Understanding the Maryland Offer in Compromise: A Guide to Tax Relief

If you're facing a growing tax bill in Maryland and can’t pay the full amount, you’re not alone. Many taxpayers struggle with state tax debt due to job loss, illness, or other financial setbacks. Fortunately, Maryland offers a compromise program that may allow you to settle your tax debt for less than what you owe.

The Maryland Offer in Compromise is a legal option for resolving your state tax liability if paying the full amount would cause financial hardship. Individuals and businesses can avail themselves of this program, which aims to offer relief in exceptional circumstances. Unlike a payment plan or installment agreement, the offer in compromise focuses on your overall financial condition and ability to pay.

This guide provides a clear overview of how the program works, who qualifies, what documentation you need, and how to apply. Whether you're dealing with unpaid taxes, penalties, or interest, the following sections will help you determine whether this tax relief option is in your best interest—and how to take the next step confidently.

What is the Maryland Offer in Compromise (OIC) Program?

The Maryland Offer in Compromise is a tax resolution option that allows eligible taxpayers to settle their state tax debt for less than the total amount owed. This compromise program, managed by the Comptroller of Maryland, is intended for individuals or businesses that cannot pay their tax bill in full due to financial hardship. It provides a path to resolve outstanding liabilities while avoiding prolonged collection actions and additional penalties.

Unlike a tax appeal, which disputes the amount owed, the offer in compromise assumes the tax liability is valid but recognizes that full payment may not be realistic. The program evaluates your financial condition, income, assets, and ability to pay before determining whether a reduced settlement is appropriate. Considering their unique circumstances, this process guarantees a fair resolution for taxpayers who genuinely cannot afford it.

The following are the key features of the Maryland OIC Program:

• Settles qualifying tax debt for less than the full amount owed.
  This service helps taxpayers resolve balances they otherwise cannot pay in full.
  
  
• Designed for taxpayers facing financial hardship.
  The program is specifically for those whose income and expenses prevent them from meeting their tax obligations.
  
  
• Available to individuals and businesses.
  Both personal and business tax liabilities may qualify, provided all eligibility conditions are met.
  
  
• Not a payment plan or installment agreement.
  An OIC is a lump sum or reduced settlement, not a structured repayment option.
  
  
• Does not pause interest or penalties during review.
  Interest continues to accrue while the offer is under evaluation, and collection actions may proceed.
  
  
• Requires detailed financial disclosures.
  Applicants must submit required documentation demonstrating their inability to pay, including financial statements and tax returns.

This compromise overview allows taxpayers to settle tax debt in a way that reflects their ability to pay rather than the full assessed amount. The Maryland OIC is a legal and structured method of achieving tax relief when all other payment options are unworkable.

Who Qualifies for a Maryland Offer in Compromise?

To qualify for the Maryland Offer in Compromise, taxpayers must meet a combination of legal and financial criteria set by the Comptroller’s Office. This program is not available to every taxpayer and is typically reserved for those facing severe economic hardship who cannot pay their full tax liability.

Basic Eligibility Requirements

The following conditions must be met to be considered for the program:

1. You must have an officially assessed tax liability.
   Maryland will only consider offers for tax bills that have already been assessed and remain unpaid. Estimated balances or liabilities under audit do not qualify.
   
   
2. You cannot have any active tax appeals.
   If you are currently disputing a tax assessment, you must resolve the appeal before submitting a compromise offer.
   
   
3. At least two years must have passed since the liability was assessed.
   Maryland requires a two-year waiting period from the original assessment date before an offer can be submitted.
   
   
4. You must be current with all required tax return filings.
   This includes filing all income tax returns for the past six years and submitting your current year return on time or with an approved extension.
   
   
5. You cannot be involved in an open bankruptcy proceeding.
   Taxpayers in active bankruptcy are not eligible for the compromise program until the case is closed or dismissed.
   
   
6. Your business must be closed if applying for business-related taxes.
   Business entities must cease operations to qualify. However, individual officers may still apply for personal liabilities tied to a closed business.

Financial Hardship Requirements

Beyond basic eligibility, you must show that paying the full amount would cause financial hardship or is otherwise not in the state’s best interest. The Comptroller will consider:

• Your monthly income and expenses will determine whether you can afford to pay.
  
  
• The value of your assets, such as real estate, vehicles, and financial accounts.
  
  
• Your payment history reflects your compliance and past efforts to resolve the debt.
  
  
• Any extraordinary circumstances, including medical issues, unemployment, or other severe disruptions to your income.

Suppose the information provided demonstrates that you cannot fully pay your tax bill and that no other viable payment options exist. In that case, you may qualify for the Maryland offer in compromise.

Maryland vs. Federal Offer in Compromise: Key Differences

Although both Maryland and the IRS provide a compromise version of the offer, there are several significant differences between the state and federal programs. Knowing how they differ will help you understand your options if you owe state and federal taxes.

Eligibility Rules

• Maryland requires a two-year waiting period after assessing your tax debt before you can apply for a compromise.
  
  
• The IRS does not impose a waiting period, but you must be current with all tax return filings and, if applicable, estimated payments.

Application Costs

• Maryland does not charge an application fee, and in cases of severe financial hardship, your offer may be accepted even if it includes a zero-dollar payment.
  
  
• The IRS charges a $205 non-refundable application fee and usually requires an initial lump sum or periodic payments during the review.

Business Tax Considerations

• Maryland requires that the business be closed before applying for a business-related compromise.
  
  
• The IRS allows open businesses to apply for a compromise, provided they meet compliance and payment standards.

Collection Actions During Review

• Maryland may continue collection actions such as wage garnishments, license holds, or liens while your offer is under review.
  
  
• The IRS typically suspends most collection activity once the offer is officially submitted, although interest continues to accrue.

These differences can impact your decision-making process and the timing of your application. If you deal with tax debt at both the state and federal levels, you may need to submit separate offers and follow distinct procedures.

Step-by-Step Guide to Applying for a Maryland OIC

The Maryland Offer in Compromise application process involves multiple steps. Following these carefully and providing accurate information can improve your chances of a successful outcome. Here’s how to apply:

Step 1: Gather Required Information

Before starting the application, collect the following:

• Your Social Security Number or business tax ID number will be used to match your application with your account.
  
  
• A list of the tax years and amounts owed, so the Comptroller can identify the liabilities you seek to settle.
  
  
• Complete financial records, including income, monthly expenses, assets, and outstanding debts.
  
  
• Documentation for all assets, such as recent bank statements, vehicle ownership documents, mortgage information, and investment records.

Step 2: Complete Form MD 656 (Offer in Compromise Application)

This form allows you to request a formal settlement of your tax debt.

• Select the appropriate tax type—individual income tax or business-related tax debt.
  
  
• Explain your financial hardship clearly and in detail, using facts and specific examples. Avoid vague statements like “I cannot pay.”
  
  
• Choose a payment option: a one-time lump sum, a monthly payment plan not exceeding 24 months, or zero dollars (if you cannot pay).

Step 3: Complete Form MD 433-A (Collection Information Statement)

This form supports your offer with detailed financial disclosures.

• Report all sources of income, including wages, self-employment, Social Security, or retirement benefits.
  
  
• List monthly expenses such as rent, food, utilities, transportation, and medical costs.
  
  
• Disclose all assets, including bank accounts, real estate, vehicles, and personal property.
  
  
• Include any liabilities, such as outstanding loans, credit card debt, or court-ordered payments.

Be honest and thorough. Incomplete or inconsistent information may lead to delays or rejection.

Step 4: Submit Your Application

You may submit your application in one of two ways:

• Email Submission (Recommended): Send your completed forms and supporting documents to oic@marylandtaxes.gov for faster processing.

Mail Submission (Alternative):

Offer in Compromise Program  

Comptroller of Maryland  

7 St. Paul Street, Room 210  

Baltimore, Maryland 21202  

Electronic submissions are preferred; mailed applications often result in longer processing times.

Step 5: Attach Supporting Documentation

While not mandatory, supporting documents strengthen your case and demonstrate transparency.

Include the following when possible:

• Recent pay stubs, bank statements, or benefit letters that confirm your income and available funds.
  
  
• A copy of your most recent tax returns supports your financial disclosures.
  
  
• Medical records or insurance documents, if your hardship is related to health conditions.
  
  
• Proof of regular expenses, such as rent, loan payments, utility bills, and insurance premiums.

Submitting all relevant documentation helps the Comptroller determine whether your offer is reasonable based on your financial condition.

Common Mistakes to Avoid

Submitting a compromise offer is intricate; even minor mistakes can result in delays or complete rejection. Avoiding the following common mistakes will improve your chances of success and help you settle your tax debt more efficiently.

• Submitting incomplete financial information.
  Leaving blanks on Form MD 433-A or failing to provide full details about your income, expenses, or assets can make your offer appear unreliable. If a section does not apply to you, indicate it rather than skipping it.
  
  
• Failing to explain financial hardship in detail.
  Simply stating that you cannot pay is not enough. You must explain the reasons behind your financial condition—such as job loss, illness, or extraordinary circumstances—and provide supporting documentation.
  
  
• Providing an unrealistic offer amount.
  Offering to pay significantly less than your financial records suggest you can afford may lead the Comptroller to reject your offer. Your offer should reflect your ability to pay, based on your income, debts, and assets.
  
  
• Omitting required documentation.
  While supporting documents are not mandatory, failing to submit bank statements, tax returns, or proof of income can make your application look incomplete. These records help justify your offer amount.
  
  
• Mixing personal and business liabilities.
  If you owe individual and business taxes, submit separate applications for each. You may reuse Form MD 433-A for both, but Form MD 656 must be completed separately for each type of liability.
  
  
• Applying while a tax issue is still under appeal.
  The Comptroller will not review an offer in compromise if the related tax debt is being challenged through the appeals process. Complete any appeals before applying.
  
  
• Failing to remain compliant after submission.
  You must continue to file all tax returns and meet current payment obligations while your offer is under review. Falling behind may result in automatic rejection or future default if your offer is accepted.

Avoiding these mistakes shows that you are serious about resolving your tax bill and helps ensure your application is processed smoothly.

What Happens After You Apply?

Once you submit your offer in compromise, the Comptroller of Maryland will begin a review process to determine whether your application meets the program requirements. This evaluation includes a detailed assessment of your financial hardship and payment history.

The Review Process

• Review of your forms and documentation.
  The Comptroller’s staff will verify the information you provided in Forms MD 656 and MD 433-A. They may also request additional information if details are missing or unclear.
  
  
• Evaluation of your financial condition.
  Your income, assets, liabilities, and monthly expenses will be analyzed to determine whether your offer represents your best ability to pay.
  
  
• Consideration of the state’s best interest.
  The state will only accept fair and reasonable offers based on your financial circumstances. If you have a history of compliance and no means to pay the full amount, your offer is more likely to be accepted.
  
  
• Written decision issued by mail or email.
  Once a decision is made, you will receive a written notice informing you whether your offer was accepted, rejected, or countered.

Possible Outcomes

• Accepted offer.
  If your offer is accepted, you will receive payment instructions (if applicable), and any license holds or liens may be lifted upon receipt of the agreed amount.
  
  
• Declined the offer.
  If your offer is rejected, the state will continue collection actions, and penalties and interest will continue to accrue. You may reapply if your financial situation changes significantly.
  
  
• Counteroffer.
  If your offer is too low but the Comptroller sees potential for resolution, they may respond with a counteroffer. You can choose to accept, reject, or submit a new offer.

During the review, it’s essential to remain compliant by continuing to file tax returns and respond promptly to any requests for additional information.

Other Tax Relief Options in Maryland

The offer in compromise is not the only option for Maryland taxpayers seeking relief from a tax debt. If you don't qualify for the program or your offer is rejected, there are still options to help reduce your tax bill.

• Installment agreements.
  Maryland offers payment plans for taxpayers who cannot pay the full amount immediately but can commit to making monthly payments. This option avoids further penalties and interest and keeps your account in good standing as long as you remain current.
  
  
• Short-term payment extensions.
  Occasionally, you may request a brief extension to pay your taxes in full within a few months. This is useful if you’re waiting on a bonus, settlement, or tax refund.
  
  
• Penalty abatement.
  If your failure to pay or file was due to reasonable cause—such as serious illness, natural disaster, or other extraordinary circumstances—you may request a waiver of certain penalties.
  
  
• Support from the Taxpayer Advocate Service.
  You may contact the Taxpayer Advocate Service if you're experiencing delays, unjust treatment, or need help navigating your options. Although this independent organization mainly assists with IRS matters, it can provide general guidance and help you access the right state resources.

If you're unsure whether the offer in compromise is the best choice for your financial condition, a tax relief company or licensed tax professional can help evaluate your options and guide you through the most appropriate program.

Final Checklist Before You Apply

Before submitting your Maryland Offer in Compromise application, review the following checklist to ensure your submission is complete, accurate, and eligible for consideration. Missing even a small requirement could delay the process or lead to rejection.

Eligibility Requirements

• You have a valid, assessed tax liability at least two years old that is not currently under appeal.
  
  
• You have filed all required tax returns for the previous six years, including your current return.
  
  
• You are not in an active bankruptcy proceeding at the time of application.
  
  
• If you are applying for business-related taxes, your business is officially closed.

Application Preparation

• You have completed Form MD 656, clearly explaining your financial hardship and offer amount.
  
  
• You have filled out Form MD 433-A in full, including all income, expense, asset, and liability details.
  
  
• Your offer amount reflects your ability to pay based on your financial condition and payment history.
  
  
• You have prepared separate applications for individual and business tax debts, if applicable.

Supporting Documentation

• You have included recent bank statements, pay stubs, and other proof of income.
  
  
• You’ve attached documentation for major monthly expenses, such as rent, utilities, loans, and insurance.
  
  
• Any relevant medical or hardship-related records have been included to explain extraordinary circumstances.

Submission and Compliance

• You are submitting your application via email to oic@marylandtaxes.gov or by mail to the Comptroller’s Office.
  
  
• Your contact information is accurate and current in all forms.
  
  
• You are prepared to stay current with all future tax obligations, including filing and payment compliance.

Completing this checklist helps you submit a stronger, more credible offer that the Comptroller of Maryland will likely accept.

Frequently Asked Questions (FAQs)

Can I qualify for a Maryland Offer in Compromise if I still owe the IRS?

Yes, you can qualify for a Maryland offer in compromise even if you owe the IRS, as long as you meet the state’s program requirements. The Maryland Comptroller evaluates your financial condition, tax liability, and payment history independently of your federal account. However, both agencies may continue collection actions separately. You should review your eligibility and gather all required documentation before applying at the state level.

Are interest and penalties paused while my application is under review?

No, interest continues to accrue, and penalties may apply while your Maryland offer in compromise is under review. Unlike the IRS program, Maryland does not suspend collection actions during the review period. This means additional penalties and fees may be added to your tax bill. Submitting a complete application with supporting documents is best to reduce review time.

What payment options are available if my offer is accepted?

If your offer in compromise is accepted, you may be given options such as a lump sum payment or a short-term payment plan of up to 24 months. Your payment option will depend on your financial condition, the total amount owed, and what the Comptroller determines is reasonable based on your income and assets. The payment plan must reflect your ability to pay and be followed precisely.

Can I apply for both business and personal tax debt in one offer?

No, Maryland requires separate applications for business and personal tax debt. You must submit a different Form MD 656 for each tax liability. However, if submitting by mail, you may use the same Form MD 433-A financial statement for both. This distinction helps the Comptroller determine each account’s financial condition and ensures each compromise is evaluated correctly in the program’s rules.

What if I can't afford to pay anything toward my tax debt?

If you can demonstrate through required documentation that you cannot pay due to extreme financial hardship, you may submit an offer of zero dollars. The Comptroller will review your income, expenses, and asset values to determine whether accepting the offer is in the state’s best interest. In rare cases involving extraordinary circumstances, a no-payment offer may be accepted under the compromise program.

Should I seek assistance from a tax relief company for my application?

Although hiring a tax relief company or independent organization is not mandatory, some taxpayers find handling complex financial situations beneficial. These services may assist with completing forms, gathering required documentation, and communicating with the Comptroller. However, the Taxpayer Advocate Service can also help explain your rights. Ensure any company you choose has experience with Maryland’s compromise program and state tax laws.

Will the state continue collection actions while my application is pending?

Yes, Maryland may continue collection actions while reviewing your offer in compromise. These actions may include wage garnishments, license holds, or liens. Unlike the IRS, Maryland does not automatically pause collection activity. Because interest and penalties will continue to accrue, submitting your application promptly is critical. Ensure all information is accurate and contact the Comptroller if you receive additional notices about your account.