The majority of federal tax liens filed, and the majority of monies owed to the IRS, are made up of payroll taxes. In addition, because of the fact that payroll tax deposits fund the day to day operations of the federal government, these tax liabilities are the highest enforcement priority for the SB/SE Collection Field Function (CFF).
In this video, you’ll learn the basics of resolving 941 tax debts. We will cover 941-specific penalties, resolution options specific to only this tax type, Appeals options, and a brief overview of the Trust Fund Recovery Penalty (TFRP).
Payroll tax liabilities represent the biggest opportunity for growth in your tax resolution practice. Learning the ins and outs of representing these lucrative clients can create a significant boost to your bottom line.
Note: This video was recorded on March 17, 2015 and therefore reflects tax code and IRS procedures in effect at the time. This webinar replay is not eligible for CPE credit.
Unedited Transcript
Note: This is a raw, unedited transcript of the recording that was produced with an automated transcription tool, not a human transcriptionist. It’s provided merely for reference and to help you find specific sections of the video you might want to jump to.
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Today is March 17th, 2015, and I’d like to welcome you to this webinar on resolving 941 tax debts. My name is Jason Bowman from tax marketing hq.com. And for the next 15 minutes, we’re going to be discussing the special situations involved in resolving 941 tax liabilities. Why these abilities are such a huge enforcement priority for the IRS and exactly how you can go about helping your clients with these employment tax problems. So we’re also assessing some specific penalties and some appeals options. And of course we cannot discuss the 941 landscape without also talking about the trust fund recovery penalty. The trust fund recovery penalty itself as a topic worthy of, of, of an hour or two of its own. But again, it’s, it’s impossible to discuss the employment tax liability resolution without delving into the, the trust fund world. So we will be covering that. There are, there are a lot of trust fund items that are outside the scope of specifically what I’m going to be talking about today. And so in the future, I will be doing another webinar specifically on trust fund issues, because there’s just so much to cover within that.
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All right. Real quick, let’s talk penalties first the first couple, you should already be familiar with the failure to file and failure to pay penalties. The failure to file penalties add up pretty quick 5% per month for the 25% cap. There’s also a minimum in case the, the balance due on the return. Is that a really low or there is no balance due on the return? I mean, and again, keep in mind, we’re talking 941 taxes here. So a minimum penalty of $135 or a hundred percent of the tax due, whichever is less the failure to pay a penalty. The failure to pay penalty is on top of the federal tax deposit penalty. And this is 0.5% per month for the 25% cap. Now, keep in mind that the, the 25% cap on, on the failure to file on the failure to pay penalties is aggregate between the two penalties.
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Okay. the other thing that’s very specific to employment tax situations is the federal deposit penalty and the F the, the FTD penalty is interesting because it’s, it’s the, the, it, it, it scales very rapidly. Okay. And it is also the only penalty that we have that really gives us a look inside why employment taxes are such a, a big issue too, to the IRS. Okay. Because you see how quickly the escalate if federal tax deposits and this applies by the way to monthly depositers, semi-weekly, depositors’, doesn’t matter what their deposit schedule is. So if the deposit is between one in five days late, the penalties is only 2%. If it’s six days to 15 days late, it’s 5%, 16 days or more. It’s 10%. Now, once the IRS sends a bill you know, they actually send a notice of a deficiency on the lack of federal tax deposits. Usually after the nine 40 ones been filed the penalty rate for the first 10 days of that notice period, it stays at the 10% level, but if the taxpayer doesn’t pay their bill, it goes up by another 5% for a total of 15. And so this is where you’re going to find a lot of your 941 clients when they come in the door to your office.
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So they will have maxed out either one or the combination of the failure to file and the failure to pay a penalty. So they’re going to have that 25% penalty right there. Then they’re going to have the 15% federal tax deposit penalty as well. So that’s a total penalty of 40% of the unpaid balance reported on their 941. And, you know, multiply that across, you know, eight, 12, 15, you know, 20 plus quarters. And the chunk of their bill that is penalties is pretty significant and add on top of that, the fact that the, the interest rate calculation, which is currently 4%, but the interest that is tacked on the interest accumulates against both the original tax liability and the penalties. So by the time, several years have gone by, it is possible for, you know, 45, 46% of a taxpayer’s to simply be penalties and interest which is why a lot of the things that we’re going to be talking about through the course of this webinar you’ll see that they have some time considerations to them, the small business and self employed division of the IRS considers the enforcement of payroll tax liability to be one of their most important jobs.
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Okay. every year the SBSC replaces their, their enforcement priorities list. And that list will always, always, always, always include the, the enforcement of payroll tax collections and people sometimes ask me why this is so important. If you’ve never looked at a treasury a daily treasury statement they’re, they’re very interesting. I like to, I’m just kind of a numbers geek and a government geek. So I like to look at these occasionally you can get these from the treasury website. But what I wanted to show you, this is, this is from Friday last Friday, March 13th. So this is the treasury treasury daily statement for March 13th, 2015. And this is the, I kind of had to cut it up and mush it together to make it fit on the slide. But you can see here that year to date for, for the current fiscal year the government has spent a total of just over $5 trillion. Okay. and if you look at this line, public debt, cash redemption almost 3 trillion of that is for people cashing in treasury bills. Okay. so actual government expenditures on operations is about $2 trillion.
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Well, then if you look at the, at the deposits side of the treasury statement, you’ll see that they have issued $3.3 trillion in new treasury bills in order to fund government operations. So this is about $300 billion more than what has been redeemed. So the national debt has gone up by around $300 billion so far in the current fiscal year. But remember they had, so, so there’s, there’s $300 billion out of the $2 trillion that the government has, has spent. And then there’s all these other things that, that are our revenue coming in. But look at the cash federal tax deposits received $1.1 trillion. This was the single largest chunk of the entire you know, non debt related revenue for the government. And then if we look at the D the, the detail section table four of the daily treasury statement, you’ll see that there there’s a bunch of you know, excise taxes, railroad taxes individual income taxes.
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However, the single biggest chunk of this 1.2 trillion is withheld income and employment taxes. These are federal tax deposit monies from employers. So these are withheld income taxes, withheld social security taxes with health, Medicare taxes coming in to the government. So out of the, the, the $2 trillion that the government has spent so far that the current fiscal year on, on operations 300 billion of that has been debt funded. And you can see that a trillion of it has been funded by em, employment tax deposits this right here is why this is such a huge enforcement priority for the federal government, because it essentially funds the day to day operations of, of the federal government. So I think it’s important for, for us as practitioners to understand why certain things happen. And this also allows us to explain this to our clients you know, and so being able to tell our clients well it’s because this, this is you know, the reason you’re being hassled so much about this is because of the fact that the, the you know, taxes that, that you should be depositing they fund the day-to-day operations of the government.
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That’s why they’re so important. So being able to tell somebody that I think is important. So what are the resolution options available to a taxpayer?
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So the reality is that most of the same options exist as for the tenant three liabilities but with some catches. So for example guaranteed installment agreements are only available for income taxes and only for the personal side streamline criteria are available you know, streamlined programs normally available for individual income tax as well as business income tax, but they’re also available for an out of business trust fund liability. When I say trust fund and, and, and employment tax liability. I often interchange the two, but no that, that I’m going to be talking on the business side. I do mean both. So the business can enter a streamlined installment agreement and, and be subject to those same criteria, but only if the business is already closed or is closing same with a regular installment agreement.
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And that’s exactly what the IRS calls it in case you’re not familiar, they just call it a regular installment agreement. It can be for any amount but again, if there are trust fund taxes involved, no employment taxes involved it can only be used if the businesses closed or closing same also with a partial pay installment agreement. PPIA it can be any amount. The, the business can be operating and stay operating, but it is it’s gonna require full financial disclosure and verification. And the service is typically going to require that the taxpayer sign and acceptance of the extension of the collection statute expiration date in order to be granted the PPIA and a lot of PPI PPI situations, it is often worth the taxpayer considering going and offering compromise instead of doing the partial pay installment agreement.
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The other downside to the strict line of regular and PPIA is every single one of these will require without fail will require that somebody beyond the hook for the personal assessment of the trust fund recovery penalty. Okay. There’s no deferring it. There’s no getting around it. Somebody will be on the hook. Okay. Now the majority of the time when we are representing clients with employment tax liabilities, the, the majority of the time, the business does not want to close you know, we’re, we’re, we’re in the business of helping people to keep their businesses open. And also it is in the best interest of the us government for a business to continue operating because an operating business provides jobs. And once they’re back on track and current and compliant, and they’re being good little tax payers, then it is a source of revenue to the government.
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So obviously it’s in the government’s best interest to have programs available that allow the business to address the employment liability while still operating. Okay. So what I’m going to talk about next in particular that the two programs in particular, I’m about to talk about this is going to be the majority of the time actually on our presentation is literally the next, just the next few slides. These are the workhorses of your 941 resolution business. If you’re going to be doing a lot of 941 resolution, the two pro two related programs, I’m about to talk about they’re the majority of the, of what you’re going to be doing. Okay. so these are pretty important. The other nice thing about these two particular program is that within certain cases they provide options for avoiding personal assessment of the trust fund recovery penalty.
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A lot of times when you are working with a small business client in tax resolution the, the, the most common liability type that they’re going to come to you for help with is an employment tax liability. And once the ball gets rolling and they either through you educating them, which you should be doing, or because the revenue officer is educating them, or the internet is educating them, somebody somewhere along the line is going to tell them that they can be personally liable for a portion of the employment tax debt. A lot of people will say, well, doesn’t that defeat the purpose of setting up my corporation or LLC? And the answer to that is yes, it does, but the federal law internal revenue code section six, six, seven, two provides for the administrative, okay, not the judicial, but the administrative piercing of the corporate veil for recovery of trust fund taxes.
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This is a really important concept and your clients need to, to understand this, and once they do the next thing that they’re going to kind of be panicking about is, you know, getting around that personal assessment. Okay. And in the vast majority of situations it can be difficult to get to get around that, but yes, they meet if they’ve got their ducks in a row and you’ve helped them to properly align themselves with with the programs I’m about to talk about, you can actually avoid the personal assessment. So some, some three quick notes about this only employment tax debts. So on a an account transcript, it needs to have the code of 55. And if it’s been coded incorrectly, then you have to go through a whole other set of processes to get it recoded, but it’s got an, it’s got to be a module 55 tax liability that we’re talking about.
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And the, and the, and that means NFP 55 is 941. Okay. so only mod 55 can be resolved via the in business trust fund process business income taxes, excise taxes, 2290 taxes, things like that. They have to be resolved separately from the mod 55 taxes. Okay. So this results in a situation where some businesses will actually have two separate installment agreement payments it’s rare, but it can and does happen. When I used to focus heavily on 2290 work we’d usually have a 2290 [inaudible] and then an I 941 as well. So keep this in mind, but the majority of the clients you work with are going to come to you with you know, especially if they’re passed through entities, they’re obviously not going to have business income tax. Most of them most of the businesses that we deal with are going to be service businesses.
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So they’re not necessarily going to have excise tax situations. And then unless you’re dealing with truckers, you’re not gonna have a 2290 tax. So but, but do bear in mind that if they have any of these that are tax liability types, you’re going to, they need to be handled separately. And so those become more complicated cases. Those are more fun cases. They’re higher fee cases. They, they actually are the kind of cases you want but they are few and far between. So let’s talk about this beast, the in business trust fund express installment agreement. Okay. And there’s a lot of information on the slide, or I’m going to go through it all. Okay. So again, IBT, F E the E stands for express. And then let me break down the name in business. So the business is still operating trust fund, so it applies only to employment taxes, express which could also be viewed as essentially a streamline version of this particular program.
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And it’s an installment agreement. Okay. So the in business trust fund express and Solomon agreement, it is the, like I said, if it’s, if the streamline IAA for an operating business to pay their employment taxes. Okay. there are some just like for the streamline program criteria for income taxes. However, there are some qualification criteria. So the TPI that’s tax penalties and interest has to be less than $25,000 not including an assessed accrual. It’s beyond the scope of the presentation here today to go into the accrual process. But in case you’re not aware of penalties and interest, they’ll, they basically, they build up on the computer’s system, but they’re not assessed as an actual balance due until intermittent periods of time. Okay. So if they have a cruelty that would push them over the $25,000 limit that’s actually, okay.
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They’re going to have to pay those accruals within the other terms of the installment agreement. But it won’t necessarily jeopardize eligibility. The other thing to be aware of is that if they owe more than $25,000, the business can make a lump sum payment to the treasury to pay it down to less than $25,000. If you do this you should always designate voluntary payments. So on the memo line of a check it should say apply to trust fund only, and to the most current tax period in order to help minimize the penalties. Okay. So if they owe for many quarters going back always on the check, right. Apply to trust fund only, and the most recent quarter. And if that means you have to write multiple checks, because on the memo line of each chapter, you’re only putting one quarter then write multiple checks, okay. This, this lump sum pay down process. However, it has to be done before. This is really important. It has to be done before the case gets picked up by a field office. Okay. Once it’s been assigned to a revenue officer, the eligibility debt amount for this program is based on what it is that they owe on the date that the aro picks it up.
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So if it’s already been assigned, then they’re out of express criteria. They can then get into the regular IB TFIA that we’ll talk about next. But they, they would be out of express criteria. So if you have a client and their unpaid balance of assessment not including accruals is let’s say it’s $27,000. If you can get them to make a $2,000 or more payment right away to knock it below $25,000 before it’s assigned to a revenue officer, this is very, very, very, very much so in the best interest of the taxpayer to do so. And we’ll talk about why on the next slide there’s also a payment term limit cap. What that means is that the entire tax liability needs to be addressed within 24 months of approval of the IAA, so they can make no more than 24 monthly payments.
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And that 24 month period must come to a conclusion prior to the expiration of the statute of limitations on collection. So it has to be before the collection statute expiration date one of the, the really nice features about an IDTF II is that a four 33 B is not required at all. Okay. so no financial disclosure, no probing into bank statements, et cetera. None of that is required. Another nice thing is that a lien filing is technically not required either. So if you can, can bring, this is, this is one of the beauties of, of catching a client before you know, in not through lean marketing. Okay. but prior to that, through a referral or another process where they are looking for help really early on in the problem, if you can get to them before the lien is filed you know, before the normal collections processes have, have kicked in, that will automatically file the lien, then you’ve actually avoid the lien filing entirely.
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Okay. and, and even if the case has not been assigned to a revenue officer, even if it’s just being held in ACS then the lien filing can still be avoided. Another nice thing is, is that asset disposal is not required. So under the express criteria the IRS cannot force the taxpayer to sell assets in order to help pay down the liability. Okay. Also collection field functions, CFF if you’re not familiar with CFF, that’s a revenue officer is not required to make field visits to the business location, to catalog inventory and verify the value of assets. Okay. This normally required in, in an installment agreement or, or OIC process for a business but under express criteria, it’s not a a group manager or an ACS supervisor is still required to sign off, you know, review and sign off on any express AIAA.
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And if the amount is between 10,020 $5,000, that is due, then it must be paid through direct debit. So direct debit installment agreements are require if the liability is over $10,000. Okay. So there’s a lot of information on the slide. And, and this program for the taxpayers that qualify, or if you can kind of bend them into qualifying this program is really the way to go. And for a lot of small business clients they actually will, will be eligible for this. As long as you know, they, they look out for the $25,000 cap and they don’t let the, the, the, the problem linger for, you know, seven years, eight years. And then they’re going to brush up against the said cap. Okay. So great program. Let’s talk about the trust fund recovery penalty within an express installment agreement.
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Okay. the trust fund recovery penalty in this situation can be entirely avoided. Okay. So and, and we’ll talk about this towards the end but the 41 80 IRS form four one eight zero is the interview form that the IRS uses to determine whether somebody should be assessed the trust fund recovery penalty. Okay. How however, and this can be done both in ACS or in a collection field function with an aro, but they have to meet all of the IB TFE requirements that we mentioned on this prior slide. So it’s got to meet the, the, the 24 months to full pay the liability less than 25,000, et cetera. Okay. It’s gotta meet all these requirements. The debt needs to it, it can only include current calendar year or prior calendar year quarters. So for example right now at the beginning of you know, in early 2015, a an IB TFE IAA that avoids the trust fund recovery penalty assessment, well, we need to be either the current first quarter, 941 or the first second, third or fourth quarter of 2014 in order to avoid the automatic trust fund recovery penalty process.
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Okay. And the process is is the investigation is different than the actual assessment. I want to make that clear. Okay. so when you see me talking about no 41 80, what I’m talking about is no 41 80 interview. No. the IRS won’t engage in the research and investigation process of looking for somebody to pin the trust fund recovery penalty on. Okay. so it has to meet all the express criteria. DEC can only include the current and prior calendar years. And they haven’t already initiated the 41 80 process. Okay. so again, this is a timing issue, and this is usually what is going to trip up the, this process, not being able to, to, to work for your client’s benefit because if they’ve already initiated 41 80 proceedings, well, then it can be stopped. But in that case something else is going to come up.
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So if they’ve already opened the 41 80 investigation, the government can close it, but your client is going to be required to extend the time period the statutory time period for which the IRS is allowed to do this investigation and assessment. Okay. and this is done by signing form 27 50 which is the agreement to extend the assessment statute expiration date. That’s the ACEP stands for the which I should’ve made a slide out of this, but I’ll just tell you here, the, the ACE said we usually simply refer to it as the three-year rule. But it is a little bit more involved on that just slightly. So for specifically for employment taxes, trust fund exes, the ACE said for the trust fund recovery penalty process is as follows. The, the, the normal deadline is three years from the date that the return was filed or the, the following April 15th, whichever is later.
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Okay. So for example last year the, the, the, you know, if, if if a taxpayer filed their 941 on time for let’s just say the first quarter and that was due April 15th, 2014. Okay. The, the ACE said will be three years later, plus the following April 15th. Okay. So in that case, it’s actually four years. Okay. And this is what trips people up sometimes. So we call it the three year rule that be aware that depending on where, you know, which quarter we’re talking about, it could actually be between three and four years. Okay. Because of the following April 15th language in the statute. And it’s the later those two days, the, a set is very important. And this form 27 50 is important. As we’ll discuss, as we go further. Now, what we just talked about was the express version of the IDTF.
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Okay. Now let’s talk about the non express version. So again, the business stays in operation. The business will be addressing the trust fund liability. There’s no cap on the tax penalties and interest can be included in this installment agreement. A four 33 B is required. Okay. so you do need to submit a four 33 B with supporting documentation. However, if the full tax liability, the full tax penalties and interest will be paid within five years, or the tax liability is less than $25,000, then verification will not be required, but I’ll talk about verification processes later. But if it’s greater than 25 grand or not paid fully within 60 months, then it’s full financial analysis, full verification, full everything. Okay. It’s the full Monty on the financials for the business. Baleen will be filed. There’s no way to get around that.
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So with the in business trust fund installment agreement the, the lien is going to be filed. The IRS can require disposal of assets. Our revenue officer is going to show up and this compliance crosscheck, and this is what throws a lot of our clients into a little bit of a tizzy because they’re not expecting this. And what’s going to happen is, is that ACS or the revenue officer is going to look at the corporate officer’s partners, et cetera. And they’re to look at that person’s own compliance history. Okay. and so if there are any issues with the person’s individual tax compliance, then that is going to create a problem. A group manager or ACS supervisor sign off is required and doing a direct debit is optional. So the end business trust fund installment agreement it looks like, I mean, if you just look at all these criteria on the surface and take out the fact that it is a a trust fund situation, what does this look like?
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You know, this is what this looks like is this is just a regular installment agreement. Okay. here’s what makes it a little bit more interesting this right here, if you, if you were going to do a a screen capture of on your computer right now of any of the slides, this is the one that you want to capture. There’s a ton of information here, and it’s probably the most important slide in the entire process as it relates to working with your clients. Okay. The in business trust fund installment agreement, the, the, what makes it really different from a regular installment agreement is the trust fund and how the trust fund is handled, especially on the personal assessment side. So in these situations there are typically going to be three, one of three things is going to happen. All right, the, the ACS or the revenue officer will conduct the 41 80 interviews.
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All right. They’ll, they’ll start the trust fund investigation process. But no, 1153 is going to be issued, which is the 11th of the form, 1153 is the, the proposed assessment of the trust fund recovery penalty. Okay. So they’ll start the, the, the process and they’ll talk it away on their file. And they’ll make notations in the computer about who may be held personally liable, but they won’t actually assess the trust fund recovery penalty. If the liability is going to be fully paid by the installment agreement at least one year before the earliest ASAP. All right, let me repeat that. If the business installment agreement is going to properly cover the entire tax liability, at least one year prior to the earliest ASAP, then the trust fund process will be halted. Instead, the government is going to request that the taxpayer, anybody identified on the 41 80 processes potentially liable person for the trust fund recovery penalty, they will be asked to sign the 27 50.
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All right. And here is the interesting thing. The 41 80 process does not need to determine that the person was actually, should have been both willful and responsible and thus held liable for the, for the personal assessment what the, the language and the IRM, what it actually says here is form 27, 50 should be obtained from all persons who appear to be responsible for, but did not collect account for, or pay over the taxes which are collected. So it just needs to be the appearance that they might be able to, to, to personally assess them. They don’t have to prove that they’d be personally liable. So the 27 50 will be requested. And the ACEP feds will be extended to the end of the installment agreement period. Plus an additional year the tax payer can refuse to sign the 27 50.
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It’s not mandatory the individual taxpayer that is but then in most circumstances, the following process will be incurred which is also the second option and the same process that’s going to follow on if the tax penalties and interest are not fully paid by the, the installment agreement on the business side before that earliest ACE said period. Okay. And you also, my little note, this is where most of our clients are actually going to fall into, okay, in this case, there’s going to be a full trust fund recovery penalty investigation. There’s going to be a four 33 a requested, and most practitioners don’t realize this, but it is not mandatory for the revenue officer to request the 27 50 in these particular circumstances. In the first circumstance up at the top, it’s, it’s required that the aro offer the 27 50, but in the second set of circumstances, it’s not mandatory.
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This is where it’s, it’s, it’s critical upon us to make sure that the 27 50 gets mentioned. So if you don’t offer the 27 50, you’re going to get an 1153, which is the proposal of the assessment, the personal assessment. If the 27 50 is the taxpayer refuses to sign it, it’s probably going to result in an 1153, if the four 33 a shows collection potential, normally what’s going to happen here is if you don’t bring up the 27 50 issue which you should in the best interest of your client to help them avoid the personal assessment. But if you don’t bring it up, the revenue officer has already requested the four 33, a if there’s collection potential indicators, if there’s money to squeeze out of the individual, then there’s going to be a personal assessment. If there is no money to be squeezed out of the individual, there won’t be an assessment.
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But it is, it is entirely discretionary at this point on the aro. Okay. they’ve had, they’re required to do the 41 80 and get the four 33 a and make a collection determination. But it’s discretionary as to whether or not they actually assess the trust fund. Okay. In these situations. The third situation that comes up is for repeat offenders for, for people that have had past employment tax obligations that have been through a resolution process, or if they’ve been so in another business you know, if it’s tied to a same individual, the 1153 is always going to be issued, there is no way around that. Okay. So if you have serial debtors they’re they’re always going to be assessed this, and the situation is actually pretty common. You’ll see this a lot.
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If you do a high volume of 941 resolution work. And again, like I mentioned earlier before my little technical audio loss there this is one of the most important slides in this entire presentation. That’s why I spent so much time on it. The rest of what recover is going to fly really quick. But this is so important. I haven’t put the IRM citation down here. This is one of those there’s probably, you know, a dozen or so IRM citations that I think you should always have sitting around. And this is one of them. So for those of you that are just listening to the audio it’s internal revenue manual, section 5.1 4.7 0.4 0.1 again, five point 14.7 0.4 0.1 just do a Google search for that, and it’ll come up as the first listing.
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But it, it discusses specifically the trust fund recovery penalty assessment in IDTF situations. Okay. So this right here is just a summary. And I can tell you that what’s the majority of your clients are gonna fall into the second situation. And if you aren’t, you know, on the ball about the 27 50, then it falls into our own discretion which can be detrimental to your client. Okay. So getting an installment agreement into pending status is pretty important. When a IAA has been proposed either by mail fax voicemail and it goes into pending status, then there could be no levy action. There can be no enforced collection. Okay. In order for for an installment agreement to be identified as pending, that is a, an IRS term to, to, to get that pending label slapped onto the case.
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You need to provide identifying information about the taxpayer that’s name, N E I N basically you have to identify the tax liabilities to be covered the exact tax types and periods. You have to propose actual payment terms and on the taxpayer needs to be current and compliant. And for 941 situations current and compliant means they have to have all nine 40 ones filed. There cannot be any outstanding nine 40 ones. Okay. SFRs count as a filed mine 41, although you’re usually going to want to replace those because they’re usually wrong. The and they also need to be current with federal tax deposits. So when you’re working on 941 case, there will always, always, always need to come a date in time at which they, the business starts making their federal tax deposits for the current payroll period, and they never miss another one. Okay. there needs to be a point in time where that occurs.
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So to request an installment agreement, you can use IRS form nine, four, six, five. I’ve never completed a form nine 94 65. I always just do have a letter. I’ve got a form letter I use for that you must also request a type many practitioners fail to specify the IDTF especially the express. And like we already mentioned identifying it as express in particular buys you certain trust fund recovery penalty, assessment protections. So failure to identify that specific lender in your request. That’s what you’re requesting can be a bad thing for your client.
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Be sure to include all tax types and periods, be ready with four 33 information and for PPIs and non express IVT apps be ready to tap into any equity and assets. So be either ready to liquidate certain assets that are non critical to business operations or the taxpayer should be seeking three loan denial letters from three different banks. Okay. word of wisdom. Tell your clients never to sign anything without talking to you first. The most important document in particular is the 27 51, the 27 51 form comes with the 1153 it’s return form for the 1153. And it except the trust fund recovery penalty, personal assessment and waves, appeal rights. Okay. so not to be confused with the 27 50, which extends the ASAP voluntarily. Okay. very important to keep those two forms separated, even though they’re very close in number let’s talk offers and compromise real quick.
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And, and I know we only got 10 minutes left on the clock. And we’re only through halfway half of the slides, but everything else is gonna, is gonna fly really quick because the end business trust fund stuff those installment agreements, those are the bulk of the information you need to work to know to work 941 cases, but operating businesses can compromise their tax debts via the OIC process, including company liability for the trust fund taxes. Okay. However, the trust fund recovery penalty has to be assessed before filing the offering compromise. So the business can file an offer in compromise and pay just a fraction of the actual liability on their side. But obviously the trust fund still needs to be addressed. And someone’s going to be on the hook for it. You would use the four 33 B OIC version, not the regular four 33 B the four 33 B O YC is inside the offering compromise six 56 booklet, full financial analysis, full financial documentation, full financial verification.
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And I mentioned earlier that I’d go through what the verification process entails. This is just a really the beginning or there’s, there’s an entire section of the IRM for offer examiners to use when verifying assets and they go pretty in depth. So they’re going to poke through DMV records, looking at vehicles. They’re gonna look at UCC filings at you know, with the secretary of state’s office, they’re going to be looking for loan documents. They’re going to be looking for hidden assets. They’re gonna be looking for anything with a lien on it. They’re gonna come through state and County real estate records looking for property. They’re going to go and look in pacer, which is the federal court computer system looking for various court records. They’re gonna pull credit reports. They’re gonna use the IRS subscribes to commercial databases, such as Kelly blue book Realty track stuff like that in order to verify the valuations.
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And then also of course, they’re gonna make an in-person visit. You know, somebody from SBSC is going to come knock on the door in an offering compromise situation for an, for a, for an operating business real quick, let’s talk about appeals collection appeals program. This is, this is a fast track appeals process that requires the issue being addressed within a couple of days. Normally you’re going to file a cap appeal on a proposed levy action or actual levy action. And here are the two most common things you’re going to file a cap appeal for when you’re trying to obtain a levy release in particular, when there is third party harm involved, and the most common element of third-party harm is when a levee has been assessed on a business against their payroll account, which then means that payroll checks are going to bounce.
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And that is going to impact employees, obviously because they have bills to pay, right? So normally in a cap appeal, one of the most, the strongest arguments you can make for getting the levy release is this third party harm. You’re going to have to provide copies of payroll parallel information, payroll checks. I know all the payroll processing stuff and you can usually get the levy released up to the amount of outstanding payroll checks much more difficult to prove, but the second most common situation where you’re going to get a 941 levy release through the collection appeals program is if the lever levy jeopardizes the government’s ability to collect the debt. So for example, if a business is operating legitimately, they’re a viable, ongoing business they’re profitable, but the levy is going to cause a massive disruption in cashflow that will, that would severely impact business operations.
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And you can prove this through paperwork, then you can usually get some, or all of the levy released through a cap appeal. From my 2290 work, the most common thing where I see this is where I’m presenting fuel bills because of the trucks can’t, you know, buy fuel. Then obviously the trucks can’t run freight, doesn’t get delivered, the whole system shuts down. So that is an example of a disruption of business operations that I can use to show the government that their levy is actually bad for the government getting paid. Okay. A collection due process appeals. For the most part for CDP stuff, refer to the recording from last month’s webinar where I covered appeal stuff extensively but just some things I wanted to point out. Every tax period, every quarter has the right to only one collection due process appeal in its entire existence.
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Okay. and so filing a CDP only stops enforced collection on the covered tax periods. If there are other tax periods that the taxpayer owes money for particularly in the past where the CDP rights have expired, or they’ve already had a CDP, then those periods are not covered by the appeal and collections can still act on those. However, I always say appeals as your friend. And if they set you up with an installment agreement or other resolution, they’ll resolve all those periods at once which is one of the reasons why you still want to file a CDP appeal. If you have CDP rights in order to get your case kicked over to two appeals trust fund recovery penalty, I want to be very clear about this. It’s very rare to avoid the personal assessment and salt in small businesses except in those very specific in business trust fund and express situations discussed earlier, but even then notes in those cases, the, the, the criteria for avoiding the assessment are based largely on the asset or the ability to collect or the securing of an extension of the, okay.
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So there you’ll notice that the IDTF IAA criteria pretty much revolve around the ASAP and the ability to later assess the trust fund. Okay. but so in those cases it’s deferred, but it’s still out there also keep in mind if your, if your client’s a single member LLC, or a single shareholder escort, which a lot of our clients are the person that’s the single they’re getting assessed they’re on the hook. Okay. even in an in business trust fund non express, if there’s personal collection potential remember on that slide that I said was probably the most important slide in the presentation before you I said there, the ROI is going to collect the four 33 the four 33 a and if there’s personal collection potential and you don’t step up and propose the 27 50 for extension of the said, then they’re still the trust fund recovery penalty assessment can separation of the willful and responsible criteria be created. Yes, but it takes careful advanced planning. It takes a year or two can never be retroactive. Okay. beyond the scope of this presentation, but yes, it’s possible, usually only seen in larger businesses.
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What is the trust fund recovery penalty? Well, trust bond taxes. It’s all money is withheld from employee check paychecks. So it’s, it’s FICA and income tax, and they’re called trust bond because they’re held in trust by the business for payment over to the government. The, the real briefly of the trust fund recovery penalty process, there’s the 41 80 interview that is used to determine responsibility for having made the pit, the federal tax deposits and the willful failure to make the federal tax deposits. There are two separate things, both need to be proven, do bear in mind that multiple people can and will be held fully liable for the full amount of the trust fund. So if the IRS can identify two, three, four, or five people that are all, both willful and responsible for failing to make the federal tax deposits, everybody’s getting assessed.
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Okay. the, the letter 1153 is the proposal of personal assessment based on the 41 80 findings, the 27 51 is the acceptance of the assessment and waiver of your appeals rights. And then 27 50, that is our nice little tool for extending the ACE said. And that needs to be a tool in your back pocket for helping your clients. I, I’m staying at five or six times throughout this because it’s important your client, and you need to understand that the trust fund recovery penalty as a personal assessment payments made from the business against the trust fund, reduced dollar for dollar, the personal liability for the trust fund. Okay. Even if the business closes, the personal assessment remains because that’s a separate, it is an entirely separate personal assessment. It’s a separate case. It’s a separate debt.
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It’s a separate responsibility, it’s a separate resolution case, all right, what you should be charging for it, by the way. So again, for the six time after assessment, it is a personal liability. It’s absolutely no different at this point than a 10 40 case. Except with the exception of guaranteed installment agreements only apply to income tax. So honestly, there’s, there’s really nothing special about the trust fund recovery penalty. Once it has been personally assessed the fun, the, the, the battle, the negotiation, the, the, the maneuvering, the benefits to you that are available, the tools at your disposal are all pre-assessment of trying to avoid the assessment. Okay. But when you can’t avoid the assessment after that, it’s just a regular, personal case. So streamlined installment agreements, you bet ya partial pain, Stallman agreements on the personal side.
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Absolutely. can you do a regular AIAA? Of course. Can you do an offering compromise of course, on the personal side, which leads to a very interesting situation B offer in compromise double whammy. Yes. It exists. Yes, it’s real. Yes. You’ll do a few of them if you’re doing a high volume of 941 work and in the 2008 to 2010 timeframe in particular, there were a lot of these due to the recession. What on earth am I talking about? This is when an operating business, the business files an offer in compromise to compromise the business tax liability. I mentioned earlier that the business can do that, but there’s going to be the trust fund recovery penalty assessment. Okay. So we take the personal assessment. This is one of those rare situations where you’re just going to straight up sign the 27 51 and accept the personal assessment. Okay. So it goes to the personal side, the business has its own offering compromise to deal with. And that’s one case, well, then there’s the separate personal case, right? So it’s a separate personal case.
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The individual can also file an offer and compromise on their trust fund recovery penalty obligation. And a lot of these people tend to also have a 10 40 obligations. So you do them all with the you do them together. And so you have a business offer and you have a personal offer. This is pretty much the ultimate tax resolution situation where you can help your client to basically completely start over in the eyes of the IRS on both the business side and the individual side. And once the offer and compromise settlements are made and paid they can move on with their life and start over.
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So that’s why I call it the double whammy. It, it really is in, in those, in those rare situations where you can actually help somebody out doing this, I’ll tell you, this is really, really where it feels good to to, to do what we do help folks out. So just some helpful tips to help, to close out some things to think about here in Christmas colors for you when you’re four 30 threes make sure you’ve maximized expenses, minimize income legally of course but it’s in the best interest of your client for the four 33 B and, and, you know for the business, the P and L side, make sure you’ve included all the, the expenses don’t leave anything out. A lot of times it will help to get those three bank loan, denial letters well in advance.
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For me, that’s part of my new client intake checklist. It’s just something that we automatically do use that form 2,750 to your, your, your, your client’s benefit use it as a, as a negotiating point. Okay. don’t forget how useful it can be. Always take care of all tax accounts at the same time. You know, don’t leave any, any tax periods hanging out there because if you don’t catch it, the IRS may not either, all right. And, and rope it in. So make sure that, you know, all tax periods that the taxpayer has liability for that you’re taking care of those. And then lastly as with all things in tax resolution, never be afraid to ask for anything from the IRS. The worst thing that they can do is say no. And this is in 941 situations.
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This is particularly applicable to deferral of the personal assessment. You know, I’ve had situations where the taxpayer did not qualify for an in business trust fund installment agreement and you know, if the business can do, and again, very rare, very, very, very rare. But if he can do a partial pay installment agreement on the business side and avoid the personal assessment, that’s even better than an offer in compromise in some situations. So never hesitate to ask for the trust fund recovery penalty deferral. So that’s what I got for ya. I hope you found this educational and, and worthwhile sorry about my little technical hiccup earlier the recording of this presentation will be made available in your members area within the next couple of days. And if you, if you did not catch everything, I had to go pretty quick on some of the stuff but feel free to watch again thanks for attending. And I hope everybody has a great remainder of the tax season and never forget the, the money and tax resolution is out there by taking action. So you’re, you’re marketing yet. Your clients help them out. This 941 work is the bread and butter of the tax resolution industry. This is where the bulk of the revenue is.
