North Carolina Offer in Compromise: Settle Tax Liabilities for Less

The North Carolina offer in compromise provides a legal path for resolving tax liabilities when full payment isn’t possible. Administered by the North Carolina Department of Revenue (NC DOR), this compromise program allows qualifying taxpayers to settle state tax liabilities for less than the total amount owed. Instead of pursuing aggressive collection actions such as wage or bank garnishment, the department may accept a reduced amount if it's in the best interest of the state and the taxpayer.

This program helps financially distressed taxpayers who can't manage back taxes, sales taxes, or growing tax debt through a standard installment agreement. Whether you’re behind on state income taxes or facing late payment penalties, a properly prepared offer in compromise could stop collections and bring meaningful debt relief. To apply, you must submit a complete collection of information statements, bank statements, pay stubs, and other supporting financial documents to show limited gross income, expenses, and inability to make monthly or full payments.

Eligibility depends on compliance with tax laws, filing all required tax returns, and showing that a lump sum or reduced settlement can be most reasonably collected. You must provide necessary documentation if you have extenuating circumstances, like a natural disaster, medical issues, or support for an immediate family member. A qualified tax professional or attorney may improve your chances of receiving an acceptance letter and avoiding denial from the department or other tax authorities.

How the Compromise Program Works in North Carolina to Resolve Tax Debt

The North Carolina offer in compromise is a legally authorized tax resolution tool that allows qualifying taxpayers to settle outstanding state tax liabilities for less than the full amount owed. This compromise program is governed by North Carolina General Statute §105-237.1, which grants the North Carolina Department of Revenue the authority to accept a reduced payment when collecting the full amount is unlikely or not in the state’s best interest.

Unlike a payment plan or installment agreement, where you commit to monthly payments until your balance is paid in full, the offer-in-compromise process is based on the taxpayer’s financial condition. If your income, assets, or overall financial outlook make it unlikely that you can ever pay your full tax debt, the department may agree to a reduced settlement.

Key Principles Behind the Offer in Compromise

• Not guaranteed for all taxpayers:
  The offer in compromise is not an automatic right. It is a privilege extended only to those who meet specific criteria and provide convincing documentation of hardship or error.
  
  
• Focus on the state’s best interest:
  The North Carolina Department considers whether accepting a lower payment serves the state's best interest. This may be true if the full tax bill is uncollectible or if continued collection efforts cost more than the recovery amount.
  
  
• Requires detailed financial disclosure:
  Applicants must submit a complete collection of information statements detailing all sources of income, assets, debts, and monthly expenses. To validate claims, applicants must submit supporting financial documents, including bank statements and pay stubs.
  
  
• Different from other tax relief options:
  While the compromise program is one type of tax resolution, it differs from other options such as installment payment agreements or temporary hardship status. The offer in compromise focuses on full settlement through one lump sum or structured short-term payments, typically in cases involving hardship, doubt, or extraordinary circumstances.
  
  

Situations Where an Offer in Compromise May Apply

Taxpayers may be eligible for a compromise under the following general circumstances:

1. They cannot pay the full amount due: Financially distressed taxpayers who cannot cover their unpaid tax through current tax payments or monthly installments may qualify.
   
   
2. There is a legitimate dispute about the amount owed: When there's a claimed corrected tax liability or reasonable doubt about the accuracy of the tax bill, an offer may be submitted under "doubt as to liability."
   
   
3. The collection is improbable or unjust: If the department is unable to access certain information, it may consider a reduced offer.
   
   
4. A parallel federal offer has already been accepted: If the Internal Revenue Service has accepted an offer in compromise for the same time and tax issue, North Carolina may follow suit under the parallel compromise category.
   
   

Who Qualifies for a North Carolina Offer in Compromise

To qualify for the North Carolina offer in compromise, taxpayers must meet specific legal and financial criteria. The program is designed for individuals and businesses who cannot pay their tax liabilities or have valid grounds to dispute the assessed tax. The North Carolina Department of Revenue evaluates each application based on compliance, financial condition, and the category under which the offer is submitted.

General Eligibility Requirements

Before applying, make sure you meet the following conditions:

• All required tax returns must be filed:
  The department will not consider your application if you have any outstanding income tax, sales taxes, or other state tax returns.
  
  
• You must not be in active bankruptcy:
  In an open bankruptcy proceeding, taxpayers are ineligible for an offer in the compromise process.
  
  
• No ongoing criminal investigation:
  If you are under investigation by the North Carolina Department of Revenue or other tax authorities, you are not eligible to apply.
  
  
• Tax debts must be collectible:
  The state must still be legally authorized to collect the tax debt. Debts past the statute of limitations for collection cannot be compromised.
  
  
• You must provide full financial disclosure:
  A complete collection of information statements must accompany your application, along with all supporting financial documents.
  
  

Who Typically Qualifies

The offer in compromise is not limited to one type of taxpayer. Eligibility depends on financial circumstances, not occupation or income level. Common applicant profiles include

• Low-income individuals or retirees:
  Those whose gross income is minimal and who cannot pay their tax obligations in full or through an installment agreement.
  
  
• Self-employed individuals or small business owners:
  Taxpayers may face declining revenue, seasonal income, or ongoing operating losses.
  
  
• Those with medical or family hardship:
  Individuals or households are burdened by health-related expenses or caring for an immediate family member with special needs.
  
  
• Taxpayers are disputing the assessed tax:
  Individuals who believe the assessed tax bill is inaccurate due to incorrect reporting, tax law misapplication, or other errors.
  
  

Meeting the above criteria does not guarantee acceptance into the compromise program. The state will review your financial documents, including bank accounts, pay stubs, and any claimed hardship circumstances.

North Carolina Offer in Compromise Categories Explained

To apply for a North Carolina offer in compromise, you must select one of five legal categories. Each category represents a specific reason for which the North Carolina Department of Revenue may accept an amount less than the total tax debt owed. Choosing the correct category and submitting the proper financial documents is essential to avoid delays or a denial letter.

Doubt as to Liability

This applies when the taxable income or tax bill is incorrect due to a miscalculation or misapplication of tax laws. You must submit a written explanation and documentation supporting your claimed corrected tax.

Insolvency

This category covers financially distressed taxpayers whose gross income and assets are insufficient to pay their tax obligations. Supporting documents include pay stubs, bank statements, and a collection information statement.

Improbable Collection

This method is employed when the state's standard collection actions are unlikely to yield results. If your bank accounts or income are inaccessible and your offer comes from sources the state cannot reach, include proof of funding.

Unjust Result

This applies when collecting the full state tax, which would create unfair hardship due to extenuating circumstances, such as illness, natural disaster, or support of an immediate family member. Submit relevant medical or legal documentation.

Parallel IRS Compromise

If the Internal Revenue Service (IRS) accepts your federal offer in compromise for the same period, the North Carolina Department of Revenue may receive a similar offer. Include your IRS acceptance letter and related documents.

How to Apply for a North Carolina Offer in Compromise: Step-by-Step Instructions

Applying for a North Carolina offer in compromise involves more than just filling out a form. The North Carolina Department of Revenue requires a comprehensive financial review, documentation, and a clear explanation of your eligibility under one of the accepted compromise categories. The following steps will help you prepare and submit a complete and well-supported application.

1. Verify That You Meet Basic Eligibility Requirements

Before gathering paperwork, confirm that you meet the minimum eligibility standards:

• All required tax returns must be filed with the North Carolina Department of Revenue
  
  
• You cannot be in an active bankruptcy proceeding
  
  
• You must not be under a criminal investigation by tax authorities
  
  
• According to state law, the tax liability must still be legally collectible
  
  
• You must be willing to provide complete financial disclosure
  
  

Your application will likely be rejected without review if you do not meet these basic requirements.

2. Gather the Required Forms and Documents

The department requires multiple forms depending on your filing status and offer category. These include:

• OIC-100—The primary offer in the compromise application form.
  
  
• OIC-101—The instruction booklet includes worksheets for calculating your offer amount.
  
  
• OIC-102—The Third Party Affirmation form is used when someone else provides the settlement funds.
  
  
• RO-1062—Collection Information Statement for individuals and sole proprietorships.
  
  
• RO-1063—Collection Information Statement for Businesses.
  
  
• OIC Worksheets A–C—Used to calculate Reasonable Collection Potential for individuals, businesses, and the self-employed.
  
  

You can download these forms from the North Carolina Department of Revenue’s website or request them by phone.

3. Complete a Full Financial Analysis

This is one of the most essential parts of your application. You must thoroughly document your financial situation by disclosing the following information:

• Income sources include pay stubs, Social Security, self-employment income, and any financial contributions from a family member or immediate family member.
  
  
• Asset values include the current market value of real estate, vehicles, and retirement accounts.
  
  
• Monthly living expenses, including rent, utilities, insurance, transportation, and court-ordered payments.
  
  
• The outstanding debts include personal loans, mortgages, and credit card balances.
  
  

You must show that you can't pay your full tax debt and that your offer is the most the state can expect to collect.

4. Calculate Your Reasonable Collection Potential (RCP)

The offer amount must be based on your reasonable collection potential, net assets, and future disposable income. To calculate RCP:

• Complete the OIC worksheets found in Form OIC-101.
  
  
• Include both liquid and non-liquid assets in your asset calculation.
  
  
• Use realistic income and expense estimates supported by pay stubs and bank statements.
  
  

Your offer should exceed your calculated RCP unless you can document extenuating circumstances that justify a lower amount.

5. Determine Your Offer Amount

Your offer must be greater than zero and reflect your ability to pay. Factors to consider include

• The outcome of your RCP calculation should be taken into account.
  
  
• You should also consider your long-term income prospects and employment status.
  
  
• Any exceptional circumstances, such as medical issues or a recent natural disaster, should also be considered.
  
  
• Whether the offer is paid in one lump sum or through short-term monthly installments.
  
  

If you propose to pay less than your RCP, explain why and include evidence to support your position.

6. Prepare the 20% Down Payment

Most applicants must submit a nonrefundable 20% down payment with their application. This must be paid when using the application.

• Certified funds (such as a cashier’s check or money order), or
  
  
• A valid credit card, if accepted by the department.
  
  

Exceptions to the 20% payment requirement include

• Applicants who qualify for the Third Party Affirmation under Form OIC-102.
  
  
• Individuals are eligible if their gross income falls below the federal poverty guidelines.
  
  

If you're unsure whether you qualify for a payment exemption, consult the OIC instruction booklet or seek help from a tax professional.

7. Compile and Organize Your Application Package

Before mailing your offer, make sure you include

• A completed and signed OIC-100 form.
  
  
• Include the required financial information statement (RO-1062 or RO-1063).
  
  
• You should also provide recent pay stubs, bank statements, and copies of your last two federal tax returns.
  
  
• You should also explain the offer category under which you are applying.
  
  
• You should also provide any necessary documentation to support your claims of hardship or liability errors.
  
  
• If someone else is making the payment on your behalf, provide proof of third-party funds.
  
  
• You must provide your 20% down payment unless you qualify for an exemption.
  
  

Review everything carefully for completeness and accuracy. Incomplete applications may be denied or significantly delayed.

8. Submit Your Application to the Correct Mailing Address

Send your complete application package to:

North Carolina Department of Revenue
Attn: Offer in Compromise Unit
1500 Pinecroft Road, Suite 300
Greensboro, NC 27407

Consider using certified mail or a tracking service to confirm delivery and protect yourself in case of processing delays.

9. Track the Status of Your Application and Remain Compliant

After submission:

• You may receive a confirmation that your offer is under review.
  
  
• Most decisions are made within 90 days, although complex cases may take longer.
  
  
• You must comply with current tax obligations, including filing any upcoming tax returns and making tax payments.
  
  

Respond promptly if the department needs additional information and provide the requested documents. Failure to respond may result in denial.

Required Financial Documents for a North Carolina Tax Compromise

To apply for a North Carolina offer in compromise, you must submit a complete set of forms and financial documents. Incomplete or missing information may result in delays or rejection.

Core Application Forms

• OIC-100 – Main application form
  
  
• OIC-101 – Instruction booklet with offer calculation worksheets
  
  
• OIC-102 – Third-Party Affirmation (if someone else is paying on your behalf)
  
  
• RO-1062 or RO-1063 – Collection Information Statement (individuals or businesses)
  
  

Financial Documentation

• The last 3 months of pay stubs or profit and loss statements
  
  
• 3 months of bank statements for all accounts
  
  
• Federal tax returns for the past 2 years
  
  
• Loan or mortgage statements, including balances and monthly payments
  
  
• Retirement or investment account summaries
  
  
• Documentation of monthly expenses (rent, utilities, insurance, etc.)
  
  

Supporting Documentation (if applicable)

• Medical records or disability documentation (for hardship claims)
  
  
• Court orders or legal obligations (support payments, restitution)
  
  
• Proof of financial support to an immediate family member
  
  
• IRS account transcript or accepted federal OIC letter (for parallel compromise)
  
  

Payment and Worksheets

• 20% down payment (unless exempt)
  
  
• OIC worksheets for RCP calculation (A, B, or C based on your status)

What to Expect After You Submit a North Carolina Offer in Compromise

The review process begins once you submit your completed offer in compromise to the North Carolina Department of Revenue. While applying is a significant step, understanding what comes next is just as important. Knowing how the department handles your request can help you prepare for possible follow-ups, delays, or decisions.

Initial Acknowledgment and Intake Review

After receiving your offer, the department will conduct an initial intake review. This includes verifying that all required forms, financial documents, and the 20% down payment (if applicable) are included. If your package lacks any necessary documentation or forms, the department may return the offer without processing it or request additional materials before continuing.

Comprehensive Financial Evaluation

Once your application passes the intake phase, a more detailed review begins. A revenue officer or case reviewer will examine the following aspects of your financial situation:

• Income, expenses, and household budget
  
  
• Bank accounts and asset values
  
  
• Reasonable collection potential (RCP)
  
  
• Claimed financial hardship or exceptional circumstances
  
  

The department may also verify information through third-party sources or request clarification. If inconsistencies are found between your collection information statement and your financial documents, your offer could be rejected or delayed.

Communication During Review

Throughout the review process, the North Carolina Department may contact you with questions, clarification requests, or additional financial documentation. Promptly responding to these requests is essential. Delays or a lack of response can result in a denial letter or withdrawal of your application.

You may also receive routine notices from the department during this period. These notices do not necessarily indicate that collection actions are taking place but are required under state tax laws.

Potential Outcomes

After reviewing your application, the department will decide whether to accept, reject, or modify your offer. There are three possible outcomes:

1. Acceptance
   If your offer is approved, you will receive a formal acceptance letter. You must pay the remaining balance of the offer amount—minus the initial down payment—by the specified due date. Payment must be made in certified funds, and payment plans are generally unavailable for the settlement amount.
   
   
2. Rejection
   If your offer is denied, you will receive a written denial letter explaining the reasons for rejection. The department does not offer a formal appeal process, but you may submit a new offer or provide additional documentation if your financial situation has changed.
   
   
3. Counteroffer
   Occasionally, the department may issue a counteroffer if it believes your original offer is too low but is still open to settlement. Depending on your financial condition, you may accept the counteroffer, reject it, or attempt to negotiate further.
   
   

Maintaining Compliance During Review

It is essential to stay compliant with all current tax obligations while your offer is being considered. This includes filing any required tax returns, making current tax payments, and avoiding new tax liabilities. Falling out of compliance can negatively impact your offer or lead to automatic rejection.

Why North Carolina Offers in Compromise Applications Get Rejected

Many offers are denied due to preventable errors. Understanding the most common issues can help you submit a stronger application.

• Incomplete or inconsistent documents:
  Missing or mismatched financial records are a frequent cause of rejection. Always submit accurate and up-to-date pay stubs, bank statements, and expense details that match your financial disclosure forms.
  
  
• Unrealistic offer amount:
  Offering far less than your reasonable collection potential (RCP) without explanation will likely result in denial. Use the OIC worksheets to calculate your RCP and justify your offer if it falls below that amount.
  
  
• Undisclosed income or assets:
  Leaving out accounts, property, or other income sources may lead to automatic rejection. Be transparent about all financial details.
  
  
• Unfiled tax returns or current non-compliance:
  We won't review your offers unless you file all required tax returns and make current tax payments. Check your compliance before applying.
  
  
• Weak hardship documentation:
  The offer may be declined if you claim hardship but don’t provide strong evidence. Support your claim with medical records, court documents, or proof of extenuating circumstances.
  
  
• Poor tax history:
  A pattern of missed payments or defaulted plans can hurt your credibility. Show recent compliance and a commitment to resolving your tax debt.

When to Hire Tax Attorneys for a North Carolina Tax Resolution Case

While it’s possible to submit a North Carolina offer in compromise on your own, certain situations may benefit from the guidance of an experienced tax professional. A tax attorney, enrolled agent, or certified public accountant (CPA) can help you avoid mistakes and strengthen your case, especially if your situation is complex.

You should strongly consider seeking professional assistance in the following situations:

• You owe taxes for multiple years or tax types:
  A professional can help you organize your liabilities and ensure you include all required periods and documents.
  
  
• You’ve previously been denied:
  If your offer was rejected, a tax expert can help identify the reason and guide you in submitting a stronger application.
  
  
• You are facing enforcement actions:
  If the state has initiated wage garnishment, bank garnishment, or liens, an experienced representative can negotiate on your behalf.
  
  
• You’re unsure how to calculate your RCP:
  A professional can ensure your reasonable collection potential is accurate and supported with the necessary documentation.
  
  
• You’re claiming hardship or unusual circumstances:
  A tax advisor can help you frame your argument under the appropriate offer category and ensure your documents meet state expectations.
  
  

Working with a knowledgeable professional can reduce stress, improve your chances of approval, and help you stay compliant throughout the compromise process.

Frequently Asked Questions (FAQs)

How long does deciding on a North Carolina offer in compromise take?

The NC DOR typically reviews your offer within 60 to 90 days, though complex cases involving multiple tax liabilities or incomplete financial documents may take longer. During this period, you must stay current on tax returns and make all required tax payments to avoid delays or rejection.

Can I include all my tax debts in one offer?

Yes, your North Carolina offer in compromise must include all unpaid tax balances owed to the state, including state income taxes, sales taxes, and penalties. You cannot submit separate offers for each debt. The compromise process is designed to resolve all your outstanding debts under one settlement.

What happens if my offer is rejected?

The North Carolina Department will issue a formal denial letter if your offer is denied. You can respond with new documentation, submit a revised offer, or explore relief options such as an installment payment agreement or other payment plan. A tax attorney may assist in evaluating the next best steps.

Do I still receive collection notices while my offer is under review?

Yes, you may continue to receive tax notices during the review period. However, active collection actions—such as wage or bank garnishment—are typically paused once a complete offer is submitted, provided you remain compliant with current tax payments and filing requirements.

What if I can’t afford the 20% down payment?

If you meet federal poverty guidelines or complete a Third Party Affirmation form, you may qualify for an exemption from the 20% nonrefundable down payment requirement. Otherwise, your initial offer must be submitted with certified funds or another accepted payment method.

Will the IRS accept my offer and help with the state process?

If the Internal Revenue Service (IRS) accepts your federal offer in compromise, it may support your North Carolina offer under the “parallel compromise” category. When submitting your state offer, you must include your IRS acceptance letter and supporting documentation.

Can an offer in compromise stop wage garnishments and other penalties?

Yes, submitting a valid offer may temporarily stop wage garnishments, bank levies, and other collection actions. If your offer is accepted, you may also avoid future late payment penalties and collection assistance fees. However, all tax obligations must remain current throughout the process.

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