IRS Focuses on OIC Scams – Makes Unannounced Office Visits to National Firms Who Make Unsubstantiated Offer-In-Compromise Claims
IRS Poses as Taxpayer with IRS Tax Debt to Identify Tax Practitioners Who Promise Offer-In-Compromise (OIC) Solutions Without Performing Financial Analysis
The IRS is working hard to identify OIC scams. One of the most misunderstood IRS programs to resolve IRS tax debt is what is known as an Offer-in-Compromise (OIC). An OIC is an agreement between a taxpayer and the Internal Revenue Service (IRS) that settles a taxpayer’s tax liabilities for less than the full amount owed. While the program is legitimate and is a great way to resolve IRS tax debt for those taxpayers that qualify for the program, the problem rests with unscrupulous tax resolution firms that take advantage of those seeking to have their tax debt settled for “pennies on the dollar”. These unscrupulous firms tell the uninformed taxpayer that the IRS has this great program where tax debts can be totally forgiven by making the IRS a monetary offer to have their debt forgiven, charge a significant up-front fee, and then inform the taxpayer that the IRS rejected their offer.
To combat these unscrupulous firms, the IRS is sending agents to the national tax resolution firms posing as a taxpayer with substantial IRS tax debt. If the firm agrees to represent the taxpayer before the IRS for a fee to file an OIC without doing a financial analysis to determine if the taxpayer qualifies, the IRS will take action against this firm.
To qualify for this program, the taxpayer must complete a financial analysis (IRS Form 433-A (OIC)) that reports the taxpayer’s assets, liabilities, sources of income, and allowable expenses. This data is used to compute the taxpayer’s RCP, reasonable collection potential. In other words, the form is used to compute the taxpayer’s ability to repay the IRS. If the taxpayer is eligible for an OIC, this financial analysis is used to determine the taxpayer’s minimum offer to the IRS (IRS Form 656). The misconception of some taxpayers is that they make some monetary offer to the IRS that they consider equitable to settle their tax debt, rather than understanding that the IRS requires full financial disclosure and that the IRS determines the amount (RCP) that the taxpayer can afford to pay.
There is much financial analysis that needs to be done to determine if a taxpayer qualifies for the OIC. When an OIC is sent to the IRS, much supporting detail is required by the IRS. The taxpayer needs to substantiate the fair market value of the taxpayer’s assets; mortgage, auto loan, bank loan, etc. statements need to be submitted to substantiate liabilities; W-2s to substantiate income; and a listing of actual household expenses. The IRS usually requires a minimum of three months of bank and credit card statements and proof of payment for the expenses listed.
When a tax resolution firm informs a taxpayer that it will file an OIC for the taxpayer, and charges a substantial fee for doing so without doing the required financial analysis to determine if the taxpayer qualifies for the OIC, this is the type of activity the IRS finds egregious.
TAX PLANNING TIP #1
When a firm promises to settle your tax debt for a fraction of the outstanding balance and has not done a financial analysis of your ability to pay the IRS, you are dealing with a unscrupulous firm that is going to gladly accept your fee and very likely will do little to resolve your tax problem. It is quite easy to file an OIC claim without substantiation and then notify the taxpayer that the IRS did not accept the offer. Run, don’t walk away, from this type of firm.
TAX PLANNING TIP #2
While it’s possible that you may find a reputable national firm to work with and telephone correspondence may suit your needs, consider working with a local tax resolution specialist that you can visit, interview, get to know, and who answers your calls. The American Society of Tax Problem Solvers (ASTPS) offers a free referral service. Its telephone number is (716) 630-1650.
About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent. His tax consulting firm, Keystone Financial Solutions, Inc., specializes in helping taxpayers solve their IRS tax debt problems. Located in Exton, PA, his firm serves clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
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