specifying which delinquent taxes get paid

[davetedge]

I'm dealing with some outstanding tax issues for my failed company and was wondering if anyone here has faced a situation like mine:

I owe about 15k in unpaid taxes, 10k of which is for payroll taxes (the so-called trust fund portion) and 5k in employer taxes and old penalties and interest. Right now I have just enough to cover the trust fund portion, and wanted to make sure those were paid first.

Does anyone have experience with the IRS in directing payments to specific debts?

My BK attorney is doing a good job getting me prepared to file personal BK7, but his experience with delinquent business taxes is limited to assessed TFRP penalties (my company and I haven't been assessed yet).

Also, has anyone done a successful Offer in Compromise for business taxes after filing personal bankruptcy?

[justbroke]

I haven't faced this, but you should be able to get an OIC (offer in compromise) in front of the IRS since the business is failed and you yourself are filing bankruptcy. Of course, this may depend on what assets you have left after coming out of the bankruptcy liquidation. Perhaps you should work with an enrolled agent or other tax specialty company that can offer you the best advice based on your specific case.

Personally, I don't see any reason why you would not want to offer a compromise. BTW, where is the $10K you have laying around? Have you already filed bankruptcy? If you have filed, it will be interesting how it gets distributed by the Trustee. If not, perhaps you should be working with a tax expert and see if doing the OIC is better before bankruptcy or after! I don't know.

[AbbeyA]

DH owed payroll taxes for the State of Wisconsin (thankfully, the federal taxes were up to date) -- the taxes did get applied to him personally, once our bk was discharged. He was able to get an OIC accepted. The initial amount owed was 17,000 -- they accepted 12,500k from dh and 2500 from dh's business partner. The process took about 6 months and our accountant is the one who did the negotiations. I have heard that the federal government is easier to deal with than the State governments with respect to back taxes (both personal and business taxes applied to the business owners).

Good luck with everything and please update this thread as I am sure it will be helpful to others. You can search for my post about our experience in this forum if you want a more detailed account.

[davetedge]

Ironically, the money is from a tax refund.

Now if I understand things correctly, the trust fund portion of the tax debt can be assessed on me personally, while the remaining debt stays with the business, which I can settle out at a later date. An OIC is a possibility but I've been warned that it's a year-long process with only a 10% success rate. It's also been made clear to me that the trust fund portion (the 10k) will never be reduced.

So if i can use the 10k on the payroll tax, I'll be able to file soon since my assets are reduced to below the exemptions, and I don't have to worry about aggressive collections right after my discharge. My attorney thinks its a good strategy since the IRS isn't considered preferential (and we get to file sooner).

[justbroke]

I would still, also, consult with a tax specialist... rather than relying on what someone "thinks" the IRS will do or not do. Just an observation.

[davetedge]

I'm confident that my BK attorney knows what'll fly in the bankruptcy filling, and my accountant is the one that warned me about the time and success rate since he's done a number of OICs. He knows they'll go for an OIC above 13k, but feels the 10k is the important number and I shouldn't even worry right now about the tax debt that stays with the business.

I'm apparently unique by having enough funds to cover the trust taxes but not the whole debt. My accountant knows that left to their own devices, the IRS will apply any general payments to the non-trust taxes first and come after me later for the trust taxes. He's also knows that you can earmark payments to specific debts, but has never seen it in action.

AbbeyA, it's encouraging to hear that your DH's OIC was accepted. I left my meetings feeling pretty pessimistic. I still feel it's a strategy for dealing with what remains after my BK discharge.

I was hoping someone here might have tried earmarked tax payments since it's apparently quite tricky. Google research so far says I need to write "Apply to trust fund portion only" on the check and make sure an officer acknowledges receipt of those directions otherwise the funds will be misapplied. I plan on stopping by the local IRS office on Monday to hear it from the horse's mouth (and then probably find a tax specialist who can tell me what the horse really meant).

[justbroke]

That's why I suggested an enrolled agent so you'd know how it could be applied. Speaking with the IRS directly, and getting it in writing, goes a long way if the IRS itself gives you bad advice. Of course the IRS tries to get the best outcome for the Government. Making sure you follow or have someone intimately familiar with the details of how to apply the payments, would be the best course.

Most tax specialists may be able to calculate, based on the IRM, what the IRS would try to seek in an OIC, but your case seems more nuanced in that you actually have money and want to make a sizable dent in the debt. I'm not a tax expert so offer no advice other than to seek out one. I was looking at doing an OIC but there are even more nuances if you "threaten" the IRS with bankruptcy, so timing could be everything.

[davetedge]

justbroke, this is definitely more nuanced than I was prepared for.

So apparently I'm supposed to go into an IRS field office and give them a payment and cover letter designating payment to "Apply to trust fund taxes only of Company, EIN #" and then the payment will reduce the trust fund portion of the taxes due. If this works, my accountant says he'll certainly miss the billable hours but it will save a lot of time and anguish dealing with the TFRP assessment after the fact.

If this works, I'm looking forward to filing a Chapter 7 non-consumer case sooner rather than later.

[HHM]

There are some facts that need to be clarified, but I will make some assumptions for the time being.

I assume the business is a separate entity (e.g. LLC or Corp), and that there were employees other than yourself.

If so, the answer is easy, if you have the money to pay the "principal" portion (the amount actually due on the 941), a taxpayer can designate how a payment gets applied to a back tax when making a voluntary payment. So, if you have not been assessed the TFRP yet, you can pay on the business account (the EIN) and attach a cover letter (as well as write in the check memo section) specifically how the tax is to be applied. e.g. Principal Tax only for 4th Quarter, 2011 941 etc etc.

Don't bother with an OIC, they are rarely granted in payroll tax cases and you have the money, so it is sort of moot to try.

[davetedge]

Yes, C Corp and numerous employees.
I actually only have enough money to pay the trust fund portion of the 941, which is about 3/4 of the total principal. The other 1/4 is the employer's share of Social Security and Medicare.

I found the part of the Internal Revenue Manual (5.7.4.4 (2)d if anyone needs to know) which spells out what I'm supposed to write on the check and a cover letter so I think I'm set. Going in next week to make a payment, so we'll see.

[justbroke]

Best wishes on a good outcome.

[danieljames]

if you have the money to pay the "principal" portion (the amount actually due on the 941), a taxpayer can designate how a payment gets applied to a back tax when making a voluntary payment.