I am sure you have seen these ads:  “The IRS claimed I owed $ 200,000, but I settled the deal for only $ 12,000.  You can get the same results if you hire TaxFixersRUs.”   The problem with this ad- it’s factually correct, but, in practice, full of more cow chips than you would find in an active feedlot.

Why?  Because the IRS will not just settle your debts for pennies on the dollar, if you have the funds to pay the bill.  (Unless, of course, your name is Marion Barry, it seems.)   The IRS may make payment deals to collect their debts, they may forgive some of the money owed, but nowhere near the 94% reduction of a true debt that is implied by the ad.

‘Offers in Compromise’ are accepted.    But, these agreements generally require valid reasons to accept the compromise, including the ability of the taxpayer to repay the taxes owed.  And, when that taxpayer fills out Form 433, the IRS collection form required for any Offer in Compromise, any source of potential repayment is clearly identified- and analyzed by the IRS.

So, why did I say the ad is factually correct, then?  Because there is one way you can seemingly settle a debt with the IRS for pennies on the dollar.  If you are a lummox, then it can happen.

What do I mean?   If you have not filed your income taxes in a timely fashion, then you can find yourself in a heap of trouble.  If you had reportable income (not $ 1,000, but, say, $ 20,000 or more), then the IRS is going to be looking for your tax return.  If there isn’t one, then the IRS will prepare one itself for you.  This “substitute for return” will calculate the taxes you owe based upon the income information they have.  With no deductions for children, home mortgage, interest, whatever.

And, their computations are more dire, when that income is derived from a 1099, which means it was self-employed income, where you had expenses (telephone, office expenses, travel, etc.) incurred to develop that income.  And, then, the IRS computes the taxes you owe- which includes the Social Security/Medicare taxes on net income (which is about 15% of that figure) – PLUS the income taxes due.Well, now you have a substantial bill.

Let’s consider a home-based business worker, Homer.  Homer managed to gross $ 50,000 in home-based income, selling widgets, in 2003.  And, Homer never filed an income tax.  Assuming the IRS waited this long to go after Homer, then Homer has a heck of bill coming in the mail.

You see the IRS will “do a favor” for Homer and compute his taxes, add interest and penalties, and send him a bill.  The IRS will determine that Homer owes more than  $ 6000 in Social Security and Medicare taxes, as well as another $ 6000 in income taxes.  That’s $ 12,000.  Add in interest and penalties, and Homer will probably receive a certified letter demanding  $25,000 to be paid to the IRS.

Should Homer go to TaxFixersRUs, they will ask for $ 3500 (I’m being generous; it’s normally higher than that) from Homer and promise him a quick and simple reduction in the debt owed to the IRS.  Homer, being the lummox that he is (he hasn’t filed his taxes, right?), shells out the money and is thrilled when TaxFixersRUs comes back in ten days and says they can settle right away for under $ 5000.   After all, Homer will only have to spend under $ 8,500 to pay that $25K bill.

But, you see, Homer could have come to a reputable firm like ours, who would have asked him a slew of questions, and determined that he only owed the IRS $ 3300.  After all, the widgets cost him an average of 50 cents for each dollar he charged, and he still had $ 1000 in monthly rent (with 1 room of his apartment being used for his business), $200 in monthly utilities on his apartment, and internet service fees of $ 50 a month.  That meant his business income wasn’t the $ 50,000 the IRS used, but  $ 22,960 (after subtracting the 25K for cost of goods, $ 600 for internet, and $ 1440 for use of the apartment).  And, Homer pays more than half the support for his two children which live with him.  So, that means the taxes owed are less than $ 4100, plus interest.  And, our fees would be less than $ 240 to solve this problem (compute the taxes and work an arrangement with the IRS).

So, steer clear of TaxFixersRUs and their evil twins.  Deal with reputable tax professionals.  And, file your taxes on time.

Share this: