How much does an Offer in Compromise cost?
Tammy asked in an email, how much does an Offer in Compromise cost? That is one of those “it depends” answers. It depends on the three factors. 1) The complexity of the case. 2) The experience of the tax resolution expert, and 3) how likely is the case to go to Appeals.
Complexity of the case
The complexity of the case and amount of moving parts has a lot to do with the quote for the overall cost of the Offer. You are going to want to work with a firm that has the experience to give you a firm quote up front. Working with a firm that changes by the hour for an Offer In Compromise is really scary. Can you imagine running out of money in the middle of an Offer or working with a firm that will not call your Offer Examiner back because you have not increased your retainer.
We have been doing this so long that after getting some initial information we can Offer a firm quote. We consider the time necessary to build a complete and fully substantiated Offer package. We consider the likelihood that the case will go to Appeals and build that into the quote as well.
Expertise of the tax resolution expert
The expertise of the tax resolution specialist also has a lot to do with the overall cost of the offer.
By overall cost, I mean:
Cost of the Offer representation
+ the final Offer amount.
= Total cost of the offer
To me, success is measured with an approval on the LOWEST DOLLAR AMOUNT the IRS will accept.
Example 1: You decide to work with a firm that was not the highest quote, but they were not the lowest either. Here is the Offer they came up with:
Offer Amount Suggested: $25,500
Fee: $2,750
Total offer cost: $28,250
Post IRS Review
IRS Acceptable Offer: $32,250
Fee: $2,750
Total offer cost: $35,000
Total cost in Example 1 is $35,000
Example 2: You decide to work with the more experienced firm that has done thousands of Offers and has it down to a science. Here is the Offer they came up with:
Offer Amount Suggested: $23,350
Fee: $4,500
Total offer cost: $27,850
Post IRS Review
IRS Acceptable Offer: $24,150
Fee: $4,500
Total offer cost: $28,650
Total cost in Example 2 is $28,650
Work with a firm that tracks the expected outcome to actual outcome. The ACTUAL OUTCOME is your overall cost of an offer.
How likely is the case going to go to appeals?
When you have done enough Offer cases you know when a case is likely to go to Appeals. We build our quotes to include the likelihood of Appeals. If we did not think it would go to Appeals and did not build that into the cost, that is on us. If you are paying by the hour, that could add 25 to 30% to the cost of your offer. You would be required to come up with another 25-30% at an overly critical time in your offer. The Appeals Unit is a very understaffed section of the IRS; they will not wait while you come up with the money for your Appeal. They will deny your Appeal, and the only other option you have is US Tax Court, which would be really expensive, and you would likely lose.
Conclusion
The Offer in Compromise program is not as automatic as many of the advertisements you might hear would suggest. That includes the “Fresh Start” program as well. The percentage of accepted OIC’s and Fresh Start applications is only around 40%. That means 6 out of 10 are rejected. You should always hire someone who can navigate through the process and present you with an honest assessment of your options, consequences, and chances of approval. Keep in mind, your goal in an Offer In Compromise is to present to the IRS an application that will, on its first try, demonstrate your need for an OIC and will provide all of the documentation necessary to convince them. How much an Offer in Compromise costs depends on the complexity of the application and who you hire to prepare it.
As you may see on many advertisements, some firms suggest an Offer in Compromise should be submitted by anyone who has a tax debt. Unfortunately, that is not the case. In 2017 the IRS accepted 25,000 out of 62,000 Offers in Compromise that were submitted; that’s only 40.3% approval rate. The average dollar amount for an OIC was $10,234. That means 6 out of 10 OIC’s were rejected. In addition, what the other firms may not tell you, is there is a price that goes along with submitting an Offer; not only to the firm you are paying to help with the submission, but also to the IRS. You must pay an application fee of $205 plus a 20% down payment on all cash Offers.
What if your Offer is rejected for one of the 12 reasons? Your application fee and down payment are kept by the IRS and applied toward your debt. No, you cannot ask for it to be returned or choose which year it be applied. The IRS will apply the payments in the best interest of, you guessed it, the IRS.
Filing an Offer in Compromise is serious business and should not be taken lightly. You need to be sure you are working with a firm that has YOUR best interests in mind and will advocate on your behalf. Do you trust the firm you are working with to review your last six months of bank statements, investments, paystubs or income sheets, utilities, mortgage payments or rent payments; that is only the beginning. Also, be sure the firm has weighed all your resolution options to ensure an OIC is right for you and your tax debt. Sometimes, it may not be the best option.
Bottom line, the answer to the question is the cost of an Offer in Compromise all depends on the complexity of the application and who you hire to help you through this process.
If you feel that you may be in over your head, or just want to get a second opinion, let’s set up a short call. To avoid the back and forth emails and phone tag, I have included a link to my Calendar https://calendly.com/taxman/tax-problem-resolution-initial-consultation. Let’s set up a 30 min. phone conference to get to know each other. The phone number to call is 855-829-5877 and my extension is 203.