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Beware of offers to reduce tax debt

IRS will accept 'pennies on the dollar' only if you meet certain criteria. But companies will take your money even when you don't.

By Jeff Schnepper Apr 5, 2010 10:17AM

We’ve all seen the ads. They promise to settle your tax debt for pennies on the dollar. They don’t tell you how many pennies (one hundred, more than likely). And, they all want their fees up front.


The secret word starts wit an “S” for “stupid,” followed by a “C” for “crazy,”  “A” for “are you out of your,” and ends with “M” for “mind.”


These companies are playing the Offer in Compromise (OIC) game. Yes, it’s true that you can settle your tax debt for less than full value. But, there are hoops that you have to jump through that keep getting smaller, and not everybody qualifies.


The IRS will accept an Offer in Compromise only if you meet one of the following requirements:

  • There is doubt as to liability.
  • There is doubt as to collectability.
  • There are equity and hardship factors and the offer would promote effective tax administration.

Where liability has been established by a valid court judgment, the IRS will not compromise. The IRS is going to look at your assets and cash flow. If you have enough assets or cash flow to settle the debt within 10 years (the normal statute of limitations to collect a tax debt), any compromise offer will be rejected. “Hardship” and “effective tax administration” are more subjective and depend on the specific facts and circumstances. The IRS will rarely find those to exist if you’ve got dollars or assets to pay the debt.

I’ll step back if a compromise company charges for its services only if an OIC is accepted. Lawyers take cases on a contingency basis all the time. If the compromise company is so sure they can help you, let them put a little of their own skin in the game.


Until then, if pennies on the dollar are your solution, I’ll refer you to a quote from former U.S. President Richard Nixon, and even I can’t make this one up, “Solutions are not the answer.”


Dec 17, 2010 2:30PM

In 2009, The IRS Accepted Only 11,000 “Offers In Compromise”

Less Than 1% Of The 15 Million Delinquent Taxpayers


Jeff, you are dead on.


Taxpayers need to understand how important their choice of a tax representative is in their dealings with the Collection Division of the IRS about an unpaid tax debt. Delinquent taxpayers needing tax help should be aware of Tax Reduction Schemes. According to the BBB, “some (tax services) companies claim they can help consumers reduce the amount of money they owe in taxes or fines to the government. These claims often sound too good to be true and TV ads might include endorsements from customers who state the company worked with the IRS on their behalf and was able to reduce the amount owed to pennies on the dollar. Unfortunately, BBB has heard from consumers who paid thousands of dollars to such companies and were devastated to learn that the company didn’t keep its promise to reduce the amount owed and, in some cases, never even contacted the IRS.”

This option is available, but on a very limited basis. However, every taxpayer does have options. But why are acceptance rates by the IRS so low on submitted Offers?

Joe Hill, President of Tax SolutionsTM was a field collection officer assigned to the IRS Collection Division in a past life, His job was to meet with delinquent taxpayers on a face-to-face basis and collect tax for the IRS. 

During his years with the IRS, he met with many CPAs and Attorneys who represented taxpayers who owed the IRS. In the vast majority of these cases, the taxpayer’s representative had no idea how to effectively represent and protect their clients. Although the CPA or Attorney may have been excellent in their field, accounting, tax return preparation or income tax law, they had absolutely no idea how to protect their clients when dealing with me and the IRS Collection Division.

Taxpayers who submit their own Offer in Compromise (Tax settlement) or their representatives who submit Offers do not have the knowledge and experience to deal with the issues involved in an Offer. Most representatives deal with issues involving the IRS Collection Division once every few years. Correct procedures for submission, prior planning for the Offer before submission, IRS rules, IRS allowances and deviations from the allowances, state law, federal law and even the IRS employees’ personalities all play an equally important part in a successful Offer in Compromise.

Any reputable Tax consulting firm will offer free consultations to potential clients, reviewing the client’s particular situation and then we provide the client with all possible options to deal with their IRS problems. Then explain these options to them, while advising them of the consequences of each option, both good and bad, so they will know the truth on their chance of a successful tax resolution. 

But no one should go toe-to-toe with the IRS Collection Division without representation by a knowledgeable, experienced and aggressive tax professional who knows the IRS Collection Division techniques and procedures inside and out, to advice them, protect their rights and represent them.

Mar 17, 2011 6:59PM
This is a great article and I couldn't agree with it more.  It is unfortunate that taxpayers get caught in this scam time and time again and more often than not they are in a worse position than when they started the OIC process.  

I am an Enrolled Agent and have been representing taxpayers in front of the IRS and State taxing authorities for almost 10 years now and can't tell you the amount of times that taxpayers have come to me after their previous representative unsuccessfully attempted an Offer in Compromise.  

It is not easy to get the IRS to accept an OIC and no one can guarantee acceptance of an OIC. Technically a representative can't even tell you if you qualify for an OIC unless you give them full financial disclosure including supporting documentation.  

So if you are on the phone with someone that claims that they can settle your tax liability for pennies on the dollar without even having your financial information, then you should run and find a representative that will give you a fair and honest assessment of your situation.
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