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Can an In-Business Corporation Compromise its Employment Tax Obligations With The IRS?

Posted by Tom Regan | Sep 25, 2012 | 0Comments

Yes. An in-business corporation can compromise its outstanding employment tax obligations with the IRS. In past years, the IRS required that an Offer in Compromise (OIC) from an in-business corporation include not only its ability to pay, but also, the amount the IRS could collect from the responsible parties through the Trust Fund Recovery Penalty (TFRP). That has changed. Now, the IRS requires that the corporation offer only the amount that represents its Reasonable Collection Potential (RCP). The IRS will separately pursue any responsible parties who were assessed the TFRP.

Like any other OIC, the corporation must give the IRS its current financial information so the IRS can calculate the corporation's RCP and demonstrate that it is in compliance with its current filing and deposit obligations. (Please review other articles in this blog for more information about the basic requirements of an OIC.) Unlike other OICs, the IRS must be satisfied that it can pursue any of the responsible parties for the trust fund portion of the taxes through the Trust Fund Recovery Penalty (TFRP), if necessary. This means that for the corporation to negotiate a successful OIC, one of the following must occur:

  • the trust fund portion of the taxes has been paid;
  • the TFRP has been assessed against all responsible parties;
  • the Revenue Officer has decided not to assert the TFRP; or,
  • the Revenue Officer has completed his or her investigation and forwarded the trust fund package for assessment.

See IRM 5.8.4.20.1

If the responsible parties decide to pay the trust fund amount on behalf of the entity, they can follow the procedures in IRM 5.7.4.4, Payments by Responsible Party on Behalf of the Employer.

If the responsible parties agree to the assessment, they can sign the Form 2751, Proposed Assessment of Trust Fund Recovery Penalty. But, even when parties sign Form 2751, the Revenue Officer must collect basic documentary evidence to demonstrate that the party signing the Form 2751 meets both the responsibility and willfulness requirements of IRC Section 6672. This is because signing the Form 2751 does not preclude the responsible person from challenging the TFRP assessment at a later time by paying a divisible portion of the tax, filing a claim for refund, and if unsuccessful, filing a suit for refund.

Circumstances may exist where the Revenue Officer will not assess the TFRP against all responsible persons, like when the Revenue Officer cannot locate a potential responsible person. In those circumstances, the IRS can consider processing the OIC without the assessment of all potential responsible persons. The IRS can proceed with the OIC if it concludes that the government's interests are sufficiently protected and the other responsible persons have agreed to the TFRP assessment.

If the responsible parties decide not to pay the trust fund taxes or sign the Form 2751, and the Revenue Officer has not made a non-assertion determination, the IRS can conclude that the taxpayer submitted the OIC solely to delay collection and return the OIC. See IRM 5.8.4.18. If any individuals appeal the proposed TFRP, the Appeals Office can determine that the taxpayer submitted the OIC solely to delay collection and will return it.

You might encounter a Revenue Officer or Offer Specialist who is hesitant to compromise trust fund taxes owed by an operating corporation because it gives the corporation a competitive advantage by relieving it of a significant operating expense that other compliant taxpayers have paid. The IRS believes that it is an issue “fairness to all taxpayers.” This is not a reason to reject an OIC.

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