I have a client with multiple year failure to file and failure to pay penalties for Form 1040 (2012-2016). Taxes are about $60,000 and penalties are about $45,000. Most of the taxes are due for 2012-2014 and then his business dropped off substantially and income is about 1/4 of the higher years. So no substantial cash available and current annual income of $30,000-$40,000. However, they are able to mortgage their home for $60,000. Are we better off to request penalty abatements without any reasonable cause; more of a mercy request. Or go for the OIC that would just include the taxes.
Unfortunately, there is no such thing as a “mercy request” when it comes to penalty abatement. You either must meet the First Time Abatement (FTA) criteria which would apply to only the first year in this case (2012), or you must claim reasonable cause. If you don’t have a reasonable cause to claim, then the chances are the IRS will deemed the non-filings as “willful neglect” on your clients part.
Thank you for the reply. I have already started the OIC process on Canopy and will be making a case for an offer based on exceptional circumstances. The clients have no assets to liquidate but their home equity is equal to the tax liability. However, their current & foreseeable income will not support payments on a loan of more than $60,000. Based on the 433-A OIC their living expenses are reasonable and there is $0 “remaining monthly income” available to apply towards the liability. With their age (60 years old), health and other circumstances not being in their financial favor, would an offer of $60,000 be a good place to start? I presume that for purposes of OIC the taxpayer’s total liability will include all taxes plus penalties and interest (the $105,000 from my example).
Couple of thoughts…
First, are they actually able to borrow against the property? They may not qualify for a loan based upon any tax liens and their financial standing. Take a look at IRM 126.96.36.199-They give some examples of when people are unable to borrow against the real property.
Second, take a look at IRM 188.8.131.52.3 for a brief explanation of Doubt as to Collectibility with Special Circumstances (DATCSC).
Let’s see if we get anymore comments from the group. I’m sure there will be a number of different opinions and/or suggestions.
They have talked with their bank and have received a soft commitment for a home equity loan so they believe that is probable. They also have a relative that is willing to make the loan. They indicated the relative was willing to make the loan with no collateral; I advised that it would look better to the IRS if they were actually having to use the home as collateral. Any thoughts on that. When I had replied to your first comment I had researched IRM 184.108.40.206.3. Since their assets support full payment but the only reasonable way to full pay is to liquidate their home, the offer would be based on what they can monthly pay on a home equity loan. Based on IRM 220.127.116.11.3 would this be is a valid method for calculating the OIC. We are basically backing into the offer based a loan amount that is obtained not based on the property value but the payment they can afford to make.
Good morning Jon,
I hope that his message finds you doing well! I apologize for not replying earlier and @Jeff is a great resource and almost always on point!
If you are agreeable to my offer, I would love to talk with you free of charge off line to go over a few items with you!
I have often been quoted as saying that IRS tax Resolution is “as much of an art as it is a science”. There are a number of nuances to consider that may be be beneficial to your client!
Thanks a lot and take care!
I would love to speak with you. I am relatively new to the Canopy family and this was my first community post. My email address is email@example.com if you would like to send your number or if it’s not unusual to share it thru this site please let me know.