If you're an insomniac like me, you've seen the commercials purporting to help you pay an IRS debt for substantially less than you owe.
The operative phrase is "pennies on the dollar." A company says that it has the magic bullet to shoot down your horrendous tax debt.
If only it were so easy.
Yes, the company probably has helped the folks whose accounts are spotlighted in the ads. But it's also likely that a lot more folks ended up paying the IRS their full debt or very close to it.
What these companies are doing is submitting an Offer in Compromise, or OIC, on behalf of their clients. This is a payment option where the IRS, in some cases, will accept less than a taxpayer's full bill. In these certain situations, the agency decides it's more cost-effective to get some money quickly than to spend years and dollars trying to get the full bill.
Precise process required: As you might suspect, the process is not as simple as the late-night cable TV ads imply. You don't just pick an amount to pay that the IRS then will rubber stamp.
You have to fill out Form 656, Offer in Compromise.
You also must submit your financial information via Form 433-A, Collection Information. This six-page document wants to make sure that you can't pay your full bill and that your offer is a reasonable one. That's the key: reasonable. Its no secret that OIC is for what the IRS considers extreme cases.
And then you have to pay to file your OIC request. The application fee is $150 you send along with Form 656-A. (A reduced fee is available if you can show you have little or no money.)
Plus if you're making a lump sum OIC, you must also include a
So I can see why some people want help in jumping through all these tax payment offer hoops.
Not always that helpful: But many of the purported pennies on the dollar companies, referred to as Offer in Compromise mills for the way they crank out offers, probably aren't your best move.
You do realize that you have to pay them, too. The companies never seem to mention that, or the amount, in their ads.
The IRS shares my skepticism about the cost of such programs and the ability of OIC mills to provide their purported tax-saving services. Word is that the agency is about to crack down on these businesses.
The IRS reportedly plans to slap big penalties on companies that make misleading claims and is eying criminal fraud charges, too.
Hire a tax professional: My advice is not to wait for the IRS to take action against OIC mills.
If you have tax bill you truly can't pay, then consult a tax professional who knows IRS rules and procedures and who can give your tax debt personal attention. If you hire a CPA, Enrolled Agent or tax attorney, he or she can deal directly with the IRS on your behalf.
A tax pro might not paint as rosy a picture as an OIC mill, but you will get a realistic assessment of your possibility of success in making the IRS a payment offer.
And isn't it better to get the truth up front, rather than spend time and money with a company that might not be able help you reduce your IRS bill at all?
Debt Assistance Program
A consumer should always consult with an attorney when trying to settle an outstanding tax bill. The attorney may charge more for his services, but you will get a better result and save money in the end.
Mike McIlwain
I tried one of the companies on TV and got ripped off. Later, I did go to a tax attorney and he was able to help me settle my tax bill. He didn’t make the promises that the rip-off made. One thing to keep in mind is that if you make partial payments to a company that helps you reduce your tax bill, then they will only work on your case according to how much money you’ve paid in. My tax attorney told me up front that the job would likely take so many hours and that it would cost so many dollars. I paid him and he worked dilligently on my behalf.