Trust Fund Taxes
Trust fund taxes are one of the most serious taxes to owe. The IRS considers this theft from the United States Treasury. Trust fund taxes typically arise from unpaid 941 tax returns (taxes withheld by employers on the wages of employees).
This situation arises if the employer withholds taxes from employee paychecks and the employer does not follow through remitting to the IRS. This is viewed as theft. In this situation, the employee would file her or his taxes using a w-2 representing withheld tax that has not been paid to the IRS.
If you have unpaid income taxes as millions of Americans do there are options. You could:
- Enter into an agreement to repay the taxes over time,
- Submit an Offer in Compromise of the tax liability, and
- Amend prior returns creating the liability.
We frequently come across situations where taxpayer tax positions were incorrect, which led to the liability. We also see situations where tax deductions are missed.
I review the returns that caused the liability. Oftentimes I find errors in the underlying returns.
Offers in Compromise
Offer in Compromise (OIC) are the most misunderstood solution to tax liabilities. An OIC can be based on Doubt as to Collectibility and/or Doubt as to Liability.
A Doubt as to Liability Offer is possible where there is a genuine question as to the validity of the tax liability. A Doubt as to Liability OIC is very technical and should only be pursued by a licensed tax professional. Therefore, this web site will only address the Doubt as to Collectibilty Offer.
The Doubt as to Collectibility OIC is based on acceptance of the validity of the liability, but an inability to pay the entire amount. Generally the OIC is a lump sum settlement for an amount LESS than the actual amount owed and is for taxpayers that cannot pay their entire liability in the next 10 to 15 years. The Offer is based on equity in assets plus monthly disposable income (the excess of monthly income over allowable expenses) multiplied by 48 or 60 months. If you have the ability to borrow the entire amount you owe, you probably will NOT qualify for an OIC. Or, if you have the ability to borrow a large portion of the liability and pay off the balance due in monthly payments, you may not qualify for an OIC. In addition, an OIC takes anywhere from six months to two or three years to get through the IRS system.
The IRS will not admit it, but they look for any reason to “reject” or “return” Offers. As many as 90% of all Offers submitted to the IRS are rejected or returned. Some of the most common reasons for rejection or return of Offers are due to the Offer being frivolous, lack of proper documentation, not paying current taxes via proper Withholding or Quarterly Estimated Tax Payments, accruing additional liabilities during the pendency of the Offer, or not responding timely to IRS requests for additional information. In addition, for five years after the Offer is accepted, the taxpayer must file and pay ALL taxes on time. If not, the Offer will be rescinded and all of the liabilities plus penalties and interest are reinstated.
There is also a rarely used special Offer in Compromise for taxpayers in significant hardship situations. This is an ETA (Effective Tax Administration) OIC. The ETA OIC is for people who actually have the ability in equity or income to fully pay their entire liability. However, in doing so they would be unable to pay for future special necessary living expenses and therefore require the equity in assets and income to pay for special needs in the future. This author has seen very few successful ETA OICs and all of them have been for persons with serious long-term medical needs. There are no specific guidelines or criteria for the ETA Offer other than proving with documented evidence that equity and ncome are needed for unique, exceptional special needs.