Tuesday, March 25, 2008

“Pay Pennies on the Dollar” or Something Like That (thoughts on picking a tax professional to help you resolve your tax debts).

If you have ever stayed up later than you should on weeknight, you have seen the commercials promising that if you call their company, you won’t have to pay all of your tax debts. They say that you can settle your tax debts for “Pennies on the Dollar.” Unfortunately, you can’t get out of all of your tax troubles for “Pennies.”

What these commercials are talking about is the Offer in Compromise program. Under the program, a person that qualifies can resolve their tax liabilities for less than the full amount. The program exists but the catch is that you have to qualify. Not everyone qualifies, in fact, most do not.

If you are going to investigate the Offer in Compromise option, you will want to consult with a reputable tax lawyer or accountant. That tax professional should give you an honest assessment as to whether you stand a chance at a compromise. If you blindly sign up with the company that promises the most, beware, you may end up paying a large fee for a compromise application that is doomed to fail.

When considering whether to file an Offer in Compromise, you should be aware of the following statistics:

-- Generally, only 25% of all filed offers are accepted by the IRS. (While the acceptance percentage has remained somewhat consistent since 2005, the total number of filed offers have dropped.)

-- Since 2005, the number of offers submitted has dropped by almost 38%.

-- Since 2001, the number of offers submitted has dropped by 63%.

-- The total number of accepted offers in 2007 was only 11,618. This is down from 19,080 in 2005 and 38,643 in 2001.

(see chart below for additional statistics.)

What does all of this mean? It means that it is becoming more and more difficult to get an accepted compromise of tax debts. It also means that you should be careful in choosing a professional to help you. Before you submit an Offer in Compromise based on an inability to pay, your representative should review a financial analysis of your circumstances. If they do not, you will want to ask plenty of questions as to why they believe you would qualify for a compromise. Make sure that you are comfortable with what you are being told and that you don’t buy in to promises that are too good to be true.

No comments: