Offer In Compromise – The worst things to do.

#1 Wait!

As soon as you know that you’re going to have a tax debt you need to get on top of it. That doesn’t mean that you’re going to settle right now. It means that you’re going to start to prepare yourself to qualify for one of the Pay Less Than in Full resolutions.  

#2 Continue the Bleeding, sometimes.

The way that the IRS works is that they want you to first stop the bleeding, become compliant, then deal with your back tax issues. The IRS will not entertain any resolution until they see that you are fixing the problem that got you into trouble in the first place. However and what they won’t tell you is that in some cases when you are going to apply for a resolution it can be wise to include the current year and any additional projected debt into the resolution application. 

#3 Attempt to prepare the OIC yourself.

In the past few years the acceptance rate for OIC’s is only around 40%. For self prepared OIC’s it’s much lower. The average taxpayer will look at the OIC application and financial worksheets and think that it look’s easy enough. Well frankly, it is fairly easy to plug in the numbers. However, not knowing what the IRS is really looking for and understanding how those numbers effect the outcome can make a huge difference in your offer. A rejected OIC can cause you more headache.

Example 1; A lady who owes $100,000 applied for an OIC. She prepared it herself with a $23,000 offer. It was rejected because at the current time the IRS felt that she could full pay. After she contacted me I found out that in six months her life would have many changes, including not having a job and a new baby. We we’re able to hold off the IRS until her life changes had taken place and then applied again. Her offer was accepted for $3000.

Example 2; A couple near 70 years old who had owned a business. The IRS used their previous tax year return in part to base their ability in determining their offer, their debt was $140,000. Their offer was rejected. Waiting until the next years tax return had been filed we were able to show a great reduction in income. The new offer was accepted for $8200. Timing is everything.


#4 Rushing to get it submitted and excepted.

“Wait for a better day” is what I tell many of my clients. There’s a reason that you have gotten to this point. With so many taxpayers their tax problem mushroomed into where they are today and it often get’s worse before getting better. A experienced Tax Resolution Specialist should be able to help you get to a point where you can make the best offer. Often it isn’t today, although I might be.

#5 Listening to the advertisement’s.

Advertisement’s about the Fresh Start and Offer In Compromise are everywhere today. They want you to think that getting the IRS to settle your debt is easier that ever. The Fresh Start program is only a more relaxed way to calculate the original Offer In Compromise. It did increase the acceptance rate and often lowered the offer amount. However, it is still difficult to get accepted.

# 6 Thinking that you are going to settle for pennies on the dollar.

Many of these Tax Resolution Companies that advertise Nationally will tell you that they believe that you will be able to settle your debt but fail to tell you the rest of the story. The OIC is a formula. It tells the IRS what they believe that they could collect over a period of time without any resolution. The offer is what that formula concludes. It could be less that 1% to 100%. Once the amount is determined you still have to be able to pay it. 

Example: I had a client who owed about $70,000. He had lost his job. He qualified for an OIC for $8000. The IRS offered a $8000 lump sum payment (paid within five months) or he could have paid in about 12 months or about $800 per month. He couldn’t do either. We had to withdraw the offer until a better day. 

#7 Panic.

The IRS has sent you letters wanting you to do something. Even if you received a certified letter with a demand date on it or a Revenue Officer has visited your home or business you still have options. It’s important to respond to them. However, attempting to do this yourself might lead to other problems. 

A Tax Resolution Specialist will have several tools available for them to stop or suspend collections activity so that you can develop a plan to take care of your tax issue. An experienced Tax Resolution Specialist should be able to hold off the IRS so that you can get yourself into a position for the best resolution opportunity available.

#8 Talk to the IRS Collections yourself.

I recommend that you NEVER, NEVER, NEVER talk to the IRS. The IRS is trained to find out things that you may or may not have to disclose. Additionally, what your financial position today may not be what it is tomorrow. 

Example; Today there are no lien’s. You’re trying to sell car or something that’s titled. If you disclose that to the IRS in your conversation the I guarantee you that there will be a lien soon. 

You don’t want to lie to the IRS. Knowing when and what to say in the IRS conversation can be a great benefit to you.



About John

John E. Jones, EA is an Enrolled Agent enrolled by the US Department of Treasury and has been granted the privilege of representing taxpayers before the IRS. John's specialty is general tax debt resolution and more specifically representing extreme hardship cases and seniors with compliance and resolution.
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