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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10495
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a small sole proprietor business in California. I had

Customer Question

I have a small sole proprietor business in California. I had a partner who stole and embezzled funds and caused me to file a Chapter 13 bankruptcy. The business has gone down hill and I am having great difficulty in making the monthly BK payments. My only creditor is the franchise tax board. Additionally, I am 68 years old and have health issues. My non exempt assets are my inventory of vehicles, which all need repairs to be sold and my tools and equipment . In the current economic climate, if a trustee decided to liquidate, they may get a total of maybe $20,000. My only other income is the monthly Social Security. My questions are:
1.How likely is it that the trustee would take these assets?
2.How likely is it that if I close the business, the BOE might accept and offer in compromise at 50% of the total owed? Total owed is about $70K.
Optional Information:
State/Country relating to question: California
Submitted: 6 months ago.
Category: Tax
Expert:  Lane replied 6 months ago.

Hi Tom,

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You are asking questions whose answers must be very subjective.

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It would be very reasonable to make an offer at this time, if the offer consists essentially of the assets you mention.

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The Offer In Comprocess is actually quite mathematical ... arriving at a number called RCP (Reasonable Collection Potential).

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What must be considered however, is that the value of your home (after a 20% discount) ... NOT that the board is in the business of taking homes, WILL be taking into consideration in the calculation to get to RCP.

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AT this point, I'd recommend simply talking to the trustee about these options, being sure that everyone is apprised of the non-financial issues, such as health issues, etc. and then make a decison to make an offer that reasonably represents the Fair Market vaue of the asses (as they exist today)

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But, yes, you fit the profitle of the individual/situation for which the OIC was designed.

Expert:  Lane replied 6 months ago.

You may have seen this, but here's what Franchise Tax Board has to say:

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Generally, we approve an Offer in Compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.

Although we evaluate each case based on its own unique set of facts and circumstances, we give the following factors strong consideration:

  • The taxpayer's ability to pay.
  • The amount of equity in the taxpayer's assets.
  • The taxpayer's present and future income.
  • The taxpayer's present and future expenses.
  • The potential for changed circumstances.
  • Whether the offer is in the best interest of the state

Your cover letter should addrress these issues, (especially as it may relate to now being the time that the state may be able to maximize their collection), as the assets, your business, and your health continue to depreciate.

Customer: replied 6 months ago.

Yes, I did see that, but it really doesn't give me much in the way of possible figures. In your experience, based on debt, income and assets, what would be your educated guess?

Expert:  Lane replied 6 months ago.

Any net asset value (equity in assets - fair market value minus debt) will be a part of the RCP, that's why I wanted to give you the heads up about any home equity.

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When going through the RCP formula any equity in the home (after a 20% discount) will be expected to be a part of the offer

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(Do remember that the offer can be paid over 24 months)

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So think equity, fair market value MINUS debt... Whatever equity is there (again after a discount of 20% for personal residence ... and you can reasonably leave personal furnishings such as furniture out of the equation) is expected to be payable against what's owed.

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Reemember that the OIC is fo the truly impoverished.

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And in terms of income, CA uses the federal tables, (based on family size). You can see that at the bottom of this page:

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https://www.irs.gov/businesses/small-businesses-self-employed/national-standards-food-clothing-and-other-items

Expert:  Lane replied 6 months ago.

If you don't have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here

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Thank you!

Lane