Offer in Compromise

The following email was received by a prospective client who had called us inquiring about resolving his IRS problem. One of our senior Tax Resolution Specialists provided the initial consultation and explained the potential client’s options without making any false promises or misleading guarantees. This person then decided to call other firms and was assured by a “salesperson” that their firm could accomplish anything he wanted.

Dear ******** (JG Associates) 

I spoke with four firms (yours being one). One wouldn’t quote me a set price, so, I didn’t talk to them very long. The other two, however, told me I would qualify for an Offer in Compromise. I called the fourth firm because I wasn’t sure I trusted that I was an offer candidate (mostly because you told me my only option was an installment agreement). That firm did a full financial interview, told me line-by-line what IRS will/won’t allow for individual monthly expenses and concluded that an offer offering around $750 a month (for 24 months) would be accepted. Given that I own a really old vehicle, that firm even suggested that I get a new car payment of up to $517 a month (based on my residence in Maricopa County AZ)–which would be accepted by IRS and lower my 24-month payment amount by that $517 a month. So, it’s possible I’ll have an offer totaling less than $300 per month.

I checked the background of all four firms I contacted. All are solid. All have been in business for numerous years and have A+ rating with BBB (with no unresolved complaints). All have either former IRS employees, CPAs or attorneys on staff. Obviously, I’m concerned that you told me–point blank–that I wasn’t an offer candidate. Worse yet, you seemed certain that my only option was to pay IRS in an installment agreement (up to 10 years).

And, it gets worse. You left me with the opinion that IRS will definitely file a federal tax lien on me. For the past year, I’ve convinced the IRS to not file that lien. I did so in writing. The other firms that stated I’d qualify for an offer agreed that they’d also fight the IRS, in appeals, and even amplify my case for IRS not filing the lien. Over the phone and by email you stated, “You should know the IRS normally files a tax lien to protect the government’s interest on all past due taxes.” Even if your firm was eventually going to come to the conclusion that I was a candidate for an offer in compromise, it’s clear you were just going to let them file the IRS tax lien and destroy my credit.

Looking at your website and doing the background on your firm, I assumed you guys knew what you’re talking about. In the end, I don’t think you did a very thorough interview. You jumped to the assumption that I make too much, per year, to qualify for an OIC. Had I chosen your firm, I’d be stuck with many years of installment payments (likely the same with the state of *****) and a federal tax lien that would have destroyed my credit for the next ten years. In short, hiring JG Associates would have wrecked me (for 10 years) financially.

I’m going with a competing firm… and, I question your firm’s ability to represent a client accurately and in their best interest. Additionally, I’m not entirely certain I won’t contact the BBB and file a negative review on Trustlink.org.

JG Associates takes its representation responsibilities very seriously. We will tell you the truth about your financial situation and your chances of getting an approved OIC; instead of something we think you want to hear, just to get you to become a client.

The following is a response that Mr. Galante wrote to a potential client who wrote the above email voicing his disappointment that JG Associates would not assure him that his Offer in Compromise would be accepted even though a California based tax resolution company gave him assurances that, for a fee of $15,000, his Offer in Compromise was a “shoo in” to be accepted the IRS because they had an “inside track” with the IRS.

Dear Mr. ************

The purpose of my reply to your e-mail isn’t to promote our company.  Rather, I would like to take this opportunity to impart to you some of what I’ve learned over my 40 year tax career, including my over 31 year career with the IRS. The Offer in Compromise Program in general, is like floating adrift in a mine field.  Throughout the offer in compromise review process, there are a myriad of reasons the IRS can use to sink the offer in compromise request.  As a result, I cannot, in good conscience, give a client any guarantees that their offer in compromise request will be approved by the IRS.  Please consider the following information, and you’ll get an appreciation of why I believe that we can’t give any assurances that the IRS will accept a particular offer in compromise.

As I understand it, you own a sole proprietorship (Schedule C) business, which grosses annually about $100,000.  In addition, you mentioned that you owned an “old vehicle” and that you live in ********.  You further mentioned that when you contacted one of the firms, “That firm did a full financial interview, told me line-by-line what IRS will/won’t allow for individual monthly expenses and concluded that an offer offering around $750 a month (for 24 months) would be accepted.”

I understand that you owe the IRS over $500,000, and that you haven’t filed your 2011 tax return.  Owing $25,000, $100,000, or a substantially larger sum has a considerable impact on how close the IRS would scrutinize your offer in compromise.  In my opinion, the more you are asking the IRS to compromise, the more likely it will be that the IRS would “find a reason” to reject your offer in compromise.  In addition, since you owe over $100,000 to the IRS, did the firm tell you that your offer in compromise will be reviewed by an IRS attorney, as well as an OIC reviewer?  Having two IRS employees closely reviewing your offer in compromise, together with your supporting documentation, makes it twice as likely that either of the IRS employees will come up with “some reason” for disallowing your offer in compromise.

Incidentally, I find it incomprehensible that any firm would try to perform a full financial interview over the phone, and give you assurances that the IRS would accept the offer amount of $18,000 ($750 X 24) against a debt of $500,000.

IRS Offers in Compromise

I assume, but I wanted to make sure that the firm first mentioned to you that, in order to be eligible for an offer in compromise, you must:

(1) file all tax returns you are legally required to file

(2) make all required estimated tax payments for the current year,

(3) make all required federal tax deposits for the current quarter if you are a business owner with employees, and that

(4) if you or your business is currently in an open bankruptcy proceeding, you are not eligible to apply for an offer.

Did the firm tell you that you had to first file your 2011 tax return, before you could qualify to even submit an offer in compromise?   Without you first filing your 2011 tax return, and timely filing your 2012 tax return, you are not an offer in compromise candidate.

Generally speaking, an offer in compromise’s “offer amount” is calculated by determining a taxpayer’s available personal equity in assets, their remaining (net) monthly income, and a taxpayer’s Schedule C equity in assets, and the net business income.  This analysis requires reviewing a significant amount of documentation, and securing answers to probing questions, that allow for a comprehensive review of a taxpayer’s business and financial records in order to come up with a valid offer amount.  Again let me repeat, I personally would never give anyone any assurances or guarantees that the IRS would accept an offer in compromise, especially after performing only a telephonic financial review.

You mentioned that the company told you which individual monthly expenses the IRS would or would not allow.  You also said that the firm told you that if you purchased a new automobile and got a new car payment of up to $517 a month, that doing so would lower your 24-month payment amount by that $517 a month.

That statement is true, but there are other considerations.  The firm you are working with used the information that can be found on the IRS’ website at which says that the allowed ownership cost of one automobile is $517.  Did the firm also say that the IRS would allow you a monthly expense of $291, because you live in *******?  I assume that they did advise you of that.  But did the firm also mention that the IRS could ask you where you came up with the money to purchase an automobile, if you put down a large cash deposit?  The IRS would want to see if you had access to a money source that you could use to pay toward your IRS debt, rather than the IRS agreeing to a settlement amount.

You also, don’t mention how “old” your automobile was and how many miles you had on it.  The IRS could take the position that your “old” automobile isn’t old in their eyes.  In addition, the IRS could say that they see no reason why you couldn’t take public transportation to get to and from work, that you didn’t need to purchase a newer automobile, and that you decided to buy the automobile to enhance your quality of life before paying the IRS what you owed them.  As a result, the IRS would not allow the additional monthly $517 payments.

You said that the firm you’re working with would submit an offer in compromise with a net monthly income amount of $300.  Without you having filed your 2011 and 2012 tax returns, and computing your 2013 profit and loss, I can’t understand how anyone can perform a full financial analysis over the phone, and make that determination.   As part of the offer in compromise evaluation process, a firm needs to verify your business’ current gross receipts and expenses.  The verification process involves the review of a significant amount of information including your bank statements, QuickBooks files, if available, and copies of the paid invoices.  The IRS will want to see copies of these documents.

While at the IRS, I personally have seen the IRS “sink” offer in compromise requests because the IRS did not believe the company’s income, expenses, and/or asset amounts that taxpayers reported on their offer in compromise forms. The IRS routinely requires that a Schedule C’s income and expense amounts be substantiated with written documents, before they accept the numbers.  Since you owe over $100,000 to the IRS, I assure you that the IRS will closely scrutinize your business valuation.  As I said before, I can’t see how that can be accomplished during a telephonic financial analysis.

Additionally, the analysis of your personal financial situation requires the review of documents that substantiate your equity in assets such as a retirement account (e.g. 401k), and life insurance policies.  To determine the correct valuation of equity in assets, a firm would need to review documents that support the valuations.   The IRS will want to see copies of these documents.

Read More