OIC - anyone have experience with? need some help -

[WITAXLADY]

Hi am resubmitting an OIC - owe $525,000

submitted $100,000 with too much earnings, resubmitting as there was not the quarterly payments to fed and state and year end tax

with it. Along with an escrow account set up as the trucking company only pays cash for trailers and last one purchased was 2003's in 2007 and overdue so setting aside up to $2500 a month to escrow $30,000 by 12-15-13 to purchase another trailer. - leaves a negative 3 month P/L

Any other hints? Assets $55,000, cash on hand $390 - that's it. Filed 1997 and up, compliant and paid with all since 2011

Officers also up for civil penalties for non filing since 1993 - one we filed -0- as has no assets as house is underwater with mortgage

the other we offered $40,000 and they rejected - want the whole $200,000 as she has HIS retirement fund and their house valued at $60,000

Thank you,

sincerely,

D

[jainen]

>>Filed 1997 and up, compliant and paid with all since 2011<<

I'm sorry, I don't understand your situation. Where is the $100K you are offering, and what does "too much earnings" mean? The officers as well as the corporation are all long-term non-filers? They want to reserve tens of thousands of dollars for future expansion?

As you saw from the 40K rejection, the IRS expects Offer in Compromise to be a net-worth transaction. I recommend you make the scenario a whole lot clearer.

[WITAXLADY]

OK - didn't file taxes for payroll or 1120 since 1993. Filed 1997 and to present . Records not viable from 93 - 96. Very first offer rejected as law then said all tax returns needed to be filed. Law changed, do not need to have all filed, just last 6 ? years.

Early filings show -0- owed for income taxes, just mega payroll taxes. 2011, 2012 - all payroll and income paid and in compliance, as well as estimates for 2013. That is why there is no money for OIC now1 Making money and has to go to estimates and income tax.

The last OIC offered for $100,000 with $20,ooo down and $80,000 paid was too low they said and the firm had to pay it all - it did not have any income taxes in as expenses as the taxes were not completed and no idea they were finally making money.

So we redid the OIC with the taxes paid and the estimated payments and only $30,000 to buy a trailer in Dec 2013 - $2500/month but the last 3 months they only had $500 a month extra to put aside - so they are not making much money anymore.

Themselves personally are current the civil penalties are because they did not file corp taxes, etc.

So what is my question?

What do I need to look out for to get the OIC allowed?

[jainen]

>>we redid the OIC with the taxes paid and the estimated payments<<

I still don't understand. On what line of Form 433-B (financial statement) are you deducting federal income taxes?

Frankly I don't know what to think about the "escrow account." Presumably the current vehicles already have a depreciation deduction, so how are you explaining the plan to cancel back taxes by saving for future capital expenditures?

A non-fiscal issue is how this grossly non-compliant company can promise to meet all filing and payment obligations in the future. They weren't even current when they submitted the offer! I think you need to address that in a very substantial way.

[Max W]

First of all, your info is a little sketchy. However, I doubt that you will be able to get any offer accepted, in the near future. because you are not taking into account what the IRS calls collection potential. You are only taking into account the ability to pay and assets and, if you were taking in the yearly depreciation as an expense, you should know that the IRS does Not allow depreciation to be figured in on an OIC (the trucks should be fully depreciated by now).

Every year filed has a CSED date, that is the date that each year expires and the tax for that year goes away. It sounds like that the returns were filed in the last year or so. This gives the IRS almost 10 years to collect. So, the IRS is in no hurry to accept an offer. If there were years that were about to expire, then it would be a different story.

In my opinion, you client would be better off to; 1. close the business and restart under a different name, EIn,etc. A closed business OIC is much easier and only the assets would have to be taken into account as there is no income; 2.enter into an installment agreement, then 5 or 6 years from now do an OIC; or 3. filing bankruptcy.

All of these options should have been fully investigated before jumping into something that appears to not be in the best interest of the client.

[kcjenkins]

Sorry, Dee, I think that Max W is right. Thing is, OIC officer does not really care whether the business survives. They just look at what assets can be liquidated to pay off the debt. Using the OIC forms can help in determining that, but unless you can show that all the assets are basically worthless, they are not going to forgive the debt. An installment agreement, however might help them to work their way out of the spot they put themselves in.

[joanmcq]

And since a huge amount of this is apparently payroll taxes, the IRS isn't too keen to waive the trust fund liabilities. Your client took their employees' withholding and spent it. That liability won't go away with closing the company since they are already going after the officers personal assets. I believe for an OIC, the 6 years rule doesn't count? I'm surprised the IRS hasn't gone after them long before this. You should also check with the state. In CA, the corp would have long since been suspended for non filing, which negates the ability for the corp to enter into contracts and also negates any liability shield. CA won't let the corp dissolve until the state filings and taxes are current. Sounds like you have a mess on your hands that you don't fully understand, since you sent in your first offer without current compliance. Have you even worked through the 433-B & 433-A?

[Jack from Ohio]

I personally don't think he should be approved for ANY OIC. He spent the employees money, and that money would/should have been in the treasury.

Sorry, no sympathy here! Not filing tax returns incurs civil penalties for a reason. There is no excuse on this earth for not filing taxes for that length of time. The reason is he/they wanted to keep and spend the money.

"But we needed it to keep the business open..." is the biggest line of Male Bovine Scat ever pronounced as an excuse for not paying trust fund monies. If it was that bad, closing the business or restructuring is the proper course of action. Not stealing employee's payroll withholdings.

NO SYMPATHY! NO OIC.

[JohnH]

Long ago when I first got into this field, I would take any business I could get. I gained a client who was a chronic payroll tax delinquent when he came to me. So we were meeting with an IRS collections agent who was being pretty hard-nosed. I'd call his demenanor fair but firm.

My client blurted out something to the effect that what IRS was about to do would put him out of business. The collections agent looked him right in the eye, and without the slightest emotion or judgementalism calmly replied "Mr____, if you're going to spend your employees' withholding taxes, we INTEND to put you out of business."

Not long thereafter he came up with the money and stayed current for many years.

[jainen]

>>$2500/month but the last 3 months they only had $500 a month extra to put aside - so they are not making much money anymore<<

You are confusing cash flow with profit. In raising these questions, I don't imply that there are no good answers. Just that you need to develop good answers.

The key is what Max said about "collection potential." IRS can simply take everything you have. So it's no good only offering what they can get anyway. You have to come up with assets that are otherwise beyond their reach, such as a 3rd party loan. If you can't do that, you have to convince them to exclude certain assets, such as those which produce income--but in that case you have to at least give the IRS the income! There is room to negotiate, but only in good faith. Saying you'd rather buy a new truck than pay your taxes just doesn't cut it.

Have you talked with the clients about a payment plan? Great solution, easy to start and maintain. IRS will suspend enforcement for years.

Even if you get an OIC or payment plan, it won't succeed with the old business model. You need genuine, specific changes in accounting procedures. If you keep talking about paying all cash, IRS will never take you seriously.

[BulldogTom]

And this is why we love Jainen.

[WITAXLADY]

OK - Thank you all... "keep paying in cash" the only assets are older trucks and trailers and the good faith agreement with the business they haul for . so no need for a loan at this time to leverage and no assets to get a loan on as collateral or if sell assets - nothing to generate income with. So not sure what you meant there?

Trucks and trailers worth $55,000 , salaries of officers - 1 the driver running 1 of the trucks full time - 39,000, the other the secy/treas/bookkeeper - 29,000 and already took a cut in pay.

Yes - you are right she - he never even knew! she didn't take care of things - brother, inherited a trucking business that was doing ok but not great and really did poorly and got by by not paying govt obligations. Came to us in 2008 and we have been trying to get this worked out and they are working on raising rates and paying obligations and being profitable - just not enough to pay all of that back and still stay in business. Even if they closed and liquidated, the firm could not pay the $$ amount.

So should they close and put 10 people out of jobs in a small community or keep trying to work this out. We went to a bankruptcy/tax lawyer and he told her nothing for her $300 on the OIC etc, options and he is the area expert - 35 miles away.

The IRS agent that we were working with didn't know how to help either. I had another client contact one of those fixit companies and said we got further (with the state) than that company did.

Be glad to do a payment plan - $600,000 over how many years? nothing would be reasonable. She has been saving for the $80,000, they could do $2,000 a month. what is reasonable to the IRS?

What changes are you talking about in accounting procedures?

And it is not a new trailer - it is a used one about 1/2 the price of a new one but their current trucks, trailers and computer are now 10 years old but running - so yes maybe they should close but to what purpose does that serve?

So then how do they proceed?

I am not adverse to "hiring" Jainen!

Sincerely,

Darlene

[jainen]

>>no need for a loan at this time<<

Sorry about "jobs in a small community," but that's not really a factor here. Anyway, I'd guess they would not be pleased to learn the company stole their Social Security contributions and is now asking the government for a half million handout. For changes, start by hiring a new bookkeeper, one that is competent or at least honest.

Restructuring rates is essential. Presumably the contract company doesn't want to lose a reliable carrier, so maybe its CPA can help them come up with something. Even a truck or a loan--that's the kind of thing the IRS is looking for in an OIC. Another approach would be to ask the ten employees for help, perhaps with some equity sharing. Real changes, not we-can't or we-already-did or we-don't-need or there-is-no-purpose.

As for the attorney, I would guess he realized that these clients need a payment arrangement but were not willing to pay for the bankruptcy version. Attorneys sometimes avoid OIC because, as you see, it is an enormous amount of work with little chance of success. Especially since the clients continue to be unreasonable.

[BulldogTom]

WITAXLADY,

Jainen is giving you some very excellent advice. You are trying to be sympathetic to your clients, but they need to hear that what they did is theft. They need to understand that the IRS does not give a crap about their lives, lifestyle or desires. They want the money that your clients stole from the government and the employees.

What you are telling the IRS is that they will not be able to collect the money. What the IRS sees is they are able to save money to buy new machinery. That doesn't add up.

You are trying to say that they need to stay in business to keep ten people employed. The IRS sees a theif with ten potential victims on their payroll.

Somehow, you need to get past the idea that this is a program that with just the right verbage in the narrative and the right combination of made up numbers on the 433 that the IRS will just automatically approve the offer. It ain't like that. That is not how the program works. If there is future potential earnings that they can take at will (via levies and seizures) over time to get more than you are offering, that is the best course for the government.

Your job is to convince the government that they will get more now than they will get over time. How you do that, given the information that you provided here, is going to be a real challenge. It doesn't help that there are commercials on all night long that say "you can erase your tax debt by calling this 800 number.". We all know that ain't so either.

Don't take anything you are hearing as a personal attack on your abilities and competence. It is not. Jainen and the others are pointing out the issues with your offer. And there are issues. They need to be resolved.

Just my 2 cents.

Tom

Hollister, CA

[WITAXLADY]

OK. Thank you.

I see the theft issue - I always have. I was appalled. It is hard to be objective when I have her in my office crying.

Plus now her husband has been in the hospital with heart problems and she has to go in for surgery when she reaches 65 in August.

CPA - accountant? you are funny - she does the books herself - how do you think the problem arose and continues to do them with one of her daughters.

As she turns after the fact payroll over to us - we submit her payments so we can keep her timely along with her estimated payments.

so she is up to date now.

And is making sure her two daughter's new businesses are totally legit and done properly.

It was a combination of ignorance, fear and stupidity.. harder to fix that, but give her credit - she is trying.

So I am trying to resolve the issues and am looking for steps 1,2,3 ...

Believe me, I am well aware of the criticism and was asking for some solid advice beyond that.

So if you can help with that I would surely appreciate direction and confirmation.

D

[Jack from Ohio]

It appears to me that amongst all the replies on this thread, you should easily be able to develop a 1,2,3... process.

1. Get a huge retainer.

2. Abandon the OIC idea.

3. Help your client set up a payment plan that will satisfy the IRS because one way or the other, they WILL get the trust fund money..

4. Tell her to hire a capable accountant to do the company bookkeeping, or you will dump her.

5. Talk to your E&O insurance company about your liability here.

6. Realize that YOU did not cause the problem, and them choosing NOT to be informed (ignorance) was their own choosing and you are not responsible, despite the tears and bad turns their life has taken. This has been going on for YEARS & YEARS!! They cannot plead ignorance, in my estimation.

7. Tell them the IRS is not going to relent on any of the items.

8. Take some of the huge retainer and treat you and your significant other to a nice dinner out.

9. ...you can take it from here.

Just my observations....

[BulldogTom]

OK, here is what I would do,

1. Determine if you are going to get paid. Is this charity work or are you going to get paid. Because it is going to take a lot of your time. Can they compensate you. Of course, if it is pro bono, or at a very reduced rate, then decide if you can give away those billable hours. If you take this on, they will need you and you should not quit on them.

2. Take a total inventory of everything they have. Make sure you know if they have family silver, grandpa's gold watch, china from the 20's that great grandma passed down. You need to know what they have. Everything.

3. Determine what they will sell to get out of this mess. If they won't sell their stuff, they aren't serious. It won't do any good to go on from here.

4. Either you do the books or have them get someone in who will. IRS will never believe the numbers if there isn't some degree of competence behind them. The wife was part of the problem. Need to show that there is someone the IRS can trust to give accurate business results.

5. Call the IRS and ask for a very reduced payment plan. I think you said they could come up with between $500 and $2000 per month. Put them on a payment plan at whatever they can afford and get the collection activity stopped. Convice the IRS that the new bookkeeper is straightening them out, that compliance is now in place, and that with better business management, more payments will be coming down the road. Buy some time.

6. As soon as the wife has surgery, file a new offer. Try again based on the serious illness causing doubt as to collectability. Hopefully you will have a year or so of timely payments and a better picture of what the future looks like for the business. Get a business valuation to show the value. If she is going to be 65, can she get on social security? How far is he from social security. If all the IRS can see is two sick people on social security and medicare who are willing to sell their business and live on government benefits, you might have a chance.

This is my plan. I give it a 30% chance of success. Like I said, this is not going to be easy.

Tom

Hollister, CA

[kcjenkins]

Dee, take Tom's advice. It is right on point. Good luck.

[WITAXLADY]

man, you guys are tough!

1 - she will pay and has been but I am beginning to feel she needs to hire someone from this board instead or elsewhere in the state that I am not doing her any good or justice.

2 - Business wise - her actual only assets are $55,000 for the trucks and trailers, no property and the business keeping running and generating income. business closes, no monies.

What value would that be to the IRS to close it? Why would they not be willing to do an OIC? as long as she keeps current and pays?

3 - Personal - ok - we can do a personal inventory and set up a payment plan for her... I am sure she could eventually pay it.

4 -The brother who had no knowledge - ignorance is not a reason, really doesn't have assets except the house with a mortgage greater than the value and that is about $60,000, a truck with a mortgage and only 1 vehicle at that. What are his chances - try it and see?

5 - Really - my E&O insurance would talk to me about this stuff? I have it - never talked to them about anything... just pay them.

6 - I can insist we do the books

Thank you,

Darlene

[jainen]

>>What value would that be to the IRS to close it?<<

IRS does NOT want to close the business while there remain reasonable prospects for collection. Only when there are no prospects for further collection (such as the entity no longer exists), will IRS consider an offer for whatever it can get. Max suggested closing if "client would be better off."

You still haven't told us where the $100,000 would come from to fund the offer. If it's from normal business operations the IRS can take it anyway without writing off the balance, so that is generally not what IRS would consider a good offer. But even then you still have a chance to convince them. The argument might go something like this. The full $500,000 would crush the company, even if it tried to pay over five years. But a fresh start would immediately free up credit, so the company could acquire new trucks which would make it viable for many years of taxable profits. Of course for that the company needs a legitimate bookkeeper, an updated rate schedule, and other significant changes you could tell IRS about.

In my opinion, the IRS will not be as emotional as some of the posts in this thread. The trust fund debt is already being handled, so IRS won't get into any moral questions. I mentioned it in response to your comment about jobs, because I felt it was a bit disingenuous to say one wants to help workers from whom one has stolen. Mostly IRS will only care about the fiscal issue, but they also might think the taxpayers lack credibility.

[kcjenkins]

man, you guys are tough!

1 - she will pay and has been but I am beginning to feel she needs to hire someone from this board instead or elsewhere in the state that I am not doing her any good or justice.

2 - Business wise - her actual only assets are $55,000 for the trucks and trailers, no property and the business keeping running and generating income. business closes, no monies.

What value would that be to the IRS to close it? Why would they not be willing to do an OIC? as long as she keeps current and pays?

3 - Personal - ok - we can do a personal inventory and set up a payment plan for her... I am sure she could eventually pay it.

4 -The brother who had no knowledge - ignorance is not a reason, really doesn't have assets except the house with a mortgage greater than the value and that is about $60,000, a truck with a mortgage and only 1 vehicle at that. What are his chances - try it and see?

5 - Really - my E&O insurance would talk to me about this stuff? I have it - never talked to them about anything... just pay them.

6 - I can insist we do the books

Thank you,

Darlene

Basic thing is that an OIC is asking them to write off as noncollectable a significant part of the debt. Especially when the debt is not for their taxes, but for THE EMPLOYEE'S TAXES that they withheld, IRS does not like to do that. Whereas an installment agreement means they will at least attempt to repay the money they stole. And installment agreements do have an end date, even if the debt has not been fully paid. In my experience, this is your best option in the situation you've described.

[Guest Taxed]

Witaxlady, you don't want to bite off something that you can't chew!

Leave it to folks that are more experienced than you in dealing with this issue. Make a referral.

I have done that many times, when I can see that I will be spending countless hours doing research and I have limited resources.