimal income and assets.
While there are some parallel components to the IRS Offer in Compromise, overall, Minnesota Revenue has different criteria when assessing your potential tax settlement offer. Some of the criteria they examine will include:
Earning potential/ assets of the applicant: Here’s the easiest way to put it. If you owe Minnesota Revenue $25,000, and you have $25,000 in your bank account, in all likelihood your tax settlement offer will be not accepted.
Applicant’s previous collection history with Minnesota Revenue: Anyone who has a history of compliance will be given more consideration than someone who has been noncompliant in the past. They will also look at any current or past bankruptcies.
The type of tax: An applicant who owes a business tax debt, such as sales tax, will find it more difficult to settle than an applicant with an individual income tax debt.
Potential to collect from the applicant: If, after, reviewing your paperwork, Minnesota Revenue determines they will likely be able to collect more tax dollars by not accepting your offer, it is highly likely that they will reject your tax settlement.
Minnesota Offer in Compromise Application Requirements
Every Minnesota Offer in Compromise applications must be submitted with a $250 non-refundable payment. If you are able to prove economic hardship and submit a written letter explaining the circumstances of your waiver, this fee may be waived. You must also show proof of two credit and loan denial from two different financial institutions.
Additional paperwork you may need to submit includes:
- Completed financial statement
- Income verification using two or more most current pay stubs
- Medical documentation
- Any lease agreements
- Homeowners will also need to provide a homeowner’s insurance policy and property tax settlements.
While Minnesota Revenue states that decisions may take up to 90 days, but actually it can take as long as six months for applicants to receive a decision. In the event, your settlement is accepted; you will be agreeing to the following conditions and terms:
- For the next five years, you agree to file all tax returns on or before their due date.
- You will not acquire additional tax debts.
- For the next five years, all tax refunds will be applied to your due date.
If you fail to comply with all terms and conditions, your tax debt could go back to the original amount, with added fees, penalties, and interests.
3. Minnesota Tax Hardship
If you are struggling financially and are unable to make any payments to Minnesota Revenue on your tax debt, you may be able to suspend tax collection for a 1 or 2-year period. While you still owe the debt, it will protect you from aggressive collection measures, such as bank levies or wage garnishment, for the agreed-upon time period.
If your request for a 1 year suspension is approved, be sure to make note of the document’s date of acceptance. Exactly one year from that date, Minnesota Revenue will send you a demand for payment letter. In order to apply for another 1 or 2 year suspension, you will be required to disclose and update your financials.
It is strongly suggested that you obtain a qualified tax representative to improve the chances your suspension will be accepted.
4. Removal of Minnesota Penalties
The state of Minnesota does allow for reduction or complete removal of penalties for probable cause. You will need to submit a letter detailing your hardship and why Minnesota Revenue should eliminate your penalties for probable cause. Probable cause examples include:
- Prolonged period of unemployment
- Major illness or death
- Failed business
- Bad information or advice from Minnesota Revenue
- Natural disaster
- Loss of records
- Bad information or advice from an accountant or financial advisor
When you submit a request for the removal of tax penalties, you will also need to submit the following:
- Complete contact information
- Minnesota tax ID number
- Time period your request covers
- Tax type (sales, income, etc.)
- Any information that will help prove your case.
- To strengthen your request, a representative can submit a letter on your behalf.
It’s important to understand that all cases are unique, so the success of your request will be determined by the circumstances of your case and the facts. If Minnesota Revenue denies your request for penalty removal, you may appeal against the decision, if done so in a timely manner.
5. Minnesota Tax Payment Plan
If you owe Minnesota Revenue a tax debt, you may be able to set up a payment plan. Usually, Minnesota Revenue prefers that the amount be paid off within a period of 12 to 24 months. In the event, you will not be able to pay off the entire amount in 24 months; you will need to complete CP 58 Personal Financial Statement. You will need to include the following information:
- Detailed information regarding your finances
- A requested payment plan amount
- Your bank name, routing number, and account number for direct withdrawal (Minnesota requires that all payment plans be electronically withdrawn from a bank account.)
- You may also be asked to provide proof of income and expenses, which may require documents, including pay stubs, medical bills, bank statements, etc.
After you have sent your payment request to Minnesota Revenue, your representative will likely be
contacted by an agent with a request for additional information, a rejection to your proposed payment plan, or a counteroffer to your proposed payment plan.
In the event, your Minnesota payment plan is accepted, a confirmation letter will be mailed to you. You will need to sign the letter and return it to Minnesota Revenue.
These are your five main options when dealing with Minnesota Revenue if you have a tax debt. To ensure that you have the lowest payment allowed by law, it is highly recommended that you obtain proper representation to look out for your best interests, not knowing Minnesota tax laws isn’t considered an acceptable defense in most cases.
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