Offer In Compromise Jaw-dropping Success Stories

Offer in Compromise Success StoriesMost 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 (OIC).  However, pennies-on-the-dollar tax settlements are very much a real thing—for those who qualify.

For those of you who are curious about how these tax settlements play out in real life, I’ve compiled summaries of some of the more jaw-dropping settlements that have recently been negotiated by the tax attorneys at Fortress Financial Services, Inc.

If At First You Don’t Succeed, Appeal!

One of our 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 doesn’t 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.

The client understandably wanted to try to settle his TFRP with an Offer in Compromise.  However, there were a couple major obstacles.  First and foremost, the 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 can liquidate your assets and full pay the tax debt.  The second huge obstacle was that, although the client was close to retirement age, he was employed.  Consequently, we would be faced with a presumption from the IRS that the 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 our client from retiring on his own terms.

Since the client was nearing retirement age, we devised both a short-term strategy and a long-term strategy.  For the short-term, we 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 we somehow managed to convince the IRS to accept these relatively tiny payments without the client having to liquidate any of his assets and use the proceeds to substantially pay down his tax liability.

Once our client retired, we began to execute our long-term strategy, which was to fight tooth and nail to try to get the IRS to accept an OIC, obstacles notwithstanding.  The client was faced with the prospect of having to liquidate his retirement to the tune of about $260,000.  Our attorney’s plan to prevent this liquidation was to use actuary tables to attempt to argue that our client needed those funds to satisfy his necessary living expenses for the remainder of his life.  In other words, we 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 OICs) not surprisingly calculated our client’s social security, pension, and other distributions as income, but then included the retirement nest egg as an asset.  Settlement amounts are determined by the use of a mathematical formula taking into account income, allowable expenses, and equity in assets, and the Offer Specialist’s conclusion that the retirement nest egg should be treated as an asset meant that only a very high settlement amount would be acceptable.  She declined to accept the $2,400 that we offered and insisted that we increase our offer to $242,000 (yep, 100 times more than we had offered).  The attorney went back and forth with her for some time attempting to convince her that our client’s retirement nest egg should be treated as future income, not an asset, but she wouldn’t budge.

So, the attorney filed an appeal and brought the same arguments before an Appeals Officer (Settlement Officer).  And, low and behold, this time the arguments were successful!  The attorney’s 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 our client owed.

Persistence Pays Off

Another one of our clients 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’re 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 engaged in aggressive collections against him!

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, the attorney 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 to push for 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 didn’t 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

The previous couple of stories 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’re 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 strong 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 don’t, 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 determined 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’s 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.

This is 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.  Unscrupulous tax resolution companies 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 don’t 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—don’t just assume you have to pay it all back.  You very well may be a good candidate for a tax settlement; maybe even a candidate for a pennies-on-the-dollar settlement.  Consult with one of our experienced tax resolution services professional and contact 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 plus penalties and interest.

Third, if you choose to pursue an Offer in Compromise, don’t be afraid to stand up to your Offer Specialist.  Being rude or abrasive likely won’t 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 and how to fight them.

Fourth, if you feel like your Offer Specialist isn’t 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 very best chances of a successful settlement and a minimal settlement amount.  As these stories demonstrate, the professional fee for assistance with an OIC can be 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 don’t 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.  To learn more about how professional services for an OIC can effectively be free, click here.


Testimonials

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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, they are very personable and they truly care about their clients.”

– Brett Shelton, Brett Shelton Roofing, Santa Cruz, CA


About Stephen K. Galgoczy, Esq.