On 9/19/24, the IRS issued a warning to taxpayers regarding OIC (Offer in Compromise) Mills that are taking advantage of taxpayers. OIC Mills promoters claim that their services are necessary to resolve taxpayer unpaid taxes owed to the IRS while charging excessive fees, often with no results. The promoters utilize aggressive marketing schemes that make false claims about settling tax debts with the IRS for pennies on the dollar with a limited time window through the OIC Program. The companies that run OIC Mills usually advertise through TV, radio, social media and “Robocalls” and make false promises to settle taxpayer debt at steep discounts while charging excessive fees for a service taxpayers could have obtained themselves directly from the IRS. OIC mills are scams that continue to appear on the IRS Annual Dirty Dozen List and put taxpayers and the tax professional community at risk of losing money, personal information, data and more. That said, it is important to note that an Offer in Compromise is a legitimate option offered by the IRS. Filing for an Offer in Compromise ought to be done with the assistance of a licensed and reputable tax professional as there is a process of evaluation and verification by the IRS, taking into consideration any special circumstances that may affect the taxpayer’s ability to pay. Submitting an Offer in Compromise with false information or making a false statement to the IRS are considered fraud and may be subject to civil or criminal penalties.
An Offer in Compromise is an agreement between the taxpayer and the IRS that settles a tax debt for less than the full amount owed
A taxpayer who is unable to pay their entire tax obligation or faces financial difficulties in doing so may consider an Offer in Compromise as a viable option. The IRS will consider the following facts and circumstances: ability to pay, income, expenses, and asset equity. Submitting an application for an Offer in compromise does not ensure that the IRS will accept the taxpayer’s offer. The applications begins a process of evaluation and verification by the IRS, taking into consideration any special circumstances that may affect the taxpayer’s ability to pay.
Details of an Offer in Compromise:
- Application is done via the new Form 656, April 2024 version Offer in Compromise Booklet
- Before a taxpayer’s offer can be considered, a taxpayer must (1) file all tax returns you are legally required to file, (2) have received a bill for at least one tax debt included on the offer, (3) make all required estimated tax payments for the current year, and (4) if taxpayer is a business owner with employees, make all required federal tax deposits for the current quarter and the two preceding quarters.
- Although the IRS has an Offer in Compromise Pre-Qualifier, that works as a “guide”, it is best to work with a tax professional given that the IRS final decision is based on a completed offer application and an investigation by the IRS.
- Not eligible to apply if taxpayer or taxpayer’s business is currently in an open bankruptcy proceeding.
- Any open audit or outstanding innocent spouse claim issues before submitting an offer must be resolved.
- IRS will not consider an offer with a deactivated ITIN. If a taxpayer has a deactivated ITIN, Form W-7 (Application for IRS Individual Taxpayer Identification Number) must be filed.
- IRS will not accept an offer if a taxpayer can pay their tax debt in full through an installment agreement or equity in assets.
- Penalties and interest will continue to accrue while a taxpayer’s offer is considered by the IRS.
- Taxpayers must continue to timely file and pay all required tax returns, estimated tax payments, and federal tax payments for the taxpayer and any business in which the taxpayer has an interest.
- Failure to meet a taxpayer’s filing and payment responsibilities during consideration of a taxpayer’s offer will result in the IRS returning the offer.
- If the IRS accepts a taxpayer’s offer, the taxpayer must continue to stay current with all tax filing and payment obligations through the fifth year after the offer is accepted.
Best to work with an Experienced tax professional and avoid OIC Mills
IRS will evaluate and review offers in compromise applications and consider a taxpayer’s unique set of facts and special circumstances affecting their ability to pay, including their: income, expenses, and asset equity. Taxpayers ought to keep in mind that the IRS will contact them after the offer application has been reviewed and the IRS expects a prompt reply to any requests for additional information within the time frame specified. Failure to reply timely will result in the return of your offer without appeal rights.
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