Oic

[luke]

Client owes back taxes (income and payroll) to 2006 - took it upon himself to deal with IRS and made an Offer (I was NOT involved in offer until NOW!)
Client got call from IRS in TX. Client was told his offer MAY be rejected and that he should withdraw it first (IRS sent him a little 2 -3 sentence prepared withdrawal letter) - then contact IRS and request that 10% payment previously sent with offer be applied to oldest tax balance due for his personal income tax and that IRS would probably declare the business "portion" (payroll?) of taxes "uncollectible" at some point?
Have any of you had a situation like this?
1. Is IRS wanting t/p to withdraw OIC because it MIGHT be approved?
2. Can money already "applied" by IRS (probably to interest/penalties) be changed and applied to "principal" (actual tax due)?

THANKS in advance for any insight!

[JohnH]

What type of entity owes the taxes?
Was there anything other than a Schedule C involved?

[luke]

SCorp

Yes payroll taxes were due from an S-corp.......

[JohnH]

Not a good idea to submit an OIC for the payroll taxes, especially if the corp is defunct.

It seems that IRS may be hinting that he should follow the procedures for designating the payments of payroll taxes to try and avoid or minimize the Trust Fund Penalty. If that's the case, somebody somewhere likes him. Or they may be trying to get him to apply the payment to the personal taxes so they can go after him later for the Trust Fund Penalty. It's hard to tell which is the case based on the info you provided.

WIth respect to minimizing the Trust Fund Penalty, a very precise set of steps must be followed in order to do this correctly. If IRS is giving him an opportunity for a do-over, he'd better take it. And tell him to quit trying to represent himself, as he's on the verge of making a couple of huge mistakes. It may already be too late for part of it, but he still needs to take steps to protect himself.