Scam? The Tax Debt Compromise Program Phone Call

You can get rid of any type of debt with the right plan, and that includes tax debt. Thankfully, the IRS offers a tax debt compromise option that could allow you to settle your debt for less than the full amount. If you’re not sure how to pay off your tax debt, an offer in compromise (OIC) may be the solution.

First, make sure that you’re working with a legitimate debt relief offer from the IRS. Tax relief phone call scams are common, and criminals use these scam calls to fleece people out of money and commit identity theft. Learn about how an IRS offer in compromise really works below, and how you can tell if you’re being contacted by the IRS or a con artist.

What Is the IRS Offer in Compromise?

An offer in compromise (OIC) is a federal program that enables you to pay less than the total amount of your tax debt to the IRS. If you can’t pay your full tax bill, or paying in full would cause financial hardship, then an OIC may be an option.

According to the IRS, you're eligible for an offer in compromise if you:

• Filed all your required tax returns and made all required estimated payments.

• Aren’t in an open bankruptcy proceeding.

• Have a valid extension on your current year tax return, if you’re applying for an offer in compromise for the current year.

• Are an employer and have made tax deposits for the current and past two quarters before you apply.

When you apply for an OIC, the IRS looks at your ability to pay, including your income, expenses, and assets. The IRS generally approves an offer in compromise if the amount you offer is the most it could expect to collect from you within a reasonable time.

For your OIC to be approved, the amount will most likely need to be equal to or greater than your reasonable collection potential (RCP). Your RCP is the amount that could be made from your bank accounts and by selling your assets. RCP also includes the value of your future income after basic living expenses.

You must also meet IRS budget guidelines, which are called collection financial standards. In plain speak, there are national guidelines that outline necessary living expenses (such as housing, utilities, transportation, and other essentials) and the maximum amount you should be spending on them. If you’re over budget, the IRS typically won’t accept your OIC.

Offers in compromise have two payment options. You’ll choose the one that will work better for your situation and submit your initial payment with your application:

• Lump sum. You submit a payment of at least 20% with your application. If your offer is accepted, you must pay any remaining balance due on the offer in five or fewer installments.

• Periodic payment. A periodic offer lets you pay the amount you’re offering over six to 24 installment payments. In this arrangement, you submit the first payment with your application and continue making payments while the IRS reviews your offer.

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Pros of the IRS Offer in Compromise

An OIC is a great opportunity to get free of tax debt. Here are the benefits:

• You settle your tax debt for less than what you owe. Once you’ve fulfilled the OIC, any remaining IRS liability is wiped away.

• You avoid seizure of your assets or wage garnishment. The IRS can seize and sell property or go after your earnings for unpaid tax debt. If your OIC is accepted, the IRS can’t seize your assets or garnish your bank account.

Cons of the IRS Offer in Compromise

Before you decide to apply for an OIC, it’s also good to know about the drawbacks:

• Many applicants don’t qualify. The program is intended for people who won’t be able to pay their tax debts within 10 years from when the tax was assessed. If the IRS believes you can pay your tax debt, an OIC probably won’t be an option.

• The rules are strict. You must be compliant with your tax reporting over the next five years. If you miss a tax payment or don’t file a required return, the IRS can reverse your OIC and demand full payment.

• The application process is lengthy and requires a $205 application fee. But if you meet low income certification guidelines, you can apply without paying an application fee.

What to Do if You Aren’t Approved for a Tax Debt Compromise

If you don’t qualify for an OIC, you still have options. The IRS wants to find a resolution that works for both sides, and it works with taxpayers who will do their best to pay off their tax debt.

The IRS offers multiple payment plans. You can request a short-term payment plan for tax debt you can pay off in full within 180 days. This type of plan doesn’t have an application fee.

For large tax debt, you can request a long-term payment plan with monthly payments. There is an application fee, and the amount depends on the type of plan you choose. Long-term payment plans range from three to 10 years, giving you much more time to pay what you owe. Keep in mind that interest and penalties increase the longer you stretch out your debt, so you should still try to pay off tax debt as quickly as possible to save money.

Beware of Tax Debt Compromise Program Phone Call Scams

The IRS warns taxpayers about tax debt compromise scams. In fact, OIC mills regularly make the Dirty Dozen list of tax scams published every year by the IRS.

Here’s how it works: Dishonest companies and scammers promise to solve tax debt for pennies on the dollar and remove penalties and interest fees. These fraudsters often advertise their supposed services on TV and the radio. Some of them also go through tax lien notices looking for individuals who are in tax trouble to contact directly by phone call, text message, email, or direct mail. Many dishonest companies pop up when you search online for info on applying for an OIC.

Scammers may charge fees for information you could find yourself, mislead you into believing you qualify for an OIC when you don’t, claim their services are essential for applying correctly, or steal your sensitive financial information.

There are all kinds of tax debt relief scams out there, and scammers also go after people who don’t have any tax debt. Along with OIC mills that overpromise and underdeliver, there are also criminals who impersonate IRS representatives. Practically anyone can be the target of a tax scam, but if you owe money to the IRS, you’re at a greater risk.

Spot the Red Flags of Tax Relief Fraud

Tax relief scammers use sophisticated methods to try to swindle taxpayers, but knowing how to spot a fraud could protect you. Here are five red flags to look out for. 

1. Unsolicited contact

Scammers often call, email, or text you to create a sense of urgency and try to get you to pay right away. But the IRS says it will never demand immediate payment using a specific payment method or without giving the taxpayer the opportunity to appeal. The IRS will typically mail a bill to taxpayers who owe money. 

2. Guaranteed results 

Legitimate tax relief programs do not guarantee outcomes, because the result depends on the decision that the IRS makes. Be wary of tax debt relief programs that promise to settle your tax debt for much less than what you owe.

3. High-pressure tactics

If someone posing as the IRS or a tax relief program contacts you and tells you to act immediately, put up your guard. People tend to act hastily and without thinking twice when they’re scared, and scammers know this. The IRS, however, doesn’t impose such urgency. 

4. Hefty upfront fees

Be cautious of tax professionals asking for large upfront fees for their services. Some untrustworthy tax relief companies charge a fee to apply for OIC on behalf of a taxpayer, even when they know the IRS is likely to reject the applicant. You can use the OIC pre-qualifier tool on the IRS website to see for yourself if you’re a likely candidate for the program.

5. Requests for personal information 

Scammers often ask taxpayers for Social Security numbers, bank details, or other sensitive information. But the IRS doesn’t use text messages or social media to discuss personal tax issues and does not email taxpayers asking for personal information. If you’re contacted by someone claiming to be the IRS or a tax professional, hang up or don’t answer. Contact the IRS directly. 

Avoid Tax Debt Relief Phone Call Scams

Whenever you receive a call from someone offering to lower or eliminate your tax debt and penalties, be wary. To be prepared, here’s what the IRS says about how it may contact you:

• The IRS typically contacts you the first time by regular mail through the U.S. Postal Service. If you want to verify that a piece of mail is from the IRS, you can search for it on the IRS website.

• The IRS will only email you with your permission, with limited exceptions such as criminal investigations.

• The IRS will only send you a text message with your permission.

• The IRS may call you by phone to discuss your case, verify information, or set up a meeting.

• The IRS might send a fax to verify or request employment information.

• The IRS won’t contact you or take payment on social media.

The most important thing to remember is that the IRS prefers to reach out by mail first. If you’ve never received any correspondence from the IRS about debt, or if you don’t think that you have a tax debt issue, then any phone call you supposedly receive from the IRS is likely a scam. In this case, just hang up without providing any information.

If you receive a call about tax settlement, remember that no one can promise you’ll qualify for an OIC. Don’t engage with anyone who guarantees this or says you’ll automatically qualify, and definitely don’t pay them anything. You can find out if you qualify and send an OIC to the IRS yourself.

If You’ve Been Scammed by a Tax Debt Compromise Phone Call

If you’ve paid money and/or revealed sensitive personal and financial information to someone you suspect of being a fraud, take steps quickly to report the incident. You can report a tax scam to the IRS on its website. If you’ve already paid a company that you now suspect is a fraud, fill out and submit Form 14242, which reports suspects of abusive tax promotions or preparers.

In addition to the IRS, you could also report the scam to any of the following:

• Your State Attorney General’s office

• The FBI

• The Federal Trade Commission (FTC)

• The Better Business Bureau (BBB)

If you decide to seek help in applying for an OIC with the IRS, or in making other arrangements on your tax debt, make sure you enlist the right expert. A certified public accountant (CPA), enrolled agent, or tax attorney are the best options to help with your unpaid tax liability, and they can also represent you in front of the IRS if needed.

Steps to Take if You Suspect a Tax Scam

If you suspect you're dealing with a tax scammer, follow these steps.

1. Do not engage

If you receive a suspicious call, don't provide any personal information. Hang up immediately. If you receive an email, text message, or message via social media, do not reply or open any attachments. 

2. Verify the contact

Don’t automatically trust that someone is who they say they are, or that the number, email address, or social media handle they’re contacting you from is as it appears. Scammers nowadays use spoofing, a method in which they can make it seem like they’re contacting you from a legitimate source. Don’t engage, and reach out to the IRS directly.  

3. Report the scam

Report the incident to the IRS by following the agency’s reporting guidelines. This may involve reporting suspected tax fraud via Form 14242, as well as notifying the Federal Trade Commission (FTC) and the Better Business Bureau (BBB).