An Offer in Compromise is a lengthy and time-consuming process. It takes most people anywhere from 12 months to 24 months to achieve a successful resolution on your offer application. But the odds of succeeding are slim. Only about 16% of applicants succeed in reducing their debts through the Offer in Compromise program.
Through an Offer in Compromise, taxpayers agree to pay the IRS only the reasonable collection potential instead of the full amount of taxes owed. For some people the "reasonable collection potential" will be less than the full amount of taxes owed sometimes far less. Some taxpayers will not qualify for an Offer in Compromise.
Because of the complexity of filing an Offer in Compromise, many people seek the help of tax professionals. Generally, seeking professional advice for an Offer in Compromise is highly recommended. Here's how to protect yourself and find the right tax professional for you.
Selecting a Tax Professional to handle your Offer in CompromiseBecause of the complexity of the Offer in Compromise process, many taxpayers hire a tax professional to prepare their Offer documentation and to negotiate with the IRS. Tax professionals charge anywhere from $1,500 to $3,000 or more for accurate and thorough Offer in Compromise representation. Because an OIC also involves negotiating with the IRS, your tax professional should be admitted to practice before the IRS. You should be looking for a tax attorney, Certified Public Accountant (CPA), or Enrolled Agent (EA), to handle your Offer in Compromise.
Beware of Offer in Compromise scams!Many unscrupulous tax preparers will quote you a seemingly affordable price for your Offer in Compromise. Such preparers will prepare your Offer in Compromise forms, but will not prepare the necessary backup documentation, and will not negotiate with the IRS for you. All they do is type up the forms and mail it to the IRS. This is a waste of time and money. To protect yourself, find a tax professional that is experienced, qualified, and has a good personality. You are going to be working with this person very closely for the next year or two, so make sure you feel absolutely comfortable.
Selecting the Right Tax ProfessionalFiling an offer in compromise requires significant expertise. The tax professional must know about the laws governing IRS collection of tax debts, how the IRS evaluates offers, and what all the options are for resolving tax debt problems. "Taxpayers should be looking for a tax professional with significant experience in IRS collection matters, especially experience in dealing with revenue officers, the Automatied Collection Systems division, and Appeals," according to David Bauman, an enrolled agent with JK Harris.
Questions to AskSome of the things to look for:
- Is the tax professional an attorney, CPA or Enrolled Agent?
- How many Offer clients does the person handle?
- What percentage of clients have been successful in their Offers?
- What is their fee?
- Does the fee include preparation of all IRS forms, all backup documentation, and all negotiation with the IRS?
Please be aware that even the most successful tax professionals have lost Offer in Compromise cases. It is important to know that your Offer in Compromise will be decided based on your unique financial situation. Having a tax professional represent you before the IRS will help ensure that all letters and phone calls from the IRS are handled quickly and professionally. But in the end, it is up to the IRS to make a decision about your case.
Ask tax professionals how they handle OIC rejections, and if they will help you create a backup strategy for handling your tax debt. In my practice, I always have a backup plan for my clients, since the IRS approves so few Offers.