Tax Guru – Ker$tetter Letter

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    November 2007
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Countering IRS ASSumptions…

Posted by taxguru on November 21, 2007


Subject: Question re OinC


Mr Guru – have a situation with IRS to run by you.  One of my tax clients is working on an Offer in Compromise (OinC) on back payroll taxes he owed thru his prior business.  The IRS just sent him a letter saying, based on his 2007 pay stubs, he should have approx $5,305 in FIT w/h.  They demanded that he make an immediate est tax payment of $3,979 and another one of $1,326 in January “in order to proceed with an evaluation of your OinC”.  In looking back at his 2006 1040, he had a tax liability of $1,784 with gross income of $48,000, but a rather large alimony AGI deduction of $25,000 and Sch A deductions of $6,077.  The client expects the same for 2007.


When I did his 2006 1040, I advised him to stop FIT w/h, for it looked like he had enough w/h at that point to cover his 2007 taxes.  Therefore, can IRS make this kind of demand that he make est tax payments?


Let me know,


I’m sorry about the delay.  The main computer I use for email has been crashing a lot.

As you know, part of the OIC process is convincing the IRS that, in exchange for compromising on past tax debts, the TaxPayer promises to be a good boy in the future and never have similar delinquency problems.  This means staying current on all new taxes.

Also, as you well know, IRS has no burden of proving the accuracy of their claims.  We have to provide suitable documentation to rebut any claim, no matter how idiotic, an IRS employee makes.

That appears to be the case here.  The IRS employee is estimating your client’s taxes for the year based on nothing more than pay stubs; ignoring any of the other deductions and losses that will be reducing the actual taxable income well below the gross pay figure.

To refute that erroneous ASSumption, I would prepare a pro-forma 2007 1040, using your 2006 software if you haven’t yet received your 2007 programs, and submit that in addition to a letter from you explaining that your client’s current level of withholding is more than enough to cover his 2007 tax obligations.  That should be more than adequate documentation to get the IRS employee to back down from the request for your client to send in more money for 2007.

If appropriate for your OIC claim, I would also make the point in my cover letter that intentionally paying in too much in taxes for the current year will deplete his cash reserves that would otherwise be available to pay off the past year taxes being negotiated as part of this OIC.

Good luck.  I hope this helps.



Mr Guru – my client sent in the responses & told IRS that he didn’t have to pay the amounts so dictated, referring them to his 2006 1040.  So, we’ll see what IRS does next.  Should they come back & demand he pay in as they said, we’ll do the proforma as you suggested.


Thanks for getting back on this. 



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