Every taxpayer who has IRS tax debt wants to be accepted in the IRS’s OIC program. Who wouldn’t? OICs allow taxpayers to settle their tax debt for less than the full amount owed.
Misconceptions About OIC Program
One of the IRS’s 2021 “Dirty Dozen” tax scams are schemes that persuade taxpayers into unscrupulous actions, such as Offer in Compromise mills. Many of these OIC mills advertise that they can settle taxpayer debt for “pennies on the dollar”. Some falsely claim that they have a special relationship with the IRS to get OICs accepted by the IRS. Very often taxpayers spend thousands of dollars to these OIC mills only to find out later that their offer was rejected by the IRS.
The Truth About OIC Program
What does the OIC program mean to the average taxpayer in collection? Absolutely nothing. The cold hard facts are – almost no taxpayer gets an Offer in Compromise as a way to settle their IRS Collection Case.
In 2020, the last year statistics are available, the IRS settled 7.4 million IRS Collection Cases. Of those settled cases, only 14,288 offers were accepted. That’s right – less than 1/4 of 1% are settled with an Offer in Compromise.
Tax Tip #1
If a tax resolution firm says that you are eligible for an OIC and does not perform a financial analysis of your assets and income and expenses . . . run, don’t walk, away from that firm. The only way to determine if a taxpayer is eligible for an OIC is to perform an analysis of the taxpayer’s financial situation . . . looking at the fair market value of assets held, all debt obligations, gross income, and expenses allowed per the IRS tables. The IRS uses Form 433-A(OIC) to compute what an individual taxpayer’s ability to pay is.
Tax Tip #2
CPAs, attorneys and EAs (enrolled agents) are eligible to file OICs on behalf of a taxpayer. However, just because a person is eligible to represent a taxpayer before the IRS, does not mean that they are qualified to do so. The cost to have a professional file an OIC will run in the thousands of dollars, totally dependent upon the number of years of returns not yet filed, the complexity of those returns, whether the taxpayer is self-employed or a W-2 employee, the amount owed to the IRS and the number and types of assets and debt held to name a few considerations. While the IRS informs taxpayers that they can self-file their OICs, which is correct, the IRS does not share the intricacies of filing an OIC that reflects the lowest amount (if any) that a taxpayer can afford to pay.
Hence, the importance of engaging a tax professional who specializes in IRS tax resolution. This specialist may know the IRS’s rules better than the person evaluating your OIC and get you the very best offer available to you.
Tax Tip #3
Far too often, some tax professionals and taxpayers focus solely on the federal taxes owed. If federal taxes are owed, it is likely that state taxes are often due. It often is in the taxpayer’s best interest to resolve the state taxes before seeking relief from the IRS. Payments made to the state, if structured properly, can be an allowed expenses when computing what the taxpayer can afford to pay the IRS.
Tax Tip #4
If a taxpayer does not qualify for an OIC, all is not lost. Other resolution alternatives include installment agreements, currently not collectible (CNC) status, and penalty abatements. A tax professional who specializes in IRS tax resolution will be intimately familiar with these alternative plans and can advise you accordingly.
If you would like to discuss your business or personal tax planning, tax preparation and other financial If you have been using the IRS has a bank to hold your overpayment,concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.