ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IRS WARNING – BEWARE OF OFFER IN COMPROMISE SCAMS – PART 2
By Robert S. Schriebman
This is Part 2 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.
Beware of So-Called Offer Mills
Offer mills usually advertise on TV and the radio. The commercial starts out with someone telling you how he/she went to “Let’s Make an IRS Deal, Inc.” and paid the IRS off at pennies on the dollar. They make it sound like it’s a slam dunk. The IRS news release warns that the offer process is not for everyone and not everybody gets a sweet deal. What you are not told in the commercial is that there are stiff charges of thousands of dollars for the process, win, loose, or draw. And these charges are due and payable without any assurance of success. Sadly, the offer mill often knows in advance that the OIC will not be accepted by the IRS; they take your money anyway. In my opinion, this is a form of consumer fraud.
In the words of the IRS press release:
“An Offer in Compromise ‘mill’ will usually make outlandish claims, frequently in radio and TV ads, about how they can settle a person’s tax debt for cheap. In reality, the promoter fees are often excessive, and taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS. This takes unnecessary money out of the taxpayer’s wallet.
In addition, not every taxpayer will qualify for an OIC. Some promoters knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing honest taxpayers money and time.”
Conclusion – The Best Approach for the OIC Process
The most important first step to take to determine if an OIC is right for you is to see if you qualify. The IRS suggests that you go to IRS.gov and check the IRS’ Offer in Compromise Pre-Qualifier Tool. You should also call a reputable and experienced tax professional before even thinking about retaining an offer mill. I recall many telephone conversations with prospective candidates. After a few minutes of asking basic questions, I determined that the caller did not qualify for an OIC – and I told them so. Qualified and experienced tax professionals can advise you of whether you qualify and your probability of success or failure.
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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