Wednesday, September 17, 2008

“I Want an Offer in Compromise.”

The most popular resolution that you’ll hear about is the “Offer in Compromise”, or an OIC. You always see advertisements on late night T.V. claiming that companies settled IRS tax debt for “pennies on the dollar.” Every U.S. taxpayer would like to get an OIC when needed, but what are your chances of qualifying for this option? Of the 3 million taxpayers that had an outstanding tax debt in 2007, less than 10% of those individuals/businesses were even a candidate to submit for an offer. There are many companies in the tax resolution industry that will submit an OIC for you knowing that you won’t even be a candidate, and have NO chance at getting approved. This has gotten so bad with companies that even the IRS has begun to warn taxpayers about these companies, known as “Offer Mills”.

There are many variables that need to be considered when trying to determine if you are an OIC candidate. Some of the main things you need to consider are:
1) The age of the tax debt. Remember, the IRS has 10 years to collect on a tax debt. The best way to understand the IRS view on this is to pretend someone owes you $2000. Would you accept a $200 settlement the next day, and call it even, or ask them to make continual payments?
2) You must also consider your assets. Some of the assets the IRS is going to want know about is real estate property, vehicles, boats, and any other asset that could be borrowed against, or is considered a “recreation vehicle”. When considering submitting an OIC, the IRS is going to force you to go through a COMPLETE financial investigation, and they aren’t going to settle if you have the ability to borrow, or even sell, an asset to full pay your tax debt.
3) Another common variable that throws the OIC out for taxpayers is your income, or future income potential. A lot of taxpayers say they can’t afford to pay the IRS due to their current financial situation and are struggling to “stay above water”, so to speak, with their bills. After further investigation you discover they have a $4,000 house payment…Like we have discussed before, the IRS is only going to give you credit for certain living standards on items such as house payments, car payments, utilities, and other living expenses. The IRS is also going to look at your level of education and future income potential. For example, if someone is a doctor and has the ability to earn large amounts of money but they are working at a job making minimum wage, the IRS will not settle. Basically, the IRS considers your income potential and will not settle knowing your income could increase considerably within future months.

The variables listed above are just a few of what the IRS will look at to determine if you are a candidate for an OIC. The lesson that should be learned from this is that you may run into companies that will promise to settle your debt without a complete financial analysis. These promises are simply untrue. There are, however, honest companies that will assist you in determining whether or not you qualify for an OIC. This will lead you to a genuine resolution with the IRS.

1 comment:

Brian Watkins said...

Great examples. You're right — unfortunately since there are so many misleading ads everyone thinks they qualify for an offer. Worse yet, the few honest firms that try to explain that an offer is not always the best option are occasionally seem as incompetent. People will say "the other guy told me he could do it, yet you say we can't".

What's important to note in these ads is what they don't say. A recent one I saw, no names mentioned, said "over the years we're saved clients millions of dollars in tax debt." While this is meant to sound impressive, this comment was preceded by claims of being the biggest firm, so if you imagined how many clients they have and how much collective tax debt must be involved, it doesn't necessarily speak to a high degree of overall success.