Oh I See! or The Truth About the Offer in Compromise (OIC)
Many prospective clients ask us if the IRS is willing to “settle” their tax debt, “Price Is Right”-style. (Probably not, Bob.) Without a doubt they’ve seen and heard ads from predatory tax resolution companies, offering a “Pennies on the Dollar” or an “80% Reduction” tax settlement. This blatant bait and switch is a reference to the IRS’ Offer in Compromise (OIC) program. What these shady salespeople fail to articulate is that most delinquent taxpayers are more likely to be struck by lightning on the back nine at Bushwood Country Club, than to have the IRS accept their OIC request.
An OIC, by the way, is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Offers are usually not accepted if the IRS believes the liability can be paid in full as a lump sum, or a through an Installment Agreement.
Will the IRS Settle My Tax Debt for Less?
Listening to these ads and talking to representatives from these “Offer Mill” tax resolution companies can be confusing for people in crisis mode searching for tax relief. “Offer Mill” is a term used to describe companies in our industry that sell the OIC to all of their clients, whether they qualify for it or not. The “80% Reduction” advertisement is a tool to get delinquent taxpayers to call for more information regarding the services these companies offer. This is no crime. The crime occurs, however, when the Offer Mill takes money from a taxpayer in trade for a service that is obviously not going to work, making a dire situation worse.
I imagine the Offer Mill salesman telling the potential client that his company has the inside track with the Service and has had hundreds of OICs accepted for “people just like you,” ending with “We’ll make them an offer they can’t refuse,” Godfather style. No mention of equity in assets, ability to pay monthly, IRS Collection Information Standards, compliance, IRS Collection Statutes… all of the bits and pieces that play key roles in the IRS’ decision to “settle.” It is almost impossible for anyone you speak with regarding your tax debt to know whether you qualify for an OIC without reviewing your whole financial picture beforehand.
A few large tax resolution companies, JK Harris, Roni Deutsch, and Tax Masters, have been in the news in past years for the atrocious, often criminal treatment of their clients. They ripped off the very people they claimed to help, citizens willing to give their last nickel for the “Pennies on the Dollar” IRS miracle cure. Unfortunately, this type of behavior has had a negative impact on the tax resolution industry as a whole, creating a bit of a bad reputation for all of us. And make no mistake, the “Offer Mills” are still out there. This is something M&M Financial strives to overcome daily.
Despite Offer Mills’ attempt to derail the OIC and the tax resolution industry simultaneously, statistics show that 2016 was good for IRS Offer candidates. The Offer acceptance rate in 2016 was 43 percent, the highest we’ve seen. Although the Service accepted about the same number of Offers as the previous year, there were less total Offers submitted to the IRS for consideration. The trend is heading in the right direction.
OICs Submitted 67,000 63,000
OICs Accepted 27,000 27,000
Dollar Amount Accepted $204,748,000 $225,946,000
Taken from IRS Table 16: Delinquent Collection Activities, Fiscal Years 2015 and 2016
IRS Fresh Start Initiative
The IRS’ Fresh Start Initiative continues to provide more flexible OIC terms, including changes to the reasonable collection potential calculation, a major component of the IRS’ Offer computation. The Service now looks at only one year of future income for offers paid in five or fewer months, down from four years; and two years of future income for offers paid in six to 24 months, down from five years. And, all offers must be fully paid within 24 months of the date the offer is accepted.
Negotiate Your Tax Debt with the Internal Revenue Service
It’s important to determine whether you qualify for the OIC before you head down that path with the IRS. If your Offer is denied, it’s likely you’ll find yourself further behind than when you started the process, which can take up to two years. At M&M Financial, we prepare and submit OICs for our clients that we believe qualify for the IRS program. However, we rarely begin a client relationship recommending the Offer in Compromise as the solution. That is a discussion we have with our clients after we’ve had a chance to review their financial information and we can intelligently point out the good and bad of the Offer program.
Overall, the OIC is a terrific way to resolve your tax liabilities, if you qualify. M&M can help you lower the risk involved in negotiating with the IRS. We specialize in resolving business and personal tax liabilities nationwide. We have perfected a unique tax resolution system that allows us to work within the strict guidelines set by the IRS and State taxing authorities, ensuring the best possible results for our clients. Contact us or call us at 866-487-5624 to find out how M&M’s Tax Resolution System can help you.