IRS warns about false promises of 'pennies on the dollar' tax settlements
Not all that long ago, I received a text out of the blue offering to help me address those nasty "back taxes." I soon deleted it, knowing I don't have any old tax debt hanging over my head.
But recognizing that plenty of people are deep in tax debt, the scammers are once again aggressively pushing fake claims to solve all your tax woes for "pennies on the dollar."
The Oct. 15 tax deadline is around the corner for many who requested extensions for filing their 2023 returns. And yes, some are once again receiving notices about their tax debt in 2024.
Want to settle for less with the IRS?
If you're drowning in tax debt, you might be tempted by a text that asks if you want to settle for less with the IRS.
The Internal Revenue Service, though, is warning that unscrupulous "mills" are popping up again to market false claims of guaranteed tax settlements. You might spot an ad or get a text.
High-cost offer in compromise "mills” will aggressively mislead taxpayers into thinking their tax debts can disappear, according to IRS alerts. Such scams often refer to a "Fresh Start" program.
The Offer in Compromise is indeed a legitimate program offered through the IRS to settle a tax debt for less than the full amount owed. But it's an option that won't work for everyone. It's a very last resort.
First, you'd need to see if you can pay the full amount you owe with an IRS payment plan. See IRS.gov/paymentplan to see how to work out a possible installment agreement or other plan to pay off your balance over time.
Some installment agreements and payment plans are available at no cost through the IRS and can help many people. You can apply online at IRS.gov. See IRS.gov/payments/online-payment-agreement-application for details. The IRS notes that your specific tax situation will determine which payment options are available to you.
If you cannot pay, the IRS offer in compromise program might be an option. It applies to people who are unable to pay their full tax liability, or those who would see a financial hardship by paying that tax debt in full. The IRS isn't willing to take less if you can indeed afford to pay more.
In fiscal year 2023, taxpayers proposed 30,163 offers in compromise to settle existing tax liabilities for less than the full amount owed. The IRS noted that it accepted less than half of those offers — or 12,711 offers.
Watch out for false promises
Even if you get a text promising to settle your tax debt, you're not guaranteed to be able to settle that debt.
If you jump at the chance to work with an outside promoter, you could be looking at paying thousands of dollars in fees for something you might never get. And you're not going to see a refund on that money. Some who promise "money-back guarantees" fail to deliver.
More: IRS extends Oct. 15 tax deadline for states hit by hurricanes, severe weather
Some consumer watchdogs warn that the fine print in some contracts with tax relief companies could differ a great deal from what you're promised on the phone. You might be convinced that you'll only be charged one upfront fee, but the contract might put you on the hook for paying more fees if more services are needed.
You're far better off researching an offer in compromise and obtaining information for free on your own. You can use the IRS's Offer in Compromise Pre-Qualifier tool. You can find the IRS booklet detailing its offer in compromise program at www.irs.gov/oic.
The pre-qualifier tool asks you things like if you're in an open bankruptcy proceeding, if you've paid all required estimated tax payments, and the like.
For example, if you or your business are involved in an open bankruptcy proceeding, you are not eligible to apply for an IRS offer in compromise. The IRS says you can file an offer once the bankruptcy is discharged and closed.
Another key tip: The IRS is typically not going to accept an offer in compromise, if you can pay your tax debt in full through an installment agreement or unloading the equity you've built up in other assets. Some relatively minor adjustments or exclusions of your assets can be considered as the IRS investigates the offer.
The aggressive marketing efforts by offer in compromise mills might include a sales pitch that states that tax authorities won’t work with you, and that's why you need the help of a tax relief company. But tax experts say that's not the case.
More: IRS doubles number of states eligible for its free Direct File for tax season 2025
More debt can trigger more scams
Why might we be getting such texts now? More people could be worrying about their debt, including their tax bills.
George Smith, a CPA with Andrews Hooper Pavlik in Bloomfield Hills, said many people were surprised that they received an IRS notice in 2024 after some collection efforts were suspended during the pandemic.
This year, the IRS resumed the automatic reminders and provided an update on your outstanding balance and options to resolve the debt. Taxpayers who receive a reminder letter from the IRS don't want to just toss it to the side. You'd want to bring it to the attention of their tax preparer as soon as possible.
"The IRS didn't send out collection notices for a few years," Smith said. "That didn't make things go away. They just didn't send notices out."
"What's one debt that's going to go 'out of sight, out of mind,' if you don't get a notice?" Smith asked.
"The IRS," he said.
"Now all of a sudden, it's like 'I'm back.'"
Too often, Smith said, people will research complicated tax issues, such as a way to reduce their tax debt, simply by shopping around online for the answer they want, not necessarily focusing on the potential outcomes. And many times, people do not fully understand all the nuances involved with an offer in compromise.
Complicated challenges, of course, only make it easier for the less scrupulous to take advantage of those struggling with tax debt.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
This article originally appeared on Detroit Free Press: IRS warns about empty promises made to those worrying about tax debt