We have all seem the ad’s on TV, a company offers to intercede on your behalf to negotiate with the IRS over your unfiled, or delinquent tax account. The ad’s talk in glowing terms about how they can assist in removing liens and wage garnishments, even how they can settle the debt for pennies on the dollar.
The question I have and please excuse my use of a 70’s TV advert Is It Real Or Is It Memorex?
Can a company intercede on a tax payers behalf and produce the amazing results claimed? I decided to ask retired IRS agent Wayne Vinson for his thoughts on the subject:
Some of the tax companies advertise that their employees are former IRS agents, and I suppose they are, which is a good thing. Ex IRS people generally know their jobs. On the other hand, companies which advertise will be expensive. TV ads don’t come cheap. The TV ads sound really good for the taxpayer. They tend to talk about cases where a huge tax liability is settled for a little money—like a $100,000 tax is “settled” for $6,000. That can happen—but I think it is the exception.
Let’s talk about the word “settled”, which is the word ordinarily used in the ads. It is a perfectly good word but I think it makes the offer in compromise procedure sounds much easier than it is—like they are gonna meet with IRS and easily reach an agreement, that IRS will easily accept less than the taxpayer owes—much less. IRS may do just that—but it will require much time and information about the taxpayer—assets, debts, income, lien priorities, future prospects.
I have had personal experience with just one tax company. After I retired I represented taxpayers for a couple of years, and I handled about ten offers in compromise.
This one guy—a self employed carpenter—contacted me about an offer in compromise. I had several meetings with him, got a financial statement, reviewed his past years income tax returns, met with IRS, tried to get the taxpayer current with estimated income tax payments, evaluated his assets, determined lien priorities, whatever it took.
Meantime, his family was vigorously lobbying to get him to go with a tax company, which would charge him three or four thousand dollars or more. I guess they thought an ex-IRS man would be on IRS’ side, or maybe they thought I didn’t know what I was doing. Anyway this guy went with me. His offer was accepted and I charged him seven or eight hundred dollars.
About a month after his offer was accepted, he called me and said the tax liens against him had not been released—and he had contacted the tax company and they said they would get the liens released for seven hundred dollars. I told him that IRS would release the liens for free, which it did shortly after.
I wish that taxpayers could, on their own, prepare and submit an offer in compromise to IRS in appropriate cases. But that’s unrealistic—they need to be represented, honest representation by someone who will analyze their situation and tell them whether or not an offer is likely to be accepted. Because, if a representative submits an offer that he knows has the chances of a snowball in hell of being accepted, he is being dishonest. He will bill the taxpayer for all the extra work, and the taxpayer will end up disappointed.
When I was representing taxpayers, I never did an offer unless it had a reasonable chance of acceptance. Of my ten offers in compromise, nine were accepted. On the tenth offer, I stopped representing the taxpayer because I found out he was a crook. I learned later that his offer was rejected.
If I were advising a taxpayer on who to get to file an offer, I would not choose one which advertised on TV. I would tell him to go to a local law office, preferably a small one with just 1 or 2 or 3 attorneys. And find out approximately how much it would cost.
Here is a sad story of misrepresentation . After I left IRS, an attorney (we’ll call him Pete) called me about a man he had just started to represent, who owed a lot of income tax. It was an old case. Over time, the client had had two other lawyers.
Apparently, the taxpayer had never spoken with IRS. He’d hired a lawyer right off the bat to represent him and they had filed an offer in compromise which was ultimately rejected. This process lasted about a year. The client and that attorney (# 1) parted company.
At some point, the client hired another attorney (# 2), who prepared and submitted another offer of zero dollars. That offer was of course, rejected. Another two years or so had gone by, during which the 2nd lawyer met with the taxpayer, corresponded with IRS, appealed everything, had conferences with IRS in the district office—and billed the taxpayer for a boat load of money, which the taxpayer paid..
So far the taxpayer had paid nothing on the tax, because IRS generally stops collection when an offer is pending, and there had been two offers. IRS had not been on the taxpayer’s back.
Lawyer #2 was grossly misrepresenting his client. Lawyer #2 filed an offer for zero dollars, which was no offer at all. Further, the client taxpayer was making an average of $250,000 a year and had some equity in assets. There was no way any offer was going to be accepted by the IRS, a fact that lawyer #2 surely knew, or should not have represented taxpayers with tax problems.
The taxpayer finally got tired of paying huge lawyer bills for nothing, so he went to a third lawyer—Pete. Pete ended up with a huge lot of unorganized records. The taxpayer did not know what was going on and Pete couldn’t tell what had happened in the past. So Pete hired me to organize the records, tell him what had happened, and serve as an expert witness if they decided to sue for mal-practice.
I organized the records and told Pete it was not possible for his client to compromise his tax. Pete and his client sued lawyer #2. They deposed me , and the parties settled out of court
The taxpayer finally did what he should have done in the first place. He went personally to the IRS and made a payment agreement. At that point he owed $20,000 more than he had at the beginning. And he had paid many thousands of dollars to his three attorneys.
I think the lesson learned is that when something is too good to be true, it generally is.
Wayne Vinson was an IRS agent for 33 years and the author of a real thriller, Tax Collectors and Other Sinners, the story of a psycho killing tax collectors. It is available at amazon.com as an E-book or soft cover.