By now, everybody with a tax bill has heard the “pennies on the dollar” promises on radio and TV. Before handing over thousands of dollars to some Slick Rick salesman over the phone, here are some things you need to know about the Offer in Compromise program.
First and foremost: You probably don’t qualify. What’s that? How can I say that without even knowing you or your situation?Because the IRS statistics show that most people that apply don’t qualify, that’s why. In 2009, the IRS outright rejected 79% of all Offers in Compromise that were submitted. There is no way of knowing, but I do wonder how many of those 79% were submitted by fly by night tax resolution firms promising the moon to their clients just so they could get their money.
Secondly, the Attorney Generals of several states, the Federal Trade Commission, and multiple class action lawsuits have been won over the common sales practice of promising you that moon, and not being able to deliver. More often than not, clients in those situations are sold an Offer program at several thousands of dollars, and are then converted to an Installment Agreement (monthly payment plan to the IRS) with no refund of the price difference. This has been going on for years, and companies are being sued and shut down left and right these days for this and other egregious sales practices that are designed to do nothing but part you from your money.
So, there are probably tens of thousands of other OIC settlements sold by these companies every year that are never actually filed, so they don’t even go into that number that the IRS tracks.
If somebody is trying to tell you that you qualify for an Offer in Compromise without doing a thorough analysis of your financial situation, RUN! They will often say that you can settle your debt for some fraction of what you owe. That fraction is a totally made up number! The formula the IRS uses to determine your required Offer amount has NOTHING to do with how much you owe — it’s entirely based on what you own and what you earn.
To determine whether you even qualify for an Offer in Compromise, you need to examine the value of your assets, including your retirement accounts, cash, equity in your home, your vehicles, the value of business equipment, etc. If all that stuff is worth more than what you owe the IRS, then you are most likely ineligible for an Offer in Compromise.
Also, take a look at your income and expenses. The IRS doesn’t allow all expenses in this calculation, so you have to do the math based on the IRS National Standards. Your income minus your allowable expenses is then multipled by a number of months, usually 48 or 60, and THAT amount is added to your assets. Again, if that number exceeds what you owe the IRS, you are not eligible for participation in the IRS Offer in Compromise program.
Carefully consider all of these factors before giving anybody money to file an Offer in Compromise for you. There *ARE* reputable companies out there, but do your due diligence before spending that kind of money for help resolving your IRS tax debt.