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Does an IRS Offer in Compromise Really Work?

These days you hear many advertisements on the radio and television from companies that claim they can resolve your tax problems for pennies on the dollar. These ads refer to “brand new IRS programs” or something called the “Fresh Start Initiative”. What they are really referring to is a program run and administered by the Internal Revenue Service called an Offer in Compromise. The Offer and Compromise (“OIC”) is not a new program and has been around since the 1990s. It is driven by a rather unrealistic formula the IRS uses. According to the IRS, an offer in compromise will be accepted if the amount offered by the taxpayer is equal to or greater than the reasonable collection potential.

IRS records show a dismal success rate for the Offer in Compromise, just a shade under 25%. Why is this? The problem is that many of the companies touting their services as “tax specialists” are anything but, and file Offers in Compromise that have no chance of succeeding from the beginning. These companies are basically scamming you as the taxpayer by taking your money for something that has no chance of success. Here is how the scam works. IRS often files a lien against you when you owe back taxes. These companies get a list of these filings and start sending you letters. They claim that for a huge fee, they can resolve your problems. Typically, the initial fee will be upwards of $6,000 with no end in sight.

Here is all they really do. They are all out of state and there is never a face to face meeting. The never look at your entire situation to see if the Offer in Compromise could ever work. Generally speaking, a successful offer in compromise will come from a taxpayer who has liabilities in excess of his or her assets and little to no disposable monthly income after allowing for basic expenses. Regardless of whether this fits your situation, they will prepare a Form 656 for you. The form will require extensive financial data from you. You will actually do most of the work. When the company files the form, the IRS is supposed to stop all collection activity. The IRS will consider the form for about eight months during which time, your problems magically seem to disappear. After about eight months, the IRS will most likely send a rejection letter or make a counter offer for thousands of dollars more. The company then may request many thousands of dollars more to write an appeal. The entire time, you are out of the IRS collection loop, but interest is still accruing. You don’t know what is happening and you are basically held hostage to the company. If the offer in compromise is accepted you will, quite likely, have to make payments that you cannot afford, and if the offer in compromise is ultimately rejected, you will be right back to square one and you will have extended the statutes governing the bankruptcy and collection of taxes. You end up right back where you started and you will have wasted all the money you paid to the company.

For those Offers that do work, it is usually because the taxpayer has used a local Arizona attorney who you can meet with face to face and who analyzes your chances of success before taking your money and blindly filing the Offer. If the Offer in Compromise is not the way to go, your attorney will look at other options (installment agreements, waiting out the statute of limitations, liquidation bankruptcy, reorganization bankruptcy, etc.), and help you choose the best way for you to go. That is how the attorneys at Campbell & Coombs operate: what is best for you the client rather than just taking your money for something that is going to fail. We have an exemplary success rate for Offers in Compromise because we only file an Offer when we see a good chance of success. And remember, we are an ARIZONA law firm representing ARIZONA clients.