South Carolina Tax Attorney

      I thought it would be interesting to look into and explain some of the more common reasons offers in compromise are rejected.  Many times it is not because the offer in compromise is unreasonable or out of line, but because the taxpayer simply does not respond in time.  Check out my Top 5 Reasons Your Offer in Compromise Won’t Be Accepted:

1. You are not current on your estimated tax payments for the current year.  When you file an offer in compromise, you must be current on your current year tax payments.  If you are an employee who works for wages and your employer holds out income taxes on your pay, then you are most likely okay.  If they hold out taxes and you still owe income tax each year, you need to adjust your W-4 with your human resources department so they will take out more from your check.  If you are self-employed, you will be required to make estimated tax payments each quarter.  I urge my clients to put that money aside in a special savings account monthly so you are not tempted to spend the money.  If you are not current, you can kiss that offer in compromise opportunity goodbye.
2. You did not provide all of the required information.  The IRS requires a lot of information from you when you file an offer in compromise.  First there is the $150 filing fee, then there is some sort of down payment depending on the offer type, and finally there is the financial form 433-A and all of the documents that it asks for.  If you do not provide the substantiation documents the 433 asks for like three months of bank statements and household bills the IRS will quickly send you packing.
3. You were dishonest on your financial form 433-A.  You may think you are doing yourself a favor by boosting some expenses or not claiming all of your income, but the IRS has "spy vision" and they can smell out a lie.  If you purposely leave out assets, the IRS will find them.  If you purposely leave off income, the IRS will figure it out.  Then once they have added that extra asset or income source, your offer in compromise goes down the tubes quick.  Therefore, be honest.  If you are not going to qualify for an offer in compromise, that is bad news, but the good news is you are not too bad off financially so you should be able to get out of the hole.  I would also like to point out that when you sign the form 433-A or B, you are signing it under penalties of perjury, so lying on that form is the same as lying under oath in court and will leave you with a host of other problems. 
4. You did not provide the required information by the IRS deadlines.  If you do not provide updated or new information when the offer examiner requests it, the IRS will quickly reject your offer in compromise.  Therefore, you should timely send in the requested information to the offer examiner.  If you need more time, don’t hesitate to ask the offer examiner for it.  If your request is not unreasonable, they are usually more than happy to give you some more time because it gives them more time to get some of the other offers in compromise off of their desk. 
5. Offering a ridiculously low amount.  Listen to your tax resolution professional.  If they tell you that you are only eligible to request an offer in compromise for the amount of $10,000 and you demand that they offer the IRS $1,000 be prepared to be sent home.  While I understand we provide a service to the client, I do not let the client tell me how to practice law.  I always remind the client that if you file an unreasonable offer in compromise, the IRS does not have to recognize it and they can continue to collect against you with some of the more unsavory collection methods such as wage garnishments and bank levies.

    Don’t you LOVE the IRS.  I’m sure many people will be receiving "Valentine’s Day Cards" from the IRS today telling them that they owe thousands upon thousands of dollars to the IRS.  That places stress on you personally and indirectly on your love life at home.  This Valentine’s Day start down the road to getting off of the IRS’ mailing list by determining if you will qualify for an offer in compromise.  You can find the forms (Form 656) online at www.irs.gov and you can read this blog for tips on negotiating with the IRS and hopefully you can get all of your tax resolution questions answered. 

    The past two weeks, we have talked about the Trust Fund Recovery Penalty:

• Who is responsible for the Trust Fund Recovery Penalty?
• What is the Trust Fund Recovery Penalty?

    The Trust Fund Recovery penalty is generally a business tax that is being assessed against the owner of a business personally.  Many times, but not always, this tax is assessed against an individual after the business has closed, or because the business is simply not profitable and the IRS has a better chance of collecting more taxes from the individual through the Trust Fund Recovery Penalty than through the employment taxes and income taxes owed by the business. 

    Just like any other tax a person or business owes, the Trust Fund Recovery penalty may be reduced by filing an offer in compromise.  As with any other offer in compromise situation, the IRS investigates your income and expenses as well as all the equity in assets that you own to prove that you do not have the ability to pay the tax liability in full.  When the IRS accepts an offer in compromise, that is to compromise all of the taxes that you owe (including all outstanding income taxes, employment taxes, trust fund recovery penalties, interest, and other penalties). 

Question:

    My husband and I have been married since 2001.  We have joint tax liability since then, and I also have tax liability from 1998 through 2000.  Can we file just one offer in compromise?

Answer:

    When you file an offer in compromise, the IRS is required to compromise ALL of your tax liability.  So if you had personal income tax liability and the IRS had assessed the Trust Fund Recovery Penalty against you for a business that you owned, you would be required to try to settle all of the tax against you.  Similarly, if you have a personal liability for 1998, 1999, and 2000 and you and your husband have a joint liability for years 2001-2007, you and your husband will be required to file separate offers in compromise.  While this is not a major shift from filing just one offer in compromise, the problem created is that there will now be a requirement for two $150 application fees and two down payments.  While this does not necessarily double your offer amount, it will most likely just alter the amounts for each offer in compromise. 

    Here is a collection of the Top Ten Most Litigated Tax Issues from 2007 as determined by the National Taxpayer Advocate, Nina Olson. 

1. Collection Due Process hearings (IRC §§ 6320 and 6330);
2. Gross income (IRC § 61 and related Code sections);
3. Summons enforcement (IRC §§ 7602(a), 7604(a), and 7609(a));
4. Civil damages for certain unauthorized collection actions (IRC § 7433);
5. Frivolous issues penalty (IRC § 6673 and related appellate-level sanctions);
6. Failure to file penalty (IRC § 6651(a)(1)) and estimated tax penalty (IRC § 6654);
7. Trade or business expenses (IRC § 162(a) and related Code sections);
8. Accuracy-related penalty (IRC § 6662(b)(1) and (2));
9. Relief from joint and several liability for spouses (IRC § 6015); and
10. Family status issues (IRC §§ 2, 24, 32, and 151).

    We will discuss some of these most litigated issues in future posts and the types of cases that stem from each issue.  Be sure to check back often for those discussions.

    I was in a meeting recently with my clients and the revenue officer from the IRS who is assigned to their case.  This client was primarily a business client meaning we were working on getting their business on the right track with the IRS when it suddenly turned into a personal client because of the Trust Fund Recovery Penalty and because the owner had 1040 tax liability.  I must say that the owner of the company did a lot of things to take care of his business and really complied with all of the requests of the revenue officer.  So far we have been able to save his business and try to keep them on the right track.  Also, as an aside, I wanted to make sure to point out that these meetings have been ongoing for over a year - all of this did not take place at one meeting. 

    As we began through the meeting regarding the personal liability, the revenue officer began going through their personal form 433-A and I immediately noticed that we had problems.  The clients did not tell me that they had multiple life insurance policies with a cash value.  They did not tell me about  several of their assets.  Once the revenue officer started pulling out records from the Department of Motor Vehicles we knew that something bad was about to happen.  Unfortunately, the clients lost a lot of good will they had built with this revenue officer.  The Revenue Officer had allowed them a lot of "extras" including extra time and extra opportunities.  I can guarantee that this won’t be given again. 

    The revenue officer was very upset that the assets were not listed on the Form 433-A.  While I don’t think my client was trying to hide anything, it sure didn’t make him look good.  I would also like to remind people that are trying to deal with the IRS on their own that when you sign a Form 433-A, or most any form that provides information about yourself to the IRS, you do so subject to penalties of perjury. 

    So, the point I was trying to make with this post is to put it all out on the line.  It may not get you the best deal, but when you are caught lying to the IRS, you will have a whole lot more to worry about than oweing them a little bit (or a lot) of money.