Has anyone out there used the IRS "Offer in Compromise" and can they tell me how it worked for them?

Question

If you just fill out the IRS form and send the IRS your cash offer, it seems like they could simply take the money and reject your offer and demand more. Shouldn't there be some sort of negotiation prior to the form submission?

Answer 1

Your form *is* the negotiation.  However, most OICs are rejected due to unreasonable expectations by the taxpayer.  

The form 656 includes a calculation of the minimum offer the IRS will consider.  If your offer is below that, don't bother.

The IRS has a "reasonable collection potential" of roughly the value of your assets if you sold them and 48 months of monthly payments....  You can't say, here's all my spare cash at the moment and let's cut a deal.

(Note, JKHarris, one of the big firms that uses the pennies on the dollar tv pitches was sued by 18 states because they failed to be realistic about what a taxpayer could expect.)

Answer 2

Don't get too excited about an offer in compromise.  I have known several people to try one and isn't for the normal taxpayer.  It is for people who usually have started a business and incurred an incredible tax liability and have no hope of paying it.  The IRS will look at your offer but also look at your whole circumstance - how much tax you owe vs. how much money you make and are likely to make in the next 2 to 20 years.  It is for people who have no chance in heck of even making a dent in their tax bill.

You are expected to send in some cash so they know that you care good for it and aren't just wasting their time.  Unless your tax bill is fairly small, you don't have to send in your whole offer.  But if your tax bill is that small, it probably won't get looked at anyway.  Again this is something for big time tax bills owed by people whose business have gone under and have not much likelyhood of paying their taxes back even if they are spread over 20 years.