Why not you ask? Most applicants do not qualify, and there are often more viable options. In addition, the Offer-In-Compromise (“OIC”) will only address IRS tax claims, and there very often is additional non-tax debt that will remain unaffected. A tax bankruptcy can eliminate everything and provide an actual “fresh start.” Often, a partial-pay installment agreement with the objective of “out-running” the Collection Statute of Limitations (CSED) is a viable alternative, especially if the taxpayer can qualify for “currently not collectible” for some or all the remaining collections period. Notably, the OIC will “toll” or stop the running of the CSED and the tax bankruptcy dischargeability periods.
Beware of Offer in Compromise “Mills”
Beware of so-called Offer in Compromise “mills” or “Fresh Start Programs,” which mislead taxpayers into believing they could settle their tax debt for pennies on the dollar, even though the taxpayer does not meet the technical requirements for acceptance of the offer. These fly-by-night “tax relief” firms will charge excessive fees by promising something they cannot deliver. These operators are often not manned by qualified professionals – such as tax attorneys or CPAs. They are typically just sales folk with no experience whatsoever. Most reputable firms do not charge any upfront fees and employ reputable practices.
Although the IRS OIC program is legitimate, there are specific requirements to qualify, so watch out for tax relief firms that make outlandish claims that they can settle a person’s tax debt for a small amount without doing any financial analysis. We found many instances where the OIC promotor knowingly advised indebted taxpayers to file an OIC application even though they knew the person would not qualify, wasting money and time (it can often take more than a year to get accepted or rejected).
Drawbacks of an Offer in Compromise
- You must file and pay any tax due in a timely manner for the five years after the OIC is accepted; otherwise, the IRS can revoke the OIC and reinstate the total amount of the liability that existed before the compromise.
- You must surrender tax refunds and credits in future years that you might otherwise be entitled to claim.
OIC is a public record. - The taxpayer must make a complete financial disclosure to the government, and if not accepted, the OIC provides a “road map” to the taxpayer’s assets for enforced collection.
- Verification of the taxpayer’s financial disclosures will be required.
- The IRS OIC does not resolve corresponding state tax claims.
- The taxpayer must make advance payments that are lost if the offer is rejected – twenty (20) percent if you are submitting a lump-sum offer with the balance due within five (5) months of acceptance of the OIC and if the offer amount is to be paid as periodic payment, you must pay the initial payment with the submission of the OIC and payment of the remaining balance in monthly installments while the IRS considers the OIC.
- The OIC process is tedious, time-consuming, and very invasive. The time and effort required to complete the OIC forms correctly is substantial.
- There is an application fee of $205.00 to apply for an OIC (unless you qualify for Low-Income Certification).
- Submitting an OIC with false information or making a false statement to an IRS employee is considered fraud and may be subject to civil or criminal penalties.
Buyer Beware – Don’t get ripped off by Tax Relief Firms.
Most tax relief firms tout an offer-in-compromise as the best solution to resolve tax claims (with false promises of success). But again, remember that the OIC does nothing to address the host of other debts that typically plague someone looking for a fresh start. The Offer-In-Compromise provides a road map to your assets, has a low acceptance rate, and acts as a “tolling event,” substantially delaying the period before which you can eliminate your tax claims cost-effectively using bankruptcy
Watch this ABC News video warning about the dangers of choosing the wrong tax-relief company.
Tax Workout Group Does Tax Debt Relief Right!
At Tax Workout Group, we focus on representing clients in “tax-motivated” bankruptcy filings. A “tax-motivated” bankruptcy filing is one where a principal claim in the case includes a substantial tax debt, related interest, and penalties. The tax debt can be any tax—income, sales, payroll, employment, or excise taxes. Our Bankruptcy attorneys analyze every tax claim and examine its attributes to eliminate or reduce it along with all other debt.
