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Want the low-down on the Offer-in-Compromise program? Want to know why the IRS rejected five out of six offers made in 2003? Want to know if you could make a successful offer? Then this chapter is for you.

Chapter 16:
Pennies on the Dollar

Now let’s discuss the realities of settling with the tax man at a deeply discounted rate: pennies on the dollar.

You may have seen advertisements spouting off about how you can “make a deal with the IRS” and walk away quickly with a smile on your face. You can even find books with such marketing lines emblazoned on their covers. I am sorry to say that for most people those lines are nothing more than an advertising gimmick to get you in the door or to sell you a book. And worse, I have heard of many such specialists charging exorbitant fees for their services. I will tell you about authentic ways of making a deal with the IRS, so you are not deceived by hype or inaccuracies. I will also tell you when it is a good move to do so and what you should expect. For some late filers, this is a fantastic program, but it is not simple and it is not for most people.

THE OFFER-IN-COMPROMISE

The IRS has created a procedure called an Offer-in-Compromise. In the business we call it an OIC for short. This chapter will deal almost entirely with the federal, or IRS, version. I will make a few comments about state programs at the end of this chapter. In my experience the IRS reluctantly implements this program. They have tended in the past to need a push from Congress to be at all excited about it, but the program is in effect. For example, check this out: The tax form you need in order to submit an OIC is Form 656. This form is not available at regional IRS tax offices or even in the IRS Package X. Nor is it available in Publication 1132, IRS Reproducible Forms. Since they consider the form rarely used, you must order it over the telephone or in writing and wait days or weeks to receive it. Additionally, you can order the form only if you know the form number. How do you find out the form number without asking an expert? The form was revised in May, 2001. If you use an older form, which is almost exactly identical, the IRS will return it and request that you use the new one. Clearly, the IRS is not making it easy to file an OIC if they make it hard to locate the necessary form. Finally, in order to submit a properly computed form and its supporting documents, you really need to hire an experienced tax pro.

In 2001 the IRS centralized the OIC program and now only two facilities in the country process Form 656-—one in Tennessee and the other in New York. Until  recently there has been no fee to file an OIC. The IRS just changed their policy and now they charge a $150 fee (with a few exceptions).