In June 2022, the U.S. Internal Revenue Service (IRS) issued an important news release that answered the question of whether those owing money to the IRS could legitimately work with companies that advertise that they can settle your IRS debts for pennies on the dollar.1 The IRS classifies this type of offer as one of their “Dirty Dozen” scams.
The IRS warned in the news release that taxpayers with pending tax bills should contact the IRS directly and not go through “unscrupulous” tax companies that use local advertising and falsely claim they can resolve unpaid taxes for pennies on the dollar.
Seeking the advice and services of a CPA or accounting firm that handles tax resolution is a safe and wise decision.
The companies that place ads on television or on the radio offering to settle your tax debt for pennies on the dollar are known by the IRS as Offer in Compromise mills. What these “mills” don’t tell you is that you will be paying a fee to them to obtain the same deal that you could have gotten by working with the IRS directly.
In the news release. IRS Commissioner Chuck Rettig stated, “No one can get a better deal for taxpayers than they can usually get for themselves by working directly with the IRS to resolve their tax issues.”2 The IRS provides a wealth of information online on how to settle your tax debt. Information on what is called an Offer in Compromise can be found online here3.
An Offer in Comprise is essentially what those scam companies are offering you, but without their fee attached. It allows you to settle your tax debt for less than the full amount that you owe based on your level of financial hardship. The IRS will take into account your ability to pay, your income, your expenses and your asset equity. Asset equity is the amount of money you would keep from something you own after any loans on that asset are paid off.4 The IRS generally approves an Offer in Compromise when the amount you offer represents the most the IRS can expect to collect within a reasonable period of time.5
The general eligibility criteria to apply for an Offer in Compromise include the following:
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- You need to have filed all required tax return and made all required estimated payments
- You can’t be in an open bankruptcy proceeding
- You have to have a valid extension for a current year return if you are applying for the current year.
To get a better idea if you qualify for an Offer in Compromise the IRS has an online tool called the Offer in Compromise Pre-Qualifier Tool that individuals can use to make sure they are eligible to file an Offer in Compromise. The Offer in Compromise Pre-Qualifier Tool can be found here 6
For many people, the thought of working with the IRS to settle debt can be daunting. That’s why getting advice from a reputable bankruptcy professional is advisable. A CPA or tax and accounting firm can guide you through the process, and unlike the scam companies offering to settle your debt for pennies on the dollar, a tax professional can provide you with advice on dealing with the IRS as well as all your other options for eventually achieving financial freedom.
Tax Avenger in Canton is a Michigan tax and accounting firm that specializes in tax planning and tax resolution services. If you have tax debt that need to be resolved, the sooner you address it the better. Call our tax firm today and speak with an experienced CPA with a Free Consultation.
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1,2 Dirty Dozen: IRS urges anyone having trouble paying their taxes to avoid anyone claiming they can settle tax debt for pennies on the dollar, known as OIC mills, 6/7/2022
Link: https://www.irs.gov/newsroom/dirty-dozen-irs-urges-anyone-having-trouble-paying-their-taxes-to-avoid-anyone-claiming-they-can-settle-tax-debt-for-pennies-on-the-dollar-known-as-oic-mills
3,5 Offer in Compromise
Link: https://www.irs.gov/payments/offer-in-compromise
4 What Does Equity in Assets Mean? 2/5/2019
Link: https://finance.zacks.com/equity-assets-mean-1360.html
6 Offer in Compromise Pre-Qualifier
Link: https://irs.treasury.gov/oic_pre_qualifier/