Taxpayers are barraged by television and radio advertisers claiming they can settle IRS debts for mere pennies on the dollar. These ads leave you believing that IRS will let anyone off on their tax debts for less than what is due and owing. Not so! We have had many clients over the years that have fallen for these pitch men, only to have $5,000.00 to $10,000.00 taken from them with absolutely no resolution to their tax problems. BE VERY CAREFUL! If it seems too good to be true, it probably is.
To be sure, the IRS will, in some very specific circumstances, allow taxpayers to compromise their tax debts under a program known as an “Offer in Compromise—Doubt as to Collectability” (the “Offer Program”). But this should be done by a professional with plenty of experience in this area.
Under the Offer Program, the IRS will agree to accept less than the full amount due and owing by a taxpayer, if, and only if, the IRS determines that it cannot collect the amount due from the taxpayer. To be accepted into the Offer Program, the taxpayer must prove, from their specific financial circumstances, that they do not have the ability to full pay their tax debt. In many instances, this is simply impossible.
The IRS will analyze a taxpayer’s net assets and income to see how much the IRS could collect if it were to exercise all of its collection powers—Federal Tax Liens, Levy, Seizure and Sale. Consideration will be given to: (1) the total amount of the debt, and (2) the time remaining on the 10-year statute of limitations on collection.
We have had numerous taxpayers come to us for help after they have already paid $5,000.00-$10,000.00 to one of the companies claiming that they can help them settle their tax debts for mere pennies on the dollar. In many instances, these clients were never even eligible for the Offer Program in the first instance. Yet, these alleged professionals (sometimes known as “tax resolution” firms) hire sales people to “sell” taxpayers on the idea that they will be able to accomplish a settlement with the IRS, without knowing anything about the taxpayer’s financial situation. In the end, many of these taxpayers throw away thousands of dollars they could not afford, only to get nothing accomplished with the IRS.
Taxpayers should educate themselves on the Offer Program, and the eligibility requirements, before hiring anyone to assist them. Taxpayers should be very cautious of anyone promoting the Offer Program as the solution to your tax problem. Don’t fall for a pressured sales pitch. There may be multiple solutions to your tax debt, not just the Offer Program. Often the high pressured sales companies will not know how to advocate for you if the Offer Program does not work and you will have needlessly spent thousands of dollars and still be at risk for IRS levies taking your money.
Importantly, the IRS does not “settle” tax debts the way another creditor might. People hear the word “settle” or “settlement” and they often think they can just offer to pay the IRS something, and that a back and forth negotiation with the IRS will take place. For example, a taxpayer may have $10,000.00 today and say, “I want to contact the IRS and tell it that I’ll pay the $10,000.00 today because that’s all I have, and that’s all the IRS is ever going to get from me.” But they may not qualify for any reduced settlement under the Offer Program.
Also important, before the IRS will even consider an Offer in Compromise, a taxpayer must be in compliance with their filing and payment obligations. This means filing any delinquent tax returns (generally for the last six years), making current estimated tax payments (if applicable) and making federal tax deposits if the taxpayer owns a business. If a taxpayer is not in compliance, the IRS will not even process an Offer in Compromise.
Once it has been determined that you meet the threshold requirement of being in compliance, there is an extensive financial analysis that must be completed to determine whether you fit within the Offer Program. This is done on a case-by-case basis and can be complex, depending on the taxpayer’s financial circumstances.
The bottom line: an Offer in Compromise is clearly not available for most taxpayers. The determination of whether you might qualify for the Offer Program should be determined by a competent, experienced tax controversy specialist, not a sales person simply trying to make money off of unwitting and scared taxpayers. An Offer in Compromise is not a one-size-fits-all solution to a tax problem. If the Offer Program does not work, there may be another solution to the problem that could be quicker and more cost effective for the taxpayer, including bankruptcy (for income taxes only), or disputing the taxpayer’s outstanding tax liabilities on the merits, where appropriate.
If you owe the IRS money, contact Anderson & Jahde for competent, professional tax help.