Offer In Compromise for In-Business Tax Payers
Offer In Compromise or Bankruptcy?
Most taxpayers who owe tax debts choose the certainty of bankruptcy over the uncertainty of the outcome of an Offer in compromise. The problem with a bankruptcy of an in-business taxpayer is the bankruptcy trustee may call for an appraisal of the business; if it has value, he may sell it off…in a word the taxpayer is at risk for loss of his business.
With an OIC, in contrast, protocol under the Fresh Start rules dictates that only the income stream – and not the assets – are included in the Offer evaluation. Trust fund taxes may also be included in the Offer and may never be discharged in bankruptcy.
OICs do require two quarters of current compliance for processing. There is no such requirement with a bankruptcy filing…only the timing rules have to be met.
Is the IRS going to be harsher in considering an Offer on an in-business taxpayer? No question that the IRS will be, particularly on payroll trust fund cases, where the IRS is probably going to collect the money anyway in most cases. Does an in business taxpayer put up the filing fee and deposits and take the plunge on income tax? It depends upon facts and circumstances.
When and what to consider with Offer In Compromise
If the taxpayer meets the low income exception to putting up the filing fees and deposits, it would appear to be a ‘no brainer’ to take a free roll. However, a business with low income or losing money must consider the fact that submitting an OIC tolls the bankruptcy and the collection statute.
If the taxpayer’s tax debts are less than three year’s in age, the bankruptcy statute is tolled and the taxpayer is in, up to two years and 30 days, more misery. If the tax debts are at or near the end of ten-year collection statute, the collection statute is tolled while the Offer is under consideration.
The more competent tax representatives, submitting in business Offer in compromises, are generally doing so through the CDP appeal process. This allows the taxpayer to sue for abuse of discretion in Tax Court if the IRS is arbitrary or unreasonable in considering their Offer. Anticipate a threat by IRS district counsel to seek frivolous filing sanctions in Tax Court, particularly if trust fund taxes are involved.
The IRS has recently turned on people who made off-shore settlements, even those who had amended returns and paid the taxes. The IRS is going after them civilly and criminally…this AFTER accepting them into the Amnesty program. A tax collector can never be trusted. A taxpayer has to weigh this carefully before going through the financial hardship of putting up non-refundable deposits on an Offer in compromise that may be arbitrarily rejected.
Dana M. Ronald
Tax Crisis Institute
March 15, 2013