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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4037
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I owned a retail business. I had a sales tax audit for 04/02

Customer Question

I owned a retail business. I had a sales tax audit for 04/02 to 04/08. The resulting tax liability was $79,000. With penalty and interest I was charged $149,000. Business was going down and I avoided paying with challenges to the audit. I had to close my business the end of 09 without resolving my tax liability. They found me at my home and now say I owe $170,000. I am sick to death!. Is it too late to make an offer in compromise?
What "formula" do I use to come up with an amount I can afford and they will accept?
I am 58, I own a home with my husband that has $200,000 in equity. Will they make me sell my housed or get a home equity loan? My credit is currently bad and I want to avoid that route if possible. Would a $20,000 offer be rejected and scoffed at?
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.

Hello Customer,

 

It is virtually impossible to say what the state might accept from you as far as an offer to settle this sales tax debt for a lesser amount than what is actually due. But if you own a home that has $200,000 equity, then it is not likely they would accept an offer for $20,000, because even if they did not force the sale of that home, they can put a lien on the home so that they could collect their money at the time the home was sold.

 

When you make an offer to try and settle a tax debt for a lesser amount than what you actually owe, they will look at your total current financial picture, including any income you currently have, your future earnings potential and the value of any assets you currently own. Since the equity in your home alone exceeds what you owe, I would say the chances of the state accepting a lower offer would be slim. If they did accept an offer, it would certainly not be for an amount as low as $20,000. At the very least I think you would have to offer them the $79,000 which is the actual tax due without penalties and interest. They may be willing to waive the penalties and interest, but then again there is no guarantee of anything until they review your current financial situation.

 

 

Thank you Customer and best of luck to you in getting this issue resolved

 

 

Customer: replied 4 years ago.

So, are you saying that it is not too late to make and offer in compromise? Would they put a lein on my small IRA of $35,000 and my small bank account? Would a lump sum payment get accepted more likely than a payment over a period of years. What is the maximum # XXXXX years over which I can request to make settlement payments?

 

Expert:  Merlo replied 4 years ago.

Hello again Customer,

 

It is not too late to make an offer in compromise. There is just no guarantee they will accept it.

 

They would not put a lien on your IRA account but can put liens on any bank account in your name, regardless of how small the amount is.

 

A lump sum payment is no more likely to be accepted than a payment plan to pay over a period of years. Again, it all depends on your financial situation and what the state deems you are able to afford. Don't forget that with a payment plan the state continues to accrue interest and penalties on the amount you owe, so they actually stand to collect more from you through a payment plan than they do by accepting a lump sum offer. So they are not likely to even consider that offer if they feel you can make payments to pay off the entire amount.

 

There is no set maximum number of years over which you can request to make payments. The state weighs the circumstances of each case individually and decides what is acceptable in each case. The biggest issue I see with your situation is again the fact that you have $200,000 equity in your home. The state can easily place a lien on that home and be assured of collecting the entire $170,000 debt that you owe. That being the case, they are not likely to accept a long drawn out payment plan or an offer for a very low amount.

 

The one thing that you do have in your favor is that right now every state budget is compromised due to the shape our economy is in. Every state is having to initiate budget cuts because their expenses are higher than their revenue. That being the case, the state may be willing to settle with you for a lower amount just to get the money in the state budget now without having to wait to collect in a future year when your home is sold. But again, I believe the amount of your offer would need to be at least the $79,000 which represents the actual tax amount, and even then there is no guarantee they would accept this offer.

 

I wish I could give you a more definitive answer, but these cases are each weighed on an individual basis, and there is just no way to predict what the state will accept in your case.

 

 

Thank you Customer

 

 

Customer: replied 4 years ago.
If the bank account is a joint account with my husband or even my son would they still put a lein on the account? I am 58 so if I have to give up everything in my house it would be very difficult to ever get that back again because I do not have much longer to work before I can collect Social Security. I would be wiped out and in essence pay a marriage penalty for having a long intact marriage where I never had to divide up the "family fortune". Is there some kind of innocent spouse relief for my husband? How can I present my situation, what buzz words do I use to look as sympathetic as possible regarding the presentation of my offer. I know there are variables, but give me what you think is the maximum amount of time I can request for payback.
Expert:  Merlo replied 4 years ago.

Hello again Customer,

 

I am afraid that I just do not have the answers to all of your questions. I propose to opt out of this question and put it back on the open board to see if any of the other tax experts here in the forum can offer you further advice on how to proceed in your situation.

 

Customer: replied 4 years ago.
Thank you Merlo for your help thus far.
Expert:  Merlo replied 4 years ago.

No problem. If someone else posts a response, you will receive an email notification. In the meantime, do not reply to this message again as it will just put it back in my open que.

 

Thank you for your patience while your question is reviewed by our other experts.

 

 

Expert:  Gerri A Harrison CFP EA replied 4 years ago.

The problem you are going to run into is this is money that you collected as taxes from someone else and chose to use for purposes other than its intended purpose. From what I have seen in dealing with these situations the state is probably going to be looking for at least the tax to be paid. They may be willing to forgo the interest and the penalties, but generally will not forgive the tax.

 

If you file an OIC and it gets accepted, VA is usually going to be looking for the amount to be paid in full in 5 years or less.

 

Because you are considered the trustee of these taxes (ie not money that you owe, you are just the conduit for passing it on after collecting it) VA is likely to pursue your personal accounts and look to place liens on the personal bank accounts and potentially the house.

 

The innocent spouse can apply here. Your husband will need to prove that he did not have knowledge of what you were doing and that he did not benefit from it. Therein, can lie the problem because VA is likely to say he benefited if you pulled money out of the business and deposited it into a joint personal account.

 

As the previous expert said, most states are in trouble right now. Many are willing to work out deals they normally would not be willing to do. I recommend you calculate what you can make for a payment for a 5 year time period. Submit the OIC request that payment amount for 5 years. The worst they can do is come back and so no. More likely they will counteroffer if it is not enough to pay the tax in full.

 

Hope this helps.

Customer: replied 4 years ago.

Gerri,

It sounds like you think I might be able to make an attractive offer for less than the 79,000? I did not put money into our joint personal account from the business, how do I prove that? What is the statute of limitations on collection of this? I was thinking of doing nothing and just starting to pay 500 to 1000 a month back over 6 years (the length of time I did not send in the money) and hope they leave me alone as long as they are collecting $ and by the end of the 6 years perhaps the statute of limitations would run out and they would stop persuing me. Have you ever seen anything like that? Is it a viable strategy? I have never given them mine or my husbands SS#.

Expert:  Stephen G. replied 4 years ago.

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

 

I think you've received all good advice so far. I wouldn't rely on the statute of limitations to bail you out, as I can't think of any that would apply to your circumstances.

 

You're dealing with what is called "trust fund money", in other words (as the previous expert pointed out), it wasn't your money to start with, as you were merely collecting it on behalf of the state, were "safeguarding" it & in theory just passing it on.

 

I don't know what relevance you are attaching to the social security number comments; rest assured they have your social security numbers. There is information sharing with the IRS for one thing, not to mention the 1099 and or W2 reporting. Hopefully, you did file your personal income tax returns.

 

No one can give you any definitive answers as to what the eventual outcome may be of the various approaches that you might take in these circumstances. However, you're dealing in a highly specialized area; most of us have only handled a few of these cases and everyone's circumstances are different, as are the various state's settlement guidelines. There's no substitute for experience in these cases. It isn't the place for the inexperienced or the faint of heart. In my opinion, you should not be trying to handle this yourself. There's just too much at stake here & you're dealing from a position of substantial weakness, given the facts as you have presented them. I won't go into the specifics, but I think you know you're in a bad spot here.

 

Given the circumstances as you relate them, including the amounts involved, here's what I'd do & what I'd recommend that you strongly consider. Contact the Virginia Society of CPAs to obtain a referral to a CPA who specializes in dealing with the state on these matters. I'd try emailing (Arthur Auerbach, CPA, Goodman & Company, McLean, (he's Chairman of the Taxation Committee) @XXX@XXXXXX.XXX arttax@cox.net directly to ask for a referral as I discussed. That way, you can be confident that you'll get someone who knows what the state will & won't do.

 

Remember, this is serious business, has the potential of criminal sanctions, (this is trust fund money that was diverted for your own personal or business purposes). Whomever you engage has to know what the state's current settlement & enforcement posture is; and therefore he'll be able to advise you whether, when or if, you need legal representation.

 

An additional link which will bring you to the VSCPAs website for further information:

 

http://www.vscpa.com/

 

If my response has been helpful, please remember to click on the green "ACCEPT" "ICON" & thanks again for using our service. If you have time, we appreciate feedback, and if you feel it is warranted, bonuses are always greatly appreciated.

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4037
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 6 other Tax Specialists are ready to help you

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