Offer In Compromise – Doubt As to Liability
A married couple came to us owing in excess of $200,000 due to the fact that after winning a sizeable jackpot at a local Las Vegas casino, they found that the IRS had “corrected” their tax return to reflect insufficient federal withholding.
At the time they won the jackpot, the taxpayers had followed all written procedures as required by the operator of the slot machines. They initially received one (1) Form W-2G, representing a small, initial cash payout on the night of their jackpot winnings.
A few days later, they signed the necessary paperwork and requested that a specific amount of federal withholding be deducted from the remaining portion of the jackpot to ensure that they would not owe for the tax year at issue.
After their 2021 tax return was filed, reporting federal withholding in excess of $190,000, the IRS “corrected” the return when the agency determined that insufficient federal withholding had not been reported on Form(s) W-2G. Of note, the taxpayers’ records with the IRS (e.g., Wage and Income Transcripts) reflected only one W-2G was issued on this jackpot; the protocol of this casino was to issue two W-2Gs to report the federal withholding on such sizeable jackpots.
Over the course of several months, the taxpayers requested a copy of the second W-2G representing the amount of federal withholding they had requested to be withheld from the jackpot proceedings. No copy of the Form W-2G was ever provided to them.
The taxpayers contacted Dan Randall and Associates for assistance in resolving this situation.
To ensure no collection action would be taken against our clients, we filed a Doubt as to Liability Offer in Compromise with the IRS Office in Holtsville, NY. This Offer in Compromise provided a detailed explanation of the problems facing our clients.
In the meantime, several requests continued to be made by our office before the company owing the slot machines submitted a Form W-2G to the IRS reflecting the amount of federal withholding that had been withheld and reported to the IRS during the year at issue. This 2nd W-2G was also identified as a “Corrected” W-2G because an earlier submission by the company was incomplete.
Within approximately 90 days, the IRS had confirmed that the withholding had been reported to the IRS, despite the fact the second W-2G had never been received by the IRS and associated with the taxpayers’ account. The taxpayers’ return was adjusted, crediting his account for the full amount of withholding that was withheld from the jackpot.
Our filing of the Doubt as to Liability Offer ensured a second review of the changes that were made to the taxpayers’ 2021 return by the Service due to the errors that occurred with the submission of the second W-2G.
Innocent Spouse Relief
Per the IRS, Innocent spouse relief can relieve you from paying additional taxes if your spouse (or ex-spouse) understated taxes due on your joint tax return and you didn’t know about the errors.
Dan Randall and Associates resolved an innocent spouse case involving a divorced couple in which the then separated (now divorced) wife sought innocent spouse relief from her spouse due to his physically abusive nature fueled by both drugs and alcohol. The wife was gainfully employed throughout the marriage; the spouse had bouts of unemployment, would borrow against his retirement funds to pay bills, and he clearly demonstrated an inability to care for himself and his family.
The couple incurred unpaid federal taxes for several years and despite the wife’s attempts to provide for her family’s financial needs, she was unable to meet all financial obligations. Her spouse continued to lie about his job losses and employment gaps, making it increasingly more difficult for the family to maintain steady income.
After the submission of the required forms seeking innocent spouse relief under Internal Revenue Code Section 6015(f), Equitable Relief, the Service determined that our client was entitled to “partial relief” of the tax liability for four tax years and full relief for one tax year, resulting in a reduction of tax in the amount of $48,885.
It can take several months before an adjustment appears on the account of the spouse who is awarded innocent spouse relief. If the taxpayer disagrees with the preliminary determination on an Innocent Spouse claim, they may petition Tax Court. Also, the IRS will provide the person with whom the claimant filed a joint return an opportunity to appeal the Innocent Spouse determination as well.
Innocent spouse relief is only for taxes due on your spouse’s income from employment or self-employment. You can’t claim relief for taxes due on 1) your own income; 2) household employment taxes; 3) individual shared responsibility payments; 4) business taxes; 5) trust fund recovery penalties for employment taxes.
Audit Reconsideration Issues
We were contacted by a client in 2021 about a potential audit deficiency (IRS CP 2000) for the tax years 2018 and 2019. The notices indicated unreported wages (Forms W-2) and cancellation of debt (Form 1099-C) for both tax periods; the issue was that our client had not worked for the company that issued the Form W-2 nor had they ever had an open/closed bank account with the banking institution that issued the Form 1099-C. Of note, the Forms W-2 that were issued for both years used our client’s SSN, but the name was completely different. The proposed liability for 2018 was $5,653; the proposed liability for 2019 was $9,507.
The client provided only partial copies of the CP 2000 documents; we requested copies from the IRS. Once we had sufficient information to submit to the Internal Revenue Service (IRS) concerning the proposed deficiencies for 2018 and 2019, we submitted a Request for Audit Reconsideration for both tax periods.
In the meantime, our client became concerned that his identity had been compromised; in conjunction with the Request for Audit Reconsideration, we also filed Form 14039, Identity Theft Affidavit with the Service.
In reviewing our client’s filing compliance, we found that his tax return preparer had timely filed his 2020 return. However, this return was never posted to the IRS computer; the electronic submission of this return was rejected twice. The client contacted this preparer to get this corrected.
Meanwhile, our client was notified that his existing installment agreement had been terminated. We renegotiated the terms of his agreement and provided the Collection employee with the status of the Requests for Audit Deficiency and Identify Theft Affidavit.
Several months passed before we received a response from the Service. As a result of the Audit Reconsideration, the only adjustment to the account was the cancellation of debt item resulting in an adjustment to income in the amount of $176.
The Service found that our client was not a victim of identity theft. However, for both 2018 and 2019, the Service issued letters stating that the unreported income for both years was “in error.” The proposed “unreported” wages for both years were not sustained against our client, and the only adjustment to income was $176.
Offer in Compromise
We have had several Offers in Compromise accepted by the IRS during 2023. In one instance, the client came to us in 2021 after she had been making installment payments to the Service for several years. She had at least six (6) unfiled tax returns as well. We started work on her Collection Information Statement (CIS) while her tax return preparer completed all outstanding tax returns.
It took several months before the returns posted to the Service’s computer; meanwhile, the client, who was self-employed, formed a limited liability company (LLC) so that her taxes would be reported and paid on Forms 941, Employer Quarterly Federal Tax Return. We continued to communicate with the Service, meeting specific deadlines to ensure our client was not subject to levy/enforcement action despite the fact the Service was operating under COVID procedures, and it was taking longer than usual to get paper tax returns processed by the Campus locations. One of our client’s tax returns took several months to get processed; this affected the filing of an Offer in Compromise, as ALL returns must be filed before an Offer will be considered by the Service.
Eventually, we were able to submit all required Offer documents, including proof that our client was in filing compliance with her Forms 941/940 and making current Federal Tax Deposits. Her Offer was submitted in November of 2021, and it was subsequently reviewed and considered by a field Offer Specialist in November of 2022.
As of November 2022, property values in Las Vegas had substantially increased. The valuation that we had placed on our client’s home was much less than the local market dictated one (1) year later. When the Offer Specialist checked local market activity in Las Vegas, he initially notified us that our client had considerable equity in her property and that an Offer in Compromise would not be acceptable. When we discussed this matter with our client, we determined that her property needed repair, and that a qualified home inspector should evaluate her property, prepare a report regarding the needed repairs, and determine if the repairs were significant enough to affect the fair market value of the property.
In fact, the report determined that our client’s property was, indeed, under considerable disrepair. The home inspector provided an extremely comprehensive written report, with many pictures with clear explanations of the problems and needed repairs.
The inspection report was forwarded to the Offer Specialist for review, and as a result we were able to negotiate an Offer settlement for our client!
In-Business Installment Agreement
Dan Randall and Associates was retained by an in-business entity in January 2021 that was currently assigned to a field Revenue Officer for collection action. This Revenue Officer had been working the case for approximately 12 months and would periodically request lump sum payments from the client for application to the “trust fund” portion of the outstanding employment taxes owed by the client. At the request of the Revenue Officer, the client had provided a business financial statement approximately six (6) months prior to our involvement in the case.
Our first order of business was to confirm that all payments made by our client were appropriately applied to their account. In addition, it was determined that the Trust Fund Recovery Penalty Assessment had been made against the principals for several of the earliest unpaid quarters. We confirmed that the client was current on its employment tax obligations, and we then prepared a new Form 433-B, Collection Information Statement for Businesses, along with supporting financial information.
During our initial work on this case, the Revenue Officer was interested in securing additional lump sum payments from the client, although no formalized installment agreement had not been secured, as yet. We discouraged our client from making such payments. Instead, we continued to negotiate with the Revenue Officer towards a workable, formalized installment agreement. Our negotiations resulted in a monthly payment agreement the client can financially manage, remain current on all employment tax obligations, and resolve all trust fund and non-trust fund taxes due by the business entity in less than 18 months.
Resolution of Mother’s Taxes
Two sisters contacted our business regarding taxes owed by their mother and now deceased father. The sisters had no information as to the status of the taxes owed by their parents and they were also busy caring for their mother who was disabled and no longer able to care for herself.
Unbeknownst to the sisters, before the father’s sudden death, he had previously negotiated an installment agreement with the Internal Revenue Service (IRS) and monthly payments were being debited from the parents’ joint checking account. The two sisters were unaware of these arrangements with the IRS; they were concerned the IRS would take enforcement action (e.g., issue a bank levy) against their mother’s bank account which contained funds necessary for her medical treatments and living expenses. After we were retained by the sisters, one of the sisters went to court and obtained guardianship of her mother. In turn, we attached the court-ordered guardianship documents to the Form 2848, Power of Attorney, so that we could represent the mother through her court-appointed daughter. Once the IRS recognized our Form 2848, Power of Attorney, we were able to contact the IRS and determine the current status of the mother’s tax situation.
The case was further complicated when a new bank account needed to be secured, and the direct debit installment agreement previously negotiated by the sisters’ father needed to be updated. With the proper Form 2848 authorization for the mother, we were able to revise the installment agreement to the mother’s new bank account thereby ensuring no default of the direct debit installment agreement.
Penalty Abatement
To best serve this client, we first negotiated an installment agreement with the Internal Revenue Service (IRS) so he would not face potential collection action (e.g., levies against his bank account). Once the installment agreement was in place, we submitted a written narrative to the Ogden Campus requesting the abatement of the assessed and accrued penalties for the Failure to Pay, Failure to File and Failure to Make Estimated Tax Penalties for the tax years at issue.
Our client had faced a series of debilitating health issues over the years in which the tax liabilities had accrued. We were able to document his increasing health problems with doctors’ statements, medical records, and medicinal treatments. We supplemented our narrative with applicable court cases supporting the abatement of these penalties under these circumstances.
As these actions were taken during 2020, the IRS was not able to promptly respond to our request for abatement. The pandemic had closed many IRS offices, furloughed employees and/or had employees working at off sight locations. Many campus employees were assigned to work in other functions due to Congressional mandates involving the Economic Impact Payments and Recovery Rebate Credits or they were involved with the challenges or dealing with an influx of unprocessed tax returns and/or correspondence to the IRS from taxpayers and tax practitioners.
After approximately nine (9) months, we contacted the IRS Taxpayer Advocate who resubmitted a copy of our original Penalty Appeal request to an IRS Campus for consideration of the penalty abatement. In less than 30 days later, the request for abatement was approved, abating nearly $20,000 in assessed and accrued penalties on this client’s account.
Installment Agreement
This case initially involved the taxpayers’ failure to file several years of Forms 1040 as well as the Franchise Tax Board. Once the returns were prepared and filed, the IRS rejected one of the returns due to an illegible signature. The taxpayers re-signed this tax return, and it was resubmitted for processing. The actual posting of this return by the Service on the taxpayers’ account took several additional months due to the pandemic.
Also, during this time, the Franchise Tax Board (FTB) had levied one of the taxpayer’s wages; therefore, we were able to negotiate a payroll reduction levy for the client. We were also able to negotiate an installment agreement for the taxpayers with the Internal Revenue Service which included a lump sum payment that precluded the need for the Service to file a Notice of Federal Tax Lien (e.g., the remaining balance of tax owed to the IRS was < $50,000). So long as the clients remain current with the payment agreement, and do not incur additional tax liabilities, a Notice of Federal Tax Lien will not be filed against them.
Offer in Compromise with Special Circumstances
This client came to us with several years of unfiled tax returns. We referred him to a local tax return preparer; once the returns were completed, we found that he owed approximately $180,000 in tax, penalties, and interest. Our client had been an extremely productive citizen who had retired several years before. Most recently, he found himself dealing with several health issues. He had also depleted his retirement savings while trying to deal with his health issues. We filed an Offer in Compromise based upon Doubt as to Collectability with Special Circumstances (DATCSC) due to his current physical condition and limited financial reserves. Documentation concerning both of our client’s current issues was included in the Offer package.
Initially, the Memphis Campus responded back with an Offer calculation that our client could fully pay. In response, we summarized the legal basis for a DATCSC Offer and reiterated the specific health and financial reasons which qualified our client for such consideration. Our client’s Offer was approved approximately two (2) months later.
Proposed Changes to CP 2000 (Audit Deficiency)
The client came to us in January 2020 with a CP 2000 notice from the Ogden Campus concerning several proposed changes to a joint tax return for 2017. The primary issues involved the proposed assertion of a penalty for the substantial understatement of income tax [Internal Revenue Code 6662(d)], as well as clarification concerning distributions from the clients’ Health Savings Account. The clients provided documentation concerning both issues and a letter of explanation was prepared and forwarded to the Ogden Campus prior to the required due date on the CP 2000. Due to the Pandemic, no response was received for several months. However, a in late September 2020, the Campus determined that the information provided resolved all issues and the proposed assessments resolved in a “no change” for the clients.
Offer in Compromise
The client came to us owing close to $1.3 million on tax years dating back to the early 2000s. Several of the outstanding tax periods were IRS-prepared returns because the client had not filed returns for these tax periods. An Offer in Compromise, doubt as to collectability, was submitted by our office on behalf of this client. During the Service’s investigation of our client’s Offer, the investigating Offer Specialist identified potential real property ownership by our client (who had worked 20+ years ago as a real estate agent). We were able to successfully prove our client no longer owned ANY of the suspect properties for 15-20 years and negotiate an Offer in the amount of $55,197.
Offer in Compromise
Our client was a self-employed businessman who owed outstanding tax liabilities for Forms 1040 for eight (8) years. We worked to bring him into “compliance” by ensuring that he was making proper estimated tax payments for the current tax year. An Offer in Compromise was filed on our client’s behalf; once his case was under consideration by the Service, we assisted in submitting the required substantiation to the Service regarding his business expenses and negotiated acceptable Offer terms. Our client’s tax debt of $50,000+ was settled for $4,446.00.
Offer in Compromise
We previously negotiated an acceptable Offer in Compromise for our client in 2015. Due to business reversals, she was unable to maintain five (5) years of subsequent compliance, and her Offer was defaulted in 2017. Our office filed a second Offer in Compromise on her behalf in November 2017. The Offer was initially considered by the Collection function but as an acceptable agreement could not be reached, the case was appealed to the Office of Appeals. Acceptable Offer in Compromise terms were reached in December 2019.
Abatement of Accuracy-Related Penalty
The client received a proposed audit deficiency that included an accuracy-related penalty in the amount of $4,327. We were successful in getting the accuracy-related penalty abated, and the client full paid the remaining balance on the account.
Offer in Compromise
A small business owner came to us after an audit by the IRS; he was unable to full pay the outstanding liabilities due. We negotiated an Offer in compromise to settle all outstanding liabilities.
Discharge of the Notice of Federal Tax Lien
In a case worked earlier this past year, we handled an issue involving the sale of real property encumbered by a notice of federal tax lien. By submitting an Application for Certificate of Discharge of Federal Tax Lien, with supporting documentation, we were able to facilitate the sale of the property to the new buyers and ensure that any realizable funds were remitted to the Service for payment of our client’s outstanding tax liabilities.
Offer in Compromise
A client in the entertainment field owed more than $750,000. This case was eventually resolved in the Office of Appeals with an Offer in Compromise in the amount of $195,000 along with a Future Income Collateral Agreement.
Installment Agreement
This client came to us after she initially attempted to negotiate an installment agreement with the IRS herself. The IRS proposed a monthly payment of $1,400. We reviewed her financial situation and renegotiated the terms of her installment agreement down to $686 per month.
Offer in Compromise
Initially, our client owed more $1.7 million along with her then husband. Prior to our involvement in the case, the IRS seized both cash and assets, and continued to investigate our client’s pre-petition (bankruptcy) assets once she received a discharge from the bankruptcy court. Once the client retained us, we conducted a comprehensive review of her financial situation and submitted an Offer in Compromise commensurate with her current income and expenses (e.g., < $20,000). The Offer was accepted by the IRS.
Unfiled Returns/Installment Agreements on Balances Due
We have handled several clients in the Las Vegas area with unfiled returns. We refer these clients to a qualified local tax return preparer after we have assisted the client in securing ALL their wage and tax statements from the IRS. If the client(s) have outstanding tax liabilities on the recently filed returns, we will negotiate a collection alternative (e.g., installment agreement, Offer in Compromise, or a temporary uncollectible determination) on their behalf.
Substitute for Return (SFR) Assessments by the IRS
The IRS has the authority to file a tax return when a taxpayer has not taken the appropriate action to file and report his income in a timely manner. In such situations, we have assisted clients with such assessments (commonly known as “substitute for return” or “SFR” assessments) with obtaining any available information used by the IRS to make such assessments and/or taking the action to see that an actual return is filed to replace the SFR assessment. In a recent case, the information used by the IRS to make the SFR assessment was not available/provided by the IRS, so an Offer in Compromise, Doubt as to Liability, was filed, in order to address the outstanding liabilities.