Offer In Compromise Case Study

One way an IRS tax attorney is useful is the ability to argue his or her client’s position to an IRS Revenue Officer or Agent. By knowing the Internal Revenue Code and case law, it allows a knowledgeable IRS tax attorney to correct the IRS when they are wrong. We had one client with a small construction company. The company was an S-corporation and he was an employee of the corporation.

James called our office after getting a bill from the IRS owing $45,000. He also had four years of tax returns not filed that his CPA just prepared for him. The first thing that an IRS tax attorney should do when a client owes a large bill for old tax returns that are not filed is to get the returns filed and the taxpayer back into compliance. James had said his CPA did everything she could but he still ended up owing $45,000. After getting him back into compliance, our california tax attorney saw that James is a great offer candidate. After paying all necessary expenses James is at a loss of about $1,000 at the end of each month. So we started to get to work on pre qualifying James for an Offer In Compromise. James’ Construction Company is projected to bring in $100,000 for the year 2015 in gross revenue. His net income from the business monthly amounts to $2,000 a month. James lives in Los Angeles County and has 2 dependents living with him. His future income value is $24,000 this is based on him making $2,000 a month in net income. When our tax attorney submitted the Offer to the IRS, the examiner in charge of evaluating the offer took into account his business assets into the Reasonable Collection Potential (“RCP”) formula that the IRS uses to determine if an offer can be recommended for acceptance or rejection. James’ corporate assets form the business are worth around $50,000. The offer examiner incorrectly used this $50,000 as a personal asset which added to James’ equity in the RCP calculation. 

Hillhurst Tax Group came out and explained to the officer that according to the IRS revenue code, income producing assets are not to be included in the RCP calculation for an offer. Only if the asset is not used to produce income should it be included. In James case, the $50,000 assets were crucial to the ongoing operations of the business and production of income. According to IRS Manual Section 5.15.1.22, “when determining the RCP, an analysis is necessary to determine if certain assets are essential for the production of income. When it is determined that an asset or a portion of an asset is necessary for the production of income, it may be appropriate to adjust the income or expense calculation for that taxpayer to account for the loss of income stream if the asset were either liquidated or used as collateral to secure a loan. 

James received his offer acceptance letter in the mail and with the help of our lead IRS tax attorney at Hillhurst Tax Group  was able to settle the debt for only $1,500. Pointing out errors that the IRS makes which contradict the code is one way a tax attorney could be useful to a taxpayer, if not one of the most important factors in deciding on whether to hire one or not. The IRS is not perfect and its employees do make mistakes. Call Hillhurst Tax Group today for a free consultation at (323) 486-3314 to see how one of our Los Angeles tax attorneys can help you solve your IRS or state Tax Problem.