A Maryland Offer in Compromise lets you settle state tax debt with the Comptroller of Maryland for less than the full balance, and sometimes for nothing, if you can show that paying in full is not realistic given your finances. The program is run by the Comptroller’s office and is entirely separate from the federal IRS offer program, with its own forms, rules, and reviewers. A complete, accurate application matters from day one, because the Comptroller does not pause collection while your offer is being reviewed.
Who Qualifies
Before your finances get any attention, you have to clear a set of threshold gates. Missing one is an automatic rejection.1Comptroller of Maryland. Offer in Compromise
- You have a delinquent tax liability that the Comptroller has formally assessed.
- At least two years have passed since you became liable for the tax. Fresh debts don’t qualify.
- All required returns are filed, or the Comptroller has issued estimated assessments for the missing ones. For individual income tax, that means the current-year return by its due date or extension date plus the prior six years.
- You’ve either declined or exhausted all administrative appeals. Nothing about the debt can be under appeal right now.
- You’re not in an active bankruptcy.
- If the debt is a business tax, or was assessed against you as an officer of a business, the business must be closed.
- You are unlikely to be able to pay the full balance in the foreseeable future.
The Two Grounds You Can Claim
Maryland recognizes two reasons for accepting a reduced amount, and you have to pick one on the application.
The first is insufficient resources: you simply don’t have the assets or income to pay what’s owed. Most applicants use this ground.1Comptroller of Maryland. Offer in Compromise
The second is economic or other hardship: on paper you could pay, but doing so would cause real economic hardship or would be unfair given your circumstances. Either ground requires a completed Form MD 433-A.2Comptroller of Maryland. Offer in Compromise Program FAQs
On Form MD 656 itself, spell out every reason you believe you can’t or shouldn’t pay in full. The Comptroller’s FAQ is blunt that not wanting to pay is not a qualifying reason.
The Forms
Two Maryland-specific forms carry the application, and both live on the Comptroller’s website. Do not confuse them with the similarly numbered federal IRS forms.
- Form MD 656 is the offer itself. You identify the tax periods, state your grounds, and propose a specific dollar amount.3Comptroller of Maryland. Maryland Form 656 – Offer in Compromise
- Form MD 433-A is the Collection Information Statement for Individuals, a full financial disclosure covering employment, personal background, general finances, an asset-and-liability breakdown, and monthly income and expenses.4Comptroller of Maryland. Collection Information Statement for Individuals
Assets have to be listed with current market value, amount owed against them, and your equity. Vehicles need model, year, and tag number. Real property needs description, ownership type, and address. Expenses follow the Comptroller’s allowable categories rather than what you actually spend. You sign the form under penalty of perjury.
Supporting documents are technically optional, but the Comptroller’s FAQ recommends attaching one to three months of payroll and bank statements to verify the numbers you’re claiming.2Comptroller of Maryland. Offer in Compromise Program FAQs Sending verification upfront usually saves months of information requests later.
Deciding How Much to Offer
The Comptroller’s guidance is that you offer what you can actually afford. An offer can take three shapes:2Comptroller of Maryland. Offer in Compromise Program FAQs
- A one-time lump sum less than the full tax due.
- Installments over up to 24 months for less than the full amount.
- Zero dollars, if you genuinely cannot pay anything.
The reviewer holds your offer up against Form MD 433-A: your equity in each asset after secured debt, and your capacity to generate income above allowable living expenses. If the disclosure suggests you could pay more, expect a counteroffer or rejection. Fill out Form MD 433-A first, run the equity and monthly-surplus math, and let those numbers set the offer. An offer that doesn’t match your own financial statement is the fastest way to a denial.
Where to Send It, and What It Costs
Submit the completed Forms MD 656 and MD 433-A either way:1Comptroller of Maryland. Offer in Compromise
- Email to oic@marylandtaxes.gov
- Mail to Offer in Compromise Program, Comptroller of Maryland, 7 St. Paul Street, Room 210, Baltimore, Maryland 21202
Maryland does not charge an application fee and does not require any upfront payment with the submission. That’s a real difference from the federal IRS program, which charges a $205 application fee and requires 20% of a lump-sum offer at filing. Send a complete package. Incomplete files get delayed or returned.
Collection Doesn’t Pause
Filing an offer does not put your account on hold. The Comptroller warns explicitly that collection actions continue during review.2Comptroller of Maryland. Offer in Compromise Program FAQs
That includes MVA holds blocking vehicle registration renewals, professional license holds, a filed notice of tax lien against your property, and referral of your account to a collection agency. If your income depends on a professional license, or you have a registration renewal coming up, time your application accordingly.
What Happens After You Submit
A compliance officer reviews the financial statement, checks it against any documents you sent, and may verify asset values and income independently. If anything is unclear or missing, you’ll get a request for more information. Respond promptly. Missing a response deadline can get your offer administratively withdrawn, and you’ll have to start over.
Reviews typically take several months. If you don’t hear back within six months, Maryland law lets you treat the offer as denied and appeal directly to the Maryland Tax Court, which exists as a backstop against indefinite delay.5Maryland Tax Court. Procedures of the Maryland Tax Court
If the Offer Is Accepted
Acceptance comes as a formal letter with terms. Pay the lump sum on schedule, or make the monthly installments over the agreed period of up to 24 months.
Every acceptance carries a compliance clause. You must file and pay all future Maryland tax returns on time during a monitoring period. This is the single most important condition in the agreement. Any late filing or unpaid liability during that period defaults the deal, reinstates the original full tax debt minus what you’ve already paid, and erases the savings. Set calendar reminders for filing deadlines, and treat estimated payments as non-negotiable.
If the Offer Is Rejected
The rejection letter states the reasons. The first move is usually a conference with the reviewing officer or their supervisor, where a documentation gap or a misread of your finances can sometimes be fixed with more evidence.
If the conference doesn’t resolve it, you can appeal to the Maryland Tax Court. After the Comptroller issues a Notice of Final Determination following the conference, you have 30 days to file.5Maryland Tax Court. Procedures of the Maryland Tax Court Filing itself is free, though transcripts and recordings have fees.6Maryland Tax Court. Frequently Asked Questions The appeal looks at whether the Comptroller evaluated your financial situation correctly on the evidence. Your original liability stays collectible throughout, so don’t miss the 30 days.
Federal Tax on the Forgiven Portion
Settling a Maryland debt for less than the full amount can create a federal tax question. The IRS generally treats forgiven debt as taxable income, so if you owe $50,000 and settle for $20,000, the $30,000 difference is potentially reportable on your federal return.7Internal Revenue Service. Topic No. 431, Canceled Debt – Is It Taxable or Not?
Two exclusions often help. Federal law excludes canceled debt to the extent that paying it would have been deductible; because state income taxes are deductible on the federal return (subject to the $10,000 SALT cap), part or all of the forgiven amount may drop out under this rule.8Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness A separate insolvency exclusion applies if your total liabilities exceed the fair market value of your assets at the time of discharge, capped at the amount by which you are insolvent. Many people qualifying for an offer on insufficient-resources grounds are, by definition, in that zone.
The interaction between the SALT cap, insolvency math, and cancellation-of-debt income is genuinely complex. If a large amount is being forgiven, talk to a tax professional about the federal side before you finalize the Maryland agreement. A surprise federal bill the following April can undo the benefit of the settlement.