Understanding the Arkansas Offer in Compromise for Tax Relief

If you're burdened by overwhelming state tax liability in Arkansas and struggling to stay financially afloat, you may feel like there's no clear path forward. For many taxpayers, mainly working-class or middle-income individuals, the Arkansas Offer in Compromise program offers a practical solution to resolve back taxes for less than the full amount owed. This option, administered by the Arkansas Department of Finance and Administration, is designed for those who cannot pay their established tax liability due to financial hardship or unresolved tax disputes.

An offer in compromise is not a shortcut or an automatic form of forgiveness. Instead, it’s a carefully evaluated agreement between you and the state that considers your income, assets, expenses, and the facts surrounding your unique situation. If your liabilities exceed the value of what you own, or you’re facing issues like wage garnishments or bank levies, this compromise program could provide meaningful tax relief.

This guide explains how the Arkansas offer works, how it differs from IRS programs, and how to determine if you qualify. From eligibility criteria to application procedures and common pitfalls, you’ll learn how to apply, organize your financial information, and communicate effectively with the Arkansas Department of Finance and Administration.

What's the Arkansas Offer in Compromise?

The Arkansas Offer in Compromise is a formal agreement that allows eligible taxpayers to settle their state tax liability for less than the total amount owed. Administered by the Arkansas Department of Finance and Administration, this compromise program is intended for individuals or businesses who cannot fully pay their established tax liability due to financial hardship or a valid dispute over the amount of taxes assessed.

Unlike a payment plan that spreads your full debt across monthly payments, an offer in compromise allows you to reduce what you owe if your financial situation justifies it. To qualify, you must show that paying the full balance would cause undue hardship or that your liability is based on an incorrect or debatable material fact. The state reviews your financial information—including income, expenses, and assets—before determining whether your offer is acceptable.

This option can help prevent enforced collection actions like tax liens, wage garnishments, or bank levies. However, acceptance is not guaranteed. To be considered, you must be current on all required tax returns, and your tax debt must be finalized, not under appeal or judicial review. Your debt must be finalized and cannot be under active appeal or judicial review. Submitting a complete and well-supported application is essential to improving your chances of approval.

Arkansas OIC vs. Federal IRS Offer in Compromise

Many taxpayers are familiar with the IRS Offer in Compromise, but Arkansas has its state-level version with different rules and procedures. While both programs aim to provide tax relief for those who cannot pay in full, the criteria, required documentation, and decision processes vary significantly. Understanding these differences is key to planning the best strategy for managing federal and state tax debts.

Aspect

IRS Offer in Compromise

Arkansas Offer in Compromise

Administering Agency

Internal Revenue Service (IRS)

Arkansas Department of Finance and Administration (AR DFA)

Application Fee

$205 (waived for low-income applicants)

No application fee specified

Initial Payment Requirement

20% of the offer amount (lump sum) or initial installment payment

The offer amount cannot be zero; the source of funds must be disclosed

Eligibility Basis

Doubt as to collectability, doubt as to liability, or effective tax administration

Insolvency or dispute over the amount of tax due

Definition of Financial Hardship

Based on the ability to pay, income, expenses, and asset equity

Inability to pay debts as they come due or when liabilities exceed assets

Required Forms

Form 656, Form 433-A/F (individuals), 433-B (businesses)

Form 2000-4 + IRS Forms 433-A/F or 433-B

Appeal Rights

Rejected offers can be appealed within 30 days

No judicial review; Director’s decision is final

Processing Timeline

Offer deemed accepted if not acted on within 2 years

No automatic acceptance timeframe

Tax Return Compliance

All required federal returns must be filed

All required Arkansas tax returns must be current

Although both programs require extensive documentation and financial disclosures, Arkansas’s offer process is more limited regarding appeal options and flexibility. The absence of judicial review means the Director’s decision is final, making it especially important to submit a complete and well-prepared application the first time. If you're applying for state and federal relief, you must coordinate your filings carefully and include your IRS documentation with your Arkansas application.

Who Qualifies for the Arkansas OIC Program

Not everyone with tax debt is eligible for the Arkansas Offer in Compromise. The program is specifically designed for taxpayers who either cannot pay their full state tax liability due to financial hardship or have a legitimate dispute over the amount of tax assessed. To be considered, your tax debt must be an established tax liability, meaning all administrative or judicial review has been completed and no further appeals are allowed.

There are two primary eligibility categories under Arkansas law:

1. Taxpayer insolvency: You may qualify if you can't pay your debts as they come due or if your total liabilities exceed the reasonable market value of your assets. Your income and resources are insufficient to meet your tax obligations and other financial responsibilities.
   
2. Controversy over the amount of tax due: If there's a material fact in dispute, such as a miscalculation or a disagreement about the interpretation of tax law, you may be eligible under this category. However, you cannot use the program to contest taxes still under audit, appeal, or review.
   
   

In addition to meeting one of these core requirements, you must satisfy the following conditions:

• All required tax returns must be filed: The Arkansas Department of Finance and Administration will not consider your application unless your filing obligations are current. If you have no requirement to file for certain years, you must explain those years in your application.
  
• Your offer must be reasonable and supported by documentation. Offers that are unreasonably low or lack financial information will likely be rejected.
  
• You must not be able to pay the full amount through a payment plan. Your offer may be denied if the state determines that you can pay the tax liability over time with monthly payments.
  
• The compromise program is unavailable to taxpayers under investigation or facing charges for suspected fraud or willful tax violations.
  

Each application is evaluated based on the facts surrounding the taxpayer’s unique situation. A strong case includes detailed financial documentation, an honest explanation of your hardship, and a clear demonstration of why full payment is impossible.

Step-by-Step Guide to Applying for an Arkansas OIC

Applying for the Arkansas Offer in Compromise is a formal process that requires accuracy, preparation, and attention to detail. Submitting an incomplete or poorly documented application may result in delays or outright rejection. Below is a step-by-step guide to help you navigate the process effectively.

Step 1: Determine Eligibility and Gather Basic Information

Before filling out any forms, confirm that you don't qualify for a payment plan and that your tax liability has been determined. Gather the following:

• Arkansas tax account and permit numbers
  
  
• Types of taxes owed (e.g., income tax, sales tax)
  
  
• Specific tax periods and amounts
  
  
• Financial documentation (income, assets, debts, monthly expenses)
  
  
• Details about any current or past IRS Offer in Compromise
  
  
• Bankruptcy documentation, if applicable
  
  

Step 2: Complete Required Federal IRS Forms

The Arkansas Department of Finance and Administration requires federal financial disclosure forms for your application.

• For individuals: IRS Form 433-A or 433-F
• For businesses: IRS Form 433-B
• LLCs or partnerships may need to submit both individual and business forms.
  
  

These forms provide a snapshot of your financial position and are evaluated alongside your state application.

Step 3: Fill Out Arkansas Form 2000-4

This is the official Arkansas OIC application form. Make sure to:

• Indicate whether you’re applying as an individual or a business
  
  
• List the tax periods and amounts included in your offer.
  
  
• Provide explanations for the basis of your offer (insolvency or dispute).
  
  
• Disclose all sources of income and identify the source of your offer payment.
  
  
• Thoroughly complete the "Explanation of Circumstances" section
  
  

Note: The offer amount cannot be zero. You must propose a realistic payment and explain how you will fund it.

Step 4: Prepare Required Supporting Documents

Submit all required documentation with your application. Missing even one item may result in your application being returned. Common requirements include.

• State and federal income tax returns for the last two years
  
  
• Pay stubs or income statements for the last three months
  
  
• Six months of bank statements (or 12 months if your tax debt exceeds $25,000)
  
  
• A credit report dated within the last 30 days
  
  
• Property tax assessments and vehicle registrations
  
  
• Documentation related to bankruptcy, if applicable
  
  
• Power of Attorney form if someone is representing you
  
  

Step 5: Submit Your Offer Payment

Certified funds must accompany your offer:

• Acceptable methods: cashier’s check, certified bank check, or money order
  
  
• Make checks payable to “Arkansas Department of Finance and Administration.”
  
  
• Credit card payment may be accepted for individual income tax offers only if permitted by the department.
  
  
• Clearly state the source of your offer funds on the application.
  
  

Step 6: Mail the Application Package

Applications for an Offer in Compromise must be mailed to Arkansas. Send your complete application to:

Office of Revenue Legal Counsel,
P.O. Box 1272, Room 209
Little Rock, Arkansas 72203

Do not submit by fax or email, as these methods will not be processed.

Step 7: Monitor Your Case and Respond Promptly

Once submitted:

• Keep copies of all forms and documents for your records
  
  
• Respond to any requests for additional information quickly.
  
  
• Contact the Tax Information Office at 501-682-7751 for a case update.
  
  

A complete, well-documented application increases your chances of approval and reduces the risk of unnecessary delays.

Common Reasons Arkansas OIC Applications Get Rejected

Submitting an Offer in Compromise to the Arkansas Department of Finance and Administration does not guarantee acceptance. Many applications are returned or rejected due to common and preventable errors. Understanding these pitfalls can help you avoid unnecessary delays and improve your chances of success.

Incomplete or Incorrect Forms

One of the most frequent reasons for rejection is incomplete paperwork. Leaving blanks on Arkansas Form 2000-4 or failing to sign required sections—especially for joint filers or businesses—can result in automatic rejection. Inaccurate or outdated information, such as missing tax periods or incorrect account numbers, weakens your application.

Missing or Outdated Documentation

The Arkansas offer process requires thorough financial disclosure. Omitting even one required document, such as recent pay stubs, tax returns, or a current credit report, may prevent your application from being reviewed. Another common issue is submitting outdated financial information, such as a credit report older than 30 days or missing bank statements.

Unrealistic or Unsupported Offer Amounts

Lowball offers without justification signal bad faith. If your proposed payment doesn’t reflect your ability to pay, the state may conclude that you're not serious about resolving your state tax liability. You must identify the source of your payment and explain how you arrived at the offer amount.

Failure to File All Required Tax Returns

The Arkansas Department will not consider an application unless all required tax returns are filed and current. If your filing history is incomplete—even for unrelated years—your application will be rejected until your account complies.

Application Submitted by Fax or Email

Arkansas only accepts mailed submissions. Regardless of completeness, any Offer in Compromise sent by fax or email will not be processed.

Avoiding these common mistakes is essential to keep your application on track. A complete, well-documented, and realistic offer stands a much better chance of being evaluated based on the facts surrounding your financial situation.

Alternatives to the Arkansas Offer in Compromise

While the Arkansas Offer in Compromise can provide significant tax relief, it is not the only option for taxpayers struggling with state tax liability. In many cases, alternative solutions may be more accessible, faster, or better suited to your financial situation, especially if you do not meet the strict eligibility requirements of the compromise program.

Installment Payment Plan

A payment plan agreement allows you to pay your full tax liability in manageable monthly payments. Unlike an offer in compromise, this option does not reduce the amount owed but may prevent collection actions such as wage garnishments or bank levies. The Arkansas Department of Finance and Administration often grants payment plans to taxpayers who can demonstrate the ability to pay over time. You’ll need to stay current on future tax filings and payments to keep the plan in good standing.

Currently Not Collectible Status

If you’re experiencing severe financial hardship and cannot pay anything now, you may be considered for a currently non-collectible status. While Arkansas does not have a formal program under this name like the IRS, you may be able to request a temporary delay in collection efforts by providing updated financial information. This option is not debt forgiveness, but it may offer temporary relief.

Bankruptcy (As a Last Resort)

Filing for bankruptcy may discharge certain tax debts depending on the type of tax, how old the debt is, and your compliance with filing requirements. Bankruptcy is a serious legal process that should only be considered after consulting a qualified attorney. It may impact your credit and assets, but it can lead to long-term relief from overwhelming obligations for some taxpayers.

Each alternative should be evaluated based on your financial information and overall ability to pay. If you’re unsure which option is best, consider contacting the Tax Information Office or seeking free help from a tax professional.

Final Checklist Before You Submit Your Application

Reviewing every detail is crucial to ensuring compliance and completeness before mailing your Arkansas Offer in Compromise application. The Arkansas Department of Finance and Administration will not process incomplete or improperly submitted applications. Use the following checklist to reduce the risk of rejection or delay.

Forms and Application Documents

• Arkansas Form 2000-4 is fully completed, signed, and dated.
  
  
• Required IRS forms (433-A, 433-F, or 433-B) are included and correctly filled out.
  
  
• A Power of Attorney form is attached if someone else is submitting on your behalf
  
  
• All tax periods and tax types are listed on the application.
  
  

Financial Documentation

• The last two years of state and federal income tax returns are included, or an explanation is provided if not required.
  
  
• The last three pay stubs or other income verification documents are attached.
  
  
• Bank statements for the past 6 months (or 12 months for tax debt over $25,000) are included with check images.
  
  
• The credit report is dated within the last 30 days.
  
  
• Real and personal property tax assessments are included.
  
  
• An affidavit covering any property transfers in the past two years is provided.
  
  

Payment and Mailing Details

• Offer payment is enclosed via certified funds (cashier’s check, money order, or certified bank check)
  
  
• The source of the funds offered is clearly stated on the form.
  
  
• Mailing address confirmed:
  Office of Revenue Legal Counsel,
  P.O. Box 1272, Room 209
  Little Rock, Arkansas 72203
  
  
• Postal mail selected—do not fax or email.

Before You Submit

• All required tax returns have been filed.
  
  
• The explanation of the circumstances is complete and detailed.
  
  
• You’ve made copies of all documents for your records.
  
  

A complete and organized application package speeds up processing and demonstrates good faith in resolving your state tax liability.

Frequently Asked Questions (FAQs)

How long does the Arkansas Offer in Compromise process take?

There is no fixed timeline for how long the Arkansas Department of Finance and Administration takes to process an offer. Unlike the IRS, which deems an offer accepted if not addressed within two years, Arkansas does not guarantee a response within a specific period. Processing time depends on your case's complexity, your application's completeness, and the revenue division's current workload.

Can I apply for both the Arkansas and IRS Offers in Compromise?

You can apply for both programs simultaneously if you owe state and federal back taxes. Arkansas requires you to submit copies of your IRS Offer in Compromise and any supporting documents as part of your state application. The procedure helps the state evaluate your financial position consistently and ensures your filings with the IRS and the Arkansas Department of Finance and Administration align.

What happens if my Arkansas OIC is denied?

If your offer is rejected, you will not have the right to appeal the decision. Arkansas does not offer administrative or judicial review for denied offers. You can submit a new offer if your financial situation changes significantly or you made a mistake in your original submission. Submitting a complete and well-supported application the first time is essential to improve your chances of getting accepted.

Can a business qualify for an Arkansas Offer in Compromise?

Businesses may qualify for an Arkansas Offer in Compromise if they meet the program’s eligibility requirements. This includes financial insolvency or a legitimate dispute over the tax liability. Business owners must submit IRS Form 433-B and Arkansas Form 2000-4, along with documentation of the company’s income, expenses, assets, and liabilities. Incomplete or under-supported offers are less likely to be accepted.

Will applying for an Arkansas OIC stop collection actions?

Submitting an Offer in Compromise does not automatically stop collection actions like wage garnishments or bank levies. However, once your offer is under review, the state may temporarily pause aggressive collection efforts. You should contact the Tax Information Office to confirm your status and request any relief while the application is pending. Continued communication with the state is essential throughout the process.

Is there a minimum offer amount I must submit?

Arkansas regulations do not specify a minimum dollar amount, but your offer cannot be zero. You must submit a realistic payment reflecting your ability to pay and explain where the money comes from. Offers that are too low without justification are likely to be rejected. Be prepared to support your offer with detailed financial documentation and a clear source of funds.

Do I need professional help to apply for an Arkansas OIC?

While not required, getting professional help can be beneficial. The application process is complex and involves gathering financial documents, completing government forms, and writing a compelling explanation. Tax professionals, CPAs, or attorneys familiar with Arkansas tax law can help ensure your offer is accurate, complete, and persuasive. The state may provide free help or guidance through its Tax Information Office if cost is a concern.