Finally some good news! There are some IRS Fresh Start Program Business and Payroll Taxes settlement guidelines that are incredibly helpful for solving tax problems. When thinking about the IRS, many people only consider things from an individual standpoint. However, that's not always the case. Businesses can also fail to pay their taxes and have to sort out their liabilities with the IRS. Whether it's a C-Corp (Form 1120) having failed to pay their income and payroll taxes or an S-Corp (Form 1120-s) or partnership (Form 1065) failing to meet their payroll obligations, business and payroll tax problems are definitely more prevalent than most people realize.
The Fresh Start Program came about partially through the economic downturn in the 2008-2011 time frame. One of the main goals for the program is to work with small businesses and to help them get back on their feet if the hard economic times have resulted in a tax liability. The new guidelines were set in place to help ease the transition for a business that has fallen behind on its obligated taxes. Its purpose is to help them get back into compliance with the IRS.
Don't give the IRS too much credit, though. While this is wonderful for those owing taxes on their businesses, it also benefits the IRS in getting them the money they're owed as quickly as possible. If it wasn't going to benefit them in some way, they wouldn't have drawn up the new guidelines.
Offer in Compromise: Business style
Not only does the Fresh Start's approach to an offer in compromise define clearer rules for business and payroll taxes, it also allows for the exclusion of some income producing assets. Through expanding what can be constituted as an income producing asset, the IRS has allowed for business owners to completely rethink how their tax problem can be approached. These are great additions for businesses that owe money.
It might also lift your spirits to hear that it's not especially difficult to get a struggling business to qualify for an offer in compromise. While it needs to be said that getting any offer in compromise is not always an easy task, a large number of businesses are already primed to be in an excellent position for making an offer. Most of the business' assets will already be for the purpose of producing income. If a business is struggling to make a profit, and they have very few assets to be liquidated, then the IRS should be willing to accept one lump-sum payment to settle the tax liabilities.
But…
The IRS does not want to reward businesses that cut corners by not paying their taxes. This would just encourage businesses to increase their profit margins and gain an unfair advantage over competitors, many of which are operating within the lines of their tax obligations. Thus, it's the job of the IRS to make sure that they're not being unfair to competitors by allowing businesses to settle their tax liabilities for less than the full amount.
As the saying goes, "All is fair in love and war… but not in business… or taxes." At least that's how I remember it.
In order to have an offer in compromise accepted for a business, it's critical to show that it is a quality business. You have to show that it's a stand-up company that just fell on some hard times. Something unanticipated happened and caused the business to not be able to function at a profitable level. Maybe they lost a lease or their biggest client; what's important to prove is that they didn't see their lapse coming. It was something out of their hands. The IRS is never going to reward someone who is intentionally taking advantage of the system.
Installment agreements
The IRS Fresh Start Program increased the threshold that a business can owe in order to get into a streamlined installment agreement. Previously, it was in place for any business owing under $10,000. The threshold was bumped up to $25,000 under the Fresh Start Program, and the allotted amount is to be paid back in two years (as long as it didn't come within the time span of the CSED).
What is absolutely key is that you do not default on any of your payments. If you're going to enter into an installment agreement, make sure that whatever caused your tax problem in the first place is completely fixed; make sure that you have your business heading in the right direction. The IRS has absolutely no qualms getting people into installment agreements that they can't keep. Once a payment is defaulted, all bargaining chips are off the table.
Thanks to some of the guideline changes and new rules under the IRS Fresh Start Program, forming a plan to solve your tax problem is even more feasible. As always, approaching your problem with a strong knowledge and understanding is imperative for achieving a favorable outcome. Don't hesitate to contact us to schedule a strategy session; we can help you decide which program is best for you.
