I’ve recently been working with a few clients who couldn’t pay their tax bill on time. We’ve managed to set up installment agreements for them, which is typically a fairly pain-free process with the IRS (though I hear some of the states are less lenient), since the Feds would rather get the money late than not get it at all.
Another option for people who cannot pay their taxes is the Offer in Compromise, where the IRS doesn’t get all it’s money. While this is necessary in some cases, it’s clearly not the way Uncle Sam would prefer to go.
To sum it up, an Offer in Compromise is where you humbly beg the IRS to at least partially let you off the hook for your tax bill because all that money you earned was flushed down the Enron toilet (or whatever other legitimate explanation you might have). The IRS will then quizzically cock its eyebrow and rummage through your financials to see if you’re telling the truth. If you are and the agent you’re working with is feeling charitable, they’ll take your compromise. If not, well. . .I would not recommend robbing a bank, but you will need to pay up somehow.
As you could probably guess, each Offer in Compromise costs our illustrious government some serious money to investigate, to the tune of $2,450 each in 2015. The IRS, thankfully, does not pass that full amount on to the person who can’t even afford the tax bill (though like all government fees, it is passed on to the rest of us), but they do charge a fee to try to keep the frivolous offers out. That fee is the news of the day.
As of right now, each Offer in Compromise costs an oddly not round $186. The IRS wants to raise that fee to a smooth $300.
No, it’s not a huge increase, and will probably have no problems passing through the approval process. It’s just something to be aware of if times are looking hard and the Good Ol’ US of A is trying to knock down the door to take some more.
A quick side note on this Offer in Compromise thing. On the IRS’s website, they note that “if you hire a tax professional to help you file an offer, be sure to check his or her qualifications.” This isn’t just an idle line. We’ve all seen those painful ads offering to help you get the IRS off your back. Be careful with them.
Maybe some of these firms are legitimate, but I had one coworker who worked at one just long enough to discover how low it ranked on the ol’ ethical meter. Many of the clients would have ended paying less overall if they’d just paid the full bill to the IRS. I doubt his is the only firm that works that way.
My advice would be to just find a local, legitimate tax accountant or tax lawyer. You’ll be much better off the long run.