Massachusetts Offer in Compromise Guide: Settle Your Back Taxes for Less

Taxpayers unable to satisfy their full tax liabilities to the Commonwealth of Massachusetts may be eligible for relief under the state's Offer in Compromise (OIC) program. This legal settlement option allows qualifying individuals and businesses to resolve their outstanding tax debt for less than the amount owed, under specific financial and legal criteria. The OIC program is intended for cases in which full payment would create a significant economic hardship or is otherwise unlikely to be collected in full.

The Massachusetts Offer in Compromise is a final resolution tool for taxpayers who cannot meet their tax obligations, even under an extended installment agreement. While the application process is document-intensive and requires strict adherence to procedural requirements, successful applicants may receive substantial relief from outstanding liabilities, restoring compliance with state tax laws.

This guide provides a detailed overview of the Massachusetts OIC program, including eligibility requirements, required documentation, the step-by-step application process, and key distinctions from the federal IRS Offer in Compromise. Whether you are an individual taxpayer or a business entity seeking financial relief, this resource is designed to assist you in evaluating whether the Massachusetts OIC is an appropriate resolution option for your circumstances.

What's a Massachusetts Offer in Compromise?

A Massachusetts Offer in Compromise is a legal agreement between a taxpayer and the Massachusetts Department of Revenue (DOR) that allows the taxpayer to settle their tax debt for less than the full amount owed. This program is for people and businesses that are having financial trouble and can't pay all of their taxes, even with a payment plan or installment agreement.

The offer in compromise is not automatically granted. It is evaluated based on your financial situation, including income, expenses, assets, and ability to pay. If the DOR determines that collecting the full amount would cause economic hardship and accepting a lesser amount is in the best interest of the Commonwealth, the offer may be approved.

Key Features of the Massachusetts Offer in Compromise Program:

• Purpose: To help taxpayers resolve tax debt; they cannot afford to pay it in full due to limited financial means.
  
  
• Eligibility Focus: This program is intended for individuals who have submitted all necessary tax returns and have outstanding taxes that they cannot repay due to their financial situation.
  
  
• Settlement Criteria: The offer must reflect the maximum amount the DOR can reasonably collect. This includes consideration of your assets, income, and current or future ability to pay.
  
  
• Not a Guaranteed Option: Taxpayers do not have a right to a settlement. Approval is based on strict criteria and a detailed review of your financial documentation.
  
  
• Applies to Various Tax Types: This program may be used to resolve back taxes related to personal income tax, business taxes, sales and use tax, and other unpaid balances assessed by the state.
  
  
• Separate from IRS Offers: Although similar in name, the Massachusetts program is independent of the IRS's offer in the compromise process. Taxpayers with state and federal tax debt must apply separately to each agency.

This compromise program allows eligible taxpayers to settle tax debt, avoid aggressive collection actions, and move forward without the burden of full tax liability. However, strict compliance and full disclosure are essential to qualify.

Step-by-Step: How to Apply for a Massachusetts Offer in Compromise

Applying for a Massachusetts Offer in Compromise (OIC) requires careful planning, accurate paperwork, and clear evidence of financial hardship. The following step-by-step process will guide you through each phase so you can present the strongest possible case to settle your tax debt for less than the full amount.

1. Gather Financial Documentation

Before completing any forms, collecting all records demonstrating your current financial situation is essential. This includes the following:

• Recent tax returns show your income history and whether you’ve met your tax obligations.
  
  
• Pay stubs and bank statements to document current income, savings, and cash flow.
  
  
• Mortgage, loan, and credit card statements that reflect your outstanding debt and monthly payments.
  
  
• Household bills and recurring expenses include rent, utilities, groceries, insurance, and medical costs.
  
  
• Provide proof of estimated tax payments made for the current year, especially if you're self-employed or running a business.

These documents help the Department of Revenue assess your ability to pay and determine whether your offer meets the approval requirements.

2. Complete Form M-433-OIC

Form M-433-OIC is the Massachusetts Statement of Financial Condition and Other Information. It provides a complete snapshot of your financial circumstances. When filling it out:

• Report all sources of income, including wages, self-employment earnings, rental income, or support payments.
  
  
• Disclose all assets, such as property, vehicles, savings, investments, and business equipment.
  
  
• List all liabilities, including credit card debt, student loans, and remaining balances on secured loans.
  
  
• Itemize monthly expenses, such as housing, food, utilities, transportation, and healthcare.

Complete and accurate information is critical. Incomplete forms or missing details may result in delays or automatic rejection of your offer.

3. Calculate Your Minimum Offer Amount

Massachusetts requires that your offer reflect what the state could reasonably expect to collect based on your financial profile. To calculate this:

• Add the net equity of your assets (property value minus debts).
  
  
• Estimate your projected future income and subtract allowable living expenses.
  
  
• Combine these figures to determine your reasonable collection potential.
  
  

The minimum offer amount must be at least $5,000. In most cases, the Department of Revenue expects your offer to be at least 50% of the total tax liability you owe. If your offer is significantly below this threshold, it will likely be denied unless you demonstrate that collecting more would create substantial financial hardship.

4. Complete Form M-656

Form M-656 is your formal Offer in Compromise application. This form allows you to identify the scope of your request and present your proposed terms. You’ll need to:

• Specify the tax years and types included in the offer (such as personal income, business, or sales tax).
  
  
• State your proposed settlement amount, based on your calculated ability to pay.
  
  
• Choose between a lump sum payment or a short-term installment plan, typically five or fewer payments.
  
  
• Describe any exceptional circumstances—such as medical conditions, job loss, or other hardships—that affect your ability to pay your full tax debt.

Providing honest and well-documented explanations improves your chances of having the offer accepted.

5. Choose Your Payment Option

The Department of Revenue offers two primary payment options:

• Lump Sum Cash Offer:
  This option requires you to pay 20% of your total offer amount when you submit your application. If your offer is accepted, the remaining balance is due within 60 days. This approach may lead to faster processing and is ideal for quickly resolving the settlement.
  
  
• Installment Payment Plan:
  You may propose a monthly payment plan if you cannot afford a lump sum. You must send the first payment along with your application and continue to make scheduled payments while the offer is under review. These installment agreements are typically limited to five or fewer payments.

Choosing the right plan depends on your cash flow and financial obligations. Make sure the option you select aligns with your actual ability to pay.

6. Submit Your Application

Once all forms are completed and supporting documents are compiled, you can submit your Offer in Compromise to the Department of Revenue.

• The preferred submission method is via email. Send your application package to doroicunit@dor.state.ma.us.
  
  
• Alternatively, you may mail your application to the following address:
  Massachusetts Department of Revenue
  Collections/OIC Unit
  P.O. Box 7021
  Boston, MA 02204

Ensure your package includes Form M-433-OIC, Form M-656, your initial payment, and all required supporting documents. Keep copies for your records, as the state will not return originals.

What Happens After You Apply?

Once you submit your Massachusetts Offer in Compromise application, the Department of Revenue (DOR) begins a detailed review process. This review can take several months and includes a financial audit to evaluate whether your offer reflects your ability to pay.

Review Timeline and Process

• The DOR typically takes 5 to 6 months to complete its financial audit.
  
  
• During this time, they may request additional documentation or clarification. It’s essential to respond quickly to avoid delays or denial.
  
  
• The DOR will verify the information in Form M-433-OIC, including income, expenses, and assets.
  
  
• After reviewing it, the DOR will accept, reject, or counter your offer.

Collection Activities During Review

While the DOR reviews your offer, some—but not all—collection actions are temporarily paused:

• Most collection activities (such as active enforcement) are suspended once the financial audit begins.
  
  
• Tax liens remain and are not removed until the offer is fully paid and finalized.
  
  
• Interest and penalties continue to accrue during the review period.
  
  
• The DOR may still intercept refunds, lottery winnings, or other government payments applied to your outstanding balance.

It's essential to stay compliant during this period by filing any required tax returns and making estimated payments for the current tax year. Failure to remain in good standing can result in rejection, even if your offer is reasonable.

Common Reasons Massachusetts OIC Applications Are Denied

Even well-intentioned taxpayers may have their Offer in Compromise denied if their application lacks supporting evidence or fails to meet eligibility standards. Understanding common rejection reasons can help strengthen your submission and avoid preventable errors.

Financial Reasons

• Ability to pay more: If the DOR determines that you can afford to pay a larger amount—or your full tax liability—they will deny your offer.
  
  
• Offer amount is too low: Offers that don’t meet the required minimums or fail to reflect your reasonable collection potential are rejected.
  
  
• Excessive expenses claimed: The DOR may reject offers with inflated or nonessential expenses that reduce your apparent ability to pay.

Documentation Problems

• Incomplete forms or missing documents: Every required field must be completed, and all necessary documentation must be submitted.
  
  
• Inaccurate or unverifiable information: If the DOR cannot confirm your income, debts, or asset values, they may reject your offer outright.
  
  
• Omitted assets or income: Failing to disclose all sources of income or undervaluing property can be considered misleading.
  

Compliance Issues

• Failure to file required tax returns: Your application will not be processed if you haven’t filed all the necessary tax returns.
  
  
• Pattern of noncompliance: A history of avoiding tax obligations reduces your credibility and affects approval chances.

Procedural Failures

• Missed deadlines: Failure to submit additional documents or respond to requests within set timeframes can lead to rejection.
  
  
• Missed payments: If you choose an installment option and skip a payment during the review period, your offer may be denied.
  
  
• Not in the state’s best interest: The DOR may determine that your proposed settlement doesn’t serve the Commonwealth's best interest.

To avoid these pitfalls, double-check all forms, provide honest and complete information, and work with a tax professional if unsure how to present your financial situation.

Alternatives to the Massachusetts Offer in Compromise

Not all taxpayers can use the Offer in Compromise program. Fortunately, Massachusetts has several other options for managing or paying off its tax debt while following the rules.

1. Installment Agreement

The DOR might let you set up a monthly payment plan if you can pay your full tax bill over time. This option lets you pay off your debt over several months, so you won't have to deal with harsher collection actions. You must keep up with your future tax obligations while on a plan.

2. Penalty Abatement

You can request a penalty waiver if your tax debt includes considerable penalties. The DOR may lower or eliminate penalties if you can show a good reason, like being sick, losing your job, or a natural disaster. But you usually still have to pay interest.

3. Currently Not Collectible Status

If taxpayers are having a lot of trouble with money, they may be able to get temporary relief from collection actions. If the DOR agrees, they will stop trying to collect, but they may look at your case again later. This status doesn't eliminate the debt, but can give you time to get your finances back on track.

4. Tax Amnesty Programs

Massachusetts sometimes runs short-term amnesty programs to get people to come forward and pay their back taxes. These programs often lower penalties or waive fees for people who pay their taxes on time. The last time people could get amnesty was in December 2024.

If unsure, consult a tax relief company or an expert who knows your state's laws.

Final Checklist Before You Submit

Before sending your Offer in Compromise (OIC) application to the Massachusetts Department of Revenue, you must check that everything in your package is complete, accurate, and well-documented. This list will assist you in preventing delays, rejections, or requests for additional information.

Required Forms

Ensure that the following forms are fully completed, signed, and included in your application:

• Form M-656—Offer in Compromise Application: This form specifies the tax years involved, your proposed settlement amount, and your payment terms.
  
  
• Form M-433-OIC – Statement of Financial Condition and Other Information: This is the core financial disclosure form used to evaluate your ability to pay your tax debt.
  
  
• Form M-2848: Power of Attorney (if needed): This form gives your tax professional or tax relief company permission to act on your behalf.
  
  
• Electronic Funds Transfer Authorization (if needed): If you want to pay through automatic bank withdrawals, complete this form.

Supporting Financial Documentation

Include detailed documentation to back up the financial information you put on your forms:

• Submit your most recent bank statements for all checking, savings, and investment accounts to show current balances and transactions.
  
  
• Provide current asset valuations for real estate, vehicles, retirement accounts, and business property to give the DOR an accurate picture of your holdings.
  
  
• Include proof of income, such as recent pay stubs, tax returns, Social Security statements, or profit and loss statements for self-employed individuals.
  
  
• Attach monthly expense documentation, including rent or mortgage statements, utility bills, insurance invoices, and receipts for necessary living costs.
  
  
• Verify all outstanding debts, such as credit cards, student loans, or secured loans, with official account summaries or payment schedules.

Payment Requirements

Make sure that the initial payment you send with your application is the right one:

• If you want to make a lump sum offer, send in 20% of the total offer amount with your application.
  
  
• If you want an installment agreement, you must include the first monthly payment and be ready to continue making payments while the review is ongoing.
  
  
• Depending on how you send in the application, you should use a widely accepted payment method, such as a certified check, a cashier's check, or an electronic funds transfer.

Compliance Confirmation

Make sure you meet all filing and compliance standards before applying:

• Confirm that you have filed all required tax returns for the tax years covered by your offer and any current obligations.
  
  
• Ensure that estimated tax payments are current, especially if you are self-employed or subject to quarterly payments.
  
  
• Ensure you have received a Final Notice of Assessment for all the debts in your offer.
  
  
• Confirm that you are not in an open bankruptcy proceeding or actively disputing the tax amounts owed, as this will disqualify your application.

Final Review

Take some time to double-check everything so you don't make mistakes that could slow down your application:

• Make sure that all of your numbers for income, expenses, and the offer amount are correct, and back up your case.
  
  
• Review your contact information on all forms to ensure that DOR can reach you with questions or determinations.
  
  
• Make copies of your complete application package, including all forms, payments, and supporting documentation, for your records.
  
  
• Decide on your submission method. Email is the preferred option for faster delivery, but mail is required if email cannot be used.

Being thorough at this stage greatly improves your chances of getting your offer reviewed promptly and fairly and demonstrates to the Department of Revenue that you’re serious about resolving your tax debt.

Frequently Asked Questions (FAQ)

What is the Massachusetts Offer in Compromise, and who qualifies for it?

The Massachusetts Offer in Compromise is a state-level settlement program that allows eligible taxpayers to settle tax debt for less than the full amount owed. You may qualify if you cannot pay your full tax liability due to significant financial hardship. To be eligible, you must have filed all required tax returns and cannot meet your tax obligations through a standard payment plan or installment agreement.

How does the Massachusetts OIC differ from an IRS Offer in Compromise?

The Massachusetts Offer in Compromise program differs from the IRS Offer in Compromise (OIC). Each has its own eligibility criteria, forms, and approval processes. The IRS accepts offers based on taxpayers' ability to pay federal tax debt, while Massachusetts considers state-level tax liabilities. Taxpayers who owe both IRS debt and state back taxes must file separate applications with each agency.

What happens to collection actions while my offer is under review?

Most collection activities pause during the review process. However, the Massachusetts Department of Revenue may still apply interest, fees, or penalties and continue some collection actions, such as intercepting refunds or maintaining wage garnishment. While the offer in compromise is pending, taxpayers should stay compliant with tax laws, make estimated tax payments, and avoid accruing additional unpaid balances.

Can I still apply for an Offer in Compromise if I'm bankrupt?

No, you cannot apply for a Massachusetts Offer in Compromise if you are in an open bankruptcy proceeding. This restriction applies because the compromise program is separate from bankruptcy protections. Taxpayers must wait until the bankruptcy case is closed before filing an OIC application to resolve or settle their tax bill. Eligibility begins only after the bankruptcy process ends.

How much do I need to offer to settle my tax debt?

Massachusetts generally requires an offer of at least $5,000 or 50% of your total tax liability, whichever is greater. Your offer must reflect your ability to pay based on your income, expenses, and assets. The state will determine whether the proposed settlement amount is fair based on your financial situation. Offering fewer payments or a lump sum can influence acceptance.

Should I work with a tax professional or a tax relief company?

Working with a qualified tax professional or an independent organization is strongly recommended. They can help you accurately file your application, determine eligibility, and submit proper documentation. Tax professionals understand Massachusetts tax laws and the offer in compromise process, which increases your chances of approval. If someone files on your behalf, you must submit a valid Power of Attorney form.

Does Massachusetts have a Fresh Start initiative like the IRS?

Massachusetts has no permanent Fresh Start program like the Internal Revenue Service but occasionally offers time-limited tax amnesty initiatives. These programs allow taxpayers to settle back taxes with reduced penalties and interest. Unlike what the IRS provides, state amnesty programs may have fewer requirements. Taxpayers should contact the DOR or the taxpayer advocate service to learn about relief options.