A Hawaii offer in compromise is a request to settle specified state tax debt for less than the full balance. It may be worth considering when full payment is not realistic, when the assessed amount is genuinely disputed, or when exceptional circumstances apply.
Approval is not automatic. Before applying, review why the offer is appropriate, what you can document, and how the proposed settlement would be funded.
Hawaii and the IRS have separate programs
Hawaii uses Form CM-1. IRS Form 656 does not replace it, and an accepted federal offer does not settle a Hawaii balance. Some financial records prepared for the IRS may also support a state application.
When Hawaii may consider an offer
- The amount owed is in doubt. There is a supported reason to question the assessed liability, such as overlooked evidence or an error in applying the law.
- Full collection is unlikely. Your assets, income, health, and future earning ability support the conclusion that the state cannot collect the full balance.
- Exceptional circumstances apply. Full payment may be technically possible but cause economic hardship or be unfair under the specific facts.
An offer does not replace responding to an audit or protecting an appeal deadline. If you dispute a recent assessment, check the notice deadline before choosing a resolution strategy.
The documents behind the request
Expect to provide Form CM-1 and financial information on Form CM-2 or CM-2B, or acceptable comparable federal financial statements. DOTAX also requests recent bank records and supporting documents relevant to your situation.
These can include income and expense records, tax returns, asset values and loan balances, medical evidence where relevant, and an explanation of the source of settlement funds. The purpose is to support the offer with a complete and accurate picture.
Get required returns current and review whether a payment plan is workable. If a representative will communicate with DOTAX for you, the appropriate power of attorney is needed.
Payments required with the offer
For a lump-sum offer, at least 20% of the proposed amount generally must accompany the request. For a periodic-payment offer, the first proposed installment generally must accompany it. Additional payment requirements depend on the offer terms.
DOTAX may waive the upfront requirement for qualifying individuals under its low-income rules. If the offer is rejected, payments submitted with it are generally kept and credited to the tax debt. Understand that commitment before applying.
What happens during review
DOTAX reviews the documentation and may request more information. Its published FAQ describes a pause in certain collection actions on taxes included in an offer under investigation, with exceptions. Credit offsets can continue, and unrelated liabilities are not covered.
Administrative rules do not make submission alone an automatic collection stay. Confirm the status of your specific account, especially if a levy or garnishment is already underway. Continue payments under an existing installment agreement while the offer is considered unless DOTAX directs otherwise.
Public disclosure and approval
Hawaii law requires proposed compromises, including the taxpayer’s name and specified financial details, to be posted publicly for five calendar days before the director signs. Discuss this disclosure before submitting an offer.
Governor approval is required when the tax claim exceeds $50,000, excluding penalties and interest. The total account balance alone does not determine that threshold.
Common questions
Is there a standard settlement percentage?
No. The amount should reflect the basis for the offer and the supporting facts. Another taxpayer’s settlement percentage is not a reliable target for your case.
What if DOTAX rejects the offer?
Review the stated reason and remaining options. A payment arrangement, additional substantiation, or a revised proposal may be appropriate. Payments already submitted are generally credited to the debt rather than refunded.
Does acceptance fix every tax problem?
Only the liabilities covered by the agreement are addressed. Follow its payment and compliance terms, keep new taxes current, and resolve any separate licensing or county obligations.
Get help with your next step
We help clients evaluate whether a Hawaii offer in compromise is appropriate before preparing the application. Contact us to discuss the balance, your finances, and any notices or collection deadlines.
Clear fees, agreed before work begins.
Explore offer in compromise services
Sources
- DOTAX offer in compromise guidance
- DOTAX Tax Facts 2000-2
- Hawaii compromise and disclosure law HRS 231-3
- Hawaii administrative rules for compromises
Tax guidance checked November 5, 2026. General information; individual circumstances matter.
