Gregg wrote:Am I wrong?
Pretty much on target. In my experience "offer mills" charge a hefty up-front fee to their clients to represent them for the submission of the offer (OIC). I have seen situations where the fee was $10,000 or more.
I'm assuming the typical "results not typical" but are they really getting these kinds of results?
They can get these kinds of results, if the taxpayer's circumstances meet the criteria the IRS deems to be an acceptable offer: that the IRS cannot legally collect more than the what the taxpayer is offering. Of course it depends on how the taxpayer's circumstances are presented by the taxpayer and/or their representative.
Is this just OIC cases, which can honestly be done by a moderately intelligent person?
I would guess, in the case of the Optima ads, they are aiming at the OIC market, but I know that Optima also will work out installment agreements, getting the tax account reported as hardship or point the client towards a bankruptcy. I don't know if Optima will represent a client in a bankruptcy however.
I was just under the impression that an Offer In Compromise was dependent on the taxpayer not having anything to give the IRS.
Not always. If the taxpayer has the ability to pay something and/or has equity in assets, the IRS will accept an offer amount that is more than the equivalent of those payments and equity. Think back on the Willy Nelson offer-in-compromise - he did pay something based on his financial status.
If in such cases the vendor is getting 10% why is the IRS settling for $300 when the helper is getting $3400?
If the offer was legitimately acceptable at $300 because the taxpayer could only pay $300, then the representative's fees do not enter into the equation unless the IRS can show the fees were exorbitant and unreasonable and out of line with what other practitioners charge. This has been a long-running battle over the years with the IRS and taxpayers and their representatives. Back in the 1990's, some unscrupulous representatives were encouraging taxpayers to fully encumber their homes prior to submitting an offer to shield the taxpayer from the equity portion of the offer calculation; in some cases the reason given by the taxpayer for the loan was that they had to pay the rep his or her fee up front. Criminal Investigation began investigating and raiding some of the worst firms and effectively shut them down.
But even now, most firms require their fee paid up front (a good rule if you are going to have people who can't pay their bills as clients) and the IRS cannot punish the taxpayers or their reps for this practice.
(DO I need to be a CPA or a Registered Agent?)
To fully represent an taxpayer before the IRS, a rep has to be an licensed attorney, CPA or enrolled agent. In some cases a close relative of the taxpayer can represent the taxpayer or the employee of a business (office manager). This is true for offers, although unenrolled return preparers will attempt time and time again to submit offers for their clients and represent them.
Have a good tax attorney develop a template software generator, submit the data, pocket the fee and split it with me.
I think the problem with that model is if someone had written a successful template, they would have no need to have you in the picture and just keep the entire fee for themselves. I doubt that a successful template would ever work as a rubber stamp, since many taxpayers have unique circumstances or situations that have to be considered as well as just their bottom line. A template would not be able to interpret that and put a value on what ultimately becomes an IRS decision. As an example, you have an elderly couple who equity in their home and could actually full pay their tax liability by selling the house and turning over the proceeds. But the IRS had to address that circumstance in light of the overall public opinion of requiring the couple to effectively make themselves homeless. So the offer investigator, the offer manager and IRS counsel may have to consider accepting an amount less than that that will keep the couple from losing their home yet at an amount that will not make the public feel as though the couple evaded their responsibility.
Honestly, if I'm reading there business model right, its just finding scared people who want to get good with the government and walking them through the more or less straightforward process that the IRS set up to do yourself anyhow.
Yes, and that is why the ads get aired as you described. People tend to make mountains of their molehills, despite the fact that 97% of tax collection issues can be resolved by the taxpayer themselves. In addition, the traditional fear of the IRS and its powers only convinces people that they have to get an expert that can shield them from or defeat the IRS. And if the firm is promising pie-in-sky miracles about not having to pay, it makes it all the easier to sweep in the terrified. But I have talked to people who realized all too late that they paid for service that they could have easily done themselves once they looked back at the entire process.
How do you know if you are getting reputable and professional representation? If you are engaging with a representative and see the warning flags below, you may want consider terminating the agreement (although you may lose the fee that you paid):
(1) The firm requires you to prepare the collection information forms (CIS - either or both F-443-A and F433-B) that the IRS has requested.
A reputable firm will only ask that you provide your personal financial documents and verification and then will complete the form themselves. They will also contact you if they encounter areas on the form that they cannot complete because they need you to provide further information. If you are paying for them to do work, you should not be the one doing the work.
(2) The firm refuses to allow you to be present at any contact or conversation with the IRS
. A reputable firm will have no problem of you attending, though they may require you to agree to not talk or ask questions; they will also request the IRS agent to direct their questions to the rep rather than you and the IRS should agree to that. I would always recommend that a taxpayer attend at the least the first meeting in order to get an idea of where the IRS agent is heading in their investigation and to get an idea of how the rep firm is responding in representing them.
(3) If you start getting notices, levies and/or notices of liens filings despite the fact that the firm has promised your situation is resolved or nearing resolution
- this could be an indicator that the firm has failed to represent you properly and timely with the IRS. Most collection cases do not have to result in collection enforcement, but the IRS will act if they have set a deadline for some response or action on your part. If the representative has failed to meet that deadline, if they have gone out of their way in being obstructive or purposely delaying resolution, the end result will be you getting garnished and your assets being publicly noticed as being encumbered by a tax lien. A reputable firm will seek to avoid brinkmanship with the IRS and look for alternative constructive resolutions. Sometimes the filing of a lien notice cannot be avoided due to circumstances being present in your case, but the firm should recognize that and be able to tell you ahead of time that this is going to happen. And the firm should be cognizant of the collection due process rights you are provided to appeal those actions if they come about as well as advising you if this is worth the additional time and money it will cost to pursue.
(4) The firm starts asking for additional money during the investigation to represent you
. In some cases it is appropriate, especially if you wish to pursue an appeal or litigation - activities that are typically outside the normal range of collection representation. A reputable firm will know about how long it will take to resolve a case with the IRS for you and should not try to tack on additional fees just because it took a little longer. If the firm charges on an hourly basis, then they will provide a billing schedule that should detail and show exactly how long and what activity was required for that time charged. But if the rep keeps charging you for weekly conversations with the IRS and you see no end in sight, then there is a problem and you need to find out why.
(5) If you do not hear from your rep over a length of time or they fail to keep you updated on progress of your case
. In some cases silence from your rep could mean that the IRS has done nothing on their side of the fence. But even so, that does not mean time is on your side - interest and penalties are still accruing against you and the IRS will not forgive those penalties merely because they were working on other cases. A reputable firm will follow up with the IRS regularly and will keep you advised as to what the status of your case is.