If you owe back taxes, you have become more popular than you would have ever thought imaginable! The mailbox is full of promises to settle your tax obligations at “pennies on the dollar,” the phone rings constantly; it seems that everywhere you turn, someone is offering to help you and asking you to pay them for it – ironic, I know. With the current “Fresh Start,” initiative from the IRS there is more buzz about wiping the slate clean and settling your taxes. Unfortunately, the buzz and sizzle fall short of what you most likely will end up with.
For an individual or business that has fallen behind on their tax obligations, the offer to pay less than what is owed sounds more than appealing. Collection agents from the IRS will encourage you to complete the paperwork for an OIC; they will even state that you have a right to try it. What they will not tell you is what the criteria is, how your ability to repay is measured and what the overall consequences are to filing for this specific hardship program when you do not qualify.
You can review the OIC (form 656) booklet and form here. You will find an eight page form to “apply,” for the OIC is included in this 32 page handbook. As you review the form, it seems simple enough; your personal info, how you earn a living, how much you make, what you own, etc. It would seem reasonable that the government would ask these questions in order to review your chances for settlement. Let’s look a little deeper at what they are really asking for. Providing your employment/earnings information seems simple enough – the IRS probably has it from a previous filing or from someone that has reported income paid to you. What if you are not in compliance (filings not submitted)? What if you tell the IRS you cannot afford to pay an installment agreement? The IRS will now have a direct path on where to collect the funds from you via enforced collections. Since you will provide your employer’s info, they can easily submit a wage garnishment which ensures that they will be able to collect faster than before. Additionally, when you provide your bank account info, they now have the correct account to seize. In short, you are providing exactly what is needed to make collecting from you simple.
What about the list of assets you own? If there is available equity in your home; even your primary home, that is reviewed as a means to collect from you. Retirement accounts, investments, joint accounts, etc; everything about you financially is required to be disclosed in consideration of an OIC. As a comparison, take a look at the form 433-A (collection information statement) here. Oddly enough, the information requested from the Revenue Officer (collection agent – RO) is all required for the OIC. If the RO is asking you to complete the OIC paperwork and offering an opportunity to settle your tax debt for less than is owed, are you more likely to comply with their request for financials, or is the 433 an easier request? The new “Fresh Start,” initiative is geared toward exactly that; getting the info necessary to ensure that you pay your “fair,” share! This might have been one of the cleverest marketing ideas from the IRS in history!
Do you think that after reviewing your financials that you cannot possibly pay the tax debts? What if you stopped paying your credit cards and other unsecured debts? How about the cost of your living situation? Is it higher than the average costs for your market place? The money you are obligated to pay to your creditors, your landlord, the mortgage company; if any of that is higher than what the “norm” is in your area, this would be an available amount to pay the IRS in their eyes! In summary, even though you do not have the ability to pay the IRS in your opinion, the IRS will require that you change your financial obligations and pay the tax debts, regardless of what that does to your creditworthiness or lifestyle! Not only will the tax debt inhibit your ability to pay your bills, a lien will most likely be filed against you to encumber your assets and damage your credit further. As if that is not enough, the OIC program will also extend the amount of time the IRS can collect from you – 10 years from the date of assessment PLUS the time the OIC has been submitted, waiting for review AND the eventual appeal of their denial. This could increase/expose your situation by another 2 years!
As you can see, filing for an OIC when you do not qualify can really hurt you. The good news is that there are other methods to resolving your tax problems that can save money, preserve your creditworthiness, not disclose all of your assets and once and for all, allow you to close this chapter out and move on with your life. A true “Fresh Start,” can be had and the experts at Larson can help. Call or email us today to discuss what other programs are available and how we can help.