Scam? The Tax Debt Compromise Program Phone Call

Few debts in life are as worrisome as tax debts owed. Thankfully, the IRS offers a federal program that can allow you to pay less than your total tax debt. But beware: Tax debt compromise program phone call scams exist that can fleece you out of money and result in identity theft.

It’s essential to be aware of tax debt relief phone call swindles and the bad actors behind these rip-offs. Get educated about the IRS offer in compromise and learn to distinguish legitimate contact from the IRS from con artists seeking to bilk you out of your money.

What Is the IRS Offer in Compromise?

An offer in compromise (OIC) is a federal program that enables you to pay less than the total amount of your tax debt to the IRS.

“If you cannot pay your entire tax bill, an offer in compromise may be your best alternative,”Lyle Solomon, a Rocklin, California-based principal attorney at Oak View Law Group and a financial expert, notes. “You can pay a lump sum in five months or choose a monthly payment option over 24 months. The IRS may accept the settlement amount with your promise to pay taxes on time as scheduled over the next five years.”

Case in point: Assume you have a tax debt of $90,000, and you apply for an OIC that would settle it in full for $10,000. The IRS may accept your offer. But you will be required to pay your taxes punctually over the following five years.

To qualify for the IRS OIC, you must meet eligibility criteria. These include a set of unique facts and circumstances, such as your ability to pay as well as your income, expenses, and asset equity.

“The IRS will generally approve an offer in compromise if your amount offered represents the most they can expect to collect within a reasonable time,” Solomon continues. “But to successfully qualify, you must ensure that you have filed all tax returns and made all necessary estimated tax payments for the current year.”

Your OIC is more likely to get approved if you have offered a sum equal to or above the reasonable collection potential (RCP). Your RCP is determined by your assets, including real property, automobiles, bank accounts, and future income after basic living expenses, according to Solomon.

You must also meet the IRS’ budget guidelines, also called the Collection Financial Standards.

“These outline what the IRS thinks you should be spending on housing, utilities, transportation, and other essentials. If you are over budget in any of these categories, the IRS typically won’t accept your offer in compromise,” says Kari Brummond, a tax preparer with TaxCure.com in Trumbull, Connecticut.

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Pros and Cons of the IRS Offer in Compromise

The obvious advantage of pursuing an OIC is getting out of tax debt for less than you owe.

“Getting an OIC accepted and paying the amount due results in the remaining IRS liability being wiped away. But this is only true if you stay current on tax return filing and pay your taxes punctually,” explains Beth Logan, an enrolled agent with Kozlog Tax Advisors in Chelmsford, Massachusetts.

Another benefit? You can avoid the seizure of your assets.

“If your tax debt isn’t paid correctly, the IRS can make you sacrifice your earnings and assets. But an offer in compromise can help you avoid IRS collection activities,” Solomon notes. “Upon acceptance, the IRS cannot seize your assets or earnings.”

On the flip side, the application process can be lengthy, and the rules involved can be strict.

“You must stay compliant with tax reporting over the next five years. If you miss a tax payment or don’t file a required return, the IRS can reverse the offer in compromise and demand full payment,” cautions Brummond. “Also, the IRS usually keeps any tax refunds you may earn in the year that the offer in compromise is approved.”

But perhaps the biggest downside is that it’s more challenging to get an OIC accepted than you think.

“Very few people actually qualify,” says Cliff Auerswald, president of All Reverse Mortgage in Orange, California. “The IRS offer in compromise isn’t a common solution for the average person or business. In fact, in 2017, only 25,000 entities qualified for the program out of the 16 million people and 3 million businesses that owed the IRS at that time. 

“There’s a reason very few people and businesses qualify: The program is designed for people who will never be able to pay off their tax debts with their future assets or income before the IRS runs out of time to collect these debts. This window is 10 years from the date the tax was assessed.”

Good Candidates for the IRS Offer in Compromise

If you lack sufficient income or assets to pay off your tax bills, you may be a good prospect for the OIC program.

“The offer in compromise program is meant for low-income taxpayers with few claimable assets,” Solomon continues.

Beware of Tax Debt Compromise Program Phone Call Scams

Here’s a sobering fact: Almost one in three Americans (59.4 million) reveal they were victimized by a phone scam between 2020 and 2021, per a report from Truecaller, with around 19% being fleeced more than once by these calls. Bad actors, including fraudsters masquerading as IRS representatives, tricked these victims out of more than $29 billion over that time.

Annoying rings on the phone from telemarketers and robocallers are one thing. Even worse are phony tax debt relief phone calls, warn the experts.

“Dishonest companies and scammers will go through tax lien notices looking for individuals who they know will be interested in the promises they make. These fraudsters promise to solve tax debt for pennies and remove interest fees. 

“They will contact their targets via phone calls, text messages, email, and direct mail,” says Brian David Crane, founder of CallerSmart, a North American reverse phone lookup service. “If you owe money to the IRS, know that scammers will likely target you.”

Solomon warns that swindlers are constantly on the lookout for potential victims.

“Many of them trick you into revealing your sensitive financial information,” he says.

Recognizing the red flags of tax relief fraud

Tax relief scammers use sophisticated methods to try to swindle taxpayers, but knowing how to spot a fraud could protect you. Here are five red flags to look out for: 

1. Unsolicited contact

Scammers often call, email, or text you to create a sense of urgency. But the IRS says it will never demand immediate payment using a specific payment method or without giving the taxpayer the opportunity to appeal. The IRS will typically mail a bill to taxpayers who owe money. 

2. Guaranteed results 

Legitimate tax relief programs do not guarantee outcomes. Be wary of tax debt relief programs that promise to settle your tax debt for pennies on the dollar. 

3. High-pressure tactics

If someone posing as the IRS or a tax relief program contacts you and tells you to act immediately, put up your guard. People tend to act hastily and without thinking twice when they’re scared, and scammers know this. The IRS, however, doesn’t impose such urgency. 

4. Hefty upfront fees

Be cautious of tax professionals asking for large upfront fees for their services. Some untrustworthy tax relief companies charge a fee to apply on the behalf of a taxpayer for OIC, even when they know that the IRS is likely to reject the applicant. 

5. Requests for personal information 

Scammers often ask taxpayers for Social Security numbers, bank details, or other sensitive information. But the IRS does not use text messages or social media to discuss personal tax issues, and does not email taxpayers asking for personal information. If you are contacted by someone claiming to be the IRS or a tax professional, hang up or do not answer. Contact the IRS directly. 

Avoiding Tax Debt Relief Phone Call Scams

Whenever you receive a call from someone offering to lower or eliminate your tax debt and penalties, be wary.

“The IRS will not call you unless they already have contacted you in other ways,” says Logan. “If you know you have a tax issue, you have received letters, and have reached back out to the IRS, you likely gave them your phone number – in which case they might call you with a follow-up. 

“But if you’ve never received any correspondence from the IRS about debt or if you don’t think you have an IRS issue, the call is likely a scam. In this case, don’t provide any information. Simply hang up.”

If in doubt about the call's legitimacy, you can also ask the caller to provide their details through the mail rather than over the phone.

“This is a dead-end for a con artist, who will probably hang up on you,” says Solomon.

Remember: Not many taxpayers will qualify for an IRS offer in compromise. You can check if you are eligible directly with the IRS at irs.treasury.gov/oic_pre_qualifier.

“If the caller asks you to pay for upfront fees for their services and claims that you automatically qualify for OIC, then it is highly likely you are dealing with a scammer,” says Crane.

If You’ve Been Scammed by a Tax Debt Compromise Program Phone Call

If you’ve paid money and/or revealed sensitive personal and financial information to someone you suspect of being a fraud, take steps quickly to report the incident.

“First, try reporting it to your local government. In the case of loss of money or leakage of sensitive information, notify your local authorities,” Solomon suggests.

It’s also strongly recommended to report the scam to your State Attorney General's office and the FBI at (202) 324-3000 or online at fbi.gov/contact-us/field-offices.

Next, report the event to the IRS.

“If you’ve already paid a company and now they are not living up to their promises, you can contact the IRS by completing a Form 14242, which reports suspects of abusive tax promotions or preparers,” Crane recommends.

Additionally, report the scam to the Federal Trade Commission and the Better Business Bureau, advises Brummond.

“Lastly, enlist the right expert if you have decided to seek legitimate help applying for an offer in compromise or making other arrangements on your unpaid tax liability. That means a certified public accountant, IRS enrolled agent, or tax attorney based in your area who has experience with your particular concern,” says Brummond. 

“These are the only professionals who can represent you in front of the IRS. And before committing to a company, make sure that one of these professionals will be assigned to handle your case – not an inexperienced salesperson.”

Steps to take if you suspect a tax scam

If you suspect you're dealing with a tax scammer, follow these steps:

1. Do not engage

If you receive a suspicious call, don't have any personal information. Hang up immediately. If you receive an email, text message, or message via social media, do not reply or open any attachments. 

2. Verify the contact

Don’t trust that someone is who they say they are, or that the number, email address, or social media handle they’re contacting you from is as it appears. Scammers nowadays use spoofing, a method in which they can make it seem like they’re contacting you from a legitimate source. Don’t engage, and reach out to the IRS directly.  

3. Report the scam

Report the incident to the IRS by following the agency’s reporting guidelines. This may involve reporting suspected tax fraud via Form 14242, as well as notifying the Federal Trade Commission (FTC) and the Better Business Bureau (BBB).