Dealing with tax debt in Montana can be stressful—especially when you’re facing significant state tax liabilities, missed tax returns, or a growing tax bill. Many taxpayers cannot pay the full amount owed, whether the issue involves sales tax, back taxes, or filing late. These debts can quickly lead to penalties, interest, or even collection actions by the Montana Department of Revenue (MT DOR) or the Internal Revenue Service (IRS). Fortunately, there are structured ways to address your tax liability and find meaningful tax relief.
At the federal level, the IRS offers a formal Offer in Compromise (OIC) program, which allows eligible individuals and businesses to settle their taxes for less than they owe. This compromise program is designed to help those who can’t afford to pay in full. It involves thoroughly reviewing your income, assets, and expenses to determine what the IRS can reasonably collect. While the IRS may pause collections during this assessment, you must comply with current tax payments and deadlines throughout the review process.
Unlike the federal government, Montana does not offer a state-level OIC. However, the Montana Department of Revenue provides alternative resolution options such as payment plans, penalty abatement, and assistance through the Taxpayer Advocate Office. If you owe Montana back taxes, you can request a payment plan online through the state’s TransAction Portal (TAP). This guide explains how to work with both the IRS and MT DOR, outlines your eligibility for relief, and helps you avoid common mistakes when settling a balance, responding to a notice, or protecting your property during the IRS collection process.
An Offer in Compromise (OIC) is a federal tax relief program that the Internal Revenue Service (IRS) provides. It allows eligible taxpayers to settle their tax debt for less than the full amount owed. It’s designed for individuals or businesses facing severe financial hardship, where paying their total tax liability would be unrealistic or cause lasting economic strain.
This compromise program aims to assist the IRS in collecting as much as possible while also providing taxpayers an opportunity for a fresh start. The IRS only accepts an OIC when it determines that the offer represents the most it can expect to collect within a specific timeframe, based on the taxpayer’s financial condition and available assets.
When reviewing an Offer in Compromise, the IRS evaluates your income, expenses, property, and ability to make payments. The goal is to ensure fair treatment while also protecting federal revenue. For many struggling with back taxes or long-standing tax liabilities, this option can be a critical lifeline toward settling debt and regaining financial stability.
An OIC is typically used when paying the full tax debt would leave the taxpayer unable to meet basic living expenses or when there's a legitimate dispute about whether the debt is owed.
The IRS uses reasonable collection potential (RCP) to determine whether to accept your offer. If the amount you offer is equal to or more than your RCP, your offer may be approved.
The IRS Offer in Compromise (OIC) is a structured tax relief program that allows qualified taxpayers to settle their federal tax debt for less than the full amount they owe. The program involves strict eligibility requirements, a thorough financial evaluation, and significant supporting documentation. When approved, it can help eliminate thousands—or even tens of thousands—of dollars in tax liability, giving taxpayers a path to resolve overwhelming debt and regain compliance.
To qualify, you must have filed all required tax returns, not be in an open bankruptcy case, and be current on estimated tax payments. Additionally, you must complete and submit IRS Form 656, along with detailed financial documentation such as assets, income, expenses, and debts. The IRS uses this information to determine your ability to pay and whether your offer is acceptable.
If accepted, the IRS may agree to settle your entire balance for a fraction of what you owe, which can offer tremendous relief for those facing long-standing tax debt. However, the process is not quick—it often takes 6 to 12 months or longer, depending on the complexity of your case. There’s also a 5-year compliance requirement: you must file and pay all taxes on time moving forward, or your agreement may be voided.
Unlike the IRS, the Montana Department of Revenue (MT-DOR) does not offer a formal OIC program. The state relies on standard payment plans and enforcement tools like liens and garnishments to collect tax debts.
There’s no way to formally “settle” tax debt owed to the state of Montana for less than the full amount.
Taxpayers who cannot pay in full must request a payment plan through the TransAction Portal (TAP) or by contacting the Collections Services Bureau (CSB).
The CSB manages all tax debt collection. TAP allows taxpayers to apply for payment arrangements and manage their accounts online.
To apply for an IRS Offer in Compromise, you must meet these basic conditions:
You must have filed all required personal or business returns, not be in an open bankruptcy, and have up-to-date estimated taxes or employer deposits.
This is the most common basis. It applies when your assets and income are insufficient to pay your tax debt fully.
This condition applies when there's a reasonable basis for believing you don't owe the tax assessed.
This approach is employed in exceptional circumstances where imposing taxes would result in substantial difficulties, despite the taxpayer's theoretical ability to pay.
The IRS thoroughly analyzes your finances—wages, self-employment income, property equity, investments, and monthly expenses.
Before applying, use the IRS OIC Pre-Qualifier Tool online to assess whether you're likely to qualify. This tool analyzes income, expenses, and asset values to give a preliminary result.
Utilize the IRS Pre-Qualifier Tool to verify that:
You must have filed all required personal and business federal tax returns. The IRS will reject your Offer in Compromise if any filings are missing or incomplete. Be sure everything is submitted and up-to-date before you proceed.
Taxpayers currently in bankruptcy are automatically ineligible for an Offer in Compromise. You must wait until the bankruptcy is discharged or dismissed before applying. The IRS will not consider an OIC while court proceedings are ongoing.
If you're self-employed, you must be making current quarterly estimated payments. This shows the IRS that you're staying compliant with ongoing tax responsibilities. Falling behind on current taxes while applying for relief can lead to denial.
Business owners must be current on all payroll tax deposits. Your OIC will not be considered if your business has missed recent deposits or fallen behind on employment taxes. The IRS prioritizes ongoing compliance before reviewing past debt relief.
Gather all financial records you’ll need to complete IRS forms:
Include pay stubs, bank statements, loan info, retirement accounts, mortgages, leases, and utility bills. The IRS requires a comprehensive disclosure to determine your ability to pay.
These forms comprise the complete OIC application. Form 656 includes your offer and reason for submission. Form 433-A or 433-B (for businesses) covers financial disclosures.
Your offer must reflect your reasonable collection potential (RCP). Calculate your lump sum or periodic payment based on your available income and assets.
There’s a $205 application fee unless you qualify as a low-income taxpayer. Low-income certification also exempts you from the initial payment requirement.
Once submitted, the IRS will:
An IRS examiner will thoroughly review your forms, financial disclosures, and supporting materials. They’ll verify the accuracy of your statements and ensure your offer reflects your actual ability to pay. Any inconsistencies or omissions can delay the process.
The IRS may send a letter requesting more documentation if something is unclear. The IRS will set a deadline for your response; if you don't meet it, they may return your application. Prompt responses help keep your case moving.
The complete OIC review process can take six to twelve months. During this time, collections are typically paused, but you’re expected to stay current on all tax filings and future payments. Patience is essential—the IRS handles each case thoroughly.
If rejected, you have 30 days to appeal using Form 13711. If accepted, you must comply with all tax obligations for 5 years, or your OIC will be revoked.
If you owe Montana state tax, your primary option is a payment plan through the TransAction Portal (TAP).
You may need to provide wage info, rent/mortgage payments, and monthly expense summaries. Be prepared to adjust your monthly payment based on your income and budget.
The Montana Taxpayer Advocate helps individuals facing unique hardships or unfair treatment by the Department of Revenue. They serve as liaisons and can help resolve disputes or accelerate resolution.
Call (406) 444-6789 or email DORTaxpayerAdvocate@mt.gov. This service is invaluable if you’ve exhausted normal channels or received a collection notice you believe is incorrect.
In extreme cases, bankruptcy may be an option for eliminating older tax debts.
If you meet federal criteria, some state tax debts may be discharged in Chapter 7 or Chapter 13.
Tax debts must be at least 3 years old, assessed at least 240 days ago, and tied to returns filed at least 2 years ago. It is advisable to consult a bankruptcy attorney for details.
Missing pages, signatures, or financial disclosures can lead to rejection. Ensure everything is thoroughly checked before mailing.
The IRS won’t accept an amount far below your reasonable collection potential. Use the Pre-Qualifier Tool to guide your offer amount.
Once OIC accepts your application, you must maintain compliance for five years. New debts or missed filings can void the agreement.
The IRS uses databases and financial tools to verify your statements. Any attempt to hide assets will backfire.
Montana does not offer debt settlement options. If you wait for a settlement that doesn’t exist, you could fall further behind.
Failure to respond can trigger liens, garnishments, or levies. Always open DOR letters and act quickly.
The Montana Taxpayer Advocate can help if you're in hardship—but only if you reach out. Don’t wait until collections escalate.
No, Montana does not offer a formal Offer in Compromise program like the IRS. State tax debts generally must be paid in full. However, taxpayers can request a payment plan through the Transaction Portal or contact the Montana Taxpayer Advocate if they face hardship. These are the primary tools available to help manage and resolve state tax debt in Montana.
You can simultaneously apply for an IRS Offer in Compromise and a Montana payment plan. You must address your federal and state debts separately because each agency operates independently. Approval for one does not affect the other. If you owe both, apply for an OIC with the IRS and a Montana Department of Revenue payment plan.
If you cannot pay your Montana tax bill, please consider applying for a payment plan through TAP. If your hardship is more severe, the Montana Taxpayer Advocate may be able to assist. In extreme cases, bankruptcy may be an option to discharge qualifying tax debt. Always explore these options early to avoid collection actions.
The IRS Offer in Compromise process typically takes six to twelve months. The IRS will evaluate your financial documents, income, and offer amount during that time. The process can take longer if your case is complex or the documentation is missing. Submitting complete, accurate forms and staying compliant can help avoid unnecessary delays.
Applying for an IRS Offer in Compromise generally pauses collections and garnishments. This protection lasts while the offer is under review. However, the IRS may still file a tax lien during this time. If the offer is rejected, collection actions may resume unless you appeal or set up another resolution method like an installment agreement.
The Montana Taxpayer Advocate cannot reduce or waive your tax bill. However, they can help you communicate with the Department of Revenue and resolve issues more quickly. They act as a neutral party and can assist with hardship cases, payment plan concerns, or administrative errors that may affect your situation.
If your case involves large balances or complex finances, hiring a tax professional may help. Enrolled agents, CPAs, or tax attorneys can assist with forms, appeals, and negotiations. While some people handle their OIC alone, professional guidance may improve your chances of approval and reduce mistakes, especially with IRS or state filings.
Schedule your free, confidential tax relief review today.
Copyright © 2025 Get Tax Relief Now
