Besides not being easy, taking a long time and professional services being expensive, IRS Offer in Compromise are intended only for those who are truly unable to meet their obligations, and in most cases there are no easy deals.
It’s not a way to beat the tax man. It is a program to help those who do not have the ability to pay their back taxes. I have had more than a few persons approach me with questions like, “I have some taxes I want to get out of paying and I heard you can take care of that.” Understand that this is not like TV where the crafty lawyer prevails by finding a loophole. That sort of thing is procedural.
The Offer process follows a set of numerical standards that are reviewed by an IRS Qualifying Agent, before going to their Manager for final determination. There is some subjectivity, and there are Offers based on effective administration which are even more subjective (rare), but most offers follow a formula called the Reasonable Collection Potential (RCP) to determine if you can pay the tax. If you can pay within the statutory collections period then you do not qualify for an Offer. If you don’t qualify now, you might qualify later, and there are other options available to you besides making an Offer in Compromise.
Competent professionals can evaluate your RCP for between $600 and $800 of your retainer, and tell you with confidence whether or not you will qualify for an Offer at that time. If you don’t qualify they tell you and then it’s back to the drawing board. Anybody out there ever have your $4,000 retainer completely used up during discovery (besides one of my past clients), only to be told you don’t qualify – sorry, we can’t help you? Be careful who
you choose. Ask about their RCP evaluation process. That should put them on notice. The RCP also contains a number of valuable allowances that are not widely published, but your competent representative will know about them.
In a nutshell; if your financial condition is so bad that you have to choose between paying your taxes or paying your utility bill, then you likely qualify for an Offer. If the IRS is threatening to levy your bank account, the filing of the application will freeze any adverse collection actions until a final determination is made. Frivolous Offers made just to delay collections are penalized and you will still owe the tax, even more penalties, and even more interest. If your situation is this dire then you probably don’t have $4,000 to pay the retainer for an Offer. However, a $200 consultation at this point is worth the money because you have other options.
There are no easy deals. Another misconception is that if you offer to pay a big amount right now, then the IRS might consider writing off the rest of your tax debt in exchange. The IRS is still going to use the RCP. They’ll be happy to take the big down payment, and then it will be even easier for you to pay what is left within collections statue, and you will be even less likely to qualify for an Offer.