Offer in Compromise.Tips for making an acceptable offer.?

Question

How does the IRS figure out "What is a reasonable offer?" Are the "Pay Pennies on the Dollar Companies" legitimate?

Answer 1

Wartz gave you the 10 point answer.

Answer 2

As an independent Enrolled Agent, I prepare offers in compromise for clients (for less than half what the companies that advertise on TV charge.)

Depending on a taxpayer's very individual situation, you could pay from 1 cent on the dollar (I had one like that) to 100 (had those too!) You have to offer an amount that IRS feels represents the reasonable collection potential of the account. This is a lump sum equal to the equity in your assets, computed at quick sale values, plus 48 times what IRS feels you could pay on a monthly payment agreement.

A Brief Example: You have a car that you think you could advertise in the local paper and sell for $10,000 and owe $6,000 on, $500 in the bank, $1,000 worth of clothing and household furniture and the ability to pay $100 per month, nothing else. Quick sale value of the car is $10,000 times 80% or $8,000 minus $6,000 due = $2,000. $500 in the bank is worth $500. 48 monthly payments times $100 =$4,800. Household stuff is exempt. In this example, you would have to offer $7,300 ($2,000 + $500 + $4,800).

Professional help in this complicated area assists in determining if you have a case and keeps you from going overboard. While you may think this theoretical car is worth $10,000, a professional may be able to show its value is really much less or prove you can't pay $100 per month and reduce what you have to pay.

Answer 3

The "pay pennies on the dollar" companies who advertise on TV will take your money but probably not really do a lot for you - you notice they never say how many pennies - 100?

You'd be better off working with a local CPA or enrolled agent who has experience in doing OIC's.