Until recently, the Internal Revenue Service was reluctant to accept offers in compromise from businesses. This reluctance stems from the fact that a business seeking such a compromise is generally financially unhealthy; such an offer will generally only be accepted if the IRS deems it is its own best interests. The requirements for in-business offers in compromise have been relaxed somewhat in light of the Great Recession, but a business considering an offer needs to work with an experienced Boston tax lawyer.
When an Offer in Compromise Becomes Necessary
Both individuals and businesses may, in difficult times, find themselves unable to meet their tax obligations. This often occurs in a business when money is not set aside for payment because profits are low. Business managers deem meeting ongoing operational costs the more immediate necessity, hoping against hope that the money to pay taxes will materialize as sales increase. This is particularly unfortunate both because a business in such a situation faces insolvency when tax penalties are applied, and because such a situation may have been avoided in the first place with careful planning and consultation with a Boston tax lawyer.
The business then finds itself unable to pay its taxes, and, as mentioned, penalties mount as the taxes remain past due. Often, the only way to stay in business is to make an offer to pay a portion of the tax indebtedness.
What an Offer in Compromise Can Do
An offer in compromise, then, is made to the IRS when a business’ tax indebtedness becomes so great and/or its financial health so poor that there is no hope in paying the tax in full. A Boston tax lawyer may then be brought in to help develop an offer in compromise that is presented to the IRS as an alternative to full repayment. Until recently, a business in financial straits would be unable to meet the many requirements in place; however, these requirements have now been relaxed somewhat.
The IRS requires a business to remain in continuous compliance with current tax deposits for six months before an offer in compromise will be considered. This requirement has not been modified to the quarter in which the offer is made. Internal Revenue Manual § 126.96.36.199 explains the provisions of offers in compromise from businesses, but before such an offer will be considered, the portion of taxes covering employee with holdings must be paid in full. Please note that there is no guarantee that the IRS will accept an offer in compromise. Generally, you must show that the business is unlikely to fall into such a situation in the future, and that recovery from insolvency is likely.
If you would like further information about in-business offers in compromise, or have another concern about business taxes, speak with a Boston tax lawyer at Ionson Law. The number is (781) 674-2562.