Caution: Pennies on the Dollar Part IV

In the first three parts of this series on an Offer In Compromise (OIC) we have discussed some of the pitfalls and things to look out for when using this as a resolution. We have attempted to make you a little more aware and a little more educated on the process and what will be acceptable by the IRS. We also went over the first two areas where an OIC might be an option for taxpayers which are "Doubt as to Collectibility" and "Doubt as to Liability."



Finally, let's take a look at the last area where an OIC might be accepted. It is known as Effective Tax Administration (ETA). This is an area where there is NO DOUBT as to the liability and there is potential to collect the liability in full but other circumstances are present that would allow the IRS to consider an OIC. There is no monthly disposable income, equity in assets owned is equal to or greater than offer submitted, the customer is not able to procure a loan on such assets, and extreme circumstances are involved such as health or sickness of an individual. To be eligible for this extreme circumstance the taxpayer must demonstrate that the collection of the tax would create an economic hardship or be unfair or inequitable. These offers are very rare.



Some other things to keep in mind...you cannot be in bankruptcy or have bankruptcy pending, you must pay a $150 application fee, you must submit 20% of your submitted offer up front if you are submitting a lump sum cash offer, you must be in full compliance with filing (no unfiled returns), you must be current with any quarterly estimated tax payments if you are self-employed, and 941 taxes are not eligible for an OIC.



So to wrap it all up - you absolutely need a professional to work on your tax resolution on your behalf but BEWARE of the company you choose. I recomend you do your due diligence and research their reputation as well as their BBB ratings and history. You must be aware that you actually qualify under the restrictions of the program we discussed before you submit an OIC or you will only waste time and money but your tax liability will still be there. Whatever you do, DO NOT WAIT to get your tax liability resolved...seek professional help immediately.

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.

Caution: Pennies on the Dollar Part II

In part one of this series on an Offer In Compromise we discussed how this has become one of the most misunderstood (and incorrectly promoted) tax solutions in recent times. There are a lot of companies who advertise this "Pennies on the Dollar" solution as the one and only way to resolve your tax debt with the IRS. They also willingly charge you money to submit an Offer In Compromise on your behalf with total disregard to your financial situation and the requirements the IRS has set forth in order to qualify for this resolution. While this is a viable option within the IRS tax code I must caution you to make sure you are aware of the qualifications of any company who is working on your tax resolution.



So let's look at one of the qualifications inside this program so you are aware if this is an option that you can qualify for. This could save you time and money. One reason for submitting an Offer In Compromise is called "Doubt as to Collectibility." That is when doubt exists (under your current financial conditions) that a taxpayer could fully pay off the tax liability in question before the expiration date the IRS has set. The IRS typically has ten years from the assessment date for each tax year to collect the unpaid date for that year. There are several things that can cause this expiration date to be extended but we will discuss that at another time. In order to confirm "Doubt as to Collectibility" there must be a financial analysis performed in order to discover if you can qualify under this rule. Current equity in the assets you own, current disposable income, terms on current loan payments, and future potential income are some of the things a financial analysis will uncover. If this is not properly done prior to submitting an Offer In Compromise you may be doing so without knowing whether or not you can even qualify for this program. This will waste time and money and extend the amount of time the IRS can collect the tax liability in question. Make sure you analyze your current financial situation to discover if you qualify before you follow this path to resolution.



In the next part of this series we will look into additional guidelines from the IRS on qualification for submitting an Offer In Compromise. Be sure to check back next week.

Caution: "Pennies on the Dollar." - Part One

There seems to be a lot of companies out there offering taxpayers quick and easy settlements of their tax debt for "pennies on the dollar." This program is called an Offer In Compromise but is this really the best solution for your tax problem? The IRS warns us to check carefully before using this option to resolve your debt. There are specific circumstances where this is a viable option or it would not be available within the IRS tax code. However, it is not the "automatic solution" that these companies are trying to sell to taxpayers. Most of these companies DO NOT GUARANTEE an Offer In Compromise will be accepted by the IRS on your case...they simply charge large amounts of money from the taxpayer to simply submit an offer to the IRS on your behalf. Typically, there is little examination as to the taxpayer's current financial circumstances in order to determine whether a settlement is an available option or even the best solution.



The IRS does have the ability to agree to a settlement of a debt for less than the current balance in certain situations. The IRS only approves about nineteen percent of the Offer in Compromises submitted annually. In fact, the IRS resolves less than one percent of all balance due accounts through the Offer In Compromise program. This option can cost the taxpayer time and money and should only be considered after all other options have been exhausted.



If this solution is something you are considering you will want to check back over the next few weeks. We will review the specific circumstances and requirements for this program so you can understand if this program is right for your tax situation.