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Many delinquent taxpayers probably have heard this slogan before on the radio or on cable TV:
“Your Tax Debt can be settled for Pennies on the Dollar with an Offer in Compromise!”
And it sounded really good but deep down we all know “If it sounds too good to be true it probably is”. Many other unrealistic claims are also made and we advise against using these methods to deal with taxpayer’s delinquent accounts for many reasons which will be discussed in more details in a future blog.
The main reason: our primary goal is to resolve a delinquent taxpayer’s IRS issues as rapidly, efficiently and inexpensively as possible. The Offer in Compromise process can last for months and sometimes over a year. During this time the taxpayer must make payments to the IRS without any guarantee that the Offer in Compromise will be accepted. There are too many variables at the discretion of the IRS making the Offer in Compromise program an inefficient and uncertain way to solve delinquent tax issues.
Only a very, very small percentage of Offers in Compromise (OIC) files with the IRS will be accepted and only so after intense negotiations. Most if not all Offers in Compromise are initially rejected by the IRS with a request for more information, therefore delaying delinquent tax resolution.
A different course of action may yield better and quicker results at a lower cost to the delinquent taxpayer. Our proprietary process will always present an alternative solution to an Offer in Compromise and our tax professionals will comprehensively explain the benefits and downsides of the diverse methods of effective and financially advantageous tax delinquency problems.
The amount of the Offer in Compromise is based on a complex formula consisting of many factors such as income, expenses, liabilities and assets. Additional considerations include calculations known to the IRS as Disposable Income, Realizable Value of Assets, Reasonable Collection Potential and Future Earning Potential. Some of these are largely subjective concepts which gives the IRS enough leeway to arbitrarily dismiss an Offer in Compromise as “frivolous” or insufficient in the amount offered.
During this process the delinquent taxpayer is already required to make some non-refundable payments to the IRS without knowing if the Offer in Compromise will be accepted. Again, we advise against using this method to deal with taxpayer’s delinquent accounts for many reasons which will be discussed in more details in a future blog.
Taxpayers need to know that once an Offer in Compromise has finally been accepted by the IRS and the negotiated debt has been fully paid, the IRS expects the taxpayer to stay current on his/her taxes from that point forward. This means filing tax returns on time and paying the amounts due when filing taxes if there is no tax refund. The taxpayer is not allowed to default for the next 5 years after an Offer in Compromise has been accepted. Since some taxpayers have a tendency to be “repeat offenders” the benefits of a successful Offer in Compromise can be totally reversed by defaulting again during the aforementioned five year time probationary period.