Being in debt to the Internal Revenue Service applies to the wealthy, the not-so-wealthy, celebrities, and everyday taxpayers. Offers in Compromise (OIC) are touted in social media and elsewhere as a sweet deal to skate away from debt to the IRS. Before you respond to that advertisement, it is important to get the low-down on OICs and what they can really cost you.
One of the “Dirty Dozen” tax scams touted by the IRS are OIC “mills.” These pop-up businesses have a mobile, sometimes purely social footprint and spend their time fishing for taxpayers distressed by debt to the IRS. Agreed—if you owe the IRS, it is difficult to escape the fact emotionally or financially. The IRS sends notices to ensure you do not forget your debt, and most people understand the IRS has a pretty long collection reach.
So, when you see an advert describing an easy application for an OIC, you might pay attention. Pay a fee and the company will advance your application to the IRS, earning you rapid relief from an IRS collection process. Sweet deal, but not so fast.
If considering an OIC—consider these straightforward points about what the process means:
- An OIC is an offer by a taxpayer to settle a tax debt for less than is owed. The OIC process involves full disclosure by the taxpayer of their financial circumstances, including their assets, debts, wages, and other sources of income or money. The OIC process essentially provides the IRS with the same information they would have considered had they taken a collection action against you.
- A successful OIC is not the kind of “fresh start” offered through the bankruptcy courts. For some, bankruptcy may be a taxpayer option. An OIC is an alternative to bankruptcy. For the IRS, the aim of an OIC is evaluative—how much can you pay on your tax debt on a relatively quick turnaround? With an OIC, the IRS expects the liquidation of personal and real property, and the sale of assets to meet your OIC.
- The application for an OIC requires a basis for the relief offered. There might be doubt as to whether your tax debt will ever be collectible, concern that the tax debt is not legitimate, and other factors. In its analysis, the IRS will establish your “reasonable collection potential (RCP).” The RCP is the figure that the IRS believes it could reasonably expect to collect from you through garnishment, levy, or other collection process. The RCP is not often discussed by OIC mills. If you offer less than what the IRC believes you can collect—your OIC will be denied.
- You can check out your eligibility for an OIC without submitting an OIC through an online pre-qualifier tool. The data you put in and the result you receive from the tool is for your information only—it does not constitute an offer and the IRS does not retain the information. You must file an actual OIC application to initiate the process.
An OIC is not a sure thing, and in most cases, not a way to walk away from a significant tax liability with money or assets to spare. Save your time and money when tempted by a marketing offer for an OIC. If you have considerable tax debt, learn about OICs, consider other IRS payment options, or consult with an experienced tax attorney on solutions best for your financial picture.
Questions about an OIC or tax litigation? Speak with experienced tax attorneys for help today
With offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC delivers strong representation and guidance for those facing bankruptcy, tax litigation, payroll tax issues, or compliance questions. Call 800-579-0997 or contact us online today.