Is settling your tax debt for ‘pennies on the dollar’ in an offer-in-compromise too good to be true?

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In my Middleburg, FL practice I find that people are primarily interested in settling their tax debt for ‘pennies on the dollar’ with an offer-in-compromise like they see on those late night commercials. Sounds perfect right? You owe $200,000 and the IRS is going to agree to let you pay $2,000 to settle it completely because you paid those late-night guys $5,000 to file an offer-in-compromise for you. Wrong: It doesn’t work that way. There is a formula involved to see if you’re even eligible to file an offer-in-compromise. The bad part is the late-night guys are going to take your $5,000 and then do the math. If you don’t qualify they’re still going to submit the offer anyway and the IRS will reject it. They will have wasted your time, the IRS’ time, and led you to believe your problems will be solved. The only time that didn’t get wasted was theirs because they got paid.

There are several things that will make you ineligible for an offer-in-compromise.

1.       Are you in compliance? This means you’re having enough withholding or estimated tax payments made to ensure that you won’t owe for the current year when that return gets filed. It also means that all returns that should be filed have been filed.
2.       Can you pay the tax in full in an installment agreement before the statute of limitations runs out? If so, you’re not eligible for an offer-in-compromise at all. Why would the IRS settle your debt for ‘pennies on the dollar’ if you show you can pay it off in full before they must write it off? If you were in their shoes, would you?
3.       Have you transferred or sold assets to pay off unsecured debt? Say you owe your buddy $5,000 and you sell your car and pay him knowing full well you owe the IRS. During the offer-in-compromise process the IRS will look for things like this and will make you add that $5,000 to your ‘pennies on the dollar’ settlement. That money you gave to your buddy rightfully belonged to them.

It is important to consider all the factors relevant to your situation before wasting your money sending an offer-in-compromise off to the IRS that may have no hope of being accepted at all.

If you would like to work with a professional who will take the time to evaluate your unique situation to see if offer-in-compromise is the best option or have any other tax questions, please contact my Middleburg office at 904-600-3450.

Angela Yonge
Enrolled Agent
Acorn Bookkeeping & Tax, LLC
904-600-3450
Location: Middleburg, FL 32068, USA

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