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Avoid scams while settling tax debts

The offer to settle tax debt for pennies on the dollar is sometimes too good to be true. If you feel that an offer like this is meant to get your attention and not provide you with an actual solution, your instincts may be right. A number of lawyers and accountants who regularly represent clients before the IRS feel the same, as do state governments.

It is true that there are many professionals who work to lower your tax bills on your behalf. But many settlement firms project their programs in a way that creates the impression of aggressive representation and huge results. These firms may also claim to be 'tax settlement specialists' who can cater to various consumers' needs with a range of financial issues. According to them, what they are selling is an offer in compromise (OIC). But an OIC can be a long shot.

An OIC is a settlement agreement between a taxpayer and the IRS. The IRS, like many creditors acknowledges the fact that all accounts cannot be paid back in full. Therefore, before the tax debt reaches an amount that becomes uncollectable, the IRS agrees to accept less money than is owed in certain situations.

The IRS states that an offer in compromise is accepted if the money offered by you is same or more than the reasonable collection amount possible. You need to present a complete picture of your finances to the IRS; your assets, liabilities, income, and expenses. The IRS accepts the offer after checking out your total ability to pay and your financial condition. A successful OIC will occur only when:

  • Your liabilities are more than your assets.
  • Your disposable monthly income is too little after your basic expenses are met.

If these conditions are not met, an Offer of Compromise will not have its desired effect. You need to prove to the IRS that you will never be able to pay back the entire amount if you want to get the right offer.

Due to restrictions imposed by the IRS, nearly three-quarters of the settlement offers received are rejected every year. Thus, before selecting on a company to help you solve your tax debt problems, you need to be aware of the scams that you may end up in. Do not believe in illegal advertisements that claim they can get you a better deal than another company. Settle for a service that holds a good past record of settling tax debt issues. This will help you to handle tax debts scams better.

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