Is Hiring a Tax Pro Worth It When Applying for an Offer in Compromise?
An offer in compromise lets you settle tax debt for less than owed – but this program has extremely high rejection rates. That's because it's complicated, and typically, the best course of action is to work with a tax professional.
However, the cost of hiring a tax relief professional can be significant, and while professional help is a lifesaver for many people with tax problems, it's not necessary for all taxpayers. For instance, taxpayers with relatively low tax debts or uncomplicated tax problems may be fine handling them on their own.
Is it worth it to hire a tax pro for an offer in compromise? Why? How do you ensure you're spending money on the right professional? This blog looks at all those questions and other taxpayer concerns.
Key Takeaways
- OIC: An IRS program that allows taxpayers to pay less than they owe in tax debt.
- OIC approval rate: The IRS rejects 50 to 79% of the OIC offers it receives, depending on the year.
- DIY vs hiring a tax professional: You can apply for an OIC by yourself, but hiring an experienced tax attorney significantly increases your approval chances.
- Beware of misleading advertising: The OIC is often advertised as an “IRS fresh program” or a “Forgiveness Tax Program” by fake tax relief companies.
- Watch out for aggressive sales tactics: Unethical companies often strongarm people into signing up for their services by promising they can reduce their tax bill without knowing anything about the client's financial situation.
Can I Negotiate an OIC Myself?
Before deciding whether you want to go ahead with the DIY approach, it’s important to know what you’re up against. To help you determine if you want to negotiate an OIC by yourself, we’ve prepared a step-by-step DIY OIC process for you. Keep in mind that the IRS OIC is very strict and all documents, fees, and forms must be in order.
Let’s get to it:
- Review the IRS eligibility: Before applying, review the OIC requirements to ensure you qualify for an OIC.
- Gather financial records: Collect detailed proof of your income, debts, expenses, and assets. Include rent, mortgage details, loan statements, utility bills, and bank statements from the past 3-6 months.
- Decide on the payment option: Choose between a periodic plan (6-24 months) and a lump sum cash offer (payable in five months). Also, prepare 20% of the upfront amount for the first monthly payment if applying for a lump-sum offer.
- Fill out forms: Complete Form 656 and Form 433-B(OIC) for businesses or Form 433-A(OIC) for individuals. Check out our guide on filling out OIC Documents for clarity.
- Pay the application fee: You’ll need a $205 IRS application fee unless you’re qualified for a low-income certification, in which case the fee is waived.
- Submit your OIC offer: Mail your form, documents, payment, and fee to the IRS address listed in the instructions or file electronically if you’re eligible.
- Wait for review: IRS processing can take anywhere from 8 to 12 months. They may ask for additional documents if need be. If your offer is accepted, you must remain tax-compliant for 5 years or risk default.
Common Mistakes to Avoid when Applying for an OIC
As mentioned earlier, the IRS rejects a high number of the OIC offers it receives. Here are the main mistakes taxpayers make that lead to rejection:
- Making math errors on Form 433: The Form 433 requires a significant amount of calculations, and it’s easy to make an error. It’s, however, critical to get them right because if the math is incorrect, the entire OIC process stops until the error is corrected. Before submitting Form 433 to the IRS, double-check the numbers to ensure they are correct and there are no blank spaces.
- Writing negative equity: If your assets have a loan balance greater than their fair market value, they have negative equity. For example, if your mortgage is $350,000 but your home is valued at $300,000, the equity is -$50,000. You can, however, only record $0 when applying for an OIC.
- Forgetting to justify with documentation: To have your OIC approved, you must be able to support all your claims. If you can’t prove it, don’t include it.
- Contradictory facts: If you’re busy overspending on vacations and expensive sports cars, and claiming meeting your tax obligations will cause hardship, the IRS might suspect you didn’t disclose your finances truthfully. If this is your situation, it's best to try other tax debt settlement programs.
- Relying on emotional argument: While having a huge debt weighing you down can bring out lots of emotions, you need to lead with facts in your OIC negotiation to get results.
A tax professional will help you avoid all of these issues, while also greatly improving your rates of success.
How a Tax Professional Can Strengthen Your OIC Application
If you’re on the fence about hiring a tax professional to help with your OIC, and you’re wondering how they can help increase your acceptance odds, this section is for you.
Here are some ways an enrolled agent, CPA, or tax attorney can strengthen your application if they're experienced with offer in compromise cases.
Confirming Eligibility Before Your Application
A tax professional will help evaluate your financial situation to ensure you’re eligible for the OIC. These include:
- Assessing your income, assets and expenses
- Calculating your Reasonable Collection Potential ( RCP)
- Ensuring you’re up to date with your tax returns
- Confirming you’re not in an active bankruptcy
By confirming your eligibility, your attorney can recommend other tax relief methods if you’re not eligible and save you time, resources, and the application fee.
Accurate and Complete Financial Disclosure
Financial disclosure is a critical part of your application. The IRS requires your bank statements, pay stubs, asset valuations, and other documents. An attorney ensures that all required details are included, all the forms are complete, and everything is strategically presented in your favor. This already sets a strong foundation for your case.
Strategic Offer Amount Calculation
Submitting an offer that’s too low can lead to an automatic rejection, and going overboard can leave you paying more than you have to. A tax attorney assesses your assets, calculates how much you can offer, and comes up with a realistic offer.
There's a set formula for calculating IRS offers, but there are also nuances and exceptions to that process, which an experienced tax professional can help you navigate.
Making a Compelling Narrative for Your Case
If you’re applying for an OIC based on effective tax administration, your hardship narrative is part of your most important application sections. You have to prove that paying the whole amount can cause you economic hardship.
While DIY applicants do this emotionally, an experienced tax professional knows what the IRS wants to hear, and they can tap into persuasive narratives about disabilities, medical difficulties, elder care, and other unique circumstances.
Help With IRS Compliance
One of the leading reasons for OIC rejection is non-compliance. Before your offer is considered, you must be up to date with your tax returns, estimated tax payments, withholding taxes, etc. It’s also crucial that you avoid any new tax debt during the review timeline. A tax attorney can offer guidance on how to stay compliant.
Take Over Communication and Negotiation with the IRS
One of the pros of working with a tax attorney is that they handle the IRS on your behalf. Here are some instances where this can come in handy:
- Your tax attorney can decide on the best way forward in case the IRS requests additional documentation or asks questions after your application.
- They can negotiate counteroffers, payment schedules, and alternative terms
- Appeal in case your offer has been rejected – they can submit supporting documentation and identify procedural errors in your application.
Working with an attorney ensures your rights as a taxpayer are respected.
When to DIY my OIC Application and When to Call a Tax Professional?
Here is a small breakdown on when to DIY and when to hire a tax professional.
OIC: When to DIY vs. When to Call a Pro |
||
|---|---|---|
|
Your tax situation |
Consider DIY |
Call a Pro |
|
Owe less than $25,000 |
x |
|
|
Owe more than $25,000 |
x |
|
|
No business income |
x |
|
|
Self-employment or business income |
x |
|
|
Owe business taxes |
x |
|
|
Want professional guidance |
x |
|
Many taxpayers start with DIY, then hire a professional when they realize even online tutorials miss something because they can’t customize advice for all viewers. The important thing is to know when, or if, DIY isn’t working and switch early.
Red Flags When Choosing a Professional
Many unscrupulous tax relief companies know that taxpayers are desperate to get rid of their tax debt, and they take advantage of them. If you see any of the following red flags, it’s best to stop any involvement with the professional:
- You’re feeling pushed and pressured: Subpar tax relief companies use aggressive sales tactics to sign up clients. Legit companies present you with facts and solutions and allow you time to process and make a decision.
- Quick guarantees: If a company begins by assuring you they’ll get your OIC accepted before they even review your documents or financial situation, there’s a chance it won’t end well with them. An honest tax attorney will only advise you after assessing your case.
- Unclear pricing structure: Before hiring an attorney, you should understand their billing practices. How much they charge per hour, and an estimate of the hours your case might take. If a tax firm has a complicated system that you can hardly comprehend, you might end up with a huge surprise bill. Best to walk away early.
- No experience with the OIC: If you realize the professional you’re talking to has little to no information about the IRS OIC, it's best to find an alternative. It’s important to work with an attorney who’s dealt with a case like yours before.
- Uneasiness after consultation: Follow your gut—if, after your consultation, you leave feeling scared, unsettled, and with more questions than answers, it’s best to consider another firm. By the end of a consultation, you should have an idea of how your case will play out.
There is legitimate tax relief – there are thousands of licensed tax professionals who focus on this type of work and who are committed to helping clients. But you need to know how to find them.
At Taxcure, we have curated a directory of tax relief professionals from across the country, and we are constantly adding more to ensure you have a variety to choose from. Find a tax OIC pro in one click. When you search for a tax pro on TaxCure, you can narrow down the search results so you only see pros who have experience with OICs. Then, you can read reviews from other customers and reach out for a consultation.
Frequently Asked Questions (FAQs)
Here are answers to common questions about OIC.
What happens if the IRS rejects my OIC?
You can appeal the decision if you believe it was a procedural error and you have a chance to get your offer approved. Alternatively, you can consider other tax relief programs such as penalty abatement, Installment Agreements, and currently Non Collectible status.
Can I switch from DIY to professional help during the OIC process?
Yes, a tax attorney can take over, review, correct, and resubmit your offer. They can also appeal if you are rejected, as long as you reach out before the deadline. Whenever possible, it's critical to involve a tax professional early on to reduce the chances of a rejection.
Can I stop collections while my OIC is pending?
Yes, the IRS typically suspends all collection activities, such as levies and garnishments, while your OIC is under review.
Tax Professional vs DIY for OIC Applications
While working with a tax professional for your OIC application means additional costs, the expertise and guidance you receive can significantly increase your approval chances. If your OIC is approved, you can save a lot of money in the long run.
We are ready to partner with you and help find a tax attorney to take you through the process and leave your worries behind.
Check out our list of qualified tax attorneys that can hold you hand through the process.