When to file an Offer in Compromise

When to file an Offer in Compromise in Maine?

In a recent blog post I discussed the reasons why many people should not file an Offer in Compromise. I believe it is part of my job and my commitment to my community to dispel myths advertisers spread. Especially the myth that OICs are a cure all for back tax problems. 

You only have to google “Offer in Compromise Maine” or “Offer in Compromise Bangor” to see just how much out of state money slick advertising agents spend. All in the pursuit of trying to find someone desperate enough to pay them.

The money is so good for some firms that they set up fake street locations in major cities. Fake locations often include a set of made up reviews and ratings. If you look closely at the firms offering similar services in Bangor or anywhere in Maine, you’ll quickly see this pattern. If you take the time to drive by, you’ll often notice the building is empty or the firm has a different name. This includes many advertiser who pretend to be tax attorneys, CPAs, or Enrolled Agents or advertise like they are attorneys quite convincingly until you read the fine print. If someone only wants to talk on the phone chances are they aren’t really a tax attorney and are just selling you as a lead to someone from away.

Why You Need Ensure You Qualify Before Filing

I can think of one recent example where I was told by another tax professional that a new client paid 15k for an Offer in Compromise on 100k in back tax debt. The only problem was that the client had 105k in the bank. After being submitted the IRS promptly came back and said they’d be happy to accept 90k…. Had this client engaged with a reputable frim they would have either advised him that an OIC wasn’t a good fit for him or figured out how to legally exclude the money first before filing. As my example illustrates much of that ad spend and misdirection has to do with lining peoples’ pockets. While an Offer in Compromise is an excellent tool it is not a cure all.

Despite all this OICS do have their place which is what we will be discussing today.

When to File?

So when should you file an offer in compromise?

Well, while there are “exceptional circumstance” Offers in Compromise, they are rarely accepted. That means that most clients will be looking at a Doubt as to Collectability Offer in Compromise. These Offers in Compromise are based on assets and income. This means Offers in Compromise are usually useful to people in a similar financial situations to those who qualify for bankruptcy.

To put it simply: if you owe a lot more than you make the IRS is likely interested in your offer.

Financial Information the OIC Process Considers

The OIC process looks at assets, liabilities, future cash flow, wages and then calculates what the IRS thinks you can pay. These formulas figure how much you can reasonably pay over the coming years. If a client’s number is:

  • Negative, the IRS will likely accept a very low offer amount.
  • Positive but still less than the amount the client owes, the IRS will likely accept a reduced amount.
  • Positive and more than the amount owed. The IRS will rarely accept a reduced amount.

To put this in less complex terms, an offer in compromise is most helpful when a person’s financial situation has had a downturn. OICs can also be useful when the back taxes were from a large asset sale and the money is now gone. OICs are also very useful when someone is in a certain range of income. This is a function of the fact that the exclusion amounts everyone receives typically exclude all their income.

Considerations for Maine Residents

We’ve found that families in Maine whose expenses are inline with the average usually qualify easily when we lead them through the process. On occasion, we our firm must do a bit of planning to have the offer accepted due to a small issue. However, such issues are usually quite manageable for the average Maine resident. In our experience, if a family makes between 0 and 60,000-70,000 dollars* the success rates are great.

Above those income levels planning or larger debt is usually required for the IRS to take a reduced amount. This is not to say that higher income clients are always denied or can’t successfully file. It simply means that more planning and structuring is usually needed.
*After any business expenses.

OIC Process Problems

An Offer in Compromise gets tricky when:

  • A client can’t liquidate certain assets.
  • A business needs significant assets to operate.
  • Client’s need large assets to pay for normal expenses over time.

The IRS will default to seeing such assets as available for liquidation unless you can prove that they shouldn’t be. If you have this kind of issue we highly suggest professional help. Fixing a rejection based on these factors is much harder, time consuming, and expensive than filing correctly the first time. In addition, the IRS will likely compare the two OICs and ask more detailed questions about your financial situation. 

Planning to Mitigate Problems

In addition, while individuals can’t and shouldn’t hide assets from the IRS, they can engage in pre-planning. There are several planning and timing techniques that can increase an offer’s chances of success. Planning of this kind often involves spending down or converting assets prior to submitting an offer. While planning often requires a substantial amount of knowledge and time it is often well worth the cost. Paying extra up front to save tens and even in some cases hundreds of thousands is a wise investment.

Serving Central and Northern Maine and Beyond

If you are struggling with a tax issue at the Internal Revenue Service or Maine 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 from southern Maine, through Augusta, all the way up to Fort Kent.

If you are outside our home state and want a second or even first opinion, consider calling us. We regularly work with out of state referrals.

We can work locally and nationally because we are admitted to practice before all levels of Internal Revenue Service in all 50 states. In addition, by virtue of that admittance we are permitted to practice before all levels of the Maine Revenue Service, the Maine Board of Tax Appeals, and 48+ other state taxing authorities.

Other Articles You Might Find Helpful

Don’t File An Offer in Compromise 

Understanding Maine Revenue Service Offers in Compromise

Great Outcomes

J.P. Oltmann is proud to provide tax representation for individuals and small businesses across Maine.

Helping Clients Achieve Their Personal,
Professional, and Financial Goals in the
Wake of a Tax Controversy

Schedule a Free Consultation Refer a Client