Rule (Regulation) 2000-4 

     SETTLEMENT OR COMPROMISE OF TAX LIABILITIES 

     Pursuant to the authority granted by Ark. Code Ann. $26- 1 8-705 and Act 1 126 of 
1999, the Director of the Arkansas Department of Finance and Administration, in compliance 
with Ark. Code Ann. Sec. 25-1 5-204, does hereby promulgate the following regulation for 
the settlement or compromise of controversies relating to the payment of any state tax 
administered by the Department: 

A.   DEFINITIONS.        For purposes of this regulation, unless otherwise required by 
their context, the following definitions apply: 

     (1) DEPARTMENT. The term "Department" shall mean the Arkansas Department 
     of Finance and Administration. 

     (2) DIRECTOR.  The term "Director" shall mean the Director of the Arkansas 
     Department of Finance and Administration, or any of his duly authorized agents. 

     (3)  INSOLVENCY. The term "insolvency" shall mean: 

     (a) the inability to pay debts as they fall due in the usual course of business; or 
     (b) having liabilities in excess of the reasonable market value of assets held. 

     (4) PERSON.  The term "person" shall mean any individual, partnership, 
     corporation, limited liability company, association, or public or private organization 
     of any character. 

     (5) OFFER IN COMPROMISE.  The term "offer in compromise" shall mean a 
     proposal by a taxpayer to settle a specific  state tax liability for less than the total 
     amount of tax, penalty, or interest due for a specific period of time. 

     (6) TAXPAYER.  The term "taxpayer" shall mean 

     (a) any person subject to or liable for any state tax; or 
     (b) any person required to file areturn, or to pay or withhold and remit any tax 
          required by the provisions of any state tax law. 

B. DIRECTOR'S AUTHORITY. 

     (1) As provided in Ark. Code Ann. $26-1 8-705, the Director may enter into an 
     agreement to compound, settle, or compromise any controversy relating to a state tax 
     or any admitted or established tax liability as to any tax collectible under any state 
     law when: 

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   (a) The controversy is over the amount of tax due; or 
   (b) The inability to pay results from the insolvency of the taxpayer. 

   (2) The director may waive or remit the interest or penalty, or any portion thereof, 
   ordinarily accruing because of a taxpayer's failure to pay a state tax within the 
   statutory period allowed for its payment: 

   (a) If the taxpayer's failure to pay the tax is satisfactorily explained to the director; or 
   (b) If the failure results from a mistake by the taxpayer of either the law or the facts 
       subjecting him to such tax; or 
   (c) If the inability to pay the interest or penalty results from the insolvency or 
       bankruptcy of the taxpayer. 

   (3) In settling or compromising any controversy relating to the liability of aperson for 
   any state tax for any taxable period, the director is authorized to enter into a written 
   closing agreement concerning the liability. When the closing agreement is signed by 
   the director, it shall be final and conclusive, and except upon a showing of fraud or 
   misrepresentation of a material fact, no additional assessment or collection shall be 
   made by the director, and the taxpayer shall not institute any judicial proceeding to 
   recover such liabilities as agreed to in the closing agreement. 

C. FILING OF OFFER IN COMPROMISE. 

   Offers in compromise must be submitted to the Ofice of Revenue Legal Counsel, 
P.O. Box 1272, Room 209, Little Rock, Arkansas  72203.  No Offer in Compromise shall be 
considered until the taxpayer has filed all tax returns required to be filed under Arkansas law. 

D. CONTENT OF OFFERS IN COMPROMISE. 

   (1) An offer in compromise must contain the following information: 

   (a) The taxpayer's name, business name, address, telephone number, Social Security 
   Number, Federal Employee Identification Number, and any permit number assigned 
   to the taxpayer by the Department.  This taxpayer shall also provide the above 
   information as to any other name or business under which the taxpayer holds 
   property, does business, or receives income. 

   (b) If the offer is being tendered on behalf of the taxpayer by an attorney, CPA, or 
   other the person, a properly acknowledged Power of Attorney signed by the taxpayer 
   authorizing the person to act on the taxpayer's behalf. 

   (c) Astatement of the tax types, periods, and amounts due for which the offer in 
   compromise is being requested, along with the exact amount being offered to settle 
   the tax liability. 

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(2) Where an offer in compromise is based upon the alleged insolvency of the 
taxpayer, the taxpayer must provide, in addition to the information required under 
subsection (1) of this section, additional information sufficient to allow the Director 
to determine the taxpayer's financial condition. This information shall include the 
following: 

(a) If an offer in compromise is also being requested from the Internal Revenue 
Service (IRS), the tax types, periods, and amounts due for which the offer in 
compromise is being requested from the IRS, along with the exact amount being 
offered. The taxpayer shall provide a copy of the IRS Collection Information 
Statement for Individuals form submitted to the IRS under the federal offer in 
compromise.  If the offer has been accepted by the IRS, the taxpayer must also 
provide a copy of the formal acceptance letter from the IRS. 

(b) A detailed explanation of the taxpayers' financial circumstances resulting in the 
insolvency of the taxpayer, including but not limited to a statement asto the 
taxpayer's current income, liabilities, and living expenses. A taxpayer may use the 
IRS Collection Information Statement for Individuals form to show the taxpayer's 
current income, liabilities and living expenses. 

(c)  If any taxpayer's liabilities as listed in subsection (b) are the result of debts to 
family members, the taxpayer must specifically detail the nature of the debt and the 
family relationship. 

(d) The taxpayer's income and financial statement for the two years prior to the offer 
in compromise, or copies of the taxpayer's federal income tax returns for these years. 

(e) An affidavit containing a declaration by the taxpayer that there have been no 
transfers of real or personal property within the past two years other than in the 
regular course of business. 

(0 The source of the funds being offered to settle the tax liability. 

(g) If the taxpayer has received a discharge in bankruptcy, a copy of the Order of 
Discharge. 

(h) Ifthe offer in compromise is being made with regard to business taxes such as 
gross receipts (sales) tax, compensating (use) tax, or withholding tax, a statement as 
to whether tax was collected but not remitted for the period for which the offer is 
being made. 

(i) An explanation as to why a payment plan is not an option to settle this liability. 

(j) Any other information requested by the Director or relevant to the issue of 
insolvency. 

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   (3)    Whereanoffer incompromise is       based upon a controversy over the amount oftaxdue 
or a mistake by the taxpayer of either the law or the facts subjecting him to such tax, the taxpayer 
must provide information sufficient to explain the nature of the controversy or mistake. 

E. EFFECT OF COMPROMISE AGREEMENT. 

   (1)         A compromise agreement relates to the entire liability of the taxpayer with respect 
to the period and type of tax for which the offer in compromise is submitted, and all questions of 
such liability are conclusively settled thereby.  Neither the Director nor the taxpayer shall, upon 
acceptance of an offer in compromise, be permitted to revise the agreement except by reason of 
the following: 

   (a)         Falsification or concealment of facts or assets by the taxpayer; or 
   (b)         Mutual mistake of a material fact concerning the basis for an offer in compromise. 

   (2)         Acceptance ofanoffer incompromise of a civil liability does not 
constitute a settlement of a criminal liability concerning the tax period in question. 

F. REVIEW. 

   The acceptance or rejection of an offer in compromise is within the sole discretion 
of the Director. A final decision of the Director with regard to an offer in compromise is 
not subject to administrative or judicial review. 

G. STATUTE OF LIMITATION. 

   The filing of an offer in compromise shall not stay the period of limitation for which a 
taxpayer may request administrative or judicial relief under the Arkansas Tax Procedure Act, Ark. 
Code Ann. 526- 1 8- 10 1 et seq. for any tax period covered by the offer. 

Signed this 2 7 5'  day of July 2000. 

~e~artmentbf ~inance and Administration 

Tim Leathers 
Commissioner of Revenue 

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