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BulldogTom

OIC when 941 taxes are also in arrears

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Can I just get some advice on this one.  

Client owes the IRS about 450K.   Most of that is personal, a good chunk is 941 PR tax.   I know the IRS will generally not take an offer from an ongoing business for 941 taxes, but will they take a payment plan on the 941 taxes while entertaining an offer on the personal 1040 taxes?   I have never tried this approach, so I would like to know if I should even go down that road.

Thanks

Tom
Modesto, CA

 

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Based on a client I had some years ago , the  first priority is to deal with the trust fund taxes i.e. employee withholdings.

The second priority is the 941 employer taxes.

Only then can you possibly work out something on the personal taxes.

In the meantime, you have to stay current on all the 941 taxes and the 1040 estimates, it's a tall task.

In my clients case , he had to sell the business in order to pay the trust fund taxes. Never paid the 941 employer taxes. 

 

 

 

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The withholding and employer match money is NOT HIS MONEY!  If he does not pay it, he is stealing from the employees.  I have no tolerance for business owners that steal from their employees.  He does NOT DESERVE consideration for an OIC. 

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Tom was not suggesting OIC for the trust fund taxes. He stated that he knew that was not an option.  He is wondering if the employment taxes get put on a payment plan can the personal taxes be OICed.  I don't know the answer to that but I would have my doubts.  But all it costs is the application fee to find out.  In my opinion, only because I like to see how different things work, I would be inclined to submit the OIC with the agreement to installment payments on the payroll taxes.

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9 hours ago, Jack from Ohio said:

I have no tolerance for business owners that steal from their employees.

Neither do I, @Jack from Ohio - BUT.  I've seen a lot of cases that are not the employer stealing from his employees.  

Employers are between the devil and the deep blue sea:  they are required, by law, to pay their employees by the end of seven days from the end of the pay period.  They are forbidden, by law, to pay their employees unless they have, at that moment in time, enough money to pay net pay and all taxes (withheld and employer portion).  They are not allowed to assume the payment from Customers X, Y, and Z - due tomorrow - will actually arrive.  They are not allowed to spend any of the tax funds on extraneous items - like the web hosting bill and phone bill that keep them in business, like the rent that keeps their doors open, like the employee health insurance that will be canceled unless paid now.  I have seen all of those items cause an employer to get behind on his payments.  

What about those cases where the customers never pay?  Then there is indeed theft - but not on the part of the employer, who paid his people in good faith, but on the part of the customer who took possession of goods or services and then refused to pay for them.

I have also seen cases where the bookkeeper showed the payroll tax payments as made:  check numbers (back when payments could be mailed in) and entries that matched to the penny.  except those checks were made out to the bookkeeper, who later changed the "pay to the order of" information in the books.  

So yes, no sympathy for "thieves" - but lots for those stolen *from* who somehow have to make up for it.

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8 hours ago, Jack from Ohio said:

The withholding and employer match money is NOT HIS MONEY!  If he does not pay it, he is stealing from the employees.  I have no tolerance for business owners that steal from their employees.  He does NOT DESERVE consideration for an OIC. 

Jack, sometimes you are too absolute.   I feel strongly about this as well, but man, you don't know the circumstances.   I do, and I will not share them.  

The client came to me for representation before the IRS.  It is my job, should I choose to accept it (do you like the Mission Impossible reference?), to explore every avenue available to this client who wants and needs to clean up his tax situation.   Based on where he is, and what he earns in his business, I don't see him paying off the balance owed before the statute expires.   That is one of the things the IRS looks at when considering an offer.  

If I can get him on a payment plan on the 941 taxes (both trust and employer), there will be nothing left to pay the personal taxes because of the balance being so large on those taxes.  That is just the simple math.  

So I am looking for a light at the end of the tunnel to give to both the IRS and the client so they both can see that someday down the road, this taxpayer will be back on track and paying his taxes regularly and properly.  If the client never sees an opportunity for this to go away, they will not have the heart to work toward that goal.  If the IRS does not see that keeping this guy in business is the best way for him to pay them back, they will not work with him.  They will take what they can and leave his life in shambles.   This is my job, to mediate between the two and find a win-win for both that will in the long run get them both to a spot where this is behind them.

So yes, he does deserve consideration for an OIC.  He may or may not get one, but he is entitled to the opportunity to explore the option.

Tom
Modesto, CA

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I have come to the point where I DESPISE paying higher taxes to cover those that get away with stealing from employees, spending foolishly and driving a business into the ground, while I stay on the proper side of the ethics fence and follow the rules.  

I do without a lot of "things" I would like to have in order to adhere to the tax laws and rules for my business and personal life.

I have many time considered jumping to the other side of the ethics fence and living the good life...

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assuming you checked the statutes and he is still in time frame to make payment.  I'm kinda new in representation work.  But I can give you a great reference to a guy in Buffalo NY who really knows his stuff:  Lawrence Lawler.  

Address: 2250 Wehrle Dr, Williamsville, NY 14221
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Thanks for all your input.  Here is the plan:

1.  Start with a payment plan to CA to get them to stop attacking the clients bank account.  This will allow the client to keep money in the account to make payments to the IRS.

2.  Contact the IRS and get a payment plan on the 941 taxes.  Ignore the personal taxes in this conversation if possible.

3.  Make a second contact with the IRS on the personal taxes and ask for a 90 day freeze on collections while we get the required documentation together to put in an installment agreement (in my experience, if the TP is working on documentation, they will give some time to get it together).   This will get me into next year.

4.  After filing the 2017 tax return, send in an OIC instead of the installment agreement.  Contact IRS and tell them that the TP cannot pay the personal while the payment plans are in place for CA and 941 taxes.   This should buy me about 6 months while we wait for an answer, and then appeal the denial.

Hopefully, after 1 year of maneuvering, the client will have his affairs in order, pay off the state with all available extra money, and get an installment plan on the personal taxes that is in line with their ability to pay.

Tell me what is wrong with this plan if you like, or wish me luck if you think it has a chance of success.

Thanks

Tom
Modesto, CA

 

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I wish you luck, Tom!

In my experience, none of our clients wake up one morning and decide, "Gee, I'd like to go broke owing gazillions of dollars to the IRS," but rather some precipitating factor starts them on a spiral they then can't get out of.  

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44 minutes ago, BulldogTom said:

Tell me what is wrong with this plan if you like, or wish me luck if you think it has a chance of success.

Thanks

Tom
Modesto, CA

 

I give you one chance in 10 of your client following through.  Personal experience.  If he has the ability, and/or assets,  to make those payments, as you propose, there is no way he will even be considered for an OIC.

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Tom, I wish you luck.  Personally I applaud you for advocating for your client & doing whatever you can to help him, rather than attacking him or rubbing salt in his wounds.  Your approach is the mark of a true professional, IMO.

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On 10/12/2017 at 7:48 AM, BulldogTom said:

Thanks for all your input.  Here is the plan:

1.  Start with a payment plan to CA to get them to stop attacking the clients bank account.  This will allow the client to keep money in the account to make payments to the IRS. 

 Good! Always start with the state taxes.  They can be used in an IA as an expense.  For an OIC though, only a fraction is allowed.

2.  Contact the IRS and get a payment plan on the 941 taxes.  Ignore the personal taxes in this conversation if possible. 

Is the case assigned to an RO (revenue officer)?   If so, then there will be two separate installment agreements.  There could be 2 RO's, one for 941 and another for personal. It is easier to work with an RO who has a direct line, rather than through collections.    You won't be able to ignore personal taxes.  When the IRS looks at your personal account, there will be a flag if there are also PR taxes. One case I had, needed two separate payment plans.  If that is the case, the personal could be CNC (Non-collectible), or a low monthly payment.  That will give the client time to get personal taxes into compliance.  At that point an offer may be more feasible.

3.  Make a second contact with the IRS on the personal taxes and ask for a 90 day freeze on collections while we get the required documentation together to put in an installment agreement (in my experience, if the TP is working on documentation, they will give some time to get it together).   This will get me into next year.   This will depend on whether there have been prior holds, or not.  If yes, you might only get 10 days. You can always request a 60 day full pay hold.  If you wait until the 23rd, this will take you into next year. (10 days grace period to the 60).

4.  After filing the 2017 tax return, send in an OIC instead of the installment agreement.  Contact IRS and tell them that the TP cannot pay the personal while the payment plans are in place for CA and 941 taxes. Go back to step2 -You will need to prepare a 433-F for this (433-A if assigned to RO).   This should buy me about 6 months while we wait for an answer, and then appeal the denial.   There are several things re the OIC.  First, you can file the OIC without having filed the return.  You only have to know that there will be taxes due and the return is filed before the Offer is examined.  Second, filing an Offer extends the statute of limitations, which might not be helpful.   Third, if the OIC Administrator, thinks the Offer was filed as a delaying action, it can be returned with no appeal allowed.   It may be better to withdraw the Offer before it is examined.  That will give you a better chance when a new offer becomes viable.

One more thing - if the case is assigned to an RO, the RO will decide if you can file an OIC, or not.

Tell me what is wrong with this plan if you like, or wish me luck if you think it has a chance of success.

Thanks

Tom
Modesto, CA

 

Please see my response in bold in the Quote.

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