Taxpayers in trouble with the IRS often ask me if it is really possible to settle with the IRS for pennies on the dollar.
Are you a glass half-empty type of person, or a glass half-full?
It’s hard to miss all those late-night TV commercials that offer to get you off the hook with the IRS for just a fraction of what you owe. National tax resolution companies advertise heavily.
My favorite ad used to feature a handsome young actor in a white doctor’s lab coat holding up a sign that read “$20,000”, while the voice-over talent claimed that his $1,000,000 IRS debt was settled for–you guessed it–pennies on the dollar. (The company running the ad is no longer in business.)
The glass half-empty perspective
What the commercials are talking about is getting the IRS to accept an Offer in Compromise (OIC). The reality is 60% of the time the IRS rejects such an offer. That’s the glass half-empty perspective.
Of course, the glass half-full perspective affirms that 40% of the offers are accepted. And the truth is properly structured Offers are accepted when they demonstrate that a taxpayer’s “Reasonable Collection Potential” is low.
A handsome, healthy young doctor with 30 years-plus of extremely high income potential is not likely to have an Offer in Compromise accepted by the IRS.
At the other extreme…
A taxpayer with the same IRS debt, but with health problems, less education, less assets, and lower income potential than the handsome young doctor will have a higher likelihood of having an OIC accepted.
Unfortunately, the people targeted by the TV ads do not know this. They’re stressed out, running scared, and hooked by the promise of an quick and easy solution. So they call the toll-free number and are connected with a high-pressure salesperson. They’re assured the firm will do miracles and make their IRS problem disappear, just as soon as they pay an up-front retainer of $5,000-$10,000.
In too many cases, it’s the tax resolution firm that disappeared, not the tax problem.
It doesn’t pay treat your tax problem like a game of high-stakes poker.
If you have the money to pay the IRS–or will likely have it in the future–then you can be sure IRS collectors have figured that out. No amount of bluffing, no amount of negotiating will get them to settle for less than you owe. That being said, there are cases where an Offer in Compromise is indeed an appropriate solution to your IRS problem.
It all depends on the specifics of your particular situation. Even if an OIC is the perfect solution for you, it’s not a quick and easy one. The IRS Collection Division will typically take 6-12 months to thoroughly review your Form 656 Offer in Compromise and all the supporting documentation required to go along with it.
It also doesn’t pay to handle your tax problem like a weekend “do-it-yourselfer”
Many taxpayers start out trying to handle their IRS Offer in Compromise themselves (or with their current CPA or attorney) but end up with negative results, or no results at all. It’s a very specialized area of practice, and you could benefit from the assistance of an Enrolled Agent or tax attorney experienced in Offers in Compromise, and who has the expertise to complete the IRS forms and represent your case before the IRS in the strongest possible manner.
ANCHOR ON THIS: It really is possible to put your IRS problem behind you, permanently. But it’s not always possible to do it with an Offer in Compromise. The program best-suited to resolve your tax matter will depend on a number of factors. Your best move is to consult with a professional who specializes in IRS Representation to determine what’s possible–and what’s not–for your particular situation.