Each year, the IRS issues its infamous “Dirty Dozen” list. Prior awards have gone to micro-captives, syndicated conservation easements, and taxpayer identity theft. This year, the IRS added another abusive scheme: “Offer-in-Compromise Mills.” These tax debt resolution companies – which often advertise resolution of tax debts “for pennies on the dollar” – are the subject of this Insight.
IRS Offers in Compromise
The Internal Revenue Code specifically permits the IRS to accept less than the full amount of a tax debt, which is referred to in tax parlance as an “offer in compromise.” Freeman Law has discussed offers in compromise in prior Insights (see Everything You Need to Know about IRS Offers in Compromise; A Fresh Start for Many? Economic Downturn Means an Upturn in Favorable Tax Settlements; A Fresh Start for Taxpayers: The Offer in Compromise; and The Art of IRS Collection Defense in a Post-COVID 19 World), and its attorneys have successfully represented a multitude of clients in resolving their tax debts through this and other collection alternative mechanisms.
Generally, to qualify for an OIC, the taxpayer must prepare and submit paperwork to the IRS. In almost all cases, the IRS reviews the paperwork and has follow-up questions for the taxpayer to determine eligibility. Over the years, OIC acceptance rates have generally deviated between 20% to 40%–in other words, the majority of OICs fail. This is why it is often critical for taxpayers to obtain qualified representation prior to submitting an OIC to ensure that the taxpayer’s chances of success are as high as possible, and in cases where a taxpayer does not qualify, to ensure time, resources, and billing fees are not wasted on an OIC application that will not likely be accepted.
On July 16, 2020, the IRS released its “Dirty Dozen” via IR 2020-160. The focus of the IRS’ Dirty Dozen list related to scams that target taxpayers and included “Offer in Compromise Mills.” Specifically, the IRS stated in the release:
Taxpayers need to [be] wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.
These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.
Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.
With the COVID-19 pandemic continuing to wreak havoc on taxpayer finances, there is little doubt that more and more taxpayers will find themselves unable to pay all of their outstanding tax debts. As the IRS reminds taxpayers, they need to be cautious of tax resolution companies that over-promise and under-deliver. This is particularly so as tax resolution companies have in recent times engaged in more aggressive marketing efforts—often times, researching public record filings to locate taxpayers whom the IRS has filed a Notice of Federal Tax Lien (NFTL) against. Unfortunately, the NFTL provides the tax resolution company with ample information for marketing purposes including the taxpayer’s name, amount of tax debt, and mailing address.
In determining whether to engage a tax resolution company, taxpayers should conduct their own research to determine whether complaints have been filed against the company by other taxpayers. Simple Google searches and review-based websites can provide a wealth of knowledge in this regard. Moreover, taxpayers should ask the tax resolution company up front for a schedule of fees, the experience and expertise of the person who will prepare and submit the OIC application, and a thorough explanation as to why the company believes the taxpayer qualifies for an OIC. Taxpayers should be cautious of those who promise or guarantee an OIC without the tax resolution company having an opportunity to review the taxpayer’s current financial situation.
Criminal Tax Defense Attorneys
Freeman Law represents companies, executives, and individuals in regulatory and white-collar government investigations and prosecutions. We employ a proactive approach to defend vigorously and strategically position our clients. White-collar matters often involve parallel regulatory and civil proceedings. Freeman Law can navigate the complexities and collateral consequences of multiple proceedings. And when it comes to the court of public opinion, we employ ethical and strategic tactics to manage publicity. Schedule a consultation or call (214) 984-3000 to discuss your allegations and investigations concerns.