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IRS Refuses to Let U.S. Taxpayer Off of the Hook for $28K in Payroll Tax Penalties Despite Lack of Assets

IRS Refuses to Let U.S. Taxpayer Off of the Hook for $28K in Payroll Tax Penalties Despite Lack of Assets

In Buchanan v. Commissioner of Internal Revenue Service, an Indiana man asked a tax court to review a determination made by an IRS Appeals Office regarding an IRS employee’s refusal to accept his proposed offer-in-compromise. According to his collection due process appeal, the IRS sent the man a letter stating it would levy a tax of almost $28,000 against him over unpaid trust fund recovery penalties for six quarters between January 2006 and June 2007. The Internal Revenue Code requires United States employers to withhold certain trust fund taxes such as social security and Medicare payments from each worker’s paycheck. They are called trust fund taxes because an employer holds them in trust on behalf of a worker until the taxes are paid to the nation’s Treasury.


In response to the letter, the man reportedly requested a due process hearing from the IRS. As part of his request, the man asked the IRS to consider an installment agreement or offer-in compromise, or to place his account in a currently-not-collectible status. After the man filed his request, the IRS scheduled a hearing and asked him to provide certain information. The man’s power of attorney sent several documents, including an offer-in-compromise, to the IRS prior to the hearing date. As part of the man’s offer, he agreed to pay the agency about $1,350 in order to satisfy his purported payroll tax obligation. The hearing was postponed while the IRS considered the man’s offer. Eventually, however, the hearing was rescheduled and additional information was requested by the IRS.


After reviewing the additional information provided to it, an IRS Settlement Officer denied the man’s offer-in-compromise because his monthly expenses exceeded his income. The Officer also informed the man that his account was not collectible and stated the proposed levy action would not proceed. Although the man did not dispute the underlying tax liabilities, he responded by petitioning the tax court for a reconsideration of his offer-in-compromise.



Although the tax court stated future collection is still possible, the court held that the Settlement Officer did not abuse her discretion when she refused to accept the man’s offer-in-compromise because the information he provided did not support accepting it. After the man argued a piece of property he owned with his brothers was overvalued by the IRS, the court found that he produced no evidence to suggest the Settlement Officer’s decision was arbitrary. In fact, the court stated the man’s alleged lack of liquidity regarding his property interest was self-serving. In addition, the man failed to offer evidence from his siblings to support his contention that the property could not be divided or purchased by one of them. Because of this, the tax court sustained the Settlement Officer’s decision. This means the man’s efforts to satisfy his payroll tax penalty debt for significantly less than he owed failed and the IRS may collect the money from him in the future.


As this case demonstrates, it is vital to have a seasoned tax lawyer on your side if you are faced with a tax levy or other federal income taxation issue. Although some taxpayers choose to represent themselves, securing the services of a certified tax law specialist could save you time, unnecessary stress, and thousands of dollars. For several decades, San Diego tax lawyer William Hartsock has advised clients across Southern California about payroll, international, and other tax law matters. To speak with a dedicated tax advocate about your situation, please give Mr. Hartsock a call at (858) 481-4844 or contact him through his website today.


Additional Resources:

Buchanan v. Commissioner of Internal Revenue Service, 2014 TC Memo 68 – Tax Court 2014



Photo Credit: DarrenHester, MorgueFile

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