The Offer in Compromise scam is one of the most prevalent on the internet and television. As the first post on this new tax site, I’ll explain how to avoid the Offer in Compromise scam.
Whenever you hear “we can settle your tax debt, often for pennies on the dollar,” it’s probably a scam. The truth is that very few Offer in Compromise filings are successful. A quality firm might succeed 50% of the time. The Offer in Compromise scam mills probably get 1% – 5% of the OICs they file approved.
A few years ago, big firms were cashing in on the Offer in Compromise scam. One of them, Tax Masters in Texas, even went public. Then, to put it simply, the U.S. government came in and crushed them.
If you want to read a bit of Offer in Compromise scam history, google Tax Masters, Roni Lynn Deutch, and J.K. Harris. For those of us in the industry, Tax Masters is the most interesting. Because of their IPO, their cash flow, how much they spent on advertising ($100M), numbers of clients, and their success rate is all public record. It’s a good read, fantasy, history, and scam rolled into one.
Nowadays, the Offer in Compromise scam has a different modus operandi. Gone are the big cash machines, replaced by marketers who sell the leads generated by their TV ads and/or websites to anyone who will buy them.
Many of these Offer in Compromise scammers have call centers in India that “qualify” the lead before transferring it to the buyer. None of them have any tax knowledge or experience in going to battle with the IRS.
Here is how to identify a scammer:
(1) A qualifier answers the call and then needs to transfer to you to one of his “experts.”
(2) They tell you that you need expert help, and may qualify for an Offer in Compromise, if you owe $10,000 or more to the IRS. Most professionals won’t touch a case unless you owe $25,000 to $50,000. At $10,000, you are much better off doing it yourself.
(3) Offer in Compromise scam websites often contain a few pages of basic information and then want you to fill in a form to be “pre-qualified.” These are called landing page websites and they sell your data for $35 to $100.
Now, here’s the truth: in order to qualify for an Offer in Compromise, you must have minimal assets compared to the amount of the debt. Also, your salary must be very low, maybe $5,000 per month.
So, if you owe $50,000, and have $100,000 in a retirement account, you don’t qualify for an OIC. If you owe $75,000, and have $180,000 of equity in your home, you don’t qualify for an OIC.
Also, the Offer in Compromise must be in the best interest of the IRS. I once had a client who was 75 years old, living on social security, and, after I filed his 6 years of delinquent returns, he owed $100,000+.
To be honest, I figured this was the one-in-a-million client we tax lawyers dream about. I was finally going to get an Offer in Compromise through for pennies on the dollar… and then use him in my marketing as a success story.
Well, the IRS had different ideas. We went through the Offer in Compromise and appeals processes, and he was ultimately denied. The bottom line was that it wasn’t in the government’s best interest to accept an offer of $5,000 (or of any amount for that matter) from a non-filer. Allowing him to fail to file and pay for all of those years, and then walk away for a small amount, was not in the best interest of “effective tax collection.” He clearly qualified, but was denied.
And this is why the pennies on the dollar Offer in Compromise scam is so common. It’s very rare that all the criteria come together, the “right” IRS agent is assigned, and the tax debt is cut by 75% – 95%.
In the case above, the Offer in Compromise was rejected and the client was listed as uncollectible. He is retired and should remain uncollectible until his debt expires (10 years after the returns were filed). If things change, the IRS will want some cash, but everyone expects the government will get nothing… and they are fine with that. It’s all about appearances.
If you owe money to the IRS, watch out for the Offer in Compromise scam. If you owe $10,000 or less, I suggest you suck it up and contact them yourself. If you owe $50,000+, I strongly recommend you get professional help.