Fredrick James-Educating the Masses to Help You Save On Taxes

In the past year I have seen a lot of tax companies running commercials on TV claiming that they can dramatically reduce, or even eliminate, taxes owed to the IRS. They depict someone in a desperate situation who has just had their last $40 taken from their account by the IRS; you can imagine the helplessness and hopelessness they must feel. The tax companies running these commercials then lead the viewer to believe that they can magically relieve them of their tax burden if they just, “call right now!”

I often have meetings with potential clients in my office that have seen these commercials and think our tax team can wave that same magic wand, putting together a winning Offer in Compromise (OIC) to settle their debt with the IRS, wiping the slate clean. Unfortunately, I then have to explain to them that this is often far from the truth.

If a person has a tax debt with the IRS there are options to repay the debt that the client may qualify for. Whether it is an OIC, a structured payment plan or some other program that allows the taxpayer to repay the IRS over a period of time depends on their particular situation.

The Offer in Compromise (OIC) is a program under 26 U.S.C. § 7122 which allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt.

To qualify, at least 1 of 3 conditions must be met:

1. Doubt as to Liability
2. Doubt as to Collectability
3. Effective Tax Administration would create an economic hardship that would be unfair and inequitable

Very few cases actually meet one of the 3 conditions above in my experience.  A taxpayer would have to be considered permanently disabled, collect social security and have no possible way of ever paying the full tax amount back to have a good chance at having a full or partial OIC accepted by the IRS.

If you believe that you are a good candidate for the OIC, I recommend meeting with several tax professionals and doing your homework prior to paying a professional to attempt a OIC that may not get past the first interview with a OIC IRS Agent.