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  • Don't Get Ripped Off!

    The TV ads are endless – settle your debt with the IRS for ‘pennies on the dollar’.  But how true are they?  

    Tax resolution firms routinely promise that they can submit an ‘offer in compromise’ to the IRS with the stated objective of settling a large debt for a fraction of the cost.  That part is true – they can submit the offer – but what they don’t tell you is that the IRS is under no obligation to accept it.  In fact, they won’t accept it if there is a chance of collection.  The IRS uses a measure they call the ‘reasonable collection potential’ (RCP) to determine whether to accept the offer.  The RCP is the sum of the net available assets (equity in home, cash in bank, etc) added to the disposable income for the remaining time on the statute of limitations.  If the offer is less than the RCP, it will be rejected. 

    The damage to taxpayers is significant.  Most of these firms charge from $3,000 up to $10,000 dollars for this fruitless exercise.  At the end of the day the taxpayer gains nothing.  Tax Masters, one such firm which heavily advertises on cable channels, has been charged with thousands of counts of fraud and deception by the attorney generals of Minnesota and Texas.  Another, Roni Deutch – an attorney who went by the name ‘Tax Lady’ – was closed down by the state of California after she violated a court order that she repay customers from whom she took money.  She subsequently filed bankruptcy and closed her office entirely.  Industry stalwart J. K. Harris and Co was successfully sued by 18 state attorneys general for similar wrongdoing. 

    The acceptance rate for offers in compromise has historically been around 20%.  Most are rejected because of insufficient documentation.  The remainder are rejected due to ability to pay.  The worst part is that by submitting an offer, the taxpayer is automatically extending the statute of limitations on collection.  

    There are other ways to deal with back tax debt that are more efficient, cost less and have a higher probability of attaining an equitable solution.  It is best to seek an ethical representative who is licensed to practice before the IRS, who has spent the time and money required to learn how to best represent taxpayers in those circumstances, and who is committed to updating their knowledge through continuing education in that specific area.

    Mike Greenleaf | 11/24/2011