Sunday, July 6, 2008

Caution: "Pennies on the Dollar" Part III

In the first two parts of this series we have taken an inside look at a program called an Offer In Compromise or OIC for short. This is advertised by many companies who offer "Pennies on the Dollar" settlements. Be very careful before you attempt this type of settlement or use a company who uses this as the primary way to resolve your tax debt.

The IRS will generally accept an OIC when it is unlikely that the tax liability can be fully collected AND when the offered settlement amount reasonably reflects the potential collectibility from the taxpayer. However, there are several reasons that an OIC can be accepted. In part two we discussed a classification known as "doubt as to collectibility." In this part we discuss "doubt as to liability."

Doubt as to liability occurs when a legitimate doubt exists that the taxpayer owes part or all of the assessed tax liability. This can be used to re-open an audit. The taxpayer must refile amended tax returns to show proof that they don't owe part or all of the tax liability. This is a rare case and has a less than 5% success rate. There must be some very complete and accurate documentation from the taxpayer in order for this to be considered because you nobody wants to re-open an IRS audit.

Next week we will look at an Effective Tax Administration OIC. We will also look at some other issues that may keep you from reaching a settlement through an Offer In Compromise.

No comments: