ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IRS WARNING – BEWARE OF OFFER IN COMPROMISE SCAMS – PART 1
By Robert S. Schriebman
This is Part 1 of a 2 Part series.
Every year in March the IRS publishes its annual “Dirty Dozen” tax scams series. On March 30, 2023, the IRS issued a warning to the public to beware of Office in Compromise (OIC) mills. An OIC mill is an organization that promises they can get you a deal with the IRS for pennies on the dollar. This usually takes the form of a TV or radio commercial in which someone tells you how “XYZ Company” got them a deal for 10 cents on the dollar and made the IRS go away. IRS Commissioner, Danny Werfel, explains the OIC process. In Mr. Werfel’s words:
“This is a legitimate IRS program, but there are specific requirements for people to qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own facing hefty fees.” (IR-2023-63, March 2023)
This article will discuss how these so-called “offer mills” take your money and leave you very disappointed. Before doing so, it is helpful for you to understand the IRS’ OIC program and how it differs from a bankruptcy proceeding.
Office in Compromise – The Basics
The IRS has a little publicized procedure tallowing taxpayers to settle both tax debts and tax disputes by offering to pay only pennies on the dollar. This is known as an Offer in Compromise. (OIC). OIC’s are not unique to the IRS. The California FTB and EDD also have their own versions.
The OIC has been part of the tax law since 1831. Historically, it was kept a secret until Congress put pressure on the IRS in the mid-1990s to accept more offers. The OIC has many advantages. It can save you a substantial amount of money, as well as time and the expense of costly tax litigation. If the IRS accepts your OIC, all tax liens recorded against you are immediately removed, even though you may still owe the IRS. OICs are handled by a branch of the IRS’ Collection Division, known as the Special Procedures Section (SPS).
An OIC is a binding contract between a taxpayer and the IRS that settles all related tax disputes. It must be arrived at by mutual agreement between the taxpayer and the government. In this respect, it is like any other written contract. Once the OIC has been accepted by the IRS, The Notice of Federal Tax Lien recorded against you is removed. Once an OIC has been accepted by the IRS, the case is rarely reopened – unless fraud is involved. For example, if a taxpayer hides assets and they are not discovered by the IRS until after the OIC has been accepted, the case will be reopened. However, these situations are rare. The IRS will want the taxpayer to settle all outstanding tax indebtedness through the OIC. Therefore, the OIC when it is accepted will involve all taxes, penalties and accruing interest owed by the taxpayer that appear on the IRS computers.
There are three types of OICs:
- Doubt as to collectability of the entire deficiency.
- Doubt as to liability.
- Equity offers based upon factors such as the age and state of health of the taxpayer.
Will the IRS hold off on enforced collection action while an OIC is pending? When an offer has been submitted in good faith, the IRS will stay further collection activity.
Many OICs will be accepted when the taxpayer pays the offer amount in full. However, there are times when the IRS sees future potential income that may increase the amount of the offer. A collateral agreement is not really a part of the offer. If is a separate agreement that the IRS uses to try to collect as much money as possible in an effort to satisfy the entire tax deficiency. Basically, a collateral agreement is a deferred payment arrangement in which the taxpayer gives the IRS, on an annual basis, an amount over and above that’s stated in the OIC. It is also an amount that is paid in addition to one’s annual tax liability.
Offer in Compromise vs Bankruptcy
The best advice I can give you here is to consult with a bankruptcy attorney who fully understands the impact of state and federal taxes. Not all taxes can be discharged in bankruptcy. A clear example are payroll taxes. One of the most important factors in deciding whether to pursue an OIC or a discharge in bankruptcy, will be the impact of filed tax liens. A discharge in bankruptcy may not remove tax liens, but an OIC once accepted, may remove the lien.
1st-Time Penalty Abatement Program
You do not need professional representation to get the IRS’ first-time penalty abatement. You can do it yourself.
OIC mills prey upon the ignorant and less informed. Many tax debts are composed of late filing and late payment penalties. A mill may charge big dollars to submit an OIC in an attempt to compromise these penalties. If reasonable cause or the inability to pay are not present, the IRS may decline to accept the offer. Many taxpayers in this situation are unaware of a long-standing IRS policy to abate or remove first time offenders with just a simple telephone to the IRS. This first-time abatement program is not a once in a lifetime pardon. If you have a clean record of filing and paying within the past three years you may be eligible for another first time penalty abatement. These rules are set forth in Chapter 20 of the Internal Revenue Manual. For these of you want a specific citation, see: IRM § 220.127.116.11.3.2.1 (11-21-2017)
In Part 2, I will discuss the latest IRS press release warning the public of OIC mill scams.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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