Offer in Compromise Warning

Kate Smith of Kiplinger.com writes in Pennies on the Dollar Tax Relief Offers Should Be Scrutinized:

Tax troubles keeping you up at night? Then you’ve no doubt seen your fair share of late-night TV pitches to settle your tax debts for less than you owe. Such “pennies on the dollar” come-ons, regardless of the source, demand scrutiny — especially if they promise an Offer in Compromise (OIC) with the IRS. Such deals to settle tax debts for less than the full amount are rare.

The IRS considered 44,000 OICs in 2008 and rejected 75 percent of them. An accepted offer will dig deeply into your savings and other property, the equity in your real estate and cars, and your future income, less basic living expenses.

We agree with Ms. Smith and have written about it in the following blog posts:

Warnings and Advice:

  1. Never hire anyone who says he can get you an IRS settlement for less than the amount you owe if he has not first asked you detailed questions about the nature and value of your assets, the amount of your income and the extent of your living expenses.
  2. Reputable tax professionals will conduct such an inquiry free of charge to determine, before they take your money, whether or not you are eligible for relief under the offer in compromise program.
  3. Even if he has evaluated your financial condition and determined that you qualify for an Offer, do not hire him if he guarantees that the IRS will accept the offer. The IRS regularly rejects good offers and nobody, not even Nostradamus, can predict what will happen after an Offer is filed.
  4. Many seemingly reputable tax advisors will tell you they can get you a great deal just to get you to hire them. Once they have your money, however, the deal suddenly doesn’t look so doable anymore.
  5. If you have significant equity in assets (including your home, your 401k or IRA, your cars, your jewelry and your furniture etc.) and/or you and your spouse have a combined monthly income that significantly exceeds the IRS’s determination of your necessary monthly living expenses, it will be probably be difficult (depending on the amount of your debt) to get the IRS to accept less than full payment.
  6. Before you consider hiring someone to prepare and file an Offer in Compromise for you, read the following blog post:

Offers in Compromise: Calculating Reasonable Collection Potential

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