Do you qualify for an IRS Offer in Compromise?
Who doesn’t want to pay less for IRS back taxes they owe? For most of the people we talk to, they want to know the answer to either “Do I qualify for an Offer in Compromise?,” or others are are suspicious, rating tax debt resolution companies as credible as water-fueled car claims.
Here’s the thing.
Yes, an Offer in Compromise, if accepted, will lower your tax bill substantially. It is not a scam. Trust me. I have hundreds of accepted Offer in Compromises to prove it. So then, we’re back question “what can you settle my back taxes for with an Offer in Compromise?”
What percentage can an Offer in Compromise reduce your taxes by?
Trick question. You see there is no set percentage to settling an IRS tax debt with an Offer in Compromise. In the simplest terms, an IRS Offer in Compromise will be approved when what you can afford to pay is less than what you owe. There is no 10% rule or anything like that that many junk mail purveyors claim. In theory if all you could afford to pay the IRS was $10,000.00, if would not matter if you owed the IRS $100,000 or $1,000,000, your Offer in Compromise amount would be $10,000. And if you owed the IRS $10,000 you would be paying the IRS in full.
Again, an Offer in Compromise is not a set percentage, but it is based on what your “reasonable collection potential” is. Which I suppose, leads us to the next logical question.
Is my “reasonable collection potential” low enough to get an Offer in Compromise accepted?
This reminds me of a conversation I had last week with a Personal Injury Attorney based out of Connecticut, Richard Hastings, Esq. He said that often times, he would talk to a potential client someone over the phone who was just in a car accident. Soon, he tells me, he’d be asked “what’s my claim worth?” He told me that the way he handles this question is by saying “Sure, I will tell you what you claim is worth once you can answer my next question.” His client would say “o.k., sure.” And then Attorney Hastings would ask “What do you think of my tie?” His client would say, “Well, I can’t see it. I don’t know.” And then Attorney Hastings would go on “Well it’s like that — I can’t see your entire case right now. Only when we are nearly complete with our work will be really know what we are dealing with. I can’t tell you what your case it worth. There are too many factors to give an accurate range. But you do have claim worth pursing, I can tell you that.”
For us, the situation is nearly identical. We can’t give an accurate range of what we can settle an IRS tax debt for until we are almost nearly done with our work. But we can at least recognize when we have a situation when tax debt help is necessary.
How to get the wrong answer about what your reasonable collection potential is
I can tell you one way to find out what the wrong answer is. The IRS has released a new “easy-to-use” Offer in Compromise “pre-qualifer” calculator. Seriously. It is available here. And just to see how it worked, we ran through real-life Offers in Compromises that we had accepted through. Now we did cheat a bit by putting in our most difficult Offer in Compromise cases, but still — guess what? The pre-qualifier claimed they didn’t qualify when they did and claimed they qualified when their offer in Compromise was rejected. We have the paperwork to prove it!
We’ve covered this topic before here. Offer in Compromise calculators are so incredibly useless. Whether paid for, free or provided by the government, Offer in Compromises are fine, unless you are looking for the optimal solution.
While I find the IRS’ qualifier is extra-absurd, yet, it is rather ingenious.
Think about it.
What if hyper-advertiser GEICO had a web page: “Personal injury claim pre-qualifier”
How many people would use their answer as a guide?