“Brand new tax relief program! If you owe more than $10,000, call us! We know industry secrets and have a 97% success rate—you’ll only have to pay the IRS 8-10% of what you owe.”
This time of year, we are flooded with ads assuring us that no matter how much we might owe in back
taxes, some advertiser – usually sporting gray hair or glasses, for that distinguished look – promises he will make it all go away for cents on the dollar. While most of us are skeptical about such claims when we hear them on the TV or radio, they may seem more legitimate if we get a letter from an official-looking company, or an e-mail from someone who copies a government logo.
We called one such company, which advertises on television. In addition to hearing the above claims, we were told that “this is a tax law firm,” and “this program has been around for years, but the President expanded it to help more people.”
While some of this is partly true, we believe it is misleading. A lawyer probably is not going to be handling your offer, more likely a CPA. Two of the names on a “Power of Attorney and Declaration of Representative” form we were sent to fill out are not lawyers in the state in which the company says it is located. Although Congress, not “the President,” expanded the program in 2006, it was to help unemployed taxpayers, not to generally allow people to pay less in taxes. Those changes required most filers to include a partial payment with their offer.
More troubling to us was the inconsistency surrounding the company. While one company name was provided in the advertisement, another company name was used in the paperwork we received in response to our call.
The thing that concerned us most was the requirement to pay $1,000 up front to review the services, if any, this program could offer us. It was through persistence that we were able to avoid this fee.
There are legitimate ways to settle a tax debt. The Internal Revenue Service’s “Offer in Compromise” program is the only way for you to settle your tax debt for less than what you owe. The program has been in place, with some variations, since 1954. The IRS defines an Offer in Compromise as an agreement between a taxpayer and the Federal government that settles a tax liability for less than the full amount owed.
According to the IRS Form 656 Booklet, “the offer program provides eligible taxpayers with a path toward paying off their debt and getting a ‘fresh start’.” The ultimate goal is a compromise that suits the best interests of both the taxpayer and the IRS.
To be considered, generally you must make an appropriate offer based on what the IRS considers your true ability to pay. Submitting an offer application does not ensure that the IRS will accept your offer. It begins a process of evaluation and verification by the IRS, taking into consideration any special circumstances that might affect your ability to pay.
Generally, the IRS will not accept an offer if you can pay your tax debt in full through an installment agreement or a lump sum. While the IRS does not limit the number of offers it reviews, only about 25% of the offers made each year qualify for the program.
Here are some tips to help you avoid a tax relief scam:
- Before you call anyone to help if you owe back taxes, call the IRS at 1-800-829-3676 for a copy of IRS Form 656 Booklet, or get it online here. You may be able to fill out the forms yourself – the IRS has made the instructions clear and useful.
- File all tax returns you are legally required to file, make all required estimated tax payments for the current year, and make all required federal tax deposits for the current quarter if you are a business owner with employees. You cannot file an offer if you are in bankruptcy.
- Penalties and interest will continue to accrue during the offer evaluation process. Unless you qualify as a low-income taxpayer, you will need to pay the $150 application fee to file your offer. If the Offer in Compromise is not appropriate for you, you may still be able arrange for an installment agreement to pay what you owe, but you will probably need to consult with a tax professional to help you take such a step.