Have you tried out the IRS Offer in Compromise Pre-Qualifier? Well, we have. In fact, I decided to input numbers from a recently accepted IRS Offer in Compromise with the exact numbers as originally submitted with the client's IRS Form 656. Read on for the results.
The Offer in Compromise Pre-Qualifier calculations told me my client only would have to pay $12 to settle a $260,000 debt! Yet this is not what the IRS accepted.
The IRS Offer in Compromise Pre-Qualifier is just a calculator. It can't make judgments
In fact, we would go further. The IRS Offer in Compromise Pre-Qualifier is a dumb calculator. It simply is the php(?) script that runs the same Offer in Compromise formula stated on IRS Form 656. But having correct numbers is only one part of a successful Offer in Compromise. The IRS has to look at other factors. One of those other factors — one thing they don't want to do is accept an Offer in Compromise that is insultingly low. This can happen with the IRS Offer in Compromise Pre-Qualifier.
In this case, our client ran up $260,000 in back taxes from both personal taxes and payroll trust fund taxes. And yet, according to his actual, honest-to-goodness financial condition, per the IRS Offer in Compromise Pre-Qualifier, he could submit an Offer in Compromise of just $12 to settle everything. Could this be right?
Now, yes…sometimes you can settle back taxes for obscenely low amounts. We have seen some as low as $90. We are sure there are lower. But these are the factors the IRS generally wants to see when accepting an Offer in Compromise for so little:
- A permanent decrease in ability to ever earn an income again
- Your situation is permanent and kind of sad
- If you are going to forever be uncollectable; it doesn't even make sense for you to pay anything to the IRS.
- If you cannot afford to pay and will easily ride out the IRS statute of limitations on collecting a debt.
As an example: Someone who has run up a huge IRS debt and has become permanently disabled and is living on state aid. That is the type of person who will get an Offer in Compromise accepted for a nominal amount like $12 per the IRS Offer in Compromise Pre-Qualifier.
But in our example, the facts not mentioned yet is that this taxpayer is:
- 38 years old.
- Had a business venture go bad
- Is in excellent health
- Took a W-2 job as a plumber, simply because he needs a little less stress in his life while he gets his life back on track.
So… would you accept $12 to settle a $260,000 debt someone owed you?
Yeah, maybe you would take that $12 deal from someone who is in hospice care, but for a not-quite-yet 40-year-old plumber? Probably not, and neither would the IRS. The IRS thinks about some of the same proportionality you do. Low balling the IRS undermines credibility — they just won't take your Offer in Compromise seriously and you will be facing an uphill battle.
So for this client, we originally submitted an Offer in Compromise of $1,000. And guess what? The IRS Offer in Compromise Examiner rejected it. Yes, even though it was far more than the Offer in Compromise Pre-Qualifier would have had us offer.
After the rejection, we then appealed the Offer in Compromise. There, the IRS Settlement Officer agreed to an Offer in Compromise, but he wanted $8,000. Then, over the next few months, with a lot of -back-and-forth, we explained just why that was not possible, and finally, she accepted our original proposal.
Do you need to be an Offer in Compromise Expert in order to get the best deal with the IRS?
In some cases, when earning capacity is forever limited and so obvious, it is possible to get an Offer in Compromise accepted for a nominal amount without any special expertise. However, when things get even a little bit more complicated, it becomes critical to have expert knowledge. As this case completely demonstrates, following the IRS' own IRS Offer in Compromise Pre-Qualifier would have directly lead to a sub-optimum strategy — something our clients don't have the money or time for.