Cutting tax liabilities not as easy as advertised

April 14, 2011 3:48:04 PM PDT
With the tax filing deadline coming up fast on Monday, you may be tempted to hire a tax preparation firm to help you, especially if you owe money to the IRS. Many of those firms advertise that they can get your tax liability cut to just pennies on the dollar, but is that really the case?

Taxpayers have heard the promise; tax firms say they can get the IRS to accept less than you owe.

"What they are talking about is an Offer in Compromise, but the commercials are very misleading; they make it sound like just about anyone would qualify and you would be a fool to pay your full tax debt," Houston CPA Bob Martin said.

Martin has prepared thousands of tax returns and very few have lead to an IRS Offer in Compromise.

"One of the most common situations that the IRS would accept an Offer in Compromise is if someone has severe health issues; say for example if someone is not going to be able to go back to work for the rest of their life and they have a large IRS debt," he said.

Martin says in those cases the IRS may allow someone to pay less than they owe. But first, that taxpayer would have to prove they have no assets and their monthly income does not meet their monthly expenses.

At the AARP Tax Help Center, volunteers do not handle Offers in Compromise, but if someone is seeking a reduced tax bill, the tax helpers say it can be done without hiring anyone.

"Go see the IRS directly and talk with one of the agents and negotiate," tax preparer Bob Goodmark said.

According to the IRS, the agency generally does not accept an offer if it believes the liability can be paid in full as a lump sum or through a payment agreement.

"Just about every month I see someone who has seen a television commercial and they think that they qualify for an Offer in Compromise and generally they do not qualify," Martin said.

The IRS is warning taxpayers to be cautious of firms that make the claim that the agency will accept pennies on the dollar. It says in most cases it will not accept an Offer in Compromise unless that offer is equal to or greater than a person's ability to pay.

If the IRS looks at your assets and income and it determines you can't pay, you might get an offer to pay less or if you have a serious long-term illness. Beyond that, the IRS generally does not go for these offers.

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