Should I Accept This New Client?

[Hoosier]

Meeting with potential new client reveals past due taxes, penalty and insurance of $135k (tax portion $100k) over the past seven years. Tax returns were filed timely but payment of SE tax was not made in full. Potential client is a new widow (husband died in 2008) who is now dealing with husband's non-payment of tax. Husband had life insurance policy of which wife is beneficiary that will pay at least $75k that can be applied to outstanding IRS balance.

Assuming that the wife can scrape up $100k to cover the total tax liability, will IRS abate penalties and interest? If not, will IRS accept an offer of total liability paid plus a portion of principal and interest? For example, maybe an offer of $110k with the remaining $25 abated?

Since I'm not well-versed in an seriously past-due account with such a sizable liability, I'm not sure I should tackle this particular client. Any thoughts or suggestions?

[DaveO]

Was the late husband in line for a cabinet post? sorry, couldn't help myself.

She may have a good argument for an OIC. Depends on the rest of her financial situation. Does she work? Have other assets? It would be cold to leave a widow broke if she has no way to earn income on her own. Did she sign joint returns? Was she aware of the non-payment? I've seen innocent spouse protection granted on cases not too different from this.

[taxmandan]

IRS cannot by law abate interest, they might abate penalties. Look at her total economic situation, I wouldn't be interested in turning over $75k of life insurance money to the IRS, could create an economic hardship.

[ChEAr$]

first question:

Meeting with potential new client reveals past due taxes, penalty and insurance of $135k (tax portion $100k) over the past seven years. Tax returns were filed timely but payment of SE tax was not made in full. Potential client is a new widow (husband died in 2008) who is now dealing with husband's non-payment of tax. Husband had life insurance policy of which wife is beneficiary that will pay at least $75k that can be applied to outstanding IRS balance.

Assuming that the wife can scrape up $100k to cover the total tax liability, will IRS abate penalties and interest? If not, will IRS accept an offer of total liability paid plus a portion of principal and interest? For example, maybe an offer of $110k with the remaining $25 abated?

Since I'm not well-versed in an seriously past-due account with such a sizable liability, I'm not sure I should tackle this particular client. Any thoughts or suggestions?

Was a joint return filed for those years? If not, wife is probably not responsible for
his debts. Of course if in a communistic state different property rules might apply.

[Hoosier]

Additional Info

Tax returns were MFJ and wife signed. OIC is probably not an option. She has enough assets to pay the liability. I guess the question should be: Will the IRS compromise on the penalties if the taxpayer can make a one-time payment to balance the account? Can this type of negotiation occur over the phone with the collections department?

[erchess]

Oic

I cannot tell you whether to accept this client but I can give you some information and advice on making your own decision.

An OIC has to be based on DOUBT. We can be talking about DOUBT as to who would prevail if the case were litigated or DOUBT about whether the taxpayer could conceivably pay the bill within ten years without some improbable event such as winning the lottery. Recently the IRS has become harder to get along with in regard to OIC and some Professionals have gone so far as to complain that there is rarely any point in asking for one. In particular there are guidelines for what is considered necessary spending on other things like mortgage, medical, food, and clothing and the rest of her income is considered available for paying the tax debt, perhaps on an installment agreement. It has always been the case that if under the guidelines the taxpayer could pay the entire bill plus additional interest over the next ten years based on current and forecast future income there is no way an OIC will be accepted.

If after digesting the above you still think an OIC might be in this taxpayer's best interests, you have a decision to make. An OIC will take you a lot of time and effort and your first one will add so much study time that you won't make your normal hourly even if you charge her the going rate of several thousand dollars. However once you learn to do these Offers they can be financially rewarding for you and of course if accepted also for your client. If you don't accept the client perhaps you can use your professional organization to find her someone who can help her.

[joanmcq]

Its not 10 years to pay, its five.

[erchess]

5/10

They definitely do try to get you to do it in five years and the people who have the authority to go beyond five are not easy to get on the phone with but I have personally seen them go out to eight years in cases where the person had low enough income relative to expenses that are within the guidelines. I believe the reason for not going beyond ten years is that tax debt over ten years old is somehow not enforceable. But you're right anything up to five years gets pretty much automatic approval so long as during the five years the person stays current on all their Federal Income Taxes.

[joanmcq]

The five year installment plan gets automatic approval, the five year OIC doesn't. None of the OICs are automatic. Both OICs I've done required either a lump sum or 5 years of payments (as well as being current on taxes for 5 years).

[erchess]

Interesting

I was talking strictly about installment agreements - guess I didn't clarify that very well. I have never actually done an OIC but I didn't know they could be done other than as a lump sum.