Business—including partnerships, LLCs, and corporations—may qualify to submit an Offer in Compromise (OIC) to settle their IRS tax debt. However, expect the IRS to carefully scrutinize your finances before your OIC will be accepted. Your offer must be at least as much as your reasonable collection potential, which is calculated based on your net income and equity in assets.
Business vs. Individual Offer in Compromise
There are several differences between business and individual OICs. First, your business must be current on its tax payments and tax return filings. This generally requires compliance for the current quarter and maintaining that compliance while the offer is pending, which can take several months.
Another thing to consider when submitting a business OIC is the Trust Fund Recovery Penalty (TFRP). If one or more individuals at your business are considered responsible persons under the TFRP, they will each be assessed the penalty individually. The TFRP is not assessed against the business, so it won’t be settled even if your business OIC is accepted.
Businesses may also be permitted to keep certain assets if they produce income. The equity in these assets may be excluded from the reasonable collection potential calculation.
If you have both business and personal tax debt, you may need to submit two separate OICs. Sole proprietorships can include their tax debt on an individual’s OIC, but other businesses must submit a business OIC that includes Form 433-B. Partnerships must submit their own OICs, and a partner’s share of partnership tax debt can’t be settled on an individual OIC.
Alternatives to a Business OIC
Before submitting a business OIC, make sure you consult a tax attorney to discuss your case. The OIC process is long and complex, and you don’t want to waste your time if your offer is unlikely to be accepted.
You may want to consider a traditional installment agreement, partial payment installment agreement, penalty abatement, or other alternatives. Make sure you’ve analyzed all of your available options before moving forward with a business OIC.
If you have business tax debt and need help negotiating a deal with the IRS, contact a tax attorney for assistance.
The Gartzman Law Firm can help you with back taxes and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.