If your business is struggling with overwhelming debt, options are needed. Different options apply in different circumstances. For some, an offer in compromise (OIC) could have value.
We have discussed offers in compromise earlier. Basically, an offer in compromise is an application to the Internal Revenue Service (IRS) for them to accept a repayment figure on a tax liability that you owe to the agency. As pitched, an offer in compromise sounds like a great tool. There are any number of potentially sketchy businesses that sell OIC applications as part of their workout, or debt restructuring services. Here are some key points when you have a business debt profile that is completely unmanageable:
- Bankruptcy is a form of relief for businesses and individuals that can relieve debt and help you keep your business. Bankruptcy can also help you wind down your business if there is no real chance it could again become a going concern. The type of debt you carry is of critical importance regarding your potential options. Is your debt primarily in tax arrears or creditor payments? If your debt is largely related to taxes, an offer in compromise may be an option.
- While an OIC sounds like the perfect solution, the IRS rejects more OIC applications than it accepts. The process involves a careful vetting of your past and potential future financial state. An advantage of an OIC is that there is no debt formula. If you have an extraordinary amount of tax debt but will likely never have the ability to pay it, the IRS can compromise on an amount that it deems reasonable. The flip side of that is the OICs are oversold as a solution—a careful assessment by the IRS of assets, equity, expenses, and your reasonable collection potential may lead to a compromise amount that you do not consider reasonable.
- It is worth keeping in mind that you need to be eligible for an OIC, especially if pairing an OIC with a bankruptcy filing. This requires documentation that proves your need, and that you have been compliant on filing tax returns for a number of years prior to when you petition for bankruptcy. Failure to file tax returns can easily end your bid for an OIC. As well, there are types of tax debt related to tax fraud (like trust fund recoveries) that are not dischargeable in bankruptcy. If you enter into an OIC in financially perilous conditions and fail to honor the agreement, the IRS could file a Proof of Claim in bankruptcy court for either the full amount of your tax liability, or the compromised amount on which you originally agreed.
In order to reconfigure your business and financial future, choose an experienced tax lawyer who can help you understand your situation and the right options for your circumstances. Bottom line, act sooner than later to preserve the options you may have.
Have you received notice of a civil tax audit? Talk with an experience tax attorney today
From offices in Chicago and Cleveland, the tax team at Robert J. Fedor, Esq. LLC provides straightforward, strategic tax representation to clients domestically and abroad. If you have been notified of a tax litigation, or an IRS criminal tax investigation—we can help. Contact us today or call 800-579-0997.