October 1, 2013

The Truth on Tax Resolution Companies and IRS Offers-In-Compromise

For Immediate Release

Tax resolution companies bombard taxpayers with radio and TV ads on the promise of settling their tax debt for “pennies on the dollar.” However, settling with the nation’s most aggressive debt collector is not as easy as some would lead you to believe.

What is an Offer-In-Compromise (“OIC”)?

An OIC is an agreement between the IRS and a taxpayer that settles a taxpayer’s existing tax liability for less than the full amount owed.

What are the chances an OIC will be accepted?

The truth is, most OIC are not accepted. According to the IRS’s 2010 databook, there were 57,000 OIC submitted in 2010 (up from 52,000 in 2009). Of these, only 14,000 were accepted (up from 11,000 in 2009). This is a 25% success rate. Put another way, there is a 75% chance that your OIC will not be accepted. This is a serious fact to consider before you pay thousands of dollars to a tax resolution company.

Generally, an OIC will not be accepted if the IRS believes that a taxpayer’s tax liability can be paid-in-full through other means. Typically, the IRS will attempt to get the taxpayer to make a lump sum payment or installment payments considering other alternatives. The IRS will also require the taxpayer to submit detailed income and asset information before making a determination regarding the taxpayer’s ability to pay.

What’s the downside?

An OIC should not be submitted without consideration of both the positive and negative factors in making the offer. The submission of an OIC has some significant risks, including:

  • disclosure of possible collection sources for the tax liability
  • the IRS can take up to 2 years to make a decision on an OIC
  • If the IRS rejects the OIC, payments made to the IRS pending consideration of the OIC are retained by the IRS and are not available for a refund
  • waiver of substantial benefits, such as statute of limitations on past due taxes
  • immediate collection upon default

Inquiries regarding IRS tax collection or enforcement matters, please, call (484)614-6546 or msiddons@siddonslaw.com

Legal Disclosure: The information contained herein, is not intended to – and does not – create an attorney-client relationship. This article is not intended to provide legal advice, and readers should refrain from acting on information contained herein without seeking specific legal advice from individually qualified counsel.

IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document
Copyright 2013 Michael A. Siddons, Esquire. All rights reserved. No part of this publication may be reproduced or transmitted in any form, including photocopy, without written permission from Michael A. Siddons, Esquire.