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Can You Settle Your IRS Payroll Tax Liability?

If you’re a business owner with a payroll tax debt, you’re probably wondering whether the IRS will accept a settlement.  The answer for employment tax debts is often “NO”.  This may not be the answer you want to hear, but consider the facts when determining if the IRS Offer in Compromise (OIC) is the right resolution for your business employment taxes.

The IRS doesn’t haggle on back taxes, no handshake deals.  To qualify, you must:
  • meet strict criteria,
  • correctly complete all required forms/documents,
  • submit all necessary substantiation,
  • meet deadlines,
  • begin to pay on your offered amount immediately (before acceptance), and
  • maintain current compliance, among other steps along the way.
In addition, the IRS aggressively collects employment tax, often from more than one source.  The federal government can collect the Trust Fund Recovery Penalty (TFRP) portion of the employment tax liability from 1) the business and 2) all Responsible Individuals of the business at the same time.  With that in mind, consider the following.

IRS Ten-Year Collection Statute

The IRS has ten years to collect the tax once it has been assessed.  This is important to remember.  The ten-year collection statute begins once the tax has been assessed, not when the returns were filed or when the returns were due.  The final date the IRS can collect the tax is called the Collection Statute Expiration Date (CSED).

If your business can full pay the tax debt within the remaining IRS collection statute, you will not qualify for OIC acceptance by the IRS.

The IRS collection statute freezes while the IRS reviews your OIC.  This means you will be giving the IRS additional time to collect against you even if your OIC is rejected.  Also remember that penalties and interest continue to accrue while your Offer is reviewed.

You could argue that your business may not be around long enough to see the end of the IRS collection statute.  You may be right, but remember, the IRS isn’t just looking at your business as a collection source.  It’s looking at all the Responsible Individuals too.  If your business closes its doors, it still has the business owners, officers, shareholders… to collect from.  And, TFRP taxes can’t be discharged in bankruptcy.

The IRS may choose to offer your business a Partial Payment Installment Agreement or place it in Currently Not Collectible status.  Both programs are excellent alternative resolution strategies to provide you time and breathing space, free from enforced collection actions such as levies, garnishments and seizures.

The Trust Fund Recovery Penalty

Be prepared to have the Trust Fund Recovery Penalty assessed to all Responsible Individuals of the business before the IRS considers your company’s OIC.  The Service wants to make sure all the bases are covered before considering a settlement through the Offer in Compromise program, especially on employment taxes.

Your offer amount should be at least as much as the TFRP portion of the payroll tax debt.  And, you should consider whether the offered amount will be applied toward the TFRP portion of the debt.

Current Tax Compliance

The IRS wants to see all tax returns filed timely with full payment and all current federal employment tax deposits made on time and in full.  In most cases, the Service will also want to see employers most recent two quarters paid and filed on time.

IRS Financial Scrutiny

The IRS will be considering your business and personal financial documents very closely.  You will need to make sure that everything is in order.  Every business expense will need to be deemed necessary and will need to be substantiated.  Remember, commingling
business and personal finances can be disastrous for the company and its owners.  We see it often and it can really hurt your negotiation abilities with the IRS.

Business Assets and Equity

Business assets will be considered in the Offer amount.  Accounts Receivable may be considered, along with equipment, contracts, patents, rights to assets…

OIC Payment Options
You will need to pay 20% of your Offer amount or begin making monthly payments toward your offer amount with the submission of your OIC to the IRS.  These payments are non-refundable.  This is on top of the non-refundable application fee of $186.

Maintaining Future Compliance

If the OIC is accepted, your business must comply with the terms of the agreement and remain in tax compliance for 5 years after acceptance.  Failure to do so may default the Offer and collection of the entire amount originally due, less payments made, plus accrued penalties and interest could ensue.  This is very important to realize and consider before submitting your Offer to the IRS.  If your business regularly accrues back tax debts due to variable circumstances such as slow paying A/R or seasonal income sources, you could find yourself back at square one of the collection process if the terms of IRS Offer acceptance are not met.

Tax Liens

A Notice of Federal Tax Lien may be filed during the review of your business OIC.

If your business Offer is accepted, tax liens will not be released until the terms of your Offer are satisfied.

Public Information

Certain information about your Offer in Compromise will be available to the public for review.

The IRS Offer in Compromise is very attractive to business owners with a payroll tax debt, but it is rarely the correct resolution option.  This doesn’t mean you can’t potentially save money on the tax liability.  Contact M&M to find out how our Tax Resolution System can help you resolve your payroll tax debt.  Call 866-487-5624 to speak with an M&M Tax Expert today!  You’ll be glad you did!



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