IRS Warns of Offer in Compromise Fraud (Again)

If it sounds too good to be true—it probably is. That is the message the Internal Revenue Service (IRS) wants to communicate to U.S. consumers about unscrupulous pop-ups marketing Offers in Compromise (OIC) as an easy route to shedding tax debt.

An Offer in Compromise is a longtime tool offered by the IRS for taxpayers with tax debt. As the title says, an offer in compromise is a calculated offer made by a taxpayer to compromise with the IRS on their tax debt. In turn, the IRS scrutinizes the offer to understand the value, if any, associated with a particular offer.

OIC scams have always been around, but in the pandemic years, the number of marketers advertising the OICs as a ‘get out of tax debt card’ soared. Danny Werfel, the IRS Commissioner, recently said, "Taxpayers should be cautious of aggressive marketing that can mislead them. Many OIC mills charge steep fees, give false assurances, and can take advantage of taxpayers with empty promises that their tax debt will disappear. The result is often good money paid for bad results.”

Most OIC mills are fly-by-night operations that advertise heavily on social media. Some advertise debt settlement services and make false promises that an OIC will wipe out tax debt with only a minimal payment on the debtor’s part. Many of these claims play into a general belief that the OIC program is similar in some way to federal bankruptcy.  That is, that the OIC program is aimed at giving taxpayers a fresh start by wiping away debt if they declare themselves in an OIC.

Tax debt, and worrying about its impact on personal and professional finances, can be ruinous. It is understandable consumers and business people would jump at what appears to be a relatively inexpensive life saver. But if you see an ad for an OIC, and are tempted to call the vendor, consider these realities:

• The IRS is not trying to provide a fresh start to debt-burdened taxpayers. The IRS is looking for an offer that will be financially beneficial and help them avoid expensive and time-consuming collection actions.
• The IRS OIC Pre-Qualifier tool is your most straightforward option to understanding how you might fare in the OIC program. You can work through the tool at your own pace, enter the information requested on the tool, and get a good idea of whether you might wish to proceed—given what you will have to pay.
• The Qualifier tool will help you learn your “reasonable collection potential (RCP).” The RCP is the amount that the IRS believes it will be able to collect if it seizes, sells, or puts liens on everything you own, including your financial accounts. The RCP is your OIC bottom line—the IRS will not accept your offer if it is less than the RCP (basically, the value of all your assets).
• You can feel comfortable working with the Qualifier tool because the IRS offers it as a resource and does not collect your information. You do not submit data through the tool that is used by the IRS; it is for your eyes and information only.
• If you do qualify for an OIC—the amount you offer must be paid in short order. You may need to take out a loan, incur credit card debt, or otherwise borrow the amount of money you need to offset what the IRS believes it would otherwise gain from taking you through collections.

An OIC is an important process if you understand what it really has to offer. If you are doomscrolling and come across a pitch for an OIC, and it sounds like a good idea? Use your phone to call a tax attorney experienced with the IRS and the OIC process to learn your real bottom line.

Speak with our tax group for guidance on OICs, tax litigation, and IRS audits

If concerned about tax controversy, compliance, or IRS criminal allegations, speak with our tax lawyers about your situation. We have offices in Chicago and Cleveland and serve clients throughout the U.S. and abroad. Call 440-250-9709 or contact us online today.