Our client came to us with an unpaid trust fund balance totaling over $100,000 before we filed his offer in compromise. The debt stemmed from a business he ran that accrued over $300,000 in payroll tax debt. We assisted him with the closure of the business, thus leading us to the determination we would file an offer in compromise for him. When he came to us he was over the age of 80 years old. Between him and his wife, they had plenty of money in both the equity in his home as well as her retirement account to fund full payment of the liability. This case was going to be a tricky one in order for us to get an offer in compromise filed and accepted. Usually when you show the IRS via offer in compromise you can pay the IRS in full, they expect payment in full.
We decided to file a effective tax administration offer in compromise. An effective tax administration (ETA) offer in compromise is filed under the premise that even though the taxpayer has the ability to fully pay the tax debt in full, doing so would create a hardship. An ETA offer in compromise requires financial data as well as factual data based on the facts as to why the taxpayer cannot fully fund the tax liability. Therefore, we put together the offer in compromise with all financial data as well as reasoning showing the taxpayer was 82 years of age, needed all of his retirement rightfully so, and even though his wife could fully fund the liability with the equity in the home, she was not responsible for the tax liability.
The IRS initially rejected the offer in compromise indicating the taxpayer could refinance, or obtain a reverse mortgage in order to fully pay the liability. However, after much research, we concluded if the taxpayer decided to refinance or obtain a reverse mortgage there were not only too many risks involved but the costs associated with obtaining the $100,000 to fully fund the tax liability would encroach on the wife’s portion of the equity. We also argued reverse mortgages are not the best for a taxpayer given the risks associated with a reverse mortgage. Certain risks such as high interest rates, higher closings costs, as well as potential foreclosure if one spouse dies and the other continues living in the home are just some of the risks associated with the process.
After our arguments and showing the IRS our offer in compromise should be accepted, the IRS finally agreed to an offer amount of $35,000. The taxpayer has already paid $7,000 and therefore has $28,000 remaining to be paid within the next 5 months. Once the taxpayer has paid the $28,000 he must remain current and compliant for a period of 5 years, the IRS will snag any refunds due on the 2013 and 2014 tax returns, and he must not accrue any additional debt through another business entity.
At Highland Tax Group, Inc. we are proud to say the ETA offer in compromise was accepted. Check us out at www.highlandtaxresolution.com or call me at 720-398-6088 to see if you qualify for something similar!