They’re all over television: advertisements for companies saying they’ll “negotiate” with the IRS on behalf of taxpayers to try to get tax debt reduced or eliminated. The ads feature customers telling stories of money they didn’t have to pay, or tax debt forgiven.
Contending with the IRS isn’t among most taxpayers’ favorite pastimes, so such success stories may be attractive, perhaps even compelling – along with the lure of having someone else blocking for you with the IRS. But it comes with a cost, and the IRS says there’s no reason to pay for something you can do yourself online, directly with the agency.
The issues involve what are called offers in compromise.
“An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship,” the IRS explains.
The IRS routinely warns taxpayers against engaging with what it calls “OIC mills,” so much so that the agency has named OIC mills to its “Dirty Dozen” tax scams:
“The IRS continues to see instances of heavily advertised promises offering to settle taxpayer debt at steep discounts. The IRS sees many situations where taxpayers don't meet the technical requirements for an offer, but they had to face excessive fees from promoters for information they can easily obtain themselves.”
OIC companies aren’t alike: some are better, or worse, than others. These companies often don’t take tax cases if the taxpayer owes less than $10,000. Payment typically is made in the form of flat fees or percentages of negotiated amounts. The question for taxpayers is this: are any of these organizations worth the money they’ll pay them for what the IRS says taxpayers can do for themselves?
“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt," IRS Commissioner Danny Werfel said in a news release about the “Dirty Dozen.”
The IRS has certain rules, or qualifications, for an OIC. The agency’s four principal areas when considering an OIC are ability to pay, income, expenses and asset equity. Among the IRS’s concerns is that OIC mills pressure taxpayers with unqualified tax issues to pay fees and costs when the OIC mill knows there’s no chance of IRS resolution.
This raises several questions: is the IRS opposed to these companies because they’re bad, unnecessary or because they’re irritating to the agency? Probably one or all of them, depending on the situation. Nevertheless, the fact is that the IRS offers a tool exclusively for taxpayers to explore the opportunity to work out their situations without paying an OIC mill.
The process starts with the OIC Qualifier Tool. The application fee is $205, but that’s considerably cheaper than a possible 10% flat fee or percentage of the final settlement. For consumer information purposes, the IRS has a webpage devoted to frequently asked questions about OIC.
The fundamental question is why go to a OIC mill of any kind when the availability exists to explore an IRS tax case on your own? That doesn’t mean a resolution will be entirely to your satisfaction, but that won’t be known unless the effort is made.
Other options are to see a tax attorney or an accountant experienced in federal taxes and tax law. Realistically, the higher the tax bill, the more necessary is such professional advice.
OIC mills are big business, as evidenced by the amount of advertising money spent to promote them. The IRS’s message: don’t let them snare you into wasting money you don’t have to spend.
This article first appeared in Knox News.