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:


How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the... Read More

The Annual Gift Tax Exclusion: Getting The Edge

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

Taxation of Forgiven Debt: The 1099C & You

Often people fall on hard times and stop paying on... Read More

History Of The Federal Income Tax

The powers of Congress, and the limitations set upon those... Read More

Home Based Business Tax Deductions

Running a home based business reaps many wonderful tax deductions... Read More

Truly Bizarre Taxes: The Tax on Illegal Drugs

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

Insider Guides to IRS Audits!

Ever wish that, as a business owner, you knew exactly... Read More

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

Save Money on Taxes - Let Uncle Sam Pay for Your Fun!

"Deducting Meals and Entertainment"O.K. You've been working really hard on... Read More

Save Money on Taxes - Is the Only Way to Get Your Tax Savings is to Sleep With an IRS Agent?

Tilting the Tax Laws in Your Favor.In order to accelerate... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the... Read More

How To Get An Instant Pay Raise

As a gentleman was leaving my class recently, he wanted... Read More

IRS Reports Tax Gap of $300 Billion

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

10 Tax Tips to Reduce Costs and Increase Income

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

How to Donate Your Car to Charity and Get Tax Deduction

Donating your used car to charity is a win-win situation;... Read More

Deducting Points On Home Refinances

Deduction of Refinance PointsAny points that you pay in the... Read More

Business Tax Loophole: Leasing Assets To Your Corporation

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

Amending Procedural Laws for Collection of E-taxation

The electronic transaction ordinance defines the certificated copies in which... Read More

Tax Tips for Home-Based Business Owners

As tax time approaches, many home-based business owners begin completing... 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

State Tax Information

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

Six Urban Myths About Taxation

Six Urban Myths ? Taxation"I am proud to be paying... Read More

Electronic Commerce Taxation and Pakistan

Assume a buyer in Pakistan downloads software from the Internet... Read More

Employment Taxes ? What Are They?

If you have employees, you are responsible for paying a... Read More