The Internal Revenue Service (IRS) has issued an important warning to taxpayers, cautioning them against fraudulent schemes linked to the Offer in Compromise (OIC) program.
Known as “OIC mills,” these scams often promise to settle tax debts for pennies on the dollar, a tactic that misleads vulnerable taxpayers into paying excessive fees for services they could often handle themselves directly through the IRS.
The deceptive marketing tactics of OIC Mills
The IRS has been vocal about the proliferation of companies offering what they claim are surefire ways to resolve tax debt. These companies, dubbed “OIC mills,” prey on taxpayers’ fear of their mounting tax obligations by offering what seems like a too-good-to-be-true solution. They claim that through their services, a taxpayer’s debt can be resolved for mere “cents on the dollar,” but the reality is often different.
According to IRS Commissioner Danny Werfel, these companies exploit taxpayers by charging excessive fees and providing false assurances that their tax debt will magically disappear. In many cases, the services offered by these “mills” are not only ineffective but also something taxpayers could have navigated on their own using resources provided by the IRS.
“Taxpayers should be cautious of aggressive marketing that can mislead them,” said IRS Commissioner Danny Werfel. “Many OIC mills charge steep fees, give false assurances, and can take advantage of taxpayers with empty promises that their tax debt will disappear. The result is often good money paid for bad results.”
These scams are so prevalent that they’ve earned a spot on the IRS’s annual “Dirty Dozen” list, which outlines common tax scams that pose financial risks to the public. OIC mills make frequent appearances, highlighting the constant threat they pose to taxpayers and the broader tax professional community.
The legitimate OIC program
It’s important to understand that the IRS’s Offer in Compromise program is legitimate, but not all taxpayers will qualify for it. The program is intended for individuals who are genuinely unable to pay their full tax liability, or for whom doing so would create a financial hardship. Through the OIC, taxpayers can settle their debt for less than what is owed, but the IRS carefully reviews each applicant’s unique financial situation, considering factors such as income and asset equity.
Legitimate use of the OIC program involves direct communication between the taxpayer and the IRS. While there are companies that offer legitimate assistance in navigating the OIC process, the IRS emphasizes that taxpayers can often manage this process on their own by using tools available on the IRS website, such as the Offer in Compromise Pre-Qualifier tool.
Avoiding empty promises and high costs
OIC mills target taxpayers desperate for a solution, often through aggressive marketing strategies. Their promises of deep discounts and easy resolutions can be tempting, but these companies typically charge exorbitant fees for minimal or no results. The services offered are often unnecessary, as taxpayers can file their OIC applications themselves without the steep costs associated with these third-party services.
The IRS has ramped up efforts to combat these scams by creating educational materials, including a new video series on YouTube to increase scam awareness. Taxpayers are encouraged to use the IRS’s official tools, including their online Individual Accounts, to determine if they qualify for the OIC program or if other payment options would be more suitable.
What to do if you don’t qualify for an OIC
Not all taxpayers will meet the criteria for the Offer in Compromise program. However, the IRS offers other avenues for those unable to pay their tax debts in full. Most taxpayers qualify for IRS payment plans, also known as installment agreements, which allow them to pay off their debts over time.
There are two main types of payment plans:
Short-term payment plans: These plans are available for taxpayers with a balance of less than $100,000, including taxes, penalties, and interest. Under this plan, taxpayers are given an additional 180 days to pay off their balance.
Long-term payment plans: Available for taxpayers with a balance under $50,000, this plan allows them to make monthly payments over up to 72 months.
In most cases, taxpayers receive immediate notification of whether their payment plan has been approved when applying online. More information on payment plans and other IRS relief options can be found on the IRS website.
First-Time penalty abatement
For those who may have been hit with penalties due to unpaid taxes, the IRS offers a first-time penalty abatement policy. This policy allows taxpayers to request administrative relief from penalties, which can reduce the overall tax debt. Just like the Offer in Compromise program, taxpayers can apply for this relief directly through the IRS without the need for third-party intervention
