Don’t waste your money on an Offer in Compromise. That’s right. Don’t file an Offer in Compromise! Not generally what you hear from people with experience filing them. Confused?
But the T.V. Ads Say…
That’s probably because they are a cash cow for some unscrupulous advisors, attorneys, and accountants. We often advise clients not to file the supposed golden bullet for tax debt, The Offer in Compromise.
OICs are Costly!
Depending on the complexity of the offer many firms will charge you between $3,000-15,000 for the preparation and follow-up representation with the IRS or other taxing authority.
Specific Acceptance Criteria
Your claim will almost certainly be rejected if you don’t meet these criteria. If that happens you just lost $3,000-15,000 that you’ll never recover. Sometimes people try to sell you on their negotiating skills with the IRS. Most of the time, that’s at best a marketing tactic.
At worst, it’s fraud. This is especially true if you haven’t yet shared items like your income and expenses as well as the value of any stock, bank accounts, life insurance policies, or properties. Until someone has taken a detailed look at your financial life, they really have no idea if they can help you.
Anyone who tells you otherwise either…
- Doesn’t know what they are doing.
- Actively attempts to scam or mislead you.
Either way, you should think about if you really want to work with them.
If the IRS accepts your offer in compromise, you agree to give away things like your refund each year until the amount is paid. You give away the ability to designate which debt the OIC payments go to.
If late with a return or accidentally miss a payment in the next five years, the IRS can retroactively revoke the entire OIC. You could end up with the same tax debt you had before minus the payments you made and the money you paid to prepare the OIC.
OICs give the IRS more time to collect on your debt.
The entire time your OIC is being considered by the IRS, sometimes up to two years, the statute of limitations clock has stopped. That means sending in an OIC on hope and prayer likely does more harm than good. There is a whole assortment of ways to deal with a tax debt that doesn’t involve agreeing to let the IRS collect from you for longer.
Sometimes, on rare occasions, you want to extend the time the IRS has to collect. In those cases, filing an OIC that only has a small chance can be a win-win. Those circumstances are very rare though and are usually part of a much more complicated and carefully orchestrated plan. It is unlikely without the advice of an advisor you would realize you had such a situation or that it would be helpful to plan to take advantage of tolling the CSED.
You may have simpler options…
Depending on your financial situation you may be able to avoid IRS seizures, garnishments, levies, and other actions while still being in debt. If your situation meets the required criteria you may be able to simply wait out the IRS. In addition, appropriate tax planning, the restructuring of the business, and personal assets can help you meet the IRS’s criteria when you might not otherwise. The IRS has 10 years to collect on most debts, after which the debt disappears. Any advisor seeking a holistic solution to your problem will always keep that in mind.
There are plenty of other detailed reasons why Offers in Compromise are the wrong choice for many taxpayers. Those struggling with overdue balances at the Internal Revenue Service, Maine Revenue Service., or other state taxing agencies have enough problems without adding a giant bill to their already strained financial life.
Considering an Offer In Compromise?
If you are considering attempting to file a compromise it really pays to have a consultation with an advisor experienced with them. A consult helps understand how an OIC can affect your tax situation and your other options. When you talk to an advisor, make sure that they can explain the benefits and downsides of an offer.
Serving Central & Northern Maine
If you struggle with overdue balances at either the Maine Revenue Service or the Internal Revenue Service and you live in central or northern Maine considering, call us for a zero-risk initial consultation. Located in Bangor, we work with clients regularly from southern Maine, through Augusta, and all the way up to Fort Kent. If you are outside of our home state and want a second opinion after someone else tried to sell you an OIC, you can give us a call as well.