Once upon a time, the IRS accepted something called Offers in Compromise less than 1% of the time that they were filed. You had better odds going to Las Vegas and playing blackjack to get the tax money that you owed than to ask for an offer. The IRS just released statistics about three weeks ago on their Offer in Compromise Program and in 2011 the Service accepted 18%, in 2012 the Service accepted 19%, and in 2013 the IRS accepted 20% of these offers. Let’s discuss what an Offer in Compromise is, and how they work.
An Offer in Compromise is just what the name says. You offer the IRS an amount that is less than your tax debt, and they compromise the debt. An Offer in Compromise is nothing new. They have been around for many years. They have become more popular as Tax Resolution Companies have sprouted up across the country. In fact under the CWSEAPA® brand we own Tax Crisis Center®, LLC, based in Nevada. Tax Crisis Center®, works with clients that owe the IRS money, are being audited, are appealing an audit or collections decision, or are filing a United States Tax Court Petition. We file a number of offers every year.
Let’s talk briefly about how an offer works. Let’s say that you are 45 years old. You are unemployed, and you owe the IRS $75,000. Your assets are your home that you are upside down in, $1,500 in the bank, a car that is worth $3,000, and a 401(k) that has $10,000 in it. You could ask for an offer based on something called “Doubt as to Collectability.” What you are saying is that the IRS probably will not collect the amount of taxes due in your lifetime, so it would be better to get something out of you rather than nothing.
Another offer you can file is something called “Doubt as to Liability.” These offers are usually filed when you don’t believe that you owe the amount that the Service says you owe. There are many reasons to file an offer this way, the main reason is to get the IRS to audit the return again.
I want to caution you on something, do not just file an offer because a lot are accepted. Typically offers are filed as a measure before the IRS puts a lien on you, or when a lien has been placed on you and you are trying to get the IRS to stop their collections actions. In filing an offer, you have to give up a lot of personal information like bank account numbers, vehicle identification numbers, etc. If the offer is rejected you have just told the most notorious collection agency in the world where they can get their hands on your assets. Most Tax Resolution Companies will just file these offers and collect a fee. At Tax Crisis Center®, we will only file one if we believe that they have over a 70% chance of being accepted.
The Offer in Compromise program can save you a lot of money, but choose a company that won’t just file one to collect a large fee.