May 6, 2008

"Pennies on the Dollar"- I don't think so....

Nothing irks me more than the "pennies on the dollar" ads on TV that state that I can get your tax debt lowered. Anyone who provides a "predetermined" conclusion about your personal finances and your tax debt is a fraud.

What these ads are referring to (as I have blogged in the past) is the IRS Offer in Compromise program. This is a highly technical and detailed financial review that cannot be "predetermined" based on a few facts. In fact, as I have stated in past blog entries, there are many options available to you. The Offer may not be the best option. In fact, filing an Offer can put you in a worse situation.

For example, if you owe $100,000 to the IRS and you have net equity in assets of $50,000 but no monthly disposable income ("MDI"- determined by IRS allowable living standards)- the IRS will want all of your net equity to resolve the tax debt. This means applying for an Offer (and if you are young, professional, and/or own your own business the chances of getting the Offer decrease substantially) will cost you the $150 fee, 20% of the Offer amount ($10,000 in this case with the application- this is not refundable), and the time in extending the collection statute of limitations (the IRS has 10 years to collect and is not going to be put at harm for filing an Offer- hence, it extends the time period to collect PLUS 30 days). The alternative, a currently not collectible status, will defer the payment to the IRS without going out of pocket any funds and will not extend the collection statutes. Furthermore, you will not have to go through the intrusive financial investigation called for in an Offer.

I say this because only 26% of the Offers submitted actually get accepted (this is also an artificially high statistic as the IRS pre-screens out many offers before they are actually received- the GAO states the accepted amount is closer to 21%).

If you do not qualify for the waiver of the $150 fee and 20% down payment (due to income being below the 250% poverty standard set by the Department of Health and Human Services), then you will need to look carefully to determine if you should even consider filing an Offer. Most should consider other options and consult an experienced tax professional for what other options are available.

Do not fall for these TV scams. "Pennies on the Dollar" violates the basic economic principle: "There is no such thing as a free lunch." If you want some help or want to know your options, just ask an experienced professional who will tell you the truth. After all, the truth will emerge in the end.

2 responses:

Trish May 6, 2008 at 10:00 AM  

Don't forget that a good part of people who owe money are not in compliance. They didn't file a return and the IRS does it for them or they did not provide documentation requested and the deduction is dis-allowed. Simply filing the return or providing the documentation can save the taxpayer. That is something any good preparer can do. It doesn't take a "specialist."

About IRS Mind May 7, 2008 at 11:39 AM  

You are correct in that it does not require a "specialist" to file old back tax years. However, it does take someone who knows how to pull IRS IRP documents and review them against a filed return. The collection options require an experienced expert to consider the non-compliance issues. It helps that the same person is doing both as to insure that the returns are processable and a liability does not "reoccur" due to not checking the IRS records to make it minimally processable (i.e. passes the IRP matching test). If the liability "reoccurs" due to a careless mistake in not referring IRS records, then this will default the agreement you have entered to solve the problem. In short, it assists greatly to "coordinate" all aspects of resolving the problem- and compliance is the pre-requisite to solving the problem.

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