Your IRS Questions Answered Here…

Question: I owe a several years of back taxes, about $43,000, but do not have the money to pay the IRS.  I want to get them off my back and heard of something called an Offer in Compromise.  What is it and how do I get one?

 

Answer:  An Offer in Compromise (“OIC”) is the IRS’ tax resolution debt settlement program.  It’s a program for taxpayers who owe the IRS more money than they can afford to pay back, even over time. It’s the IRS’s version of a “fresh start” when it comes to tax debt.  If approved, the IRS accepts a lesser amount (sometimes a fraction of what’s owed) to settle your debt.  However, it isn’t always easy to gain approval due to its strict criteria. Most taxpayer’s fail when they attempt to go up against the IRS and try to do this themselves.

 

The IRS considers your income, assets, expenses, liabilities, ability to pay, and whether paying the full amount would cause financial hardship. It’s important to remember that the IRS wants its money and will only accept an Offer in Compromise if it thinks it couldn’t collect from you otherwise.

 

Your odds for approval increase significantly when you have an experienced tax resolution specialist in your corner when it comes to negotiating with the IRS.

Tobacco Farmer’s False Federally Insurance Claims Go Up in Smoke

Christopher Hickerson, a tobacco farmer in Kentucky, was found guilty of crop insurance fraud and tax fraud.

From 2009 to 2016 Hickerson filed false claims of loss on his Multi-Peril Crop Insurance policies. These policies are federally sponsored and funded with taxpayer money.

Hickerson got the owner of a tobacco warehouse to give him fake sales receipts and grading reports that made it appear as if he was producing and selling poor quality tobacco. He then submitted these on his loss claims. As a result, he caused the insurance program a loss of almost one million dollars.

Hickerson also admitted that he underreported his income in 2012, 2013 and 2015, causing the IRS a loss of more than $150,000.

He was sentenced to 66 months in prison and under federal law must serve 85% of his sentence.

Bookkeeper’s Numbers Don’t Add Up She Faces Jail Time and a $750K Fine

Melodie Ann Eckland pleaded guilty to defrauding her extended family and her employer, a non-profit adoption and surrogacy agency.  From 2011 to 2018 Eckland, a bookkeeper, stole funds from her employer by making unauthorized wire transfers, wiring checks to herself and paying herself unauthorized bonuses.

Eckland maintained two sets of agency books, one for the board of directors and one that showed the payments made to herself.  To cover the stolen money she applied for loans and altered financial records to make it appear that she owned the agency.  Beginning in 2016 she stopped paying the agency’s  quarterly employment tax payments to the IRS, and stopped filing employment tax returns.  As a result the agency owed more than $94,000 in past due employment taxes.

Eckland also stole more than $123,000 from the estate of her deceased brother-in law.  Her husband was the executor of the estate and Eckland forged his signature on stolen checks.  She used some of this money to replace a portion of the stolen funds from her employer.

She did not report the embezzled funds on her tax returns in 2013, 2014 and 2017. In 2015 and 2016 she reported more than $550,000 as “other income” but did not pay the taxes due.  Between 2013 and 2017 she failed to report more than $675,000 in income, resulting in a tax loss to the IRS of more than $345,000.

Eckland faces up to 30 years in prison, a $750,000 fine and restitution.

Businessman Gambles with the IRS and Loses

A Florida businessman, Alejandro Gomez, pleaded guilty to tax evasion after causing the IRS a tax loss of over $545,000.

Gomez ran Fleischmann’s Produce, a company that imported fresh herbs for wholesale distribution, and got in the habit of writing off gambling losses as company expenses.

In 2014 Gomez lost $896,951 gambling, and in 2015 his gambling debt totaled $1,051,213. When he filed his taxes for those years he declared the gambling losses as cost of goods sold.  This in turn reduced the income that Gomez received from the business, which he also underreported.

In addition to restitution, Gomez faces up to five years in prison.

You Steal, Cheat and Commit Tax Evasion? BINGO! Your Number’s Up

Linda Pylant, the office administrator for a trade organization in Maryland, has been indicted on charges of tax evasion, wire fraud, identity theft and social security fraud.

From 2012 to 2020 Pylant was responsible for the organization’s bookkeeping, and in 2017 opened a bank account in her employer’s name that only she had access to.  Over a period of three years she deposited checks worth more than $700,000 into this account.  She spent more than $75,000 at a bingo hall, more than $100,000 in retail stores and restaurants and withdrew over $200,000 in cash.

In 2015 she applied for social security disability insurance and falsely stated that she was disabled.  She was approved and collected more than $125,000 in benefits while she continued to work for her employer.

If convicted, in addition to restitution, she faces a maximum of 20 years in prison for wire fraud, two years for identity theft, five years for social security fraud and five years for tax evasion

Bogus Tax Deduction Gets Dentist Extracted from Society and Sent to Prison

Homayoun Zadeh, an associate professor of dentistry at USC, pleaded guilty to filing a false tax return in connection with the college admissions scandal.  Zadeh paid $100,000 to a bogus charitable organization run by Rick Singer, the mastermind behind the admissions scandal, in order to secure his daughter’s acceptance to USC.  He then deducted the payment from his taxes as a charitable donation, despite knowing it was not a legitimate donation.

In a plea agreement, the parties have agreed to a prison sentence of six weeks, a $20,000 fine and 250 hours of community service.

Pop-Up Church Didn’t Have a Prayer

Trenton Switzer, the owner of a successful sales training business in Colorado, was found guilty of submitting a false tax return.

In 2015 Switzer attempted to avoid paying taxes by claiming that he had made a $250,000 charitable donation to a church he created for the purpose of evading taxes. As part of his scheme, Switzer incorporated the “Church of Divine Sovereignty” and opened a bank account in its name. Within 24 hours of incorporating the church he filed documents to dissolve it. But he did not close the church bank account and deposited $250,000 in the account, which he later used to buy Bitcoin.

When it came time to prepare his 2015 tax return, Switzer provided his tax preparer with a letter signed by himself, as the pastor of the church, documenting the $250,000 donation. Switzer’s tax preparer warned him that the fake church did not qualify as a charitable organization, and therefore the $250,000 could not be deducted, but Switzer still signed and personally filed his tax return.

Switzer was sentenced to 12 months and one day in prison and to pay restitution of $241,964.71.

Your IRS Questions Answered Here… Innocent Spouse?

Question: I’m currently separated from my spouse, who owns his own business, and we are in the process of getting a divorce.  I have always filed jointly with my husband and now the IRS is sending me notices stating I owe $65,000.  I have no idea how they are coming up with this amount as my spouse said he was always taking care of this and paying the IRS what was owed.

Answer:  You may be able to avoid this liability entirely under the IRS’s Innocent Spouse Relief rules.  Under federal law if an income tax return is signed by both husband and wife, both spouses are 100% responsible for the taxes owed.  However, the law permits special consideration where a spouse cannot be held responsible for the underreporting of income or the understatement of tax that are attributable to the other spouse.

If you meet the following criteria you may be able to apply for innocent spouse relief:  Your spouse didn’t report all their income; and you were not aware of it and no reason to know about it when you signed the tax return; and it would be unfair to hold you liable for the taxes owed due to your spouse’s error. If you feel you were deceived by your spouse or tricked into signing a return you thought was correct this will help your case too.  There are many other ways you may be eligible for relief under the IRS’s innocent spouse rules and we can help sort this out and determine the proper path for resolution.

Innocent Spouse
You may send a request (Form 8857) to the IRS to have the debts of your spouse (or former spouse) relieved if your spouse improperly reported items or omitted items on your tax return.  If approved, the IRS will “split the transcript” and you will no longer be responsible for paying tax, interest, and penalties.  In some instances, the IRS can issue partial relief and reduce your portion of the liability.

In most cases, innocent spouse relief is limited to those who are no longer married.


At McCauley Law Offices, P.C., our lawyers will find a solution to your tax problems, no matter how complex your IRS issue is. View our services and contact us (or call 610-388-4474) to schedule a free consultation with one of our tax attorneys. View and purchase Gregory McCauley’s published work “TAXJAMS: Simple Solutions” on Amazon. From our office in Chester County, Pennsylvania, we find tax solutions for clients throughout the country.

A Guide to State Level Offers in Compromise

An Offer in Compromise (OIC) is an agreement between the taxpayer and the government to settle a tax debt for less than what is owed. They afford the taxpayer an opportunity to clear the balance at a discount while the tax collector is ensured as to the collectability of at least a portion of a debt that realistically will never be paid in full. The federal government and most state governments provide Offers in Compromise as an option for taxpayers who qualify.

A thorough understanding of the options available for Offers in Compromise at the state level is valuable because it is not uncommon for a taxpayer with a federal tax liability to be similarly situated as to their state tax obligations.

There are twelve states that do not have Offer in Compromise as an option to resolve tax debt:

  • Alabama
  • Alaska
  • Florida
  • Idaho
  • Montana
  • New Mexico
  • North Dakota
  • South Carolina
  • South Dakota
  • Texas
  • Vermont
  • Wyoming

All other states do have a procedure for a taxpayer to request an OIC or an equivalent to settle a tax liability for less than what they owe. The following list provides some general information as to each program, as well as links to state websites and relevant forms. This should serve as a useful starting point for any taxpayer considering an OIC as a potential option to resolve a state tax debt.

Arizona

Arizona statute § 42-1004(B)(1)(a) authorizes the government to “Abate any balance owed by taxpayer if the balance is uncollectible.” For information on how to determine eligibility check out the Arizona Department of Revenue’s Website, and for requirements and instructions for submitting an offer consult form 11005.

Arkansas

In Arkansas, Offers in Compromise fall under § 26-18-705 which states that the tax-collecting authorities “may enter into an agreement to compound, settle, or compromise any controversy relating to state tax.” A useful description of the program can be found here, and for an outline of relevant procedures look to form 2000-4.

California

Offers in Compromise in California are governed by revenue and taxation code § 43522.5. The statute provides that the Department of Tax and Fee Administration may compromise any final tax liability. The requirements are different for liabilities that fall above or below $7,500. The relevant application forms are available by request and there are separate forms for individuals and for business entities.

Colorado

Colorado allows for compromise of tax liabilities under § 39-21-106 of the tax code. Tax officials “may compromise any civil or criminal case arising under any tax.” Qualifications, required documents, and general information can be found here.

Connecticut

In Connecticut “An offer of compromise may be made or entertained if it is based upon doubt as to the taxpayer’s liability for the amount in controversy, or doubt as to the collectability of such amount” § 12-2d. The procedures and forms necessary to make an offer can be found on Connecticut’s Official State Website.

Delaware

The Delaware Division of Revenue is willing to resolve the tax debt of a citizen facing bankruptcy. A taxpayer facing hardship and considering bankruptcy petition may be able to have a portion of their tax liability discharged in a way that resembles an Offer in Compromise. Visit the Division of Revenue website for more information.

Georgia

Where there is doubt as to liability of collectability, the Georgia revenue commissioner can “settle and compromise any proposed tax assessment” § 48-2-18.1. General information can be found in this useful Offer in Compromise Booklet, and the form to apply is CD-14C.

Hawaii

HI ST § 231-3 (10) specifically authorizes compromises for any tax liability that exceeds $50,000. The procedure for how to submit a request for compromise is outlined in § 231-9.2, and form CM-1 can be used to apply.

Illinois

Illinois Department of Revenue Regulations § 210.115 allows a taxpayer to file a petition for an Offer in Compromise on the grounds of uncertainty as to collectability. Form BOA-1 is the relevant document for both OIC’s and penalty abatement requests.

Indiana

An Indiana taxpayer who may not be able to pay his or her tax liability can file form FS-OIC. General information on eligibility and procedure can be found here.

Iowa

In Iowa, a taxpayer seeking to take advantage of the OIC program must attain an Offer in Compromise packet. Packets are available only via the Iowa Department of Revenue and can be requested from an assigned agent or collector. General information can be found on Iowa’s state website.

Kansas

Kansas allows for settlement of tax debt in the form of an abatement: “Any taxpayer … may petition the secretary to abate all or part of any final income tax liability to the taxpayer” KS ST 79-3223a. The statute also lists the information that should be provided in the petition. Additional information and step-by-step instruction can be found on the Kansas Department of Revenue website.

Kentucky

The Kentucky Department of Revenue allows taxpayers to apply for an offer in settlement, which functions as an OIC. The prerequisites and required documentation can be found on the application form.

Louisiana

For taxpayers with five-hundred-thousand dollars or less in tax debt, Louisiana tax code § 1578 (4) authorizes the submission of an OIC where there is significant doubt as to collectability. Note that the offer must be accompanied by a non-refundable down payment of twenty percent of the offer’s value. The form to file is R-20212.

Maine

Maine’s State Tax Assessor “may compromise a tax liability … upon the grounds of doubt as to liability or doubt as to collectability, or both” ME ST T. 36 § 143. General information and detailed instructions are provided at maine.gov.

Maryland

Maryland’s OIC program becomes available when the taxpayer cannot pay in full two years after the tax liability accrues. Additional eligibility requirements and instructions can be found here.

Massachusetts

Settlement of a tax liabilities in Massachusetts occurs under M.G.L.A. 62C § 37A. The statute provides the conditions necessary to qualify. More information and filing requirements are available at mass.gov, as well as a series of helpful examples.

Michigan

One unique aspect of Michigan’s OIC program is that a federal compromise can serve as a basis to attain a state compromise. Under the Revenue Act MCL 205.23a (1)(c), the state Treasurer “may compromise the outstanding balance of the liability for each year by applying the same percentage as the federal liability compromised to the total liability.” The statute can be read in full here, and more information is located at michigan.gov.

Minnesota

In Minnesota Offers in Compromise are authorized pursuant to Minnesota Statutes § 8.30, which grants the attorney general the power to settle tax liabilities. Information on how to request a compromise can be found here, however the link to the compromise application is not functioning properly. Contact the Minnesota Department of Revenue to obtain one.

Mississippi

Mississippi House Bill No. 1095 instructs The Commissioner of Revenue to “develop procedures for the receipt and consideration of offers in compromise and settle doubtful claims”. The procedures are different for individuals and business entities.

Missouri

Missouri citizens who cannot afford to pay their tax liability can submit an offer using form MO-656. General information as to eligibility and more detailed instructions can be found on the Missouri Department of Revenue website.

Nebraska

Nebraska REG-36-017 gives the revenue department the option to settle a delinquent tax account by means of an Offer in Compromise. The taxpayer must not be disputing the tax and cannot be currently in a bankruptcy proceeding. There is no relevant form because the process must be initiated by the state. More information can be found here.

Nevada

The Nevada Tax Commission may compromise with a taxpayer to clear a tax debt. The Nevada Department of Taxation website provides the relevant authority and clearly outlines the three situations where a liability can be settled for less than what is owed. The form to file an offer can be found here.

New Hampshire

An Offer in Compromise in New Hampshire is called a Settlement Agreement Offer. Taxpayers can apply using form CD-410. Unfortunately, the state website provides little information as to eligibility and the criteria for acceptance. The Department of Revenue Administration has discretion to accept or reject an offer.

New Jersey

New Jersey taxpayers have the option to request a Closing Agreement, which operates in the same way as an Offer in Compromise. New Jersey law provides only general guidance as to eligibility and grants broad discretion to the New Jersey Division of Taxation to accept or reject any offer. The relevant statutory authority and procedures for filing are all found on form 906.

New York

Under N.Y. Tax Law § 171, New York State may consider an Offer in Compromise for individuals and businesses that are insolvent as well as for individuals who are not insolvent but would face undue economic hardship if required to pay their tax liability in full. Tax.ny.gov defines “economic hardship” and has useful information on how to apply. New York allows taxpayers to apply for an OIC either online, or by mail using form DTF-4.1.

North Carolina

NC Gen. Stat. § 105-237.1 authorizes the Secretary of Revenue to accept full settlement of a liability for a lesser amount than is due. The NC Department of Revenue provides procedural details in an OIC Instruction Booklet and even has a useful checklist of documents that the taxpayer may need to file. General information and additional forms can be found on ncdor.gov.

Ohio

The Attorney General of Ohio may compromise tax liabilities under Ohio Revised Code sections 131.02 and 5703.06. Offers in Compromise are considered for taxpayers claiming economic hardship, doubt as to the liability, or innocent spouse. Details concerning eligibility and instructions on how to begin on the Ohio Attorney General’s website. There are separate forms for each of the three possible claims which can be found at that same address.

Oklahoma

Pursuant to Okla. Stat. tit. 68 § 219, “The Oklahoma Tax Commission is authorized to … settle or compromise any controversy relating to taxes.” Details about eligibility can be found here. Oklahoma taxpayers who wish to apply will need Packet S, which contains instructions and the appropriate forms.

Oregon

The best place to start for information on Oregon’s Offer in Compromise program is the Department of Revenue’s Settlement Offer Application. The packet includes general information, frequently asked questions, and instructions. Note that filing of an application requires a non-refundable payment in the amount of five percent of the settlement offer.

Pennsylvania

Pennsylvania taxpayers can include a request for an Offer in Compromise when they appeal a tax assessment. This must be done by filing a petition with the Board of Appeals. General information about the appeals process can be found on revenue.pa.gov. The form to request a compromise is  DBA-10.

Rhode Island

Under RIGL 44-1-10, The Tax Administrator of Rhode Island can compromise tax liabilities if they are determined to be uncollectible, illegal, or excessive in whole or in part. General information can be found here. Taxpayers will need to file form RI 656 accompanied by form RI 433 to apply.

Tennessee

General information and instructions regarding Tennessee’s Offer in Compromise program can be found on the application itself. Additional details and the relevant statutory authority can be found on the Tennessee Department of Revenue website.

Utah

Utah taxpayers can submit an Offer in Compromise when there is doubt as to their tax liability or if the liability cannot be realistically collected. Instructions about who qualifies and how to file can be found on form TC-410.

Virginia

Virginia will consider Offers in Compromise for waiver of penalties greater than $2,000, as well as for doubtful liability or doubtful collectability. The necessary form varies with what is being claimed and whether the taxpayer seeking the OIC is an individual or a business. Links to the forms can be found on tax.virginia.gov.

Washington

An Offer in Compromise in Washington State is known as a rule 100 settlement. The criteria for who qualifies for a settlement can be found here. Note that inability to pay on its own is not a valid reason to receive a settlement. Detailed information can be found in the actual statute: WAC 458-20-100. To apply use form 50 0006.

West Virginia

Under W. Va. Code § 11-10-5q(c), the West Virginia State Tax Commissioner may compromise a tax liability. Taxpayers can apply using form CD-3, which includes the considerations for acceptance as well as additional instructions.

Wisconsin

The Wisconsin Department of Revenue will consider an Offer in Compromise for a taxpayer who cannot  realistically pay their debt. A useful page of frequently asked questions about the program can be found on the Department’s website. The page includes information about who may qualify and how to apply. There are separate application forms for individuals and businesses.

 

A 5 Million Dollar Judgment for Tax Evasion Did Not Keep this Man From Trying Again

Michael Goldner already had a five million dollar restitution judgment against him for a tax evasion and wire fraud conviction when he concocted a scheme to avoid paying taxes on additional income.

 

From 2013 to 2017, Goldner accrued a tax liability of $1,858,740. In order to avoid paying these taxes he had his employer make payments to Goldner’s wife for personal expenses, including the mortgage of the house where his family lived, rent for an apartment where he lived, service for his pool, dance classes for his daughter and a vacation for his family.

 

The employer even made payments on Goldner’s tax evasion judgment.

 

Goldner did not declare any of these payments as income on his 2016 and 2017 tax returns.

 

If convicted he faces a maximum sentence of five years in prison and $250,000 in restitution.


At McCauley Law Offices, P.C., our lawyers will find a solution to your tax problems, no matter how complex your IRS issue is. View our services and contact us (or call 610-388-4474) to schedule a free consultation with one of our tax attorneys. View and purchase Gregory McCauley’s published work “TAXJAMS: Simple Solutions” on Amazon. From our office in Chester County, Pennsylvania, we find tax solutions for clients throughout the country.