I see advertisements to settle back taxes for "pennies on the dollar". does this work or is it a scam?

i live in california, and know i owe back taxes. i'm divorced now, but my my tax filings for 2004, 2005 were messed up by my ex, and i didn't file in 2006 because i didn't want to get caught and i couldn't afford to pay anything at all. i see advertisements from companies that can help you settle for "pennies on the dollar". does this work, how do they get paid, and are they obligated to turn you in?

An Offer in Compromise is a settlement with IRS where you pay less than 100 cents for every dollar you owe and IRS forgives the rest. It will do this if it determines you are offering as much or more as it could collect from you through monthly payments or seizing your property.

The amount you have to pay is, to use the IRS jargon, is "an amount that represents the reasonable collection potential of the account." This is a lump sum equal to what you could get from the equity in all your assets if they were sold at a quick sale, generally 80% plus 48 times what you could pay monthly on an installment agreement.

For example, if you had a car worth $10,000 and owed $5,000 on it and nothing else and IRS said you could make payments to IRS of $100 per month you would have to offer 80% of $10,000 minus the $5,000 owed = $3,000 PLUS 48 times $100 = $4,800 for a total of $7,800 on whatever you actually owed. You could make up to 24 monthly payments but would have to increase the 48 monthly payments to 60 for a total offer amount of $9,000 at $375 per month. How someone who could only pay $100 per month could be expected to pay $375 is a mystery.

I am an enrolled agent, licensed by the US Treasury Department who specializes in taxpayers who have large unpaid tax bills and prepare these for clients. You do not have to have a representative but the process can be pretty intimidating if you haven't had any experience. A legitimate representative can keep you from paying too much or giving you unrealistic expectations. That decision is up to you.

I got an offer for a client who owed a quarter million dollar liability accepted at 1 cent on the dollar. Many other clients have not qualified. Every case is different.The average nationwide for accepted offers is about 17 cents on the dollar. Your own affairs may be more complicated, and it probably are if you add a home and a 401(k) plan and a car that will be paid off in just a few years, you would have to go through these gyrations with every asset. Your case might also dictate an entirely different approach including getting the whole account put on ice for a few years or filing for bankruptcy.

If you want to hire a professional representative--enrolled agent, CPA or attorney--stay away from the ones that advertise on cable TV. Their fees can be heart stopping. Mine are a good deal less than half and probably closer to a third of what the "As Seen on TV" firms charge. If you want additional information outside this forum, you can email me through my profile.

don't deal with the companies...they are probably scams and they will definitely charge you quite a bit for their services. Your best bet is to contact the tax agency directly. They will work with you to arrange payment programs.

You can offer the govt. an "offer of compromise". You can do it yourself if you know the steps. I found out in books from the library. An attorney will be able to do it quicker, but they will charge you, and there is no guarantee that the govt. will accept the offer. I didn't file for 12 years. 8 years ago I filed my return and didn't mention that I had not filed before. The IRS never caught on. I have filed every year no problem. They can only hold you accountable for 7 years, so even if they do realize that I didn't file for those 12 years there is nothing they can do. I would just file this year and see what happens. If they don't send you your forms and tax book in the mail you can p/u them up at any U.S. post office or public library. Have a nice day, and pay my secretary on the way out.
p.s. when they say pennies on the dollar it could be as much as 99 pennies for each dollar owed.

yes...my husband was in same mess due to ex-wife...find a good attorney that works with IRS...would not use one on any of the ads...look in your yellow pages or ask any reputable attorney in your community...they will refer you.

It is completely legitimate. These agencies work with the IRS and settle many cases at once. Kind of like a backwards insurance policy. The basically say to the IRS, hey we will give you $X to let these people off the hook. Because they are usually helping out hundreds of thousands of people each time, the $X is usually in the millions. The IRS negotiates with these people because it is guaranteed money for them, granted at a loss. But as we all know some money is better than no money.
The "pennies on the dollar" is a play on words however. You could be paying up to 99 pennies on the dollar. The saying is still absolutely true, but will apply to even the slightest of discount.

I don't know about all the companies out there, but I do know that J.K. Harris is a legitimate firm. They do thousands of Offers in Compromise each year.

It can work, but they are gonna want you to sign your life away. Chances are you'll have to pay this ridiculous service fee each month and sign all kinds of waivers so you can't sue them in the event that you don't obtain your results.

Yes they work, in the same way that you can settle with a creditor by paying a settlement that you owe them. The settlement stays with your financial record for 7-10 years.

One thing to remember about this method, you must have the cash available to pay the settlement. If say you owe 10,000 and you settle for 2,000 then you have to have that cash then and there to pay it.

If you are behind in taxes, the IRS will work with you to help arrange a payoff schedule (There is a form that you fill out and then you pay them X dollars every month to pay it of (better then a settlement on your Credit Report) You are still responsible for the full amount and penalaties and interest)

I don't owe any back tax the irs is holding my refund can I sue the irs? Please let me know

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