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.

---

Tax Tips - Which Tax Form Is Right For Me?

IRS Tax forms can be confusing.Am I a 1099 or... Read More

Organizing Your Taxes

Does this scene sound familiar? It's April 7. You haven't... 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

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

Tax Deductions - Mr. C.P.A. Can I Deduct a Pizza? You Too Can Deduct Your Fun By Using Tax Tips

Recently, I stumbled across a concept that could change your... Read More

Donating Cars To Charity - New Tax Rules

On June 3, 2005, the IRS released guidance on charitable... Read More

Deducting Points On Home Refinances

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

Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... 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

Car Donation: An Easy Way to Support Your Favorite Charity and Get a Tax Deduction

Most people look forward to getting their tax return, but... Read More

Uncle Sam is Ready...Are You? Organizing Tips for Tax Time

Anyone who is closely related to an accountant knows that... Read More

IRS Reports Tax Gap of $300 Billion

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

How to Check the Status of Your Tax Refund Online

So, you were pleasantly surprised to learn that you are... Read More

The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to... Read More

Rental Property Tax Deductions

Own residential rental properties? This article discusses how income from... Read More

Navigating The Internet Sales Tax Laws

QUESTION: I have been contacted by my local city... 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

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business,... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Keeping Your Own Money ? NOT Handing It Over To The Taxman

Most people trying to make a crust online (or offline... Read More

Identity Theft ? Impacting Your Taxes?

If your identity is stolen, your finances can quickly become... Read More

Small Business Tax Deduction - Write-Off Bad Debts

Practically every small business has receivables that it cannot obtain... Read More

Get Uncle Sam To Pay $36,000 For Your Childs Education!

Let's assume that you would like to begin saving for... Read More

Tips and Simple Guidelines on How to Calculate Payroll Taxes

Managing a business small, medium or big requires you to... Read More

Your IRS Tax Appeal Rights

Are you in the middle of a disagreement with the... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS has obtained civil injunctions against more than 100... Read More

Estate Taxes - It Pays to Plan Ahead

Estate taxes. It's not enough to simply know they exist,... Read More

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More

Slash Tax when Buying a Business

When buying a business, how the "purchase price" is made... Read More

A Taxing Investment

April 15 - The most dreaded day of the year... Read More

Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane

Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More

Tax Records - What You Should Keep And For How Long

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