Tag: Taxpayer’s Responsibility

Taxpayer Attempts To Claim A Unilateral Settlement With IRS

In his letter enclosing his $1,396 check, taxpayer asserted unilaterally that “we are now concluded on this tax return issue” and that he would not “have any more issues with IRS” regarding 2006. But there can be no settlement unless there is mutual assent to its terms, which taxpayer has not shown. To demonstrate assent by the IRS, taxpayer must do more than show that the IRS cashed his check. No compromise was implied by “the government’s acceptance and cashing” of taxpayer’s check.

Once assessed, a disputed tax liability may be compromised by the IRS under Code section 7122. Taxpayer was free to propose an offer-in-compromise during the proceeding by submitting Form 656, Offer in Compromise, together with supporting financial information. But he declined to request a collection alternative of any sort, insisting instead that he had no liability for 2006 whatsoever.

Taxpayer’s argument is meritless. A disputed tax liability may be settled by agreement between taxpayer and the IRS. A settlement of a case pending in Court is a contract that “may be reached through offer and acceptance made by letter, or even in the absence of” a written instrument. Taxpayer did not settle his 2006 tax liability with IRS counsel. Rather, his case was tried in Court and he lost.

Even if the IRS employee were thought to have made a settlement offer, no settlement of any kind is binding on the IRS unless it is duly authorized and properly memorialized, as “This Court has repeatedly declined to enforce a settlement agreement when the person entering into the agreement on behalf of the Commissioner lacked the authority to bind the” IRS. Taxpayer has supplied no reason to believe that his IRS correspondent had the requisite settlement authority.

Taxpayer relied solely on its unilateral statement that the issues were all resolved. It did not follow any of the procedures available to it. In short, taxpayer had proffered no plausible evidence of a settlement. Thus, the court held for the IRS.

Morris R. Saunders, msaunders@lgattorneys.com.

Taxpayer Held Liable For Withholding Tax Penalty After Agent Embezzles The Funds

Plaintiff was the owner of a corporation which was the owner-operator of five McDonald’s restaurant franchises. Plaintiff paid certain withholding penalties assessed against him and sought to recover penalties and related interest paid to IRS for the corporation’s alleged failure to make Federal tax deposits and pay taxes regarding its payroll taxes.

Plaintiff alleged that beginning “some 30 years ago,” the corporation engaged an outside payroll service to process all aspects of the corporation’s payroll, including the issuance of paychecks to the corporation’s employees, the withholding of federal and state taxes from these paychecks, the preparation of employment tax returns, and the depositing of withheld taxes with the IRS. The corporation would electronically transfer the funds necessary for payroll and associated taxes from its bank account to a third party payroll service. Plaintiff claimed that it “reasonably relied upon the outside payroll service and the clearinghouse bank to discharge their duties to remit withheld employment taxes to the IRS,” but instead, “the payroll service and/or the bank absconded with the timely submitted Federal Tax Deposits, which were not remitted to the IRS, resulting in the imposition upon Plaintiff of penalties and interest.

Plaintiff claimed that it learned that its payroll tax deposits to the IRS and had been embezzled, perhaps by the bank or the payroll service. It was later informed by representatives of the U.S. Treasury Inspector General’s Office that the bank was the subject of a Federal grand jury investigation. Plaintiff alleged that:

Through no fault of Plaintiff, unscrupulous third parties illegally diverted the EFTs intended for the payment of Plaintiff’s payroll taxes to their own purposes and failed to tender such amounts to the IRS. Plaintiff reasonably relied on [the payroll service] to tender its tax deposits to the IRS and exercised reasonable business care and prudence in so doing. An employer, like Plaintiff, is entitled to rely on a professional payroll tax service, such as [payroll service], to deposit payroll taxes from the employer’s sufficient available funds with a federal-authorized depositary, like [the bank], and to thereby discharge the employer’s obligations under the Internal Revenue Code and related Treasury Regulations to pay over withheld payroll taxes.

The Court held that, “at the heart of this action is plaintiff’s contention that its good faith delegation-to a third-party agent-of the responsibility to pay taxes in a timely manner may constitute “reasonable cause.” The Court concluded, as many other courts with similar facts have concluded, “a taxpayer may not avoid the adverse consequences of the failure of its agent to perform the taxpayer’s responsibility to timely file and pay federal taxes.”

If you have any questions regarding withholding tax liability, please contact:

Morris Saunders at:

msaunders@lgattorneys.com or (312) 368-0100.

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