New Jersey Tax Settlement Rate Falls to 12%

State of NJ Treasury records show approval rates for Offer in Compromise settlements on back taxes dropped sharply from FY 2022 to FY 2025 — a decline steeper than the IRS's own federal settlement trend — as the Division of Taxation nearly doubled enforcement collections to $53.5 million.

Getting the state to accept less than the full balance owed has become dramatically harder for New Jersey taxpayers over the past four years. Newly released Treasury records show the NJ Division of Taxation approved just 12% of Offer in Compromise (OIC) and Settlement Agreement applications in FY 2025, compared with 55% in FY 2022 — a swing of 43 percentage points.

The records, obtained through public records request C255751 and provided by the department's Government Records Access Unit, span Division of Taxation collection, enforcement, audit, and appeals activity across fiscal years 2021-22 through 2024-25.

Key Findings

• Offer in Compromise and Settlement Agreement approvals dropped from 55% in FY 2022 to 12% in FY 2025 — down 43 percentage points.
• Estimated approved settlements fell from roughly 84 in FY 2022 to about 17 in FY 2025, a decrease of nearly 80%.
• Enforcement collections climbed from $25.2 million to $53.5 million — up 112%.
• Payment plan volume rose from 16,766 to 24,278, an increase of 44.8%.
• Audits dropped from 142,895 to 65,900, yet total assessments held above $566 million.
• Administrative appeals reached 1,162 in FY 2025; Tax Court logged 11,018 new cases.
• Wage garnishments, tax liens, audit outcome types, payment plan terminations, and responsible-person assessments were not tracked by the division at all.

Offer in Compromise Approvals for Back Taxes and Tax Debt Fall Sharply

The state's Offer in Compromise program is meant to give taxpayers a way to resolve tax debt for less than the full tax owed when full payment isn't realistic. That path narrowed considerably over the four years covered by the records, even as the number of taxpayers asking for it barely changed.

Applications Stayed Steady While Approvals Collapsed

In FY 2022, 153 taxpayers filed Offer in Compromise or Settlement Agreement requests, and the division approved about 55% of them — an estimated 84 approvals. By FY 2025, with a nearly identical 143 applications on file, only 12% were approved, or an estimated 17.

The rate didn't collapse in a single year — it eroded steadily: 55%, 51%, 23%, then 12%. The steepest single-year drop came between FY 2023 and FY 2024, when the acceptance rate fell 28 percentage points even though application volume actually declined slightly that year, from 173 to 144.

Estimated approval counts in this article are calculated by applying the reported acceptance rate to the number of applications received in each fiscal year; the division did not provide raw approval counts directly, so these figures are labeled as estimates throughout.

What Changed Wasn't Taxpayer Demand

Jacquelyn McCarty, manager of the Government Records Access Unit, described the acceptance figure simply: accepted applications divided by applications received, per fiscal year, applied under New Jersey tax law. Since application volume never dipped below 143 or climbed past 173, while approvals fell by more than four-fifths, the shift points to how the division evaluates each taxpayer's tax liabilities and ability to pay — not to fewer people seeking relief.

That distinction matters for anyone weighing whether to apply. A stable pool of applicants paired with a collapsing approval rate suggests the underlying standard for what counts as a qualifying tax situation may have tightened, rather than fewer taxpayers having a legitimate tax balance to resolve.

Collection Activity Rises as NJ Pursues Outstanding Tax Liability

Even as settlements grew rarer, the division leaned harder on collection tools aimed at recovering outstanding tax debt directly. Every major enforcement category tracked in the records increased over the four-year period, some sharply.

Bank Levies, Warrants, and Demand Letters All Climb

Warrants of execution more than doubled — the largest percentage jump of any category in the dataset — while bank levies and levy notices to financial institutions grew at a steadier pace.

Certified demand letters, the least aggressive tool on this list, grew the least — up just 9.0% — while warrants of execution, which authorize the seizure of assets to satisfy a judgment, grew the most. That gap suggests the division didn't simply send more notices; it escalated to harder enforcement tools more often relative to softer ones.

Revenue Peaked Before Settling Back Down

Total dollars collected through these categories rose from $25,248,636 in FY 2022 to $53,532,908 in FY 2025, a 112% increase, though the high-water mark actually landed a year earlier.

Collections nearly doubled between FY 2022 and FY 2023 alone, then continued rising into FY 2024 before dipping slightly in FY 2025. The dip doesn't necessarily signal reduced enforcement — it coincides with the same year OIC approvals hit their lowest point and payment plans hit their highest, suggesting dollars may simply be flowing through different channels.

The division does not track tax liens or wage garnishments, so the full scope of enforced collection activity, including bank levy outcomes, can't be fully measured from what's available.

Payment Plans and Tax Payments Rise as Settlements Decline

As fewer settlements got approved, more taxpayers appear to have been routed toward paying their tax balance down over time instead. The division established 24,278 payment plans in FY 2025, up 44.8% from 16,766 in FY 2022.

Installment Agreements Jump in FY 2025

Growth was uneven across the period — modest through FY 2024, then a sharp jump in the final year, the same year OIC approvals hit their low point.

Payment plans grew only 9.6% total across the first three years of the dataset, then jumped nearly 32% in FY 2025 alone. That single-year surge lines up closely with the same fiscal year the OIC acceptance rate fell to its floor of 12%, a pattern consistent with taxpayers being redirected from settlement toward installment-based repayment.

An installment agreement lets a taxpayer pay the remaining balance in scheduled tax payments rather than negotiate a reduced amount owed. Unlike an OIC, it does not reduce the total tax debt — it only spreads repayment over time.

It's Unclear How Many Plans Are Completed

The division did not track payment plan terminations, so there's no way to tell from this data how many agreements ran to completion versus defaulted partway through.

That gap limits how much the payment plan totals actually reveal. A rising number of new plans could reflect more taxpayers successfully avoiding harsher enforcement — or it could mask a rising number of plans that ultimately fail, pushing some of those same taxpayers back into the bank levy and warrant pipeline described above.

Audit Volume Falls While Tax Returns Face Higher Assessments

The number of audits the division conducted fell from 142,895 in FY 2022 to 65,900 in FY 2025, a decline of 53.9%. Fewer audits didn't mean smaller dollar figures — quite the opposite.

Fewer Audits, Higher Dollar Assessments

Total assessments on audited tax returns peaked at $734.6 million in FY 2023, a year in which the division conducted fewer than half the audits it ran in FY 2022.

The average assessment per audit rose from $3,787 in FY 2022 to $8,603 in FY 2025 — more than doubling even as audit volume fell by more than half. The math implies the division shifted toward auditing a smaller, higher-yield pool of tax returns rather than spreading audits broadly across all filers.

The Data Doesn't Explain Why

The division does not track audit outcomes by result type — no-change findings, additional assessments, or refunds — and the records don't break out figures by individual versus business tax accounts.

That leaves several open questions this dataset can't answer: whether the shift toward fewer, higher-value audits targeted business tax filers more than individuals, whether it reflects better audit selection, or whether it simply reflects fewer routine audits and more complex ones. Any of those explanations is plausible; the records don't distinguish between them.

How NJ's Offer in Compromise Compares With an IRS Tax Settlement

New Jersey's OIC program runs alongside, but separately from, the Offer in Compromise process run by the IRS. Both weigh a taxpayer's finances before agreeing to accept less than what's owed, but the two systems differ in history, mechanics, and outcome.

The Legal Grounds for an IRS Settlement

The IRS may accept an offer for one of three reasons: doubt as to whether the full amount is actually owed, doubt that the balance is collectible, or effective tax administration when payment would cause hardship or be unfair and inequitable despite the ability to pay.

The IRS accepts many offers after reviewing financial disclosures, but doubt-as-to-liability offers need not include them initially. Applicants must generally submit supporting forms and documentation covering income, expenses, and asset equity before the agency will evaluate an offer on its merits, and an application can be returned without review if a taxpayer has unfiled tax returns or is behind on current withholdings.

The Fresh Start Reforms That Reshaped OIC Math

Federal changes made in 2011 and 2012 relaxed lien-filing criteria and eased the financial formulas used to evaluate an Offer in Compromise, shortening the income calculation from four years to one and allowing taxpayers to factor in costs like student loan payments.

Those reforms, commonly referred to as the Fresh Start Initiative, also raised the federal lien-filing threshold and expanded streamlined installment agreements — changes aimed at making settlement and repayment options reachable for more taxpayers, not just those with the smallest balances. New Jersey's program evaluates ability to pay using its own separate criteria, and nothing in the records reviewed for this article indicates the state adopted comparable reforms during the same period.

Two Separate Systems, Two Separate Balances

By comparison, national figures show a downward trend at the federal level too: the IRS accepted about 21% of offers nationwide in fiscal year 2024, down from a rate that had been over 42% the year before.

Offers to either agency can be structured as a lump sum or partial pay installments, and federal tax debt generally can't be pursued by the IRS past its collection statute expiration date, typically 10 years from assessment. Settling with the IRS does not resolve a New Jersey tax balance — a taxpayer facing both IRS and state tax debt must satisfy both tax authorities separately, through separate applications and separate financial disclosures.

Administrative Appeals and Tax Court Activity

Taxpayers who disagree with a division determination have more than one avenue for review, and the records cover both the administrative and judicial tracks.

Appeals and Review-Unit Closures

The division's Counsel Services reported 1,162 administrative appeals received in FY 2025 and 1,123 review-unit closures, with a separate 628 appeals filed through the Conference and Appeals Branch that same year.

Those figures suggest most disputes are resolved administratively, within the division itself, well before reaching the state court system.

Tax Court Figures Don't Fully Reconcile

Tax Court activity included 11,018 incoming cases and 11,480 closed cases in FY 2025. The department separately reported outcome categories for appealed matters — upheld, vacated, and revised — totaling 605 in FY 2025, but that figure doesn't match the Tax Court closed-case count of 127.

Because the two figures don't reconcile, this article does not treat the outcome categories as Tax Court-only results. The department has been asked for clarification on how the two datasets relate.

What the Data Does Not Show

The division said several categories were not tracked during the requested period, and those gaps limit how completely this dataset can describe the state's enforcement activity.

Five Categories Left Untracked

• Wage garnishments — not tracked
• Tax liens filed — not tracked
• Audit outcomes by result type — not tracked
• Payment plan terminations — not tracked
• Responsible person assessments — not tracked

Why the Gaps Matter

The absence of wage garnishment and lien data is particularly notable given that nearly every other enforcement metric in this dataset increased over the same four years. Without those figures, there's no way to confirm whether that same upward trend held for the tools this data doesn't cover — or whether the division shifted enforcement toward levies and warrants specifically because those are the categories it tracks and reports.

What This Means for New Jersey Taxpayers Who Owe Back Taxes

Read together, the four years of records describe a state collecting more, settling less, and leaning on payment plans in place of compromises — all while auditing fewer returns but preserving, and sometimes increasing, high-dollar assessments.

Don't Assume an Offer Will Be Approved

Taxpayers with back tax issues, especially those facing tax challenges tied to both state and federal debt, shouldn't assume an OIC will go through, given the FY 2025 numbers. Responding to collection notices quickly can help avoid a lien or levy, and professional tax guidance from an enrolled agent, CPA, or tax attorney familiar with both systems may help clarify options.

Some taxpayers dealing with economic hardship may also qualify for penalty abatement or IRS penalty relief under reasonable cause, separate from the settlement process itself. Neither of those options changes the underlying tax balance owed — they address penalties, not the principal debt.

This Is Reporting, Not Tax Advice

This article is meant to help New Jersey taxpayers make informed decisions using primary-source government data — it is not individualized tax advice. Every taxpayer's tax situation differs, and the acceptance-rate trend described here is a statewide pattern, not a prediction about any individual application.

This article will be updated if new information becomes available.

Methodology

This article is based on data provided by the New Jersey Department of the Treasury, Government Records Access Unit, in response to public records request C255751. The data covers the Division of Taxation Collection and Enforcement, Audit, and Counsel Services program activity during fiscal years 2021-22 through 2024-25.

Fiscal years run from July 1 through June 30. FY 2022 covers July 1, 2021, through June 30, 2022; FY 2025 covers July 1, 2024, through June 30, 2025. The division confirmed the acceptance-rate figure represents accepted applications divided by applications received per fiscal year. Estimated approval counts are derived by multiplying the acceptance rate by applications received and are labeled as estimates. National IRS figures and Fresh Start history cited for comparison come from published IRS guidance and Data Book statistics, not the NJ Treasury records, and are labeled accordingly. All New Jersey figures are sourced directly from the government records response; no private or third-party data was used.

External Sources

• New Jersey Department of the Treasury, Division of Taxation
• Internal Revenue Service, Offer in Compromise
• Internal Revenue Service, Topic No. 204 — Offers in Compromise
• Internal Revenue Service, IRS Data Book (SOI Tax Stats)

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Author: William McLee, MBT, MBA, is an Enrolled Agent licensed to practice before the Internal Revenue Service. He is the founder of GetTaxReliefNow.com and MWB Tax Solutions. Full bio and credentials →

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