Like a lot of things about taxes, what you don't know can hurt you... and, you'll be surprised at what you might not know.
A lot of companies advertise that they can help you settle your tax debt
for pennies on the dollar. They will also tell you their success stories regarding the amount clients have saved by filing an Offer in Compromise (OIC). But they don't want you to know any of the following facts regarding OICs.
Your chances aren't very good.In 2009, only 1.1 out of 1,000 people who owed the IRS money had an OIC accepted. You may happen to be one of the few, but the odds are pretty high that you won't.
Get out your checkbook.The IRS won't even consider your OIC if you don't send in the required payments. In most cases, unless you meet the rules for exemption, you must pay 20% of your offer amount with the application, along with a $150 application fee. Based on 2009 averages, you would need to send the IRS $3,010 to cover the down payment and application fee.
They aren't cheap.The average amount per accepted OIC was $14,296.45 in 2009. That's actually more than the average balance of an individual who owed the IRS, which was $10,680. You would be well advised to check out all other alternatives that may be cheaper in the long run.
Don't Get in a hurry.You won't have an answer to your application for a while. It takes the IRS an average of 6-7 months to complete a review of your OIC. If the IRS has your application for more than 24 months without returning or rejecting it, they will have to accept it, but don't get your hopes up, they know the rules so that rarely happens. Keep in mind that if your OIC is rejected, your CSED (Collection Statute Expiration Date) will be extended.
Your refunds become property of the US Treasury.
The IRS will keep any refund due to you through the year in which the OIC is accepted. That money will be applied to your tax liability. Logical as it may seem, you cannot include in your offer amount any amount that you expect to receive as a refund.
Don't mess up again.
By signing your OIC application, you agree to file and pay your taxes for the next five years if your OIC is accepted. This means if you file a tax return with a balance due after your OIC is accepted, you will have to be prepared to send that amount to the IRS. If you fail to do so, the IRS will re-assess you the tax liability (minus any payments that were made as part of the OIC) and could proceed with collection activity. This means no unfiled tax returns.
Reed Humphrey is VP of Marketing and Business Development at easyIRS.com. Easyirs.com specializes in Unfiled Tax Returns . Reed has an impressive history of sales and marketing leadership in companies such as BCE Emergis and ADP. He has co-founded or led marketing at four different start-ups, including a tax services firm that grew revenues by 100-fold under his direction.