The tax lawyers at Nardone Law Group, LLC (“NLG”) routinely advise and assist taxpayers in Ohio and throughout the United States with making arrangements to reduce or eliminate their federal tax liabilities owed to the Internal Revenue Service (the “IRS”). One area of particular interest to taxpayers is the IRS’s offer-in-compromise program. If you have unpaid federal tax liabilities, you may have received a notice from an IRS revenue officer. Revenue officers are employees within the IRS who focus on collecting unpaid federal tax liabilities. The primary function of an IRS revenue officer is to collect federal taxes that have been reported or assessed but not paid, and to secure returns that have not been filed. There are collection alternatives, available, however, to taxpayers that may resolve their delinquent federal tax liabilities and stop IRS levy actions, including: (i) installment agreements; (ii) currently not collectible status; (iii) bankruptcy; (iv) paying in full; and (v) an offer-in-compromise.
In a prior blog post, NLG discussed how the IRS values financial securities and, specifically, publicly traded stock. For a copy of that blog post, please click here. As a follow-up, this blog post will discuss the valuation of closely-held stock, meaning stock that is not publicly-traded, for purposes of an offer-in-compromise.
Valuing Closely-Held Stock
As previously discussed, the IRS Internal Revenue Manual (the "IRM") directs that, to determine the value of a publicly-traded stock, the Offer Specialist should obtain valuation information from a daily newspaper, other internal sources, or a broker as to the current market price for the securities. IRM §§ 22.214.171.124(3) and 126.96.36.199(2). Conversely, to determine the value of closely-held stock that is either not traded publicly, or for which there is no established market, the IRM directs an Offer Specialist to evaluate the following methods of valuing the company and assign the applicable portion of the company’s value to the taxpayer’s stock:
- Obtain and verify a Collection Information Statement (“CIS”) from the company;
- Review the most recent year annual report to stockholders;
- Review the most recent year corporate income tax returns;
- Request an appraisal of the business as a going concern by a qualified and impartial appraiser.
When a taxpayer, however, holds only a negligible or token interest in a closely-held company and exercises no control over the corporate affairs, the IRM permits an Offer Specialist to assign no value to the stock. IRM § 188.8.131.52(5). As part of negotiating an offer-in-compromsie, the determination of an ownership interest is one of the more difficult issues that arise. This is especially true for professional service organizations where the income from the closely-held business is all paid out to the owners. But, there are many other issues that arise and cause complications for an offer-in-compromise. Thus, when representing a taxpayer before the IRS regarding an offer-in-compromise, and closely-held stock is at issue, we must have a full understanding of the valuation rules to ensure we obtain the fairest result from the IRS.
Contact Nardone Law Group, LLC
Nardone Law Group represents individuals and businesses before the IRS with offers-in-compromise to resolve their unpaid federal income tax liabilities. The tax lawyers at NLG have vast experience in representing taxpayers who are in collections with IRS revenue officers. The current data indicates that the offer-in-compromise program is becoming an increasingly viable collection alternative. If you have unpaid federal income tax liabilities and are interested in working with the IRS toward an offer-in-compromise, you should contact an experienced tax attorney today. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the offer-in-compromise program. Contact us today for a consultation to discuss your case.