You’ve probably heard one of the huge tax resolution firms, online, on TV, or radio, stating that the IRS writes off millions of dollars each year, and the inference is to get you to want to tap into that. Usually what’s been advertised lately has been an offer in compromise (OIC) also known as the IRS Fresh Start Program.
They want you to think that’s the answer to your tax problem and that there’s money to burn to help you out. Sound familiar?
Get beyond the myths and the hype of offer in compromise or the fresh start program
There are a lot of myths – mostly marketing hype – regarding “facts” put out there by these large tax resolution firms and I’d like to clear the air on this item: does the IRS really write off millions of dollars a year in back taxes?
The answer is both yes and no, so let me explain. Technically, the answer is yes, but practically speaking, the answer is no. Let’s dive a bit deeper into that…
The Internal Revenue Service typically has the below methods that they use to close out open tax collection cases:
- hardship or currently not collectible,
- payment agreement,
- offer in compromise (repackaged as the fresh start program),
- partial pay installment plan, (sometimes better than an OIC)
- bankruptcy, or,
- the statute of limitation expires.
So, as I mentioned, the broad strokes answer to whether the IRS writes off millions of dollars a year in back taxes is YES! But let’s look at the details before you get your hopes up. You need practical answers in solving your tax debt matters.
Which programs does the IRS have that they can write off taxes on?
The main method of closing that the big boys point to is offer in compromise (OIC). When the IRS accepts an offer in compromise for pennies on the dollar, technically, in that context it’s true, the IRS writes off million dollars a year based on the offer program alone.
While getting an offer in compromise is a matter of simple math of pennies on the dollar, the downside is your chances are 30% on average of getting an OIC approved. Meaning 70% of OIC proposals are rejected.
A tax resolution professional can guide you through the solutions available – and which is right for you
That’s not to say that offer in compromise (fresh start) isn’t a path worth pursuing, but you need to know up front that the likelihood of OIC being your best solution is low because of how infrequently the IRS accepts an offer in compromise. The IRS will run a formula based on your income, assets, and allowable expenses (based on extensive documentation and financial statements you have to submit). The result is the amount the IRS thinks is reasonable to collect from you – and the IRS won’t take less than that. You need to know upfront whether you even have a good shot at it.
The timing of the statute of limitations is another important consideration. When the statute of limitations expires because of the 10-year timeframe, then, again, yes, the IRS writes off millions of dollars in these situations as well. But the timing of determining where your matter falls with regard to that statute of limitations is tricky to determine. You need a skilled professional, like us, to verify whether or not things should be waited out.
When the taxpayer files a Chapter 7 bankruptcy proceeding IRS discharges the taxpayer’s tax debt thus writing off millions of dollars of years alone. But Chapter 7 filing is a complex process and requires a very knowledgeable tax professional, usually a costly tax attorney, to pursue the matter properly. You need to know upfront what you’ll be getting into with that kind of filing.
More things to consider:
The IRS ‘hardship program’ or ‘currently not collectible program’ is another program that the big tax resolution companies point to when they state that the IRS writes off millions of dollars a year. But they can’t make a blanket claim on that. It all depends on the closing method and nuances of how it’s applied.
40% of all open IRS cases are closed because at that time the IRS cannot collect the liability from taxpayers due to their current financial condition and statement. So they won’t pursue those cases (here’s the key thing) at that time.
But the reality of this is that in two or three years, the Internal Revenue Service may decide to reactivate the case and bring it back into the field to be revisited and reworked. At that point, they will require a new financial statement and then new determinations on the case will be made.
At this new point in time, the IRS will decide whether it can collect the tax in full, place the case back on hardship or currently not collectible status, or possibly set up payment agreements. You may be harassed once again.
Important Update: The IRS is hiring outside collection agencies to pursue debt collection!
That’s correct! The agency is now partnering with debt collectors to go after taxpayers who can’t pay their taxes or who have failed to honor a payment agreement. In short, you need an agreement with the IRS. You don’t want an independent collection agency harassing you at home or while on the job.
So, yes, the IRS does write off millions a year but you need to know the facts – and where your situation falls within that framework. It’s better to solve any tax problem that you may have upfront, and then get yourself a fresh, new start on living without that burdensome debt.
Everyone’s unique financial situation will determine how the Internal Revenue Service is going to pursue that particular case, whether to go after it aggressively, or put it on ‘currently not collectible status, or something in-between.
Be realistic and know your status with the IRS – and then have a plan!
The main thing is to have a complete understanding of your specific tax debt situation, and not harbor wishful thinking that it’ll either go away, be forgotten about, or be written off. None of that is realistic until or unless you know your exact status with the IRS. And that’s where IRS Tax Freedom steps in to help you. We have a plan where we hit the ground running to tackle your specific tax problem and all it takes to get the ball rolling is a simple conversation.
Learn more. It all starts with scheduling a FREE consultation using one of the contact methods below. Take that first step to IRS Tax Freedom, and let us figure out where you stand with the IRS, in their view, and then how we can best help you. We’re always ready to spring into action to solve your tax debt!