IRS Offer-in-Compromise, Hype or Hope?

"Settle for Pennies on the Dollar! IRS debts settled for $20 Wipe out the Penalties with an Offer"-such is the language of Offer-in-Compromise promoters. What they fail to tell you is that one has to qualify for an Offer and few taxpayers will be able to meet the tough standards for an OIC.

The Offer-in-Compromise (OIC) has been around for a long time, but it wasn't until 1992 that IRS started really using the program in good faith. After the Revenue Reform Act of 1998, IRS became even more liberal with the OIC. At one point almost half of all Offers were being accepted. Unfortunately, in 2002, the IRS started getting tough on Offers and now only about 25% of all Offers are accepted. The main reason for the decline was the centralization of Offers at two IRS locations instead of them being worked locally at the district offices.

An Offer can be made for "Doubt as to Liability" or "Doubt as to Collectability." Submitting a proper OIC is more than just filling out an IRS Form 656. A good offer must have 3 recent months of supporting documentation attached with the Form 656 (if the OIC is for doubt as to collectability). Failure to fill out the Form 656 properly, failure to include all liabilities, or failure to provide the documentation required results in an Offer that is dead on arrival. Even if the forms are complete and the data provided; the Offer is now just "processable" and 6-9 months may go by before a decision is reached on the merits of the OIC.

Unscrupulous Offer Promoters often don't qualify people for the Offer, they just sell them a bill of goods. Folks can pay thousands and not have a chance at an OIC to begin with! Don't do business with anybody that doesn't at least take a full financial statement from you. If the matter is Doubt as to Liability, no financial is required, but there needs to be a solid basis for the claim in law and policy.

The main items that often sink an Offer when someone does qualify based on income and expenses are assets such as IRAs, 401Ks and home equity. If you owe the IRS 25K but you have an IRA worth 50K and home equity of 50K, forget about an OIC. There would have to be a horrible circumstance in your life to get past the equity in assets. In very rare cases of health or old age, exceptions can be made. Just because you can't pay your bills on time doesn't make you an Offer candidate. You must not be able to full pay based on income and expenses plus the "quick sale" value of your assets. Only then is a Doubt at to Collectability Offer an option.

If you qualify, you really can settle for "pennies on the dollar," but it might be 30-50% of your debt based on the math. To settle for $500 you would have to be broke with no assets at all and no prospects for near term improvement of your financial situation. See a CPA, Tax Attorney, or Enrolled Agent if you are considering an Offer. They can go over all of your options.

You can learn more about Offers at these websites:

www.irs.gov
www.naea.org
www.nsacct.org
www.etaxes.com
www.exirsman.com

James Robert Coleman, E.A., A.T.A.
Enrolled Agent, Accredited Tax Advisor, former IRS Revenue Officer. Member-National Association of Enrolled Agents & National Society of Accountants.

In The News:

Too many taxes  The Indian Express
Tax Fraud Blotter: Run and gun  Accounting Today

IRS Reports Tax Gap of $300 Billion

The Internal Revenue Service is reporting that the difference between... Read More

I Havent Filed a Tax Return with IRS in Years, What Do I Do?

In elementary school, kids come up with creative excuses why... Read More

Access to E-records by Taxing Authorities: A Case for Pakistan (Part I)

Background issues of access to recordsTo assess the records at... Read More

What You Need To Know About Taxes If You?re Getting Married

It may not be high on the list of wedding... Read More

Business Tax Loophole: Leasing Assets To Your Corporation

While there are many equally valid reasons to incorporate, saving... Read More

Truly Bizarre Taxes: The Tax on Illegal Drugs

One can never underestimate the enthusiasm that politicians have for... Read More

About Income Taxes; Tidbits

1812The first attempt to impose an income tax on America... Read More

State Tax Information

All states also have their own tax system. Typically there... Read More

Are You Overpaying Taxes If You Use Tax Preparation Software?

For many business owners the answer to this quandary is... Read More

Requirements To Produce Tax Information (Whats Up With That?)

"What we've got here is a failure to communicate." ... Read More

Hurricane Katrina ? How To Use Your Business Loss To Get A Refund on 2004 Taxes

With the massive losses caused by Katrina, the economy of... Read More

Highlights of IRS List of 2005 Tax Scams

Each year, the IRS lists various scams taxpayers get caught... Read More

How To Get An Extension To File Your Business Tax Returns

Yes, the tax season is upon with the first filing... Read More

Save Money on Taxes - Double Your Income Now With Tax Saving Tips on Deductions

Adding Your First Additional Stream of IncomeMost new wealth builders... Read More

Where to Find Tax Breaks for Your Home Based Business

April 15th looms in front of most people every year... Read More

Business Tax Deductions

As we enter mid-March, taxpayers begin to become very interested... Read More

The Implications of Income Tax Charge on Estate Planning

OverviewIn the Pre-Budget Report of December 2003 the Chancellor Gordon... Read More

Knock-Knock-Knock

Knock-Knock-KnockWho's there?The IRS!The next quarterly payment of estimated income tax... Read More

Surprising Truths About Tax Preparers

Choosing the right tax preparer for your business is a... Read More

How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share

How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More

The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

10 Tax Tips to Reduce Costs and Increase Income

No one likes paying tax. Everyone understands that tax is... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

Euro Tax Haven Threat

Media reporting of a new EU savings tax directive has... Read More