I was working with a client recently concerning his tax debt of $20,000. He said he had talked to another company, and they had guaranteed they could settle his debt for pennies on the dollar. This client had an annual income of $75,000 and a 401k with $30,000. He wasn't happy when I told him that I was sorry to tell him but the IRS would not approve him for a settlement, or an Offer in Compromise as it's called.
In fact, when I was a Hitman with the IRS, if I saw you apply for an Offer with a $30,000 401k, the rest of the agents and I would have gotten a really good laugh. Then we would have put a levy on your bank account and taken the money out of that. Uncle Sam doesn't care if your kids go to college.
I've seen those commercials on the TV late at night that say you can settle your IRS debt for pennies on the dollar, but they're not giving you the whole story. And this client had already spoken with another company that promised they could get his debt settled for $4,000, and they were only going to charge him $4,000 more to negotiate it.
You need to ask one question of yourself before you consider an Offer in Compromise. Can I afford to pay the tax debt and still afford to live my lifestyle? If you answer yes, then you do not qualify, no matter what anyone might tell you. The specific criterion is listed below.
- You have to prove to the IRS that you will never be able to pay back the entire tax debt, or prove that paying off your debt would create "undue hardship." Undue hardship doesn't mean going without cable TV. It means getting evicted for past due rent. When you deal with the IRS, you are guilty until proven innocent.
- You have to commit to what is called Full Financial Disclosure. This is a thorough, and I mean bend-over-and-cough thorough, income and lifestyle analysis. The IRS gets to investigate every tiny detail of your life.
- Only 2% of all Offers in Compromise are successful.
- If the Offer in Compromise is accepted, you have to enter into a five-year contract with the IRS. You have to file all returns on time and pay any tax debt you may incur during the five-year period. Failure to live up to the terms of the contract will result in the entire debt being reinstated, and you'll have to owe the original amount plus any additional interest and penalties.
If you're serious about trying to get an Offer in Compromise to take care of your IRS debt, you should always check with the Better Business Bureau before you give any company your hard-earned money. Also, beware of anyone offering a "guarantee." You can go to http://www.irs.gov/ to get specific information.
And what happened with that client? He went with that other company looking for the pot of gold. I wish him the best of luck, and will probably talk to him next year when his debt has ballooned.
Now you have the smoking gun... Use it!
I'm Richard Close and I was a "Hitman" for the IRS. I took out anyone who owed the IRS money as my father had before me. Now I help thousands of Americans beat Uncle Sam and save thousands of dollars. Tax problems? Contact me and get free tips and techniques to deal with wage and bank seizures and slash tax debt!
Labels: Offer in Compromise