The IRS Offer-in-Compromise (OIC) program can be a great opportunity if you owe the IRS money you don’t have. However, some scam artists are getting in on the action and “selling” OICs that aren’t real.
The IRS OIC program, a genuine option for taxpayers who can’t afford to pay their full tax debt, allows you to negotiate a settlement for a lower amount. Why would the IRS allow this? The agency says that it generally approves an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time, beyond any extended timeframe allowed by other IRS payment plans.
However, qualification isn’t automatic. The IRS only accepts about 36% of the OIC applications they receive. Your unique financial situation will be carefully considered, including income, anticipated future income, real property, automobiles, bank accounts, and other property. These factors are computed together to determine what the IRS calls its reasonable collection potential (RCP). An OIC may also be accepted if there is a genuine dispute on whether the tax liability is correct.
You’ll need to submit detailed documentation as part of an extensive application package to prove your inability to pay or to back your assertion that the liability is in doubt. And, unlike most dealings with the IRS, a non-refundable application fee is involved ($205 in 2024). You’ll also need to be prepared to submit your initial payment with the application, usually 20% of the total offer amount or an acceptable periodic payment amount.
With so much on the line and so much documentation required, it’s in most taxpayers’ best interest to turn to professional help to seek an OIC. Unfortunately, OIC mills have popped up to “fill” that need with unrealistic promises.
“These unscrupulous ‘mills’ use aggressive marketing to make false claims of guaranteed settlements for ‘pennies-on-the-dollar,’ or will say there’s a limited window of time to resolve tax debts,” the IRS warned in a recent statement.
Like the recent Employee Retention Credit (ERC) scams, being aware of aggressive tactics is essential. OIC scams can include the guaranteed settlements and a sense of urgency or an impending deadline the IRS mentions above, but also excessive upfront fees, claims that they’ll help you avoid fees or provide a steep “discount,” or unrealistic claims like being able to erase your debt altogether.
Instead, a licensed, reputable CPA can offer the know-how to meet application requirements and represent a client to the IRS if the agency pushes back or denies the application (and an appeal is needed). As the IRS points out, “CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license.”
Depending on your specific situation, an attorney could be beneficial. However, a CPA is an excellent place to start. Feel free to contact us with questions.