You may have seen commercials for tax services promising “pennies on the dollar” for your IRS tax debt, and wondered if it was legitimate. Is it really possible to get a tax liability significantly reduced? And if so, how does it work? Perhaps you even know someone who has gone through this process, which is known as an Offer in Compromise. If you have a large tax bill and are unable to pay through a payment plan, there are a few things to know about settling your tax debt that may help you to determine if an Offer might be an appropriate option for you.
First, it is important to understand that not everyone qualifies for this type of resolution. Certain tax companies imply in their advertising that anyone can get pennies on the dollar, and this is simply not true. The IRS has very strict guidelines on who can get an Offer, and it is determined by a set of calculations based on your income, assets and expenses.
Another question many people have is whether the amount of their Offer is related to a percentage of what you owe. The answer to this is no, as the amount is calculated by what the IRS determines is your “collectability”. A person owing $200,000 could make an Offer of $500 and get it accepted, or a person owing $20,000 could have to pay $5,000. It all depends on what kind of income and assets you have.
Some people ask, “Cant I just walk into my local IRS office with a cash offer?” Unfortunately, it doesnt work that way. Preparing an Offer in Compromise is a complicated procedure which can take anywhere from 6 months to a year to complete.
Another common question is, “Can I do it myself?” This is much like trying to represent yourself in court- you “can” do it, but most people would agree that in order to get the best outcome, you would entrust it to a specialized professional. The percentage of accepted Offers for people filing on their own is less than 10%, whereas Lothamers acceptance rate, for example, is well over 95%. Not only are your chances of success much greater when seeking professional assistance, but because of our expertise we are able to get you the lowest possible settlement amount. For every dollar you are off in your calculations, it will cost you $14 in your final Offer thats an expensive margin of error!
Ultimately, the best way to find out if you are a good candidate for an Offer in Compromise is to get an evaluation from a professional. Make sure you are speaking with a CPA, who will be fully qualified to assess your situation, and not just a sales agent. If you do qualify, a CPA should be able to estimate approximately how much your Offer would be and how much it would cost to prepare; at that point, you can analyze the potential savings and make a decision as to how to move forward.