It seems you can not watch TV, listen to the radio, or read the newspaper without seeing at least one of those ads for someone claiming to be a “Tax Specialist” who can fix your IRS problems. Helping people with tax issues seems to be big business these days. Most of these advertisements are pushing what is a rather longstanding program with the IRS known as the “Offer in Compromise.” In my experience, the Offer Program is an excellent program with one significant caveat; you must meet the stringent requirements to qualify. None of the ads bother to mention this important detail.
Last month the IRS announced that in 2010 they accepted 27% of all Offers submitted. In 2011 that number rose to 34%. In my estimation, those numbers are too low. Given how the Offer Program works, acceptance rates should be well over 80%. What this means to me is that too many offers are being submitted by people that don’t qualify. This would seem to reinforce my impression that too many people claiming to be “Tax Specialists” are really just salespeople. Like anything that is important in life, if you need professional assistance make sure you find someone who knows what they are doing.
There are a lot of details behind the Offer in Compromise process. At the heart of it, the IRS is measuring a taxpayer’s ability to pay by quantifying both the taxpayer’s equity in assets and available cash flow. Understanding the rules that underlie how this calculation is arrived at is critical. Just this month, the IRS announced some very favorable changes to some of these rules which should show a significant improvement in the acceptance rates of submitted Offers. In my practice, this will mean that a lot more people should now have the opportunity to settle substantial tax obligations for much less than what is owed. This very recent change in a longstanding program is clearly an indication that the IRS would like to resolve more cases than recent statistics indicate.
The Offer in Compromise program is not for everyone. If a taxpayer cannot settle with an Offer, there are always other options ranging from convincing the IRS that you cannot afford to pay anything to setting up payment arrangements over as much as four or five years. Experienced tax practitioners should be able to assess key information relatively quickly and steer individuals and businesses to the best solution available.