Common Sense Advice Regarding Offer In Compromise Scams

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.

5 Reasons To Use Professional Representation To Resolve Your IRS Tax Debt

There has been a lot of media attention lately placed on the tax resolution industry. With the recent FTC bust on American Tax Relief, the California Attorney General coming down on Roni Deutch, and the Texas AG going after Tax Masters, the American consumer is left with the impression that IRS tax attorneys and tax resolution firms are just as bad as used car salesman.

While it’s true that these companies, and numerous others, have created a bad name for the tax resolution industry as a whole, the fact of the matter is that these companies are the exception, not the rule. There are dozens of companies with horrible BBB records and numerous reports on Ripoff Report and other web site. However, for every one of those bad apples, there are dozens of reputable, hard working firms that are just as big as the con artists, and for every one of THOSE firms there are literally hundreds of independent practitioners out there, including IRS tax attorney, IRS licensed enrolled agents, and state licensed Certified Public Accountants. Any of these licensed professionals are allowed to represent  taxpayers in front of the IRS.

The FTC recently posted a consumer alert telling people to handle their IRS disputes themselves. As an Enrolled Agent myself, I’m obviously biased in opposition to the FTC’s statement, but there is also a logical side to it. Look at it this way: You have one Federal agency telling you NOT to exercise your right to representation in front of another Federal agency. Doesn’t that sound a tad bit interesting?

Here are five reasons you should use professional representation to resolve your IRS tax debt:

  1. First and foremost, you should hire professional representation when dealing with the IRS for the exact same reason that you would hire an attorney if you got a DUI: The professional knows the laws, knows how the system works, and deals with it every single day, you don’t. It’s the same reason you call a plumber when the pipes burst, or the fire department when the house catches fire. These professionals are experts at what they do, in the same way that you are an expert at what you do.
  2. In the same way that attorneys talk to attorneys on a slightly different level than the rest of us do, IRS collections agents, auditors, and other staff are financial and accounting people, and they will speak differently with another accounting professional than they do with you. This benefits you in a number of ways, including avoiding miscommunications and helping to cut off issues before they arise.
  3. Your tax professional is unique because they speak multiple languages: Tax law, accounting, negotiation, and probably a few others. These languages are important to speak when addressing the IRS. Again, it comes down to doing what you do best, and hiring out the rest.
  4. Your tax representative understands all your options and what to do in different circumstances, you don’t.
  5. An Enrolled Agent or tax attorney is YOUR representative, and is looking out for YOUR best interests. The IRS agent on your case is not your friend, and is there looking out for the best interests of the government.

Keeping the above things in mind,  choose carefully when it comes to taxpayer representative. Exercise your right to representation, and don’t let the IRS bully your around just because you don’t know the laws and aren’t an accountant.

In my next post, I’ll discuss what you should look for when choosing a representative, and questions you should asking before sending any money.