Offer in Compromise: Answers to Most Common Questions

Listed below are some of the frequently asked questions that we receive about the IRS Offer in Compromise program.

OIC program: scam or genuine?
Offer in Compromise is a real program. But, some tax firms misuse this program by reeling in individuals with fake guarantees and market themselves as having the ability to settle their tax debts for “pennies on the dollar”. The advertisers want people to believe that they've some government influence or power and guarantee to help with paying off their tax debt for 90% less than they owe. These rip-off companies utilize this program as bait for getting citizens to hire them. However the IRS did nothing as of yet to get rid of these tax frauds.

Many Offers in Compromises failed to benefit people due to either: a) they hired an inexperienced tax company (who'll do nothing except cashing on huge fees) to represent them or b) they aren't qualified to apply for an OIC. By having a professional representation, some might have got eligible for a much better deal with the Internal Revenue Service.

Will the IRS keep my tax refunds if my offer in compromise gets approved?
Yes, the IRS will keep any refunds while your OIC is being processed, and also can keep any tax refunds in the year your offer is approved.

What will happen to the federal tax lien?
As soon as an Offer in Compromise is paid completely, the IRS tax lien that was filed against you will automatically be released. It normally takes about two months for this to take place.

Can I prepare and submit an OIC myself?
This is the point. Filling out an Offer in Compromise will never be like preparing a 1040 form. The IRS will invariably look for all possibilities to decline an Offer in Compromise before they accept it. Anything you declare in the form will be questioned. It's much more like an audit and the government is just interested in two things to settle your case: 1. your earnings and 2. your assets.

Exactly how much should I offer in an Offer in Compromise?
Naturally, taxpayers want to pay as low as possible to settle the money they owe. But the amount will be based on your Reasonable Collection Potential (RCP). Calculating the RCP is the most important aspect in determining the outcome of your application. Now your question is, “What number I should put down in the OIC form 656?” This is difficult to answer since there are various aspects that’s need to be taken into consideration. It is advisable to leave this task in the hands of an experienced professional because they're the best person to figure out the minimum amount that will make the IRS to accept it.

Can payroll taxes be paid out with an OIC program?
Yes, a business owner could settle payroll taxes and penalties through an OIC program. However the procedure is far more challenging and in order to strike a deal, they need to get professional guidance from a tax specialist.

Can trust fund recover penalties be settled with an Offer in Compromise?
Yes, you can file an Offer in Compromise to settle your back trust fund taxes that you have to pay to the IRS.

Any IRS Offer in Compromise tips?
Right after acceptance of your Offer, one should comply with tax filing and payment requirements for five years. Fail to do this will lead to your offer getting declared as default and your entire tax debts will come back.

Common Myths Related to the IRS Tax Settlements

With years of experience in resolving various tax problems, it is time for me to explore the common myths surrounding the IRS tax settlement. So if you or someone you know owes taxes to the IRS, just do everyone a favor and read the following top tax settlement myths. 

Bankruptcy isn't an option in settling back IRS taxes

It is true that you can file personal bankruptcy, but there are myriad rules to be followed. Within Chapter 7 bankruptcy, all old 1040 tax returns could be fully discharged even if there are tax liens against your home.  

Tax resolution lawyers can wave a magic wand and cut down my taxes and penalty charges

No, this is not correct. An individual in sound financial standing cannot avoid paying the IRS taxes without good reason, and as a matter of fact, these people should pay the required taxes in full. Also, be careful of those fraudulent firms who claim to lower your penalty charges and interest automatically, as there is no such type of procedure in the IRS. 

IRS tax settlement firms are really fraudsters

There are some people who think that all tax settlement companies are a complete scam. We know that this is not true. Whenever someone comes to us, we provide tax consultation for a fixed flat fee. Someone then tells them that they could get it done cheaper or can choose to do it themselves or by a regular CPA. Then, a year later, they come to us again and say, “I wasted a year and lots of money by not hiring you... Will you help me now?” You have to be very careful not to fall victim to scam companies, and you should only get involved with an established firm where tax consultation is not a hobby. 

The IRS filed a tax lien against the properties which are in my spouse’s name

Tax liens could be filed against any of your properties. Unlike judgment liens, the IRS doesn’t need a court ruling to file a federal tax lien. Therefore, if a tax lien is addressed to your spouse’s property, it doesn’t mean that there is a lien against the property.

The IRS can't do anything if I don't open their letters

It doesn’t matter whether you open the IRS’s letters or not, as they can enforce a collection action after specific time frame. Furthermore, you may lose right to tax court and important appeal rights if you don’t open the letters. 

The IRS must produce a court order to levy my wages or bank accounts

No, they don’t. The IRS will send you 3 letters, and if no action has been taken by you, they’ll just wait thirty more days after the final letter has been sent. After that, they have full rights to levy your wages. 

If I simply get rid of my assets by gifting to my friends and family, the IRS can’t touch me or my property

The IRS will consider this approach as fraudulent, and they are allowed by law to disregard the gift. Second, it will take extra work for the IRS to undo the fraudulent conveyance, and this definitely will anger them further. 

It’s a daunting task for many people to get their IRS tax settlement accepted. That’s why we have created a free comprehensive guide, “7 Steps to Sanity,” which provides full guidance in reaching the best possible settlement. Just enroll now to receive your copy.