Proposed Legislation Could Ease the Way for OIC

A recent bill could make it easier for taxpayers who owe the IRS significant amounts of money to make and Offers in Compromise (OIC). The bipartisan legislation would remove the requirement that taxpayers make a mandatory, nonrefundable payment as part of their OIC application. The Tax Compromise Improvement Act of 2009 was introduced by Ways and Means Oversight Subcommittee Chair John Lewis, D-Ga., and ranking member Charles W. Boustany Jr., R-La., on May 12.

In written testimony, Linda Stiff, Deputy Commissioner for Services and Enforcement at the IRS Shulman reminded the committee of IRS Commission Shulman’s commitment:

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today. We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

Current OIC Payment Requirements

Taxpayers can apply for an OIC agreement with the IRS to settle their unpaid taxes. Since 2006, taxpayers requesting a lump sum OIC had to submit a nonrefundable payment equal to 20% of the proposed offer amount. Taxpayers who opted for the installment plan had to submit the first proposed installment payment with the application. If the OIC is denied, the down payment is not refunded.

Many taxpayers seeking to enter into OIC agreements have recently lost jobs or are experiencing financial difficulties. The payments have made it more difficult for taxpayers to take advantage of the OIC program, which was designed to be a “safety valve” within the IRS process. Those who have relied on borrowed money to fund the initial payment have been hit especially hard.

OIC Applications Down

At the February meeting of the Ways and Means Subcommittee on Oversight. National Taxpayer Advocate Nina E. Olson testified that the number of OICs received by the IRS fell by 21% Fiscal Year 2006 to Fiscal Year 2007 as the down payment requirement took effect. Ms. Olson testified that the decline can be attributed in part to difficulty in obtaining funds to make the required payment. She also stated that less than one in four offers is actually accepted, resulting in federal taxes that could be collected left unpaid.

The program has been rendered ineffective by the partial payment requirement. Olson wrote:

As a result of the administrative and legislative obstacles that have been erected, I hear regularly from tax practitioners who say they have given up on the offer-in compromise program as essentially a dead letter. Moreover, tax professionals tell me that given the low possibility of the IRS accepting an offer, they are advising their clients to file for bankruptcy. When that happens, the IRS generally will collect less than through the offer-in-compromise.

Removing the partial payment requirement is thought to increase the usage of OIC agreements in situations of economic hardship and therefore help taxpayers, as well as the federal government.

You can read Nina Olson’s full testimony here.

Uncovering “Tax Mills”

We’ve spoken quite a bit about the dark world of “tax mills” here on this blog and elsewhere in our outbound communications, for good reason — we don’t believe in taking advantage of those who need help the most.

We’re also in the early pre-launch phase and are looking for the right kinds of tax professionals to partner with, so we’re doing a lot of exploring — spelunking on Google, digging into qualified associations like the NAEA, and talking to a lot of people in the tax world.

Every once in a while, we come across an innocent enough sounding company name, and then the third natural search result links to a site like The Ripoff Report. This gives us pause. Particularly when there are ten to fifteen pages of links to complaints for a given tax provider.

I don’t know how often tax professionals like yourselves come across such companies in your daily lives, but of the many conversations I’ve had, most have a story or two (or ten) to tell. “Yes, I had this client who came to me two years ago… wanted “pennies on the dollar” for his $10,000 tax bill… I told him to pay the tax and get on with life, but he went to one of The Usual Suspects… he came back last month and still owes the tax bill plus penalties… and is out $10,000 extra for what he paid them…”

The age of social media makes uncovering shady companies a lot easier. Citizen Marketers aren’t shy about fingering people who have dealt with them poorly. The tools are out there (and easily found through a quick search on the engine of your choice).

Tax Professionals and Enforcement?

I attended a seminar two weeks ago here in Northern California. An interesting discussion came up on the subject of how the IRS is now fining tax professionals — not taxpayers — who submit returns with “frivolous” documentation. While this sounds good on paper, it raises a number of interesting questions.

Who determines if the deduction or expense is viable?

How much due diligence can be reasonably expected of a third party tax preparer with hundreds of clients?

What is reasonable to expect of a client who may or may not have full documentation to support deductions?

Is it the role of the tax professional to be the first line of enforcement?

I don’t believe the IRS thinks the tax professional community is supposed to be a surrogate police force, but I’m not sure — based on the conversations I had — that this feeling is universally shared by everyone who attended the meeting.

Here’s an open question to the community: how do you interpret this change? How are you dealing with it?

Regards.

Helping People at the Bottom of the Pyramid

Launching a business that helps those who need help the most is a fulfilling thing to spend your time doing.  Particularly when the alternatives are often more damaging than helpful.  

TaxLifeboat.com is one of those opportunities and it’s worth discussing for a moment.  

Look at the 20+ million people in the US who are either in collection or enforcement with the IRS or who aren’t filing (and should be). “Tax Mills” are looking for “deadbeats with money” (their words, per insiders in a position to know, not ours).  Such taxpayers represent roughly 25% to 30% of the total tax delinquent market. This begs the question of what happens to the 70% to 75% who don’t meet the needed criteria to qualify for this somewhat dubious service. Who helps those at the bottom of the pyramid?  

If you haven’t read it, look for The Fortune at the Bottom of the Pyramid, by CK Prahalad. Professor Prahalad has written a number of excellent books in the international marketing field, but TFBP tells a different story and is aimed at a broader audience. His point is simple. Many companies aim “high and to the right,” catering exclusively to the affluent market and to the exclusion of the rest. Creating a solution that meets the needs of the less-affluent is often very challenging – and often requires re-thinking the solution from the ground up, from market needs and usage to pricing and credit.  Once this is done, however, you end up with not just a viable business, but one that helps a lot of people.  

TaxLifeboat.com has been developed with this philosophy in mind. Many tax professionals have suggested raising the price five-fold, given its value to its chosen market segment. But affordability and the “no-brainer” nature of our solution kept us focused creating a viable business with very happy customers who are now free and clear of their tax problems.   

We’re still a few weeks away from our beta release, so stand by for more – thanks!

How We Got Here

Hi, I’m Tom Evans, President of TaxLifeboat.com.  TaxLifeboat is an expert knowledge website created to help taxpayers who are having trouble with the IRS.  We do this, in part, by partnering with tax professionals.  In simple terms, our website provides the tools to diagnose a tax problem, identify the most promising solutions and supply the user with all the resources to implement those solutions.  We’ve automated one of the most time-consuming, least-rewarding tasks that tax professionals face so they can either 1) recommend clients with this problem to us with confidence or 2) take on such cases themselves knowing we’ve done the research and assembled the materials for them.

That’s the service side of what we do.  There’s also a human side.  My business background and training includes systems analysis, decision theory, strategic planning, financial analysis, computer modeling, well you get the idea.  Note there’s an important word missing: Tax.  Yes, I’m president and I’m not a tax professional.  So how did I get here?  The answer is that some years ago I invested my time and money into a startup company.  Things didn’t go as we had expected which put me behind in my taxes and in trouble with the IRS.

I consulted with a tax professional, Terry Guy (now my current partner), on how to resolve the problem.  He explained about the Offer in Compromise program and soon I created a software analysis of how to qualify for it.  Terry mentioned that others could use this and about a year later I published a book and software program on OIC (see Amazon.com for Happy About Tax Relief, The Offer in Compromise Solution). 

In doing the research for the book I read many books and talked to numerous professionals about resolving tax problems.  I came to realize that there were many potential solutions, not just OIC.  I also concluded that taxpayers caught in this problem had very few good alternatives to seek help.  The “tax mills” were more interested in their fees than really helping the client.  Tax professionals (mostly) didn’t want the cases because they didn’t do enough of them to become proficient and, therefore, save time and lower the cost to their clients.  Likewise the IRS was of little help and one would have to read a lot of books just to find the one solution that would fit their situation.

So that’s why we started Tax Lifeboat and how we got here.  I’m proud to say that all the assistance we provide on the website to fully resolve a person’s tax problem costs less than one hour’s time with a tax attorney.  Yes, the full price is $199 and there are discounts for tax professionals who use our tools to help their clients.  Check it out at www.TaxLifeboat.com.