in-business Offer in Compromise

Will the IRS OIC Work for My Business?

If you’re a business owner with a payroll tax debt, you’re probably wondering whether or not the IRS will accept a settlement.  The answer?  Probably not.  This may not be what you want to hear, but it’s the truth.

How can we say that without first looking at your business financials, assets, liabilities, and so on?  Well, there are a couple of things about the IRS’ treatment of tax delinquent businesses, especially 941 employment tax, that make it really difficult for the In-Business Offer in Compromise to work.

• The IRS doesn’t like the idea of giving one business an unfair advantage over another.That’s exactly how the IRS sees the forgiveness of a business tax debt.
• The IRS aggressively collects delinquent payroll tax, including the Trust Fund Recovery Penalty portion, from more than one source.  Not just the business itself, but the owner of the business and other responsible persons are also at risk of IRS collection.  The IRS will look to assess the Trust Fund to the responsible persons before considering an In-Business OIC.
• Current and Future Tax Compliance is very important.  The IRS likes to see 2 consecutive periods of current tax compliance prior to reviewing an In-Business Offer.  And if you’re lucky enough to get an OIC accepted, you’ll have to maintain current tax compliance for 5 years after acceptance or the Service can rescind your Offer and go back to collecting the original amount due, including penalties and interest.

What Else Should I Consider Before Submitting an In-Business OIC?

We’ve had clients come to us after a less experienced tax resolution company convinced them it was a good idea to submit 3 separate OICs of $100 for the business and each of the 2 owners.  What is the likelihood that 3 separate Offer calculations for 3 separate taxpayers would come out to $100 each?  Not very likely.  Each of the 3 OICs was denied and our new clients were in worse shape than when they started with this M&M competitor.  
So, be sure you consider the facts before submitting your OIC or hiring someone to do it for you.  

Before you submit your OIC, consider:

• The IRS uses a specific formula to calculate the Reasonable Collection Potential (RCP) of each taxpayer that submits an Offer in Compromise.  It’s not a guessing game.
• If you can satisfy the tax debt through a monthly Installment Agreement, the IRS will not settle for less in an OIC.
• The IRS will be looking at the financial information/documents of the business and any Responsible Individuals (owners, shareholders, officers, check signers, decision makers and so on).
• Every business expense will be scrutinized to determine if it is appropriate and necessary.  Good bye pizza parties.
• Equity in assets will be considered.  That may include accounts receivable, machinery, equipment, real property, vehicles, patents and anything else of value.
• Your business will need to make a payment with the OIC submission, either 20% of the offered amount or the first of your monthly payments.
• A tax lien will probably be filed, if it hasn’t already.
• Certain information about your Offer in Compromise will be available to the public.
• The IRS has another option.  They can wait it out.  The government has 10 years to collect the tax and bankruptcy doesn’t get rid of employment tax or the Trust Fund.  
• Again, current and future tax compliance is very important.  Businesses that tend to pay taxes late need to know that the IRS expects a perfect compliance record for the 5 years following the acceptance of an OIC.
• While the IRS considers an Offer in Compromise, the 10-Year Collection Statute is put on hold, meaning the last day the IRS can collect the tax will be extended.

You have made me feel confident with respect to a very stressful time in our business.  I would recommend you to others who have tax challenges in this uncertain economy.

What If My Revenue Officer Recommends Submitting an OIC for My Business?

We often hear from taxpayers that their IRS Revenue Officer advised them to submit an Offer in Compromise to settle their business payroll tax liabilities.  If this happens to you, keep in mind that your IRS Revenue Officer, or RO, is a trained collector for the IRS and is not an advocate for your business.  They cannot assist you in preparing your OIC or correctly calculating the amount to offer the IRS.  Your RO won't even be the person to consider your OIC for acceptance or denial.  That is a whole different department within the IRS collection system.  Your RO may simply want to get your case off her desk.  

Remember, if you choose to submit an Offer to the IRS, it can take up to 24 months to get a decision from the IRS.  If it is denied, you go back to square one, penalties and interest continue to add up and all the months that your OIC was under review are added to the Collection Statute Expiration Date (CSED, the last day the IRS can collect the tax).  It can put your business further behind than it was prior to submitting the OIC.

What If I've Already Submitted an In-Business Offer in Compromise?

If you've submitted an Offer in Compromise to resolve your business's back tax debt, we suggest you take another look at it using the information you've learned here.  Know that you can retract your Offer and begin working toward a resolution with the IRS that better fits your business.  

And contact us for a quick strategy session.  You may save yourself a lot of time, money and frustration.

Will the IRS Accept a Settlement if I Operate as a Sole Proprietor?

Generally, a self employed individual that owes income tax has a much better chance of success when compared to a corporation that owes payroll tax.  A sole proprietor may also have a slightly better chance of qualifying for the Compromise of IRS payroll taxes because there is no Trust Fund tax involved.  And, sole proprietors tend to be relatively small and less complicated businesses.

If a sole proprietor no longer has employees, there is a greater chance to settle his or her back payroll taxes through an Offer in Compromise.  But if you’ve still got employees working for you, the answer may still be no.

Will the Offer in Compromise Work for My Personal Tax Debt?

The Offer in Compromise is really geared toward Individuals, even if your tax liability is the result of the Trust Fund portion of a business payroll tax (Civil Penalty).  Although an individual must still go through the process of qualifying for the Offer in Compromise, it is much more common for an individual OIC to be accepted.

You will need to show a minimal ability to pay monthly and a lack of equity in assets in comparison to your tax liability.

Contact Us to discuss your options for personal tax representation.  And, ask us if our sister company Fresh Start Tax Relief can help with your personal tax relief options.

If the Offer Won't Work for My Business, What Will?

When a business can’t pay its back-tax liability in full within 120 days, through cash payments, a loan or by liquidating equity in assets, the IRS looks to the monthly Installment Agreement to satisfy the debt.  There are a couple of options available within the IRS family of payment plans designed to fit most situations.

A Streamlined Installment Agreement (IA) is available to businesses that owe payroll tax of less than $25,000 and can full pay the total liability (including penalties and interest) through 24 monthly payments.  The Streamlined IA is relatively easy to set up.

If your business owes more than $25,000 or can’t pay the total tax liability within the 24-month window of the Streamlined Agreement, a Standard Installment Agreement may be considered.  However, the Standard IA is much more complicated to set up and must be approved by a local IRS Revenue Officer.  Once your case gets to a Revenue Officer’s desk, time to resolve your case is limited.  In other words, it gets serious quick.

Your assigned Revenue Officer will request a list of information and documents from you and your business, including forms 433-A and 433-B, bank statements, loan statements, a list of the Officers of the business, personal income and expenses, business income and expenses, on and on.

There’s also the Partial Payment Installment Agreement (PPIA) for those businesses that can’t make a monthly payment large enough to full pay the total tax liability (including penalties and interest) within the IRS’ 10-year collection statute.  It’s difficult to qualify for the PPIA.  It also requires a Revenue Officer’s approval.  

Don’t forget about Currently Not Collectible status.  This is when the IRS agrees to hold off on collecting the back-tax liability for a while, typically 12 to 24 months, if current tax compliance is maintained.  That means no monthly payments toward the debt at all.  It’s rare for an operating business get it, but not impossible.  You must be able to prove that your business can stay compliant with current tax obligations, but is unable to make a payment of at least $25 per month.

Be proactive.  The sooner you start, the better.

What About Penalties and Interest?

The IRS will consider a request for the Abatement of Penalties.  Each taxpayer request is considered on its own merits.  The Service will consider compliance history, number of tax periods involved and the reasons that caused the accrual of tax and penalties.  If your request fits within the IRS’ Reasonable Cause Criteria for the Abatement of Penalties, your chances of success improve greatly.

Interest will not be removed unless the IRS made a mistake.  However, if your request for Abatement of Penalties is accepted, the interest charged on those penalties will be adjusted.