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Offer In Compromise Jaw-dropping Success Stories

Offer in Compromise Success Stories

Most of us have watched a TV commercial or heard a radio ad promising that a phone call to an 800 number will result in settling your tax debt for “pennies on the dollar.”  Is this too good to be true?  The truth is that most individuals and businesses who have gotten behind with their taxes are not good candidates for a tax settlement, otherwise known as an Offer in Compromise.  However, pennies-on-the-dollar tax settlements are very much a real thing—for those who qualify.

These ads are uniformly rife with hyperbole, but almost never include any reality.  So, I thought I would share some reality with you.  If you’re curious about how these tax settlements play out in real life, read on. The following are real life summaries of several jaw-dropping settlements that have recently been negotiated by the tax attorneys at Fortress Tax Relief.

If At First You Don’t Succeed, Appeal!

This first example was handled by me personally.  One of my clients closed his business and was left personally liable for approximately $370,000 in Trust Fund Recovery Penalties (TFRP)—the penalties that can get personally assessed against individuals when a business entity does not pay its employer withholding taxes (Form 941).  It is worthwhile to note that you cannot discharge TFRP in bankruptcy, so, absent significant wealth and the ability to full pay, the future can be financially grim for a person assessed with such a large tax liability.

My client understandably wanted to try to settle his TFRP with an Offer in Compromise.  However, there were a couple major obstacles.  First and foremost, my client had several pensions and retirement accounts that totaled a significant amount of money, and it is almost unheard of for the IRS to settle for less than the full amount owed if you have the ability to liquidate your assets and full pay the tax debt.

The second huge obstacle was that, although my client was close to retirement age, he was still currently employed.  Consequently, we would be faced with a presumption from the IRS that my client could continue working, and full pay the entire $370,000 by way of a combination of monthly payments and the liquidation of his assets.  Thus, the IRS was effectively preventing my client from retiring on his own terms.

Since my client was nearing retirement age, I devised both a short-term strategy and a long-term strategy.  For the short-term, I negotiated a payment plan with the IRS with monthly payments of only $700 initially, which would reduce to $616 after several months.  This was, in and of itself, remarkable in that I managed to convince the IRS to accept these terms without the client having to liquidate any of his assets and use the proceeds to substantially pay down his tax liability.

Once my client retired, I began to execute my long-term strategy, which was to fight tooth and nail to try to get the IRS to accept an OIC, obstacles notwithstanding.  My client was faced with having to liquidate his retirement to the tune of about $260,000.  My plan to prevent this liquidation was to use actuary tables to attempt to argue that my client needed those funds to satisfy his necessary living expenses for the remainder of his life.  In other words, I argued that these funds should not be treated as an asset.  Although this was clearly a very aggressive and “outside-the-box” strategy, it was the only way that a massive savings could have been realized for this particular client.

The Offer Specialist (employee at the IRS who reviews, approves, and rejects OIC’s) not surprisingly calculated my client’s social security, pension, and other distributions as income, but then included the retirement nest egg as an asset.  She declined to accept the $2,400 that we offered as settlement in full and insisted that we increase our offer to $242,000 (yep, 100 times more than we had offered).  I went back and forth with her for some time attempting to convince her that my client’s retirement nest egg should be treated as future income, not an asset, but she would not budge.

So, I filed an appeal and brought the same arguments before an Appeals Officer (Settlement Officer).  And, low and behold, this time my arguments were successful!  My dogged determination and well-presented arguments convinced the Appeals Officer to approve an enormous reduction.  In the end, the settlement came in at just under $121,000—less than ½ of what the Offer Specialist was willing to accept and about a quarter million dollars less than my client owed.

Persistence Pays Off

This second example was also handled by me personally and I believe that the case encapsulates the essence of persistence. My client operated as a sole proprietorship and so he was personally liable for the complete outstanding tax liability that stemmed from the business (941 employment and 940 unemployment) as well as the personal 1040 income tax liability.

The continuous obstacle with this particular client was the routine annual accrual of 1040 income tax liability due to insufficient quarterly estimated payments being made throughout the year.  Remaining current with all required tax payments, including quarterly estimated payments, is a prerequisite for an Offer in Compromise. The IRS makes this a requirement because otherwise the IRS could accept and approve an OIC only to have it default within a short amount of time due to the accrual of additional tax liability once the next 1040 income tax return is filed with a balance due.

Over the course of many years, multiple well-supported OIC applications were prepared and submitted to the IRS.  After each submission, we would have to wait several months for the case to be assigned to an Offer Specialist to review the OIC.  Then the Offer Specialist would establish a deadline for my client to get caught up with the delinquent estimated payments.   Unfortunately, my client routinely failed to get current with his 1040 obligations, and continued accruing new 1040 liabilities (against my instructions).  Continuing to accrue new tax liabilities is a disqualifier for OIC eligibility.  As a result, we would then have to withdraw the OIC with the objective of starting the process all over again, each time with the goal of having the quarterly estimated payments made throughout the year so tax compliance was maintained thereby allowing the OIC to be considered.

This occurred not once, not twice, but three separate times because invariably unforeseen events would transpire each year that prevented my client from being able to make the estimated payments each quarter or by the deadline set by the Offer Specialist. Despite these reoccurring setbacks, I was certain that my client was a great candidate for an OIC, if only he could remain current, and so we continuously pursued the resolution strategy.   Finally, on the third go around, my client was successful in remaining current, thereby allowing the OIC to be considered.  Since the previously reoccurring obstacle had now been overcome, I was able to present our case in a favorable manner and secure approval of the OIC.

Unfortunately, as is often too common, after some time had passed, the OIC regrettably ended up defaulting due to my client’s accrual of yet another new tax liability.  This then resulted in the previously settled liability being reassessed and placed back into collections.  Given how challenging and time consuming it was to get the OIC approved by the IRS in the first place, many taxpayers and/or representatives may have given up the prospect of going through the difficult OIC process again.

Fortunately, I am not a typical tax attorney, and giving up is not a concept that is accepted here at Fortress, so we once again went down the long and arduous path toward another OIC submission.  Thankfully, my client did learn from our prior attempts and this time was able to remain in complete tax compliance while the OIC was being considered.

Not too surprisingly, the OIC was initially rejected by the Offer Specialist assigned to the case, but we had come too far to accept the Offer Specialists determination.  So, I again appealed the agent’s determination as I was confident that I could win this on appeal.   Ultimately, I was again successful in convincing the appeals officer that our proposal should be accepted and I got my client a smoking deal.  Bottom line, while it took multiple attempts, we never gave up, and the end result was securing resolution of an outstanding tax liability that was close to $700K for just a little over $100K!

Moreover, since the acceptance of the OIC, my client has completely satisfied the terms of the of the agreement and is now debt free with the IRS.  Persistence certainly paid off in this instance as my client is now able to focus on growing his business so both he and the business can thrive without having to worry about the big bad IRS lurking in the shadows waiting to proceed with involuntary enforced collection action at the most inopportune time.

The Squeaky Wheel Gets the Grease

This next example involved a client of Fortress Tax Relief who is an elderly gentleman who had retired and was living quite modestly on just his social security and pension.  He had the misfortune during the last few years of his employment of not having enough state taxes withheld from his paychecks.  As a result, he wound up owing Maryland about $28,000.

If you are guessing that the Maryland Department of Revenue was sympathetic to his plight due to his age and the fact that he was living on a fixed income, guess again.  They were going after him with guns a-blazing!

Unlike IRS Offers in Compromise or similar programs available in other states, Maryland OIC guidelines require that a tax liability be assessed for a minimum of 18 months prior to the consideration of an OIC.  Thus, our staff had to negotiate a hold on enforcement until our client became eligible for their OIC program.  This was no small feat considering how aggressive they were being.

We filed the OIC application paperwork shortly after our client became eligible.  One of the problems with state OICs is that some states think they can ignore the taxpayer, and he will eventually give up.  Knowing this, the Fortress attorney handling this case took a “squeaky wheel” approach and began calling the Maryland Comptroller every single month to check on the status of the OIC and attempt to secure an approval.  This was a little bit of extra work, but it wound up making all the difference.

After months of aggressive follow up, Maryland finally relented and approved a settlement for $1,320—just 5 pennies on the dollar.  Moreover, since our client did not have $1,320, we were able to convince the state to structure the settlement with very small monthly payments that fit within his budget.

If At First You Don’t Succeed, Appeal 2.0

Several of the previous examples happened to feature clients who were retired or close to retirement age.  However, it would be a mistake to conclude that Offers in Compromise are only useful to the elderly.  In fact, the vast majority of tax settlements our firm negotiates involve active businesses or individuals who have many years left until they reach retirement age.  Here is one such story.

A middle-aged client of ours who owns a contracting business fell victim to a duo of clever and devious embezzlers, who were eventually convicted and sentenced for their crimes.  Now, if you are thinking that the IRS was willing to settle with this client because he was the victim of a crime, think again.  Although this type of scenario can create a compelling case for getting penalties abated (eliminated), the IRS will not settle for pennies on the dollar just because the owner of a business fell victim to a couple of crooks.  That is not how the IRS works.

Businesses who pay wages are required to withhold taxes from those wages and turn those taxes over to the IRS.  Period.  In the case of small businesses, the IRS generally considers it to be the business owner’s responsibility to make absolutely sure that these withholding taxes are being paid.  In other words, the IRS’s attitude is basically that, as a business owner, you have to pay enough attention to your finances so that you will prevent embezzlement.  If you do not, too bad.  Your taxes are still due.  Either pay up or face severe consequences.

Anyways, as a result of this misfortune, our client wound up with a tax bill of about $240,000, and, of course, the IRS demanded that he pay it in full.  In this case, we were pushing for a settlement of no more than $35,000.  However, the Offer Specialist refused to accept anything below $85,000.  The Offer Specialist’s rationale was based on what we believed was an overstated amount of equity in assets coupled with a stubborn insistence that our client could pay $85,000 over time.  The IRS does not like to settle for less than what they otherwise believe they can collect, so the Offer Specialist effectively said “take it or leave it.”

Many tax pros would have stopped here and taken the bait.  After all, $85,000 to settle a $240,000 tax debt sounds pretty darn good.  But this was not good enough for us. The attorney handling the case was willing to fight for a better deal for our client, so he brought the case to appeals and succeeded in convincing the Appeals Officer that the Offer Specialist was wrong about both the amount of equity in our client’s real estate and our client’s ability to pay $85,000 over time.  The end result is that the Appeals Officer agreed to accept $17,000—that is just 7 pennies on the dollar!

Just A Few Of Our Recent Tax Settlement Victories

  1. Client owed a combined $283,000 to Massachusetts and the IRS.  Negotiated settlements with both the IRS and Massachusetts for a combined settlement amount of $12,780.
  2. Personal IRS liability of $152,000.  Settlement amount:  $400.
  3. Business IRS liability of $171,000.  Settlement amount:  $24,000.
  4. Georgia state liability of $184,500.  Settlement amount:  $72,500.
  5. Personal IRS liability of $265,000.  Settlement amount:  $2,800.

These are just a sampling of some of our recent victories.  There are many, many more.  The point is that pennies-on-the-dollar settlements do happen, and they actually happen often.

Just be careful if you respond to one of the tv or radio ads touting “call now to settle your IRS tax debt for pennies on the dollar!”  Unscrupulous advertisers have been known to promise a sweet settlement to people and businesses who have no chance of qualifying.  If they promise you a settlement, but do not inquire about your income, expenses, and assets, hang up the phone!  If they ask about these things, but it still sounds too good to be true, call us or a reputable tax resolution professional for a second opinion.

The Morals Of These Tax Resolution Success Stories

There are several important things to take away from these stories.  First, if you owe a sizable amount of money in unpaid taxes—say $10,000 or more—do not just assume you have to pay it all back.  You very may well be a suitable candidate for a tax settlement; maybe even a candidate for a pennies-on-the-dollar settlement.  Consult with an experienced tax resolution professional or call Fortress to see if you might qualify.

Second, do not expect the IRS to suggest that you try to settle via an Offer in Compromise.  The collection personnel at the IRS want to collect the entire amount you owe plus penalties and interest.  It is not likely that they will guide you in a direction where you could wind up paying less than the entire bill.

Third, if you choose to pursue an Offer in Compromise, do not be afraid to stand up to your Offer Specialist.  Being rude or abrasive likely will not help you get your way.  However, being tactful and assertive can make a huge difference in whether you settle and the amount for which you settle, particularly if you understand which battles to pick.

Fourth, if you feel like your Offer Specialist is not giving you a fair shake, exercise your appeal rights.  They exist for a reason.  Use them.

Finally, if at all possible, engage an experienced tax resolution professional who knows if, when, and how to pick a battle, and who knows how to give you the absolute best chances of a successful settlement and a minimal settlement amount.  As these stories demonstrate, the professional fee for assistance with an OIC is a drop in the bucket compared to how much savings the pro will secure for you versus doing it yourself.

Moreover, oftentimes the fee that you pay a professional is money that is going to wind up going to the IRS (or state) anyways if you do not spend it on a pro.  If the money is either going to wind up with the IRS or a tax pro, you might as well have it go to someone who is committed to advocating for your interests.

If you owe back taxes and would like to learn whether you are eligible for a tax settlement, pick up the phone and call Fortress Tax Relief.  We have caring and knowledgeable tax professionals on staff who would be happy to discuss your options with you and outline a solution tailored to your specific needs and circumstances.  The call is free, so pick up the phone and give us a call!

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“Some tax relief companies are just out to get your money. That is absolutely not the case with Fortress. Not only is the Fortress staff excellent at resolving back taxes, but they are also very personable, and they truly care about their clients.”

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