Navigate an “Offer in Compromise” and other debt payment plans with the right help
ALEXANDRIA, VA — Owing money to the Internal Revenue Service (IRS) can strike fear in the hearts of even the bravest souls and owing a lot of money to the IRS can be downright paralyzing.
Yesterday the IRS announced it is expanding its “Fresh Start” initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems, in many cases more quickly than in the past.
An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
But taxpayers should beware of radio and television ads feature spokesmen offering fast, low-cost fixes to any and all tax problems, presumably through the OIC program. They often promise that you will pay “only pennies on the dollar” of the taxes you owe. They even claim that their professionals know how to do all of this because they used to work for the IRS. It seems like the place to turn to for help when facing tax debt. Or is it?
Paul Thompson, Chair of the National Society of Accountants (NSA) Federal Taxation Committee, cautioned that taxpayers should beware of any “professional” who promises quick and low-cost results and pointed out that the State of Texas sued “TaxMasters,” alleging that the company misled consumers.
Thompson offers this advice: “There are specific requirements that must be met before the IRS will even consider an OIC, so it can only help in limited circumstances. A tax professional can help you decide if an OIC is right for you and what your alternate options may be. You should meet with a tax professional in person to decide if you should hire them.”
Despite their exaggerated claims, many so-called “tax debt resolution” companies do little more than fill in the IRS form and submit it for taxpayers. They offer no further help and many times do not bother to tell the consumer that he or she does not even qualify for the type of relief they are asking for. Thompson recommends, “If you are compelled to check out one of the TV ‘experts,’ go to the Better Business Bureau where the company is located to check out its rating and any complaints that have been filed.”
NSA President Sharon Cook agrees that only properly trained professionals should be used, explaining, “If you choose to use a tax professional to prepare and file your OIC, protect yourself by selecting a qualified, credentialed tax professional who has a Preparer Tax Identification Number (PTIN) provided by the IRS.”
She cautions that there are no guarantees when making a filing. In fact, in 2011, only 20,000 of 59,000 (34 percent) of applications for OICs were granted. In 2010, only 14,000 of 57,000 (24 percent) OIC applications were granted.
“A professional will work with you to come up with a backup plan such as installments or other means of paying your tax debt,” Cook says, “’Pennies on the dollar’ is not always true. It is more a question of what assets you have and what the IRS thinks you can pay. Clearly, I would have to review a client’s personal situation before I would ever consider making a claim like that.”
When looking for someone to help, you should ask:
- Does the tax professional have a PTIN provided by the IRS?
- How many Offer in Compromise filings have they done?
- How many of their OICs have been successful?
- What is their fee? Is it hourly?
- Does the fee include document preparation, backup documentation, and negotiating with the IRS?
Cook estimates that the cost for hiring a tax professional for filing an OIC can run $1,500 or more. Most professionals will charge on an hourly basis for this work. A 2011 NSA survey of tax preparation fees shows the average hourly fee for tax services at $132.47.
The changes to the OIC program just announced by the IRS include:
- Revising the calculation for the taxpayer’s future income.
- Allowing taxpayers to repay their student loans.
- Allowing taxpayers to pay state and local delinquent taxes.
- Expanding the Allowable Living Expense allowance category and amount.
These changes can make it easier for taxpayers to explore the option of filing an OIC.
Finally, Cook says, “Dealing with the IRS need not be the frightening and daunting task that it is often made out to be. With the right kind of help from a tax professional, you can more easily navigate your way through the stormy waters of tax debt.”
Further information about OICs is available on the IRS website at www.irs.gov/individuals/article/0,,id=243822,00.html.
NSA has a searchable database of professional tax professionals who can help taxpayers find a solution to their tax debt. Visit www.nsacct.org and click on “Find a Professional.” More information is also available by calling NSA at 800-966-6679.
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NSA and its affiliates represent 30,000 members who provide accounting, auditing, tax preparation, financial and estate planning, and management services to approximately 19 million individuals and business clients. Most members are sole practitioners or partners in small- to medium-size accounting firms. NSA protects the public by requiring its members to adhere to a strict code of ethics and maintain an annual continuing education regimen. Learn more at www.nsacct.org.