The IRS is not usually on anyone’s Christmas list. In my business income taxes, I frequently see businesses not be able to fully pay their payroll taxes. This normally stems from poor cash flow and easy access to this capital (Their employees withholding). The idea is always to borrow and pay back but the later many times does not occur. Additionally the shareholder or responsible party can be assessed these taxes personally making for a large IRS issue which can burden someone for a lifetime. Sometimes the solution is an offer in compromise or paying less than full value to the IRS. They will only agree to this if they feel there are no better options to get paid and the persons income and expenses, age, health etc. are taken into account in this process. Many times the amount needed to settle the debt may be borrowed from a family member or derived in some other manner as it may exceed their available cash reserves. The calculations are extensive and complicated. There are mounds of paperwork needed and a tax attorney is usually needed to prepare submit, and negotiate this offer. IRS is under no obligation to accept and many times does reject these causing multiple submissions which can be expensive with no guarantees.
Our client behind this story was in the process of submitting his offer which actually sits with the IRS as I write. It has been with the IRS agent for several months waiting for its turn. This client owned shares of stock in a company that was acquired and the shareholders received a large payoff from this transaction this month. He had held this stock for several years receiving modest dividends. In fact I believe the company gave our client the shares for the years of service working along side them. This money from the sale and the original money set aside to fund the original offer will be enough to pay off the IRS freeing the taxpayer from years of scrutiny and fear. While he makes a good living he has no savings or home as we cannot have these things and owe Uncle Sam. While an offer in compromise can be effective there are drawbacks too. You are on 7 year probation where if you owe any taxes during this period they can put the compromised tax back on your account. This topic has dominated the clients life for the past seven years and what a fitting time to celebrate freedom from IRS during Christmas.
Am not sure exactly how he got in this situation as it was before my tenure but I have seen the story played out many times with different characters. This is the first time I have witnessed a full payoff. The amount exceeds half a million dollars so one can imagine the interest and penalties that continue to accrue on that large of a sum. We are now talking about brighter subjects like setting up a 401k and having him purchase a home. I do know insufficient accounting and bad advice are normally present when these situations occur. Many times skilled people rely on others to handle things while they slay the dragons before them on a daily basis. Not an excuse by any means but the reality we all need a team to run an organization and cannot handle all duties ourselves. The costs of these decisions have been immense but sometimes these are our best lessons the ones that hurt the most. This has been one of my highlights this Christmas season. I can see and feel the hope with the client being able to do the things many others do to plan and save for their future. He does have a late start and is behind from traditional financial planning models but looks forward to the challenge, a free man at last!
Let us educate you on ways to plan out your business tax / payroll tax strategies that would help eliminate long term financial problematic issues that may occur in the future. Visit us at www.gyldecauwer.com or Call us at: 909/948-9990.