Dealing with tax debt in Tennessee can be overwhelming, especially if you cannot pay the full amount owed. Fortunately, the Tennessee Offer in Compromise (OIC) program gives eligible taxpayers a legal way to settle tax debt for less than the total amount due. This compromise program is designed to relieve tax debt to individuals and businesses who face genuine financial hardship or have valid reasons to dispute the amount they owe.
Unlike the IRS Offer in Compromise, available at the federal level, Tennessee’s program has its own rules, forms, and approval process. While both options aim to reduce unpayable tax liability, they are not interchangeable. Understanding these distinctions is essential if you’re trying to resolve your state tax bill and avoid more aggressive collection actions, such as wage garnishment or bank levies.
This guide is for Tennessee taxpayers struggling to pay off back taxes, unsure whether their tax assessment is correct, or who need help navigating the OIC process. Whether you’re an individual, a business owner, or someone assisting a loved one, this article will walk you through applying for a Tennessee State Offer in Compromise, what forms and documents are required, and how to improve your chances of approval.
A Tennessee Offer in Compromise (OIC) is a formal agreement between a taxpayer and the Tennessee Department of Revenue that allows the taxpayer to resolve their tax liability by paying less than the full amount owed. This compromise offer is typically considered when the taxpayer cannot pay the tax debt in full or when there's a legitimate dispute about whether the tax bill is accurate.
The Tennessee OIC program is intended to help taxpayers facing financial hardship or extraordinary circumstances that make full payment impossible. For example, if your monthly income barely covers your necessary expenses, or if you’ve experienced a long-term illness or job loss, the state may accept an offer that reflects what you can realistically afford to pay.
It’s important to note that Tennessee’s program differs from the Internal Revenue Service (IRS) version of the OIC. While the IRS tax debt program uses federal forms like Form 656 and a centralized process, Tennessee requires its own application, financial statements, and evaluation procedures. Tennessee’s program also has no online pre-qualifier tool or standardized fee structure.
The purpose of the Tennessee OIC is not to offer an easy way out of paying taxes but rather to provide a fair solution when the taxpayer’s financial condition shows that collecting the full debt would be unreasonable or not in the state's best interest. Occasionally, this relief-based option can be the difference between continued debt and long-term financial recovery.
Not all taxpayers qualify for the Tennessee Offer in Compromise program. You must meet strict eligibility requirements before the Tennessee Department of Revenue reviews your application. Understanding these up front can help you avoid delays or outright rejection.
To qualify, you must meet the following conditions:
Applicants are often disqualified due to one or more of the following:
Being in good standing with the department is critical. Before considering reducing your tax debt, you must see that you're making a good-faith effort to stay compliant. That includes staying current on estimated tax payments (if applicable), business tax deposits, and reporting requirements. Even if you owe back taxes, your account must reflect current compliance, or your compromise offer will not proceed.
Meeting these criteria doesn’t guarantee approval, but it’s the first step toward negotiating a possible reduction of your total amount owed.
The Tennessee Department of Revenue will only consider a compromise offer if you can demonstrate a valid reason for requesting one. These reasons usually fit into two well-known groups: doubt about collectibility and liability. Sometimes, the Department may also consider unusual situations, like serious health problems or fixed-income limits.
This is the most common reason taxpayers apply for relief.
This reason may apply if your monthly income is insufficient to cover basic expenses and you have limited or no assets to liquidate.
When your financial condition suggests that trying to collect the full tax bill would not be in the state's best interest, they may agree to a reduced settlement.
You must submit complete supporting documentation proving your income, expenses, debts, and assets. This includes pay stubs, bank statements, and medical bills.
This exception applies when there’s a legitimate question about whether you owe the taxes.
For example, this situation may occur if you were mistakenly identified as the responsible party for a business tax debt.
You may be eligible under this category if you show that the law was incorrectly applied to your case.
You’ll need to provide supporting documentation such as audit reports, correspondence, or other evidence proving the issue with the original tax liability.
The Department may allow additional flexibility for taxpayers who meet the following criteria:
The Department may adjust its expectations to reflect your ability to pay in these cases.
Submitting a complete application is essential when requesting a Tennessee Offer in Compromise. Missing forms or incomplete supporting documentation are among the most common reasons for rejections. To give your compromise offer the best chance of approval, be sure to include the following:
The department expects detailed proof of your financial condition. Include copies of the following:
By accurately completing this section, you demonstrate to the Department your organization's compliance and sincere efforts to settle your tax debt.
Successfully applying for a Tennessee State Offer in Compromise requires careful preparation and attention to detail. Follow these steps to improve your chances of approval and avoid unnecessary delays.
Before applying, make sure you:
Meeting these conditions is required before your compromise offer will be considered.
Start collecting accurate, current supporting documentation for your application:
You must fill out:
Ensure all forms are completed, signed, and accompanied by appropriate documentation. Omissions will result in rejection.
Use the worksheet provided in the application instructions to determine what you can reasonably afford to pay. The Tennessee Department of Revenue typically evaluates offers based on
This is called your Reasonable Collection Potential (RCP). Your offer should equal or exceed your RCP unless extraordinary circumstances apply.
Send your complete application package to:
Tennessee Department of Revenue
Collection Services Division
500 Deaderick Street
Nashville, TN 37242
To ensure delivery, consider using certified mail or another tracking method.
The Department’s Collection Services Division will review your forms and financial documents. The process may take several weeks or months, depending on the complexity of your case. You may be contacted for clarification or additional information during this time.
Once you submit your offer in compromise, the Tennessee Department of Revenue’s Collection Services Division begins a detailed evaluation process. The goal is to determine whether your proposed compromise offer is reasonable based on your ability to pay the tax debt.
The department reviews your entire financial condition, which includes:
They will also assess the accuracy and completeness of the supporting documentation you provided. If anything is missing or unclear, they may reach out for clarification.
The department uses a formula similar to the IRS’s to estimate how much it can reasonably collect from you. This is known as your Reasonable Collection Potential (RCP). It typically includes:
It will likely be accepted if your offer meets or exceeds your RCP.
In some cases, the Department may consider extraordinary circumstances that affect your ability to pay, such as:
These circumstances don’t guarantee approval but may influence the department’s decision if fully documented.
There is no fixed timeline, but most decisions take several months. During this period, you should remain compliant with all filing and payment obligations and respond promptly to any requests from the Department.
Even well-intentioned compromise offers can be rejected if they don’t meet the Department’s standards. Understanding the most frequent reasons for denial can help you avoid costly mistakes and increase your chances of settling your tax debt successfully.
How to avoid: Use the department’s calculation worksheet and offer your maximum ability to pay based on your financial condition.
How to avoid: Be fully transparent and include documentation for all assets and income, even if they seem minor.
How to avoid: Double-check all paperwork and use the department's checklist to ensure everything is submitted.
How to avoid: Only include essential, well-documented monthly expenses that meet the Department’s reasonableness standards.
How to avoid: Before applying, ensure you’re in full compliance with state and federal filing requirements.
Understanding and proactively addressing these pitfalls improves the odds that your compromise offer will be accepted.
Even if you meet the basic eligibility requirements, the Tennessee Department of Revenue may still deny your offer in compromise. This does not mean you’re out of options. Understanding your next steps can help you stay proactive and avoid falling deeper into tax debt.
Unlike the Internal Revenue Service (IRS), Tennessee does not offer a formal appeals system for OIC denials. However, you are allowed to request reconsideration or submit a revised offer. To achieve this, you must address why your application was rejected and provide updated supporting documentation if applicable.
If your financial circumstances have changed or you can make a higher compromise offer, you may submit a new application. Correct any issues cited in the denial letter—such as missing documents, undervalued assets, or an unrealistically low offer amount.
Respond promptly with a complete package if the department requested clarification or additional documents before issuing a final decision. You may still have time to resolve the issue without restarting the entire process.
The department may suggest an installment agreement if the compromise program isn’t viable. This allows you to pay the debt in monthly installments over time. Although it won’t reduce your tax liability, it can stop collection actions and help you manage the balance due.
Working with a tax relief company, CPA, or attorney may be beneficial if your case is complex or you've already faced a denial. A professional can help you review your finances, organize your required documentation, and submit a stronger application.
Before mailing your Tennessee Offer in Compromise application, use this checklist to ensure your submission is complete, accurate, and well-organized. Missing details can delay processing or result in outright rejection.
Submitting a complete and well-documented package shows you're serious about resolving your tax debt and increases the chances your offer will be accepted on the first review.
Individuals and businesses may apply for a Tennessee Offer in Compromise (OIC) if they meet eligibility criteria. Individual taxpayers must complete Form CS-14B, while businesses submit Form CS-14C. Self-employed individuals may need to complete both forms, depending on how they report income. All applicants must include complete financial documentation and meet compliance requirements to be considered for relief.
No, Tennessee does not charge an application fee for submitting an Offer in Compromise. This differs from the IRS, which does require a fee. However, applicants must still provide complete and accurate information, including financial statements and supporting documentation. Submitting an incomplete or inaccurate application can delay processing or result in the denial of your offer.
You may still apply for an Offer in Compromise while enrolled in a payment plan. The Department of Revenue will evaluate your current financial condition and determine whether your existing installment agreement remains appropriate. If your circumstances have worsened, you may qualify for a reduced settlement. You must continue making the required payments until your offer is reviewed and approved.
Incomplete applications are one of the leading causes of delay or rejection. If you fail to include required documentation—such as financial statements or supporting schedules—the Department may reject your offer or request additional information. Carefully review the submission checklist before filing, and ensure all documents are accurate and legible and submitted with your initial application to avoid processing issues.
If your Offer in Compromise is approved and you fail to comply with its terms, the agreement may be voided. This means the Department of Revenue can reinstate your original tax liability, penalties, and interest and resume collection actions. Staying current on all future tax obligations and payments is essential to maintain your agreement.
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