Many state taxing authorities offer taxpayers a resolution program allowing businesses and individuals to settle their tax liabilities for less than the amount owed. Most states refer to this as a Settlement or Offer in Compromise (OIC). Payment terms, conditions, and compliance requirements differ by state. Typically, the taxpayer’s financial condition determines the amount of the settlement.
Background
A state taxing authority was trying to issue a personal liability assessment to a husband and wife from two closed businesses they had previously owned. The tax liabilities were from 2012 through 2016, with an amount due of $119,636.97.
Challenge
Our clients were unable to fully pay the liability. The tax debt in question was from prior years, and the clients did not have any records to verify the accuracy of the debt.
Solution
The first thing we did was verify that the tax liability was accurate. Because we could not verify the accuracy of the tax amount due to lost records, we looked into the statute of limitations because the tax debt was from 2012. Upon research, we discovered that most of the tax debt owed was no longer personally assessable because the assessment statute had expired for the balances owed between 2012 through 2014. We filed an appeal to contest the 2012 through 2014 balances.
We then worked to complete a financial statement to show our clients’ ability to pay and contacted the state to discuss a settlement option. At the start of the negotiation, we requested that the State remove all penalties and interest associated with the final amount due. The State compromised and asked for a minimum of $18,231.51 as the settlement amount. We continued to negotiate with the State to lower the settlement amount and requested for $5,000 settlement.
Result
After months of successful negotiation, our clients’ were not personally assessed taxes due from 2012 through 2014 reducing the tax balance from $119,636.97 to $32,259.90.
Finally, after establishing that our clients did not have the ability to full pay in a reasonable time frame, we obtained a settlement of $5,000 to resolve the total liability.
The results achieved are specific to this taxpayer and cannot be guaranteed for every situation.
