Do you owe the IRS back taxes? Are confused on whether or not you should file an Offer in Compromise? If so, you're in good company. On one hand, it may seem like an IRS Revenue Officer or IRS employee is encouraging you to file an Offer in Compromise. On the other hand, this does sound like it is something too good to be true; "Why would the IRS take take than full payment?" you may ask.
Why would the IRS take less than the full amount owe with an Offer in Compromise?
The answers lies in a technical term called Real Collection Potential. Think of the adage, you "can't bet blood from a stone." As yourself – would the IRS rather have a taxpayer pay something (even if it is less than they owe), or have them pay nothing?
So the IRS Offer in Compromise Program is legitimate?
Yes, the IRS Offer in Compromise is a real program and real people do settle their back taxes for less than what they owe.
Did you know? There is no set Offer in Compromise settlement percentage like 10% of tax owed; that is a trick used by scam tax resolution companies to get you to call them!
An Offer in Compromise is not like filing a tax return. An Offer in Compromise is a legal claim in which you have the burden of proof to justify your lowest RCP possible. Your Offer in Compromise will be scrutinized completely, unlike your tax return. Think of it like a tax audit but in additional to auditing your income, the IRS is also going to audit your assets and liabilities and any potential future stream of income.
So should I file an Offer in Compromise?
Such a question is impossible to answer without taking a look at your full financials, your tax debt, planning strategies, and other alternatives that may actually settle your taxes for less. There are significant downsides to filing an Offer in Compromise when you shouldn't. These include:
- You extend your statute of limitations to collections while an Offer in Compromise is pending and could affect your RCP;
- You will have to pay a down payment to the IRS when you submit your Offer in Compromise, and the IRS gets to keep your down payment if they reject it;
- You may have better options available that settle your taxes for less.
An IRS Revenue officer told me to file an Offer in Compromise, so should I?
An IRS Revenue Officer does not decide whether your Offer in Compromise will be accepted…or rejected. There are entire IRS Offer in Compromise departments across the country that will decide that. So do not take any a Revenu Officer's approval or disapproval of a potential Offer in Compromise to mean anything.
We have heard of Revenue Officers and other IRS employees to tell our clients (before they hired us) not to file Offers in Compromise, when later, the Offers were accepted, and vice-versa!
What about the IRS Offer in Compromise Calculator and Pre-Qualifier?
As we have written about before, the IRS Offer in Compromise calculator can lead to the exact wrong result.
If you need assistance submitting an offer in compromise, or appealing a rejected OIC, contact us. We can help. (and if we can toot our own horn – The IRS claims the national average OIC acceptance rate at only 25%; our Offer acceptance rate is about 98%).
