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. Here’s why 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- and 15,000-dollars for the preparation and follow up representation with the IRS or other taxing authority.
OICs have very 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 dollars that you are never going to recover.
Sometimes people will try to sell you on their negotiating skill with the IRS. Most of the time that’s at best a marketing tactic and at worst 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.
- Is actively attempting to scam and/or mislead you.
Either way, you should think about if you really want to work with them.
OICs come with strings attached.
If the IRS accepts your offer in compromise, you are agreeing to give away things like
- Your refund each year until the amount is paid
- The ability to designate which debt the OIC payments go to.
In addition, in some cases, if you are late with a return or accidentally miss a payment in the next five years the IRS can retroactively revoke the entire OIC. That means you could end up with the same tax debt you had before just minus the payments you made and the money you paid to have the OIC prepared.
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 a hope and a prayer will likely do 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 and the restructuring of business and personal assets can help you meet the IRS’s criteria when you might not otherwise. The reality is that IRS has ten 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 will help you not only understand how an OIC will affect your tax situation but also to understand your other options. When you talk to an advisor, make sure that they can explain the downsides of an offer as well as the potential benefits.
Serving Central and Northern Maine and Beyond
If you are struggling with overdue balances at either the Maine Revenue Service or the Internal Revenue Service and you live in central or northern Maine considering giving us a call 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.
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