Tax Seminar #3 – December 3 2012

FACTS
OFFER IN COMPROMISE CASE STUDY
John Doe was the sole stockholder and principal officer of J.J. Smith, Inc.. through June 30,
2008, at which time the company ceased operations. At that time, the corporation owed $450,000
in U.S. Payroll taxes, interest, and penalties, of which $242,000 represented trust funds. In addition,
the corporation had unpaid New Jersey Sales, Use and Gross Income Tax Withholding of $12,500,
inclusive of interest and penalties totaling $3,500. The corporation also owes unemployment taxes
of $2,400 attributable, ratably, to the first 6 months of 2008.
John is married to Jane Doe. As of today, all income tax returns for John and Jane have been
filed through 2011. Taxes are due for the years 2006 through 2009 of $84,000 to the U.S. Treasury
in connection with the jointly-filed returns for those years.
John and Jane come to you for advice seeking to do offers in compromise with the tax
authorities after hearing all those radio ads of yours for the 1-800-IhaveFriendsintheIRS telephone
number. Their financial information is set forth in the accompanying Form 433-A. Note that all of
the assets, except the insurance policy are Jane Doe’s and the credit card debt is joint. No Form
433-B has been prepared as J.J. Smith, Inc. is no longer in business and has no assets. Its charter
was revoked on May 31, 2008 for non-filing of New Jersey Secretary of State filings.
Upon further investigation, and securing a judgment/lien search, you find:
• New Jersey has a judgment for the $12,500 against John Doe personally;
• The IRS has liens against the Does for 2006 - 2009 income taxes;
• The IRS has assessed and has liens for $200,000 of the $242,000 in trust funds
against Mr. Doe individually (the remaining $42,000 is attributable to $14,000 per
month for the June, 2008 quarter);
Further questioning reveals that the Does will owe $12,000 to the U.S. Treasury and $1,500
to the State of New Jersey for taxes attributable to the year that will be ending on December 31,
2012. The tax returns have not yet been filed and neither amount has been included on the Form
433-A. Also, although no tax is due on 2010 and 2011, it is clear from your review of the filed
returns for the years that there are positions of significant audit risk on those returns.
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