Who is Eligible for an Offer in Compromise?
Brian Whitman: That’s Jim Felton from Greenberg & Bass, and Peter Stephan here from the Tax Resolution Institute. I’m going to ask what I think is a dumb question. So I’m just going to say that so you don’t think I’m dumb. I’m just going to tell you, I think I’m going to ask a dumb question. Everybody is not eligible for an offer in compromise, correct?
Jim Felton: That’s correct.
Brian: Okay, so that’s not a dumb question is it?
Jim: No, not at all. Not at all.
Jim: In fact, we discourage people that have been told that they can submit an offer in compromise if we look at their situation and it doesn’t look like the IRS is going to accept an offer because it takes over a year to get an offer through the IRS.
Brian: What is a component in that scenario that would exclude the taxpayer from submitting or having an offer in compromise accepted by the IRS? What might be going on where the IRS says, “No. You don’t qualify?”
Jim: They might have too much in assets. Maybe they’re not liquid assets. So for example someone who has a house worth $500,000 and a $250,000 mortgage with a $75,000 tax liability, they have too much in assets. The IRS wants them to exhaust all their assets before they’ll accept an offer in compromise. Or too much in income. The IRS wants that multiple, as we discussed before, of disposable income.
So, depending on how much money you make and what you own, it will help us determine whether the offer is going to be accepted before we even submit it. There are many other ways out of tax problems. We don’t need to submit an offer to solve your tax problems.
Brian: You are listening to the Tax Show here on The Answer. I’m Brian Whitman from the Morning Answer with Peter Stephan from the Tax Resolution Institute, going to give you in a moment a website. Going to give it to you a couple of times, so get your pen ready and a phone number to call. Jim Felton is here from Greenberg & Bass as well. We’re here every Sunday afternoon at this time. We’re your Tax Tag Team, your tax crusaders, here to help you out if you have unresolved tax issues.
So what are we talking about? We’re talking about letters. Maybe you get a letter, you have a wage garnishment. Maybe you have a bank levy. I got a letter from the California Franchise Tax Board, scared me to death. So I called Peter Stephan. The number is 818-658-7590. Give them a call on Monday morning. You do a great consultation. There’s no pressure, no fee involved for that. You figure out where the person is in terms of their tax problem and what steps might have to be taken to resolve that.
Go to the website. There is a ton of information on the website. TaxResolutionInstitute.com. TaxResolutionInstitute.com is the website. Bounce around that website and then give them a call, 818-658-7590. Let’s talk about payroll taxes. It’s a theme that comes up week after week after week here on the show because there are a lot of small/medium-sized business owners who listen to The Answer. We hear from them all the time in the morning when we do The Morning Answer.
Let’s talk about offers in compromise if you’ve got a payroll tax problem. Let’s say the business owes $500,000. How do you deal with that? I mean, a guy or lady comes to you still in business operating with $500,000 in payroll tax issues.
Peter Stephan: Well, it’s very difficult, Brian, to get what we call an in-
business offer in compromise through the IRS, although it’s not impossible. There are other ways to deal with people who are in business and owe a substantial amount of payroll taxes. Real quick because I don’t want to get too technical, those payroll taxes are broken out into four parts, what we call the trust fund portion, the amount you withheld from people’s pay. The non-trust fund portion, that’s the amount the employer matches of your Social Security and Medicare tax.
Then the interest and the penalties, and of course the interest on the penalties, but we’ll just call that interest and penalties. Of those four amounts, the only amount that you’re actually personally liable for, the amount that Jim will address in a moment, which we call non-
dischargeable debt. That is you cannot bankrupt out of this portion of the payroll taxes is that trust fund portion, the amount you withheld from your employees and failed to pay over to the IRS or to the state.
So that’s non-dischargeable debt, but that’s the only piece that you’re personally responsible for. So what do we do? Well, typically if you owe $500,000, $250,000 is trust fund. The other $250,000 is non-trust interest and penalties. Call us at the Tax Resolution Institute and we’ll show you how to get rid of that other $250,000 and hopefully stay in business.
Brian: That number is 818-658-7590 to get in touch with that man, Peter Stephan from the Tax Resolution Institute. Jim Felton, Greenberg & Bass.
Jim: If Peter can’t work his magic, then the other option would be a Chapter 11 bankruptcy for the business, which would give us time to come up with a reorganization plan to pay the debt off over a three or, five year period of time, oftentimes at some discount. Again, it would depend on the business and how the business was operating and it would be in conjunction with a reorganization plan for all of the creditors, not just the tax.
So, plainly it’d be better if Peter could get rid of it, or could do something with it, but if he can’t then a bankruptcy would be another possibility.
Brian: In my personal circumstance, I had years of un-filed returns because I went through stuff and all that. So, you don’t file, and as you said in a previous show – I think it was last weekend – you made the point, Jim, that you don’t file one year and that breaks the seal. Then the next year you can actually not file and actually really sort of be comfortable with not filing because, “Hey, I did it last year and I didn’t get a letter.”
What happened to me was, being a California resident, my letter came from the California Franchise Tax Board, not from the IRS. So it was an issue with Sacramento that brought me to the Tax Resolution Institute.