Prior federal tax deposit (FTD) compliance for a business submitting an IRS Offer in Compromise (OIC) required FTDs for the quarter of OIC submission and the succeeding quarters. Federal tax deposits are the payment of employment taxes withheld from employee wages by the employer to the IRS. The employer holds the taxes in trust for the government, thus the term, trust funds. An Offer in Compromise is a settlement program where the IRS agrees to accept payment of taxes less than the full amount owed.
New procedures have changed the requirement for federal tax deposits to include the current quarter and the two preceding quarters prior to an Offer in Compromise submission. The business taxpayer must continue to submit their federal tax deposits during the course of the Offer in Compromise investigation and through the monitoring period for accepted Offer in Compromises. Failure to make all necessary federal tax deposits will lead to a submitted Offer in Compromise not being processed.
One thing to note is that the compliance requirements for federal tax deposits do not apply to Offer in Compromise Doubt as to Liability applications. These offers are filed when the taxpayer does not think they owe the tax in question. This differs from the traditional Offer in Compromise Doubt as to Collectability, where the taxpayer agrees that the tax in question is owed, but asserts a lack of financial ability to pay the tax. It is assumed that the Offer in Compromise Doubt as to Collectability is the type in question with regards to this Interim Guidance.
Overall, this Interim Guidance that took effect in April 2022 with regards to deposits of employment taxes is more stringent than the previous policy. It will make acceptance of an Offer in Compromise more difficult for businesses. However, the collection of employment taxes is a top priority for the IRS as employment taxes contribute more than 2/3 of the US government’s annual budget. Businesses need to stay current with their federal tax deposits for our federal government to function properly.
Businesses have no requirement to file an Offer in Compromise, but if they do decide to apply for this tax relief program, they need to follow stricter rules going forward. The Offer Specialist handling the investigation is supposed to provide an opportunity for an applicant with delinquent FTDs to make payments to get current and have their offer processed. This leeway is a real benefit to businesses behind on FTDs and they should take advantage of this option during an offer investigation.
Feel free to contact me with any questions.