When is an Offer In Compromise a means for penalty relief?

May 10, 2016 | Offer in Compromise

When is an Offer In Compromise a means for penalty relief?

I had a recent client that owed about $30,000 to the NYS Tax Department. The taxes related to late filed income tax returns for a few years, where he sold a sizable asset. We went through the normal procedure of filing the unfiled tax returns, and once the tax assessments were received we attempted to get the penalties abated. It was somewhat hopeless (to be honest). I felt bad since the client only makes about $20,000 a year in income so the penalty relief would have been very helpful to him. The Tax Department was very willing to listen, but they never granted any meaningful relief.

Then I had an idea. The client owned a piece of real estate that made him clearly solvent (assets greater than liabilities). One requirement, or method, of qualifying for an offer in compromise in NYS is that your insolvent (liabilities greater than assets). However, that said, the offer in compromise group is more willing than the NYS collections group to see the realty of a persons financial ability to pay, and in my case a person who owes more than one years worth of gross income is going to find it very hard to pay back the debt. I submitted an offer in compromise even though I knew it would be rejected since he did not qualify, but I had a hunch. The Tax Department called me to reject the offer, as I expected, but to my “surprise” agreed to remove all the penalties. The outcome was all that I could have hoped for.

By: Timothy S. Hart

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]