We’ve all been there: unpredictable expenses and urgent life circumstances that lead to financial difficulties. Unless you have a healthy savings cushion, these expenses can wreck your budget and cause bill collectors to come calling. In our first blog in this series, we explored the critical aspects of employment tax law. Now, in the second part of our series, we focus on the concept of an Offer in Compromise, also through the case of Donna Fecondo.
Like many business owners, Donna Fecondo took over her family’s business—owning and operating a mushroom farm—after the death of her grandfather and her uncle. As the sole proprietor and President, Fecondo’s job included employee payroll, which meant withholding federal and state taxes from employees’ pay and paying them to the IRS. The mushroom farm was for-profit, so Fecondo was also obligated to file individual tax returns. Ms. Fecondo dropped the ball on both.
An Offer in Compromise
In 2007, the IRS caught up with her and determined that she had neglected to pay employment taxes for the five-year period from 2000 to 2005. In 2009, Fecondo and the IRS agreed to a smaller sum in full of final settlement of balance. She then signed an “Offer in Compromise” (OIC) agreement. An Offer in Compromise is a federal program for qualified individuals/businesses that permits them to negotiate with the IRS to arrive at a reduced and mutually acceptable tax amount due. Offers in Compromise are typically extended on the basis that a taxpayer is unable to pay the full tax liability or that doing so will create a financial hardship for the taxpayer. Before deciding on an OIC, it is crucial to review the statute of limitations, as this can impact the eligibility and terms of the agreement.
To determine whether an individual/business qualifies for an OIC, the IRS examines the following:
- Income
- Expenses
- Asset equity
- Ability to pay
Two stipulations of this program are to make regular payments until there is nothing owed and to remain in compliance for 5 years. Even though Fecondo made the required monthly OIC payments until the balance was gone, she simultaneously failed to pay employment taxes on the returns filed during that period.
Later, when she was interviewed by a Criminal Investigation IRS agent, Fecondo stated she was undergoing emotional and financial stress from both the death of her uncle and her divorce proceedings. Both the IRS and Fecondo agreed that she owed the government $599,159 in back employment taxes.
But it gets worse. Donna Fecondo pled guilty to a six-count indictment (two counts of failure to collect and pay over employment taxes and four counts of failure to file tax returns). For sentencing purposes, the restitution is based on the total amount of tax loss. The United States District Court added restitution amounts on top of that for failure to pay over employee taxes and failure to pay personal/employer taxes during the investigation period and the two-year period after Fecondo was indicted. Consequently, the total tax loss came to $5,077,853. She was, moreover, sentenced to 46 months in jail.
Pros and Cons of an Offer in Compromise
The decision to apply for an Offer in Compromise is a personal one. There are pros and cons to choosing an Offer in Compromise. The advantages to clearing tax debt this way are:
- Paying in affordable installments
- Debt reduction
- Release of Federal Tax Lien
- Prevention of paycheck garnishment and seizure of assets
- Paying off long-term debt
On the other hand, an Offer in Compromise may not be the option for you. For example, upon acceptance of an OIC, some aspects of your financial record can become public knowledge.
Contact Kundra & Associates for Skilled Legal Guidance
If you have unresolved tax debt and uncertainty about your options, we are here for you. Kundra & Associates, P.C. has the extensive knowledge of tax laws needed to guide you toward making the most sensible decisions about your business and personal assets. Whether you’re in Washington D.C., Bethesda, Arlington, Alexandria, or outside of the United States, please call us at 301-750-9717, or schedule a consultation online to discuss your options and take back control of your life.
